Quarterly Financial Report Outlining Results, Risks and Significant Changes in Operations, Personnel and Programs — For the Quarter Ended December 31, 2022

1. Introduction

This Quarterly Financial Report (QFR) has been prepared by management as required by section 65.1 of the Financial Administration Act, in the form and manner prescribed by the Treasury Board. This document should be read in conjunction with the Main Estimates and Supplementary Estimates for fiscal year 2022–23.

1.1 Our organization

Innovation, Science and Economic Development Canada (ISED) works with Canadians in all areas of the economy and in all parts of the country to improve conditions for investment, enhance Canada's innovation performance, increase Canada's share of global trade and build a fair, efficient and competitive marketplace.

ISED helps Canadian businesses grow, innovate and expand so they can create good-quality jobs and wealth for Canadians. It also supports science research and the integration of scientific considerations into investment and policy choices. The Department helps small businesses grow through trade and innovation and promotes increased tourism in Canada. The Department also works to position Canada as a global centre for innovation where investments support clean and inclusive growth, the middle class prospers through more job opportunities and companies become global leaders.

As Canadians cope with the remaining effects of the global COVID-19 pandemic together, ISED is committed to fostering conditions for investment, enhancing Canadian innovation, and driving growth in key sectors to equip the department for new global challenges. ISED and its Portfolio partners will continue to work together to prepare the Canadian economy for the future through strategic actions and investments, including support for Canadian businesses as they adapt and grow in a digital economy.

A summary description of Innovation, Science and Economic Development Canada's core responsibilities can be found in Part II of the Estimates.

1.2 Basis of presentation

The authority of Parliament is required before moneys can be spent by the government. Approvals are given in the form of annually approved limits through appropriation acts or through legislation for specific purposes. The accompanying Statement of Authorities includes the department's spending authorities granted by Parliament, and those used by the department consistent with the Main Estimates and Supplementary Estimates (as applicable) for the 2022–23 fiscal year. This report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

As part of the departmental performance reporting process, ISED prepares its annual departmental financial statements on a full accrual basis in accordance with Treasury Board accounting policies, which are based on Canadian Generally Accepted Accounting Principles for the public sector. The spending authorities are voted by Parliament on an expenditure basis. Therefore, management has prepared this report using an expenditure basis of accounting.

The accompanying Statement of Authorities contains ISED's spending authorities granted by Parliament, which includes the 2022–23 Main and Supplementary Estimates as well as any adjustments, warrants and transfers.

This report has not been subject to an external audit or review. However, it has been reviewed by ISED's Departmental Audit Committee (DAC) in accordance with Treasury Board guidance. No material misstatements or omissions have been identified.

1.3. General Descriptions

The following descriptions are referred to throughout the report:

• Authority: Approvals from Parliament to spend up to a specific amount.
• Operating (Vote 1): Amount approved for the fiscal year for the Department to spend on salary and operating expenditures.
• Capital (Vote 5): Amount approved for the fiscal year for the Department to spend on capital purchases or for the construction of assets.
• Grants and Contributions (G&Cs) (Vote 10 and Statutory):
  • Vote 10: Amount approved for the fiscal year for the Department to provide Grants and Contribution (G&C) funding to prospective recipients.
  • Statutory: Amount approved through an existing Act of Parliament where additional annual approvals are not required by the Department to access G&C funding for recipients.
• Operating and Capital Carry Forward: Eligible funds lapsed in the previous fiscal year brought forward to the following year.
• Employee Benefit Plan (EBP): The department's contribution to public service employee benefit plans.
• Vote Netted Revenue (VNR): Authority to apply revenues earned by the organization to cover costs incurred for specific activities by that organization.
• Standard Object (SO): Classification or coding of transactions to permit the reporting of information about the nature of transactions in the Estimates and Public Accounts (i.e., personnel, professional and special services, and transfer payments).

2. Highlights of fiscal quarter and fiscal year-to-date (YTD) results

The increase of $1.1 billion in authorities available for use in 2022–23 versus 2021–22, is primarily the result of variances in the Grants and Contributions authorities and is attributable to additional funding for programs such as the Canada Digital Adoption Program (CDAP), the Biomanufacturing and Life Science Strategy, Mitacs; as well as increases in cash flow requirements related to the Universal Broadband Fund, the Digital Research Infrastructure Strategy and the Canadian Foundation for Innovation (CFI). These amounts were partially offset by program funding transferred to the Federal Economic Development Agency of Northern Ontario (FedNor). FedNor is a regional development agency that was an initiative of ISED. On August 10, 2021, FedNor was established as a stand-alone regional development agency for economic development in Northern Ontario.

Variances in Q3 (increase of $335.3 million) and year-to-date (increase of $409.0 million) authorities used are mainly due to timing differences of payments and/or variances in cash flow requirements as well as new program spending. The largest variances were for programs such as CFI, Sustainable Development Technology Canada, Mitacs Inc, the CDAP, and the Global Innovation Clusters Program (formerly the Innovation Superclusters Initiative). Although the percentage of G&Cs spending to date compared to the total authorities is currently low, it is similar to previous years (29% in 2022-23 v. 28% in 2021-22). Funding is committed to a project once a Contribution Agreement is signed, and funds are disbursed throughout its lifecycle. ISED programs often involve complex, large-scale projects that take many years to roll out. In many cases, payments do not begin until years after the initial project negotiations have begun. For these reasons, it is not unusual to report significant quarterly and annual variances between the funding profile and the disbursements.

2.1 Authorities available for use for the fiscal year and planned expenditures

ISED's current total authorities available for use are $5.9 billion in 2022–23, $1.1 billion higher than the same period in 2021–22. The variance is largely due to ISED receiving funding to help the Canadian economy recover from the impact of the COVID-19 pandemic. This is being achieved through several initiatives, including supporting industry through digital innovation, adoption and literacy, investments in Biomanufacturing and the expansion of rural broadband connectivity. This difference is shown by Graph 1, the Statement of Authorities and Table 1: Departmental Budgetary Expenditures by Standard Object.

The figures reported as available for use include amounts that have been approved for reprofiling ($1.6 billion) to future fiscal years. Some of the ISED grants and contributions programs involve complex, large-scale projects that can often take multiple years to roll-out. The payment timeframe depends on how quickly recipients can implement their projects and seek reimbursement. These complexities, combined with the impact of the COVID-19 pandemic, can cause changes in spending profiles. Therefore ISED continues to closely monitor its Gs&Cs planned expenditures and assess if funds will need to be reprofiled to future years to ensure better alignment between the funding and spending profiles.

Graph 1: Comparison of Total Net Budgetary Authorities Available for Use as of December 31, 2022 and December 31, 2021

The overall increase in total net budgetary Authorities available for use includes:

• G&Cs (Vote 10 and Statutory): $1.1 billion increase
• Net Operating Expenditures (Vote 1): $43.5 million increase
• Capital Expenditures (Vote 5): $24.0 million increase
• Other: $12.6 million increase
  • Employee Benefits Plan (EBP): $3.5 million increase
  • Canadian Intellectual Property Office (CIPO) Revolving Fund: $9.3 million increase
  • Other minor items: $0.2 million decrease

Variances for each type of appropriation are explained in detail throughout this document.

2.1.1 Highlights of Changes in Authorities Available for Use (2022–23 compared to 2021–22)

The following tables highlight the larger changes in authorities available for use, as reported in the Statement of Authorities (unaudited). Figures are presented in the following order:

• funding from recent budgets;
• funding from previous budgets; and/or,
• cash flow needs for recipients.

In some cases, programs have received funding from several different budgets and the funding may be in more than one section.

2.2 Authorities used to date and actual expenditures

Authorities used and actual expenditures for the third quarter of 2022–23 have increased by $335.3 million compared to the third quarter of 2021–22, while the year-to-date authorities used and actual expenditures have increased by $409.0 million when compared to the same periods last year. (Graph 2: Statement of Authorities; Table 1: Departmental budgetary expenditures by Standard Object). The variances occurred primarily in G&Cs and are largely attributable to the timing of payments and/or cash flow requirements as well as new program spending. As ISED enters into the last quarter, it is anticipated that additional reprofiles of authorities from 2022–23 to other years will be required to align the funding profile with the recipients' forecasted spending.

Graph 2: Comparison of Net Third Quarter Authorities and Year-to-date Authorities used and expended as of December 31, 2022 and December 31, 2021

By category, the authorities used and expended in the third quarter and year-to-date compared to the same time last year have changed as follows:

• G&Cs (Vote 10 and Statutory):
  • Q3 – $293.0 million increase
  • YTD – $332.5 million increase
• Net Operating Expenditures (Vote 1):
  • Q3 – $40.1 million increase
  • YTD – $78.6 million increase
• Other:
  • Capital Expenditures (Vote 5):
    • Q3 – $0.2 million decrease
    • YTD – $0.8 million increase
  • CIPO Revolving Fund:
    • Q3 – $0.1 million increase
    • YTD – $9.9 million decrease
  • Other minor items including EBP:
    • Q3 – $2.3 million increase
    • YTD – $7.0 million increase

Section 2.2.1 provides a detailed breakdown of the changes in authorities used year-to-date and for the third quarter.

2.2.1 Highlights of Changes in Authorities used for the Third Quarter and Year-to-date

The following tables highlight, by authority, the larger changes in authorities used, as reported in the Statement of Authorities: