Statement outlining results, risks and significant changes in operations, personnel and program
1. Introduction
This quarterly financial report should be read in conjunction with the Main Estimates and Supplementary Estimates A. It has been prepared by management as required by section 65.1 of the Financial Administration Act and in the form and manner prescribed by Treasury Board. This quarterly financial report has not been subject to an external audit or review.
1.1 Authority, Mandate and Program Activities
Natural Resources Canada (NRCan) seeks to enhance the responsible development and use of Canada’s natural resources and the competitiveness of Canada’s natural resources products. We are an established leader in science and technology in the fields of energy, forests, and minerals and metals and use our expertise in earth sciences to build and maintain an up-to-date knowledge base of our landmass. NRCan develops policies and programs that enhance the contribution of the natural resources sector to the economy and improve the quality of life for all Canadians.1
Further details on NRCan’s authority, mandate and program activities can be found in Part II of the Main Estimates.
1.2 Basis of Presentation
This quarterly financial report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes NRCan’s spending authorities granted by Parliament, and those used by NRCan are consistent with the Main Estimates, Supplementary Estimates A, Operating Budget Carry Forward and Reimbursements from Treasury Board of eligible paylist expenditures for the 2011-2012 fiscal year. This quarterly 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.
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 in the form of statutory spending authority for specific purposes.
When Parliament is dissolved for the purposes of a general election, section 30 of the Financial Administration Act authorizes the Governor General, under certain conditions, to issue a special warrant authorizing the Government to withdraw funds from the Consolidated Revenue Fund. A special warrant is deemed to be an appropriation for the fiscal year in which it is issued.
NRCan uses the full accrual method of accounting to prepare and present its annual unaudited departmental financial statements that are part of the Departmental Performance Report. However, the spending authorities voted by Parliament remain on an expenditure basis of accounting.
2. Highlights of Fiscal Quarter and Fiscal Year To Date Results
This Departmental Quarterly Financial Report reflects the results of the second quarter of 2011-2012 in relation to the Main Estimates, Supplementary Estimates A, Operating Budget Carry Forward, and ongoing Reimbursements from Treasury Board for eligible paylist expenditures for which full supply was released.
Authorities
As per Table 1 and shown in Graph 1 below, as at September 30, 2011, NRCan had authorities available for use of $3,695 million in 2011-2012 compared to $4,498 million in 2010-2011 for a net decrease of $803 million.
Graph 1
Variances in Authorities as at September 30, 2011
The net decrease in authorities of $803 million from 2010-2011 to 2011-2012 is due to a decrease in operating expenditures authorities of $115.3 million, an increase in capital expenditures authorities of $3.9 million, a decrease in grants and contributions authorities of $610.1 million and a decrease in statutory authorities of $81.4 million.
A significant portion ($547 million) of the $803 million decrease is related to funding from Budget 2009 under the Economic Action Plan (EAP) which ended in 2010-2011 and attributable to the following programs:
- ecoENERGY Home Retrofit Grant Program for $389.9 million
- Investing in Canada’s Forest Sector for $107.3 million
- Modernizing Federal Laboratories initiative for $30.7 million
- Federal Contaminated Sites Action Plan for $8.7 million, and
- Clean Energy Fund for $10.4 million. This particular program has been funded until 2013-2014.
Another significant portion, $257.4 million, of the overall $803 million decrease in authorities is attributable to the following programs:
- Clean Energy Agenda (CEA), decrease of $105.6 million. The CEA ended in March 31, 2011. The CEA renewal was approved through Budget 2011. However, the funding is expected to be received once approved by Parliament in December 2011.
- Pulp and Paper Green Transformation program, decrease of $100 million. This decrease excludes the authorized transfer of $250 million in funding from 2010-2011 to 2011-2012 for program delivery
- Nova Scotia Offshore Revenue Account, decrease of $115.6 million offset by an increase of $52.7 million of the Newfoundland Offshore Petroleum Resource Revenue Fund which are caused by fluctuations in oil and gas prices and production levels
- Canada Foundation for Sustainable Development Technology, decrease of $20 million. NRCan has received authority to transfer the funding from 2010-2011 and from 2011-2012 to 2012-2013
- Strategic Review decrease of $20.9 million. The exercise was conducted in 2009-2010 and resulted in decreased funding in 2011-2012 for $9.4 million in operating authority, $10.6 million in grant and contributions authority and in $0.8 million in contributions to the employee benefit plans.
- ecoENERGY for Renewable Power, increase of $27 million. The increase of their funding profile for 2011-2012 is mainly due to all projects approved have been fully implemented and will be fully operated for the first year.
- Investment is Forestry Industry Transformation Program (IFIT), increase of $25 million. This increase between quarters is due to timing differences in funding being granted. In 2011-2012 funding had been granted as at September 30 while in 2010-2011 it was granted after September 30.
There were other relatively lower increases and decreases in other smaller departmental programs.
Expenditure by Standard Objects
Year-to-date spending represents $1,084 million or 29.3% of total funding available as opposed to $1,507 million or 33.5% million spent year-to-date at the same time last year. The year-to-date decrease of $423 million between 2011-2012 and 2010-2011 is attributable to cumulative decreases in expenditures highlighted below. The decrease is in part attributable to delay in spending given the deferred approval for new Budget authorities resulting from the election in May 2011.
During the second quarter of 2011-2012 departmental spending, as a percentage of total funding available for use, was comparatively the same as the related quarter in 2010-2011.
As shown in Table 2 and in Graph 2 below, personnel, professional and special services along with transfer payments are the most significant categories of expenditures. They represent 96.7% ($779.7 million) of the total departmental expenditures for the second quarter of 2011-2012 compared to 96.6% ($907.5 million) for the same quarter in 2010-11.
Graph 2
Variance in Expenditures for Significant Standard Objects as at September 30, 2011
Personnel expenditures increased by $17.9 million between the second quarters of 2010-2011 ($109 million) and 2011-2012 ($127 million). Ten million of that increase is explained by the payment in lieu of severance pay, issued to employees in the second quarter 2011-2012, which are attributed to collective bargaining agreements. These payments are eligible paylist expenditures to be recovered from Treasury Board, and $3 million has been recovered so far and is included in the authorities available for use in 2011-2012.
The decrease of $18.9 million expenditures in professional and special services between the second quarters of 2010-2011 and 2011-2012 is due to expenditures related to major 2010-2011 projects which include the following:
- the closing stages of the project definition phases of the Port Hope Area initiative in 2010-11 leading to the implementation phase
- the additional costs incurred in 2010-2011 for relocation of employees to the new CANMET Materials Technology Laboratory in Hamilton
- additional costs incurred in 2010-2011 for the expansion of the Polar Continental Shelf Program facilities in Resolute Bay, and,
- a reductions in expenditure levels in the Nuclear Legacy Liability Program (NLLP), which is a large remediation project, are the result of the extent of the activities being conducted this year compared to last year. It is however expected that the pace of expenditures under the NLLP will increase in the final two quarters of 2011-2012 and be comparable to 2010-2011.
Transfer payments decreased by $127.1 million between the second quarters of 2010-2011 ($724.8 million) and 2011-2012 ($597.8 million). The net decrease is in part attributable to the following:
- a decrease of $97.2 million (lower by $194.4 million year-to-date) in 2011-2012 under the Newfoundland Fiscal Equalization Offset Payment obligation for which the department had no further obligation after March 31, 2011
- obligations under the Atlantic Accord Acts which are affected by oil and gas prices and levels of production where payments were $86 million lower ($182 million lower at year-to-date) in the second quarter of this year compared to the second quarter of 2010-2011
- payments of $68 million ($150 million year-to-date) made in the second quarter of 2010-2011 for the ecoENERGY Home Retrofit Grant Program whereas in 2011-2012 renewed program payments are scheduled to commence in quarters 3 and 4
- an increase in payments in 2011-2012 in the Clean Energy Fund of approximately $18 million as more projects are underway, and
- an increase of $91 million in 2011-2012 in the Pulp and Paper Green Transformation Program, as a result of the increased authorities available in 2011-2012, as mentioned above.
3. Risks and Uncertainties
Like other departments, NRCan has had to absorb the impact associated with the operating budget freeze announced in Budget 2010 while mitigating the risks to the delivery of its core mandate. NRCan has been implementing the following actions in this respect:
- Some of the pressures were alleviated through attrition – not staffing vacant positions created by retirement combined with implementation of administrative efficiencies;
- Vigilant review was conducted on the salary and operating components of renewed programs, which overall received reduced budget allocations than historical spending levels, to ensure that they did not exceed spending authorities;
- All staffing actions were closely monitored to ensure budgets authorities were respected – in particular, new staffing actions were carefully reviewed to ensure that any vacant positions could be filled by employees potentially affected by Strategic Review and/or change in direction of program renewals; and
- Monitoring and reporting measures were enhanced to ensure reduced expenditure levels in the area of travel, hospitality and conferences.
In addition to addressing the operating budget freeze, the Department had to manage a different set of risks during the quarter ending September 30, 2011, compared to the same period last year. While one of the key risks in 2010-2011 was the uncertainties related to the renewal of programs that were ending in March 2011, a key area of attention this year has been the diligent implementation of the programs funded in the 2011 Federal Budget tabled in June 2011. Budget 2011 included more than $600 million over two years of new funding for NRCan.
This new context and the fact that Budget 2011 was tabled in June has had a timing impact on the launch of some NRCan programs. In addition, for projects based on partnership with external stakeholders, the lower than anticipated economic growth may in some cases affect the timing for industry to move ahead on joint research, development and demonstration projects. These external factors have raised some uncertainties related to the timelines for the implementation of affected NRCan programs.
As a result, during the second quarter, NRCan developed mitigation strategies to address possible changes to the spending profile of some programs. NRCan has paid close attention to these mitigation strategies in its mid-year review of overall departmental performance to ensure that the programs’ performance targets be met over the actual lives of the programs.
For the remaining part of the fiscal year, having this evolving context and new realities in mind, NRCan has processes in place to closely monitor its budget, timely implementation of measures funded in the 2011 Budget, and its human resource management strategy. More generally, to monitor program funding and expenditures on an ongoing basis, NRCan is building on its existing stewardship and oversight practices, including conducting comprehensive monthly analysis of trends and forecasting in salary expenditures and non-salary expenditures at both the departmental and sector level to ensure affordability and sustainability. These analyses continue to be key in the decision-making process to ensure the department remains within its approved resource levels.
Beyond the factors mentioned above, NRCan continues to manage its business in relation to the key operational, strategic and external risks identified in NRCan’s Corporate Risk Profile. During the second quarter, one change to the risk profile with positive financial implication was the successful divestiture of Atomic Energy of Canada Limited’s commercial division.
4. Significant Changes in Relation to Operations, Personnel, Programs
Since the first quarterly financial report published on August 29 2011, NRCan has initiated the launch of identified programs funded in Budget 2011. The majority of the Budget 2011 items for NRCan are to be considered in 2011-12 Supplementary Estimates (B) and voted by Parliament in December; therefore, they are not yet reflected in current authorities available for use. There have been no other significant changes in relation to operations, personnel and programs.
Approved by:
Serge P. Dupont
Deputy Minister
Bill Merklinger, CMA
Chief Financial Officer
November 22, 2011
Date signed
Ottawa, Canada
Table 1: Statement of Authorities (unaudited)
| (in thousands of dollars) | Fiscal year 2011-2012 | Fiscal year 2010-2011 | ||||
|---|---|---|---|---|---|---|
| Total available for use for the year ending* | Used during the quarter ended | Year-to- date used at |
Total available for use for the year ended* | Used during the quarter ended | Year-to-date used at | |
| March 31, 2012 | September 30, 2011 | quarter- end |
March 31, 2011 | September 30, 2010 | quarter-end | |
| Operating expenditures - Vote 1 | 735,253 | 177,054 | 336,075 | 850,562 | 197,060 | 355,704 |
| Capital expenditures - Vote 5 | 19,892 | 2,008 | 2,764 | 16,036 | 7,725 | 7,782 |
| Grants and contributions - Vote 10 | 1,267,523 | 250,575 | 298,628 | 1,877,636 | 198,216 | 325,515 |
| Budgetary statutory authorities | ||||||
| Contributions to the employee benefit plans | 58,743 | 29,372 | 29,372 | 57,568 | 9,595 | 23,987 |
| Minister of Natural Resources – Salary and motor car allowance | 78 | - | - | 79 | 13 | 39 |
| Newfoundland Fiscal Equalization Offset Payments ** | - | - | - | - | 97,190 | 194,377 |
| Payments to the Newfoundland Offshore Petroleum Resource Revenue Fund | 1,423,982 | 304,020 | 361,032 | 1,371,238 | 377,817 | 522,657 |
| Payments to the Nova Scotia Offshore Revenue Account | 179,663 | 37,402 | 50,625 | 295,300 | 49,030 | 71,316 |
| Grant to the Canada Foundation for Sustainable Development Technology | - | - | - | 20,000 | - | - |
| Contribution to the Canada/Newfoundland Offshore Petroleum Board | 6,825 | 4,078 | 4,078 | 6,500 | 1,736 | 4,022 |
| Contribution to the Canada/Nova Scotia Offshore Petroleum Board | 3,400 | 1,675 | 1,675 | 3,400 | 838 | 1,676 |
| Total Budgetary statutory authorities | 1,672,691 | 376,547 | 446,782 | 1,754,085 | 536,219 | 818,074 |
| Total Budgetary authorities | 3,695,359 | 806,184 | 1,084,249 | 4,498,319 | 939,220 | 1,507,075 |
* Includes only authorities available for use and granted by Parliament at quarter-end: Main & Supplementary Estimates A and Operating Budget Carry Forward. In addition, 2011-2012 includes reimbursements from Treasury Board of eligible paylist expenditures.
** Funding is received later in the year and matches expenditures
Table 2: Budgetary Expenditures by Standard Object (unaudited)
| (in thousands of dollars) | Fiscal year 2011-2012 | Fiscal year 2010-2011 | ||||
|---|---|---|---|---|---|---|
| Planned expenditures for the year ending* | Expended during the quarter ended | Year-to-date used at | Planned expenditures for the year ended* | Expended during the quarter ended | Year-to-date used at | |
| March 31, 2012 | September 30, 2011 | quarter-end | March 31, 2011 | September 30, 2010 | quarter- end |
|
| Budgetary expenditures: | ||||||
| Personnel | 389,349 | 127,114 | 240,578 | 398,631 | 109,129 | 225,312 |
| Transportation and communications | 29,774 | 7,320 | 10,671 | 72,680 | 7,787 | 13,936 |
| Information | 7,197 | 687 | 861 | 32,104 | 894 | 1,223 |
| Professional and special services | 331,518 | 54,862 | 69,086 | 260,736 | 73,794 | 107,235 |
| Rentals | 11,204 | 4,981 | 6,990 | 21,732 | 7,559 | 10,166 |
| Repair and maintenance | 5,756 | 729 | 930 | 16,222 | 3,039 | 3,666 |
| Utilities, materials and supplies | 18,762 | 4,611 | 6,634 | 43,534 | 4,678 | 7,330 |
| Acquisition of land, buildings and works | 19,892 | 4,158 | 4,914 | 16,036 | 3,148 | 3,202 |
| Acquisition of machinery and equipment | 28,078 | 3,344 | 4,156 | 78,734 | 3,258 | 4,788 |
| Transfer payments | 2,881,393 | 597,752 | 716,038 | 3,574,074 | 724,827 | 1,119,565 |
| Other subsidies and payments | 6,348 | 7,804 | 33,126 | 18,368 | 8,254 | 24,026 |
| Total gross budgetary expenditures | 3,729,271 | 813,361 | 1,093,984 | 4,532,851 | 946,366 | 1,520,448 |
| Less: | ||||||
| Revenues netted against expenditures | 33,912 | 7,177 | 9,735 | 34,532 | 7,146 | 13,373 |
| Total net budgetary expenditures | 3,695,359 | 806,184 | 1,084,249 | 4,498,319 | 939,220 | 1,507,075 |
* - Includes only Authorities available for use and granted by Parliament at quarter-end: Main & Supplementary Estimates A