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Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended September 30, 2016

Statement outlining results, risks and significant changes in operations, personnel and programs

1. Introduction

This quarterly financial report should be read in conjunction with the Main Estimates and Supplementary Estimates (A), as well as Canada’s Budget 2016. 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 Programs

Natural Resources Canada (NRCan) seeks to enhance the responsible development and use of Canada’s natural resources and the competitiveness of Canada’s natural resource sectors. The Department is an established leader in science and technology in the fields of energy, forests, and minerals and metals, and applies its expertise in earth sciences to build and maintain an up-to-date knowledge base of Canada’s landmass. NRCan develops policies and programs that enhance the contribution of the natural resource sectors to the economy and improve the quality of life of Canadians.Footnote 1

Further details on NRCan’s authority, mandate and programs 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 and Supplementary Estimates (A) for the 2016-17 fiscal year. This quarterly report has been prepared using a special purpose financial reporting framework.

The authority of Parliament is required before monies 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.

As part of the Parliamentary business of supply, the Main Estimates must be tabled in Parliament on or before March 1 preceding the new fiscal year. As the Federal Budget is typically tabled around the same time as Main Estimates, measures announced in the Budget are not included in Main Estimates for either 2015-16 or 2016-17.   

In fiscal year 2016-17, frozen allotments will be established by Treasury Board authority in departmental votes to prohibit the spending of funds identified as savings measures in Budget 2016. The changes to departmental authorities for future years will be implemented through the Annual Reference Level Update, as approved by Treasury Board, and reflected in the subsequent Main Estimates tabled in Parliament. The same approach was taken in 2015-16 for savings measures in Budget 2015.

NRCan uses the full accrual method of accounting to prepare and present its annual unaudited departmental financial statements, which are part of the Departmental Performance Report. However, the expenditure authorities voted by Parliament remain on an expenditure basis.

2. Highlights of Fiscal Quarter and Fiscal Year-to-Date Results

This Departmental Quarterly Financial Report reflects the results as at September 30, 2016, including Main Estimates and Supplementary Estimates (A), for which full supply was released. The details presented in this report focus on and compare the second quarter results of 2016-17 with those of 2015-16.

Authorities

As per Table 1, presented at the end of this document, and on Graph 1 below, as at September 30, 2016 NRCan has authorities available for use of $1,715.0 million in 2016-17 compared to $2,523.2 million as of September 30, 2015, for a net decrease of $808.2 million or 32%.

Graph 1

Text version
Graph 1 Variances in Authorities as at September 30, 2016
(in millions of dollars) Fiscal year 2015-16
total available for use for the year ending
31-Mar-16
Fiscal year 2016-17
total available for use for the year ending
31-Mar-17
Vote 1 - Operating 924 541
Vote 5 - Capital 54 88
Vote 10 - Grants and contributions 307 284
Statutory  1,239 803
Total budgetary authorities 2,523 1,715

The decrease of $808.2 million in authorities in 2016-17 compared to 2015-16 is explained by the net effect of both increases and decreases within Vote 1 operating expenditures, Vote 5 capital expenditures, Vote 10 grants and contributions, and statutory authorities, as per the following:

For Vote 1 operating expenditures, a net decrease of $382.7 million between the authorities available for use at the end of the second quarters of 2016-17 ($541.0 million) and 2015-16 ($923.7 million) is explained mainly by the following year-over-year changes:

Decreases:

  • $395.2 million for the transfer of responsibility for the Nuclear Legacy Liabilities Program and Port Hope Area Initiative to Atomic Energy Canada Limited (AECL); and
  • $7.3 million for the Operating Budget Carry Forward as there were less authorities available to carry forward in 2016-17.

Increases:

  • $7.0 million for the transfers from Capital to Operating, as part of an alignment exercise; and
  • $5.0 million for the United Nations Convention on the Law of the Sea (UNCLOS) - Mapping of the North Pole, due to a planned adjustment to the program financial profile.

For Vote 5 capital expenditures, a net increase of $33.2 million between the authorities available for use at the end of the second quarters of 2016-17 ($87.5 million) and 2015-16 ($54.3 million) is explained mainly by the following year-over-year changes:

Increases:

  • $29.2 million for the Accelerated Infrastructure Program (AIP), as this program received additional funds via Budget 2016;
  • $6.1 million for the Enhancing National Earthquake Monitoring initiative, due to a planned adjustment to the program financial profile; and
  • $4.9 million for the Capital Budget Carry Forward as there were more authorities to carry forward in 2016-17.

Decreases:

  • $7.0 million for the transfers from Capital to Operating, as part of an alignment exercise.

For Vote 10 grants and contributions, a net decrease of $22.9 million between the authorities available for use at the end of the second quarters of 2016-17 ($283.7 million) and 2015-16 ($306.6 million) is explained mainly by the following year-over-year changes:

Decreases:

  • $25.7 million for the Climate Change Renewal, as the envelope - announced in Budget 2016- was at a lower level than that of 2015-16;
  • $22.0 million for ecoENERGY for Biofuels, due to a planned adjustment to the program financial profile; and
  • $13.6 million for the Wind Power Production Incentive Program, due to a planned adjustment in the program financial profile.

Increases:

  • $13.8 million for the Investments in Forest Industry Transformation Program, due to a planned adjustment to the program financial profile;  
  • $11.3 million for the Sustainable Development Technology Canada (SDTC) Sustainable Development Technology Fund, due to a planned adjustment to the program financial profile from $6.0 million in 2015-16 to $46.2 million in 2016-17, offset by a decrease of $28.9 million for the transfer of responsibility for SDTC to the Department of Innovation, Science and Economic Development via the 2016-17 Supplementary Estimates (A); and
  • $12.9 million for the Green Infrastructure, a group of new initiatives announced in Budget 2016.

For statutory items, a net decrease of $435.9 million between the authorities available for use at the end of the second quarters of 2016-17 ($802.8 million) and 2015-16 ($1,238.7 million) is explained mainly by:

Decreases:

  • $368.1 million in the Newfoundland Offshore Petroleum Resource Revenue Fund, as forecasts at the time of Main Estimates were that less revenue would be collected in 2016-17 than in 2015-16, due to lower oil pricesFootnote 2;
  • $59.9 million in the Nova Scotia Offshore Revenue Account, as forecasts at the time of Main Estimates were that less revenue would be collected in 2016-17 than in 2015-16 due to decreased production and lower natural gas prices2; and
  • $10.6 million pertaining to the Crown Share Adjustment Payments for Nova Scotia Offshore Petroleum Resources, due to a planned adjustment to the financial profile.

Increases:

  • $2.7 million in Employee Benefit Plan adjustment, as the rate increased in 2016-17 compared to 2015-16.

In addition to the above detail, other minor increases and decreases occurred within the appropriated funding and in other statutory departmental programs. 

Budgetary Expenditures by Standard Object

The spending for the quarter ending September 30, 2016 amounts to $341.0 million or 20% of total funding available for the current fiscal year, compared to $378.4 million or 15% for the same quarter of the previous fiscal year. This decrease of $37.4 million is mainly related to decreased expenditures for professional and special services and transfer payments in 2016-17 compared to 2015-16 for the same type of expenditures. Further analysis has been done on standard objects with significant expenses, which is represented on Graph 2 below, and Table 2 at the end of this document presents the spending for all standard objects.

Graph 2

Text version
Graph 2 Variance in Expenditures for Significant Standard Objects as at September 30, 2016
(in thousands of dollars) Fiscal year 2015-2016
Expended during the quarter ended
30-Sep-15
Fiscal year 2016-2017
Expended during the quarter ended
30-Sep-16
Personnel 102,485 101,451
Professional and special services 80,782 26,641
Transfer payments 164,183 174,724
All Other Standard Objects 30,952 38,173
Total net budgetary expenditures 378,402 340,989

The net decrease of $1.0 million in personnel expenditures between the second quarters of 2016-17 ($101.5 million) and 2015-16 ($102.5 million) is mainly explained by the following:  

Decreases:

  • $2.2 million related to the reduced staffing levels through attrition and departures, as well as the lower rates of pay for new staff; and
  • $0.3 million due to the transfer of employees associated with the AECL restructuring.

Increases:

  • $1.3 million related to new funding received in the second quarter for the Energy Innovation Program (EIP) announced in Budget 2016. In 2015-16, expenditures to other government departments were made in the first quarter under the previous program, whereas in 2016-17, these payments were made in the second quarter under the new EIP.

The net decrease of $3.8 million in personnel expenditures between the year-to-date expenditures at the end of the second quarters of 2016-17 ($203.6 million) and 2015-16 ($207.4 million) is related to a combination of factors including reduced staffing levels through attrition and departures, and the transfer of employees associated with AECL restructuring.

The net decrease of $54.2 million in expenditures for professional and special services between the second quarters of 2016-17 ($26.6 million) and 2015-16 ($80.8 million) is mainly explained by the following:

Decreases:

  • $58.3 million for the transfer of responsibility for the Nuclear Legacy Liabilities Program and Port Hope Area Initiative to AECL in 2015-16; and
  • $2.8 million due to completion of the operational phase of the Cold Stream Well Remediation initiative in 2015-16.

Increases:

  • $5.5 million related to the AIP due to the launch of AIP3, the new phase of the project, and the increase in expenditures due to the timing of payments related to AIP2, the existing phase, in comparison to the second quarter of 2015-16; and
  • $1.6 million due to the timing of expenditures to other government departments from one year to the next related to realty management services.

The net decrease of $67.5 million in expenditures for professional and special services between the year-to-date expenditures at the end of the second quarters of 2016-17 ($45.3 million) and 2015-16 ($112.8 million) is mainly due to the same reasons as above.

The net increase of $10.5 million in expenditures for transfer payments between the second quarters of 2016-17 ($174.7 million) and 2015-16 ($164.2 million) primarily consists of:

Increases:

  • $21.1 million for statutory Atlantic offshore transfers due to more payments being made in comparison to the second quarter of 2015-16; and
  • $4.0 million for the payment on a multi-year agreement for the Investment in Forest Industry Transformation program that was not in effect during the second quarter of 2015-16.

Decreases:

  • $4.7 million related to the ecoENERGY for Biofuels Program largely due to a reduction in active agreements as the program nears its closure, as well as proponents claiming less incentives due to challenging market conditions;
  • $4.1 million due to the timing of the receipt and processing of invoices;
  • $2.1 million for the Expanding Market Opportunities program, as there were lower claim requests in comparison to the second quarter of 2015-16;
  • $2.1 million related to the completion of the ecoENERGY Innovation Initiative; and
  • $1.3 million to the sun-setting of the Isotope Technology Acceleration Program in 2015-16.

The net increase of $12.7 million in expenditures for transfer payments between the year-to-date expenditures at the end of the second quarter of 2016-17 ($240.6 million) and 2015-16 ($227.9 million) is mainly related to the same reasons as above as well as the payments to SDTC made in the first quarter of 2016-17.

In addition to the above details, other minor increases and decreases were observed within different standards objects.

3. Risks and Uncertainties

NRCan recognizes that a solid understanding of its risk environment is fundamental to achieving its strategic outcomes and maintaining operational efficiency and effectiveness.  NRCan sees risk management as an essential element in developing and implementing efficient, effective and relevant policies, programs, science and technology and internal services. NRCan’s approach to risk management is codified in the Integrated Risk Management Policy Framework, which is aligned with the Treasury Board Framework for the Management of Risk.

Natural resources are at the nexus of Canada’s economic and environmental agendas. They bring large economic benefits, accounting for about 17% of Canada’s nominal gross domestic product and 1.75 million jobs. Furthermore, they are a contributing factor in Canada’s environmental performance.

Our collective challenge, which is also an opportunity, is to set and implement a plan that will ensure the growth of the resource sectors and the achievement of our goals in terms of the reduction of our greenhouse gas (GHG) emissions. At the Paris Climate Change Convention, Canada agreed that by 2030, it will reduce GHG emissions by 30 percent from 2005 levels. This challenge is significant and will be influenced by a variety of factors including market forces.

NRCan is closely monitoring the impacts of these and other developments and taking actions to ensure that our resource sectors remain a source of jobs, prosperity and opportunity in a world that values sustainable practices. In particular, NRCan is supporting the Minister in delivering on his mandate letter commitments. To this end, it has introduced new structures such as a stakeholder engagement unit and a Delivery and Results unit to help execute the Department’s policy agenda.

In addition to being responsive to its external context, NRCan also manages uncertainties regarding its future funding level and spending. The Department continues to manage the costs related to unfunded collective bargaining. In response, it tracks its financial risks through scenario planning, monthly analysis of trends and forecasting in both salary and non-salary expenditures, and comprehensive quarterly reviews.

NRCan will continue to integrate risk information into strategic and operational decision making.

4. Significant Changes in Relation to Operations, Personnel, Programs

The appointment of the Chief Financial Officer and Assistant Deputy Minister for the Corporate Management and Services Sector occurred in the second quarter of 2016-17.

No other significant changes in relation to operations, personnel or programs occurred during the second quarter of 2016-17.

Original signed by:

Christyne Tremblay
Deputy Minister

November 28, 2016
Ottawa, Canada

Cheri Crosby, CPA
Chief Financial Officer

November 17, 2016
Ottawa, Canada

Table 1: Statement of Authorities (unaudited)

(in thousands of dollars)
Fiscal year 2016-17 Fiscal year 2015-16
Total available for use for the year ending March 31, 2017* Used during the quarter ended September 30, 2016 Used year-to-date at quarter-end Total available
for use for the year ending March 31, 2016**
Used during
the quarter
ended September 30, 2015
Used year-
to-date at quarter-end
Vote 1 - Net Operating Expenditures 540,995 141,094 252,827 923,658 194,288 324,712
Vote 5 - Capital Expenditures 87,508 11,733 16,265 54,302 5,828 6,823
Vote 10 - Grants and Contributions 283,665 40,506 80,169 306,609 50,920 75,236
Statutory Payments
Minister of Natural Resources – Salary
and motor car allowance
84 12 19 82 20 41
Contributions to employee benefit plans 59,384 13,324 26,648 56,645 14,084 28,167
Spending of amounts equivalent to proceeds
from disposal of surplus crown assets
- 1 1 - - -
Canada Foundation for Sustainable
Development Technology Grant
- - 2,290 - - -
Contribution to the Canada/
Newfoundland Offshore Petroleum Board
8,835 4,418 4,418 8,835 2,209 4,418
Contribution to the Canada/Nova Scotia
Offshore Petroleum Board
4,013 - 2,178 3,965 1,118 2,121
Payments to the Nova Scotia Offshore
Revenue Account
14,828 2,322 2,944 74,752 7,630 9,279
Payments to the Newfoundland Offshore
Petroleum Resource Revenue Fund
713,253 125,972 147,056 1,081,331 89,984 124,481
Crown Share Adjustment Payments for Nova
Scotia Offshore Petroleum Resources
2,408 1,607 1,607 13,055 12,322 12,322
Total Statutory Payments 802,805 147,656 187,161 1,238,666 127,367 180,829
Total Budgetary Authorities 1,714,973 340,989 536,422 2,523,235 378,402 587,600

* Total available for use includes only authorities available for use and granted by Parliament at quarter-end through the Main Estimates, Supplementary Estimates (A), and carry forward from 2015-16, and  reflects some measures announced in Budget 2016.
** Total available for use includes only authorities available for use and granted by Parliament at quarter-end through the Main Estimates, Supplementary Estimates (A), and  carry forward from 2014-15, and reflects some measures announced in Budget 2015.

Table 2: Budgetary Expenditures by Standard Object (unaudited)
(in thousands of dollars) Fiscal year 2016-17 Fiscal year 2015-16
Planned expenditures for the year ending March 31, 2017* Expended during the quarter ended September 30, 2016 Year-to-date used at Quarter-end Planned expenditures for the year ending March 31, 2016** Expended during the quarter ended September 30, 2015 Year-to-date used at Quarter-end
Budgetary Expenditures:
Personnel 401,370 101,451 203,571 394,827 102,485 207,421
Transportation and communication 13,660 4,356 6,783 15,926 3,753 6,439
Information 9,126 1,252 1,806 12,915 765 1,259
Professional and special services 137,076 26,641 45,306 523,576 80,782 112,784
Rentals 32,969 9,545 13,660 15,276 9,561 13,613
Repair and maintenance 4,059 2,539 4,532 9,832 2,213 2,635
Utilities, materials and supplies 33,374 4,544 7,004 33,329 4,299 6,405
Acquisition of land, buildings and works 38,058 - - 7,071 465 465
Acquisition of machinery and equipment 51,451 4,322 5,453 51,483 2,377 3,262
Transfer payments 1,027,002 174,724 240,561 1,488,547 164,183 227,857
Other subsidies and payments 5,698 18,336 18,748 5,532 11,660 14,315
Total Budgetary Expenditures 1,753,843 347,710 547,424 2,558,313 382,542 596,454
Less:
Total  Revenues Netted Against Expenditures 38,870 6,721 11,002 35,079 4,140 8,854
Total Net Budgetary Expenditures 1,714,973 340,989 536,422 2,523,235 378,402 587,600

* Planned expenditures reflect some measures announced in Budget 2016.
** Planned expenditures reflect some measures announced in Budget 2015.

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