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Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended December 31, 2018

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 any Supplementary Estimates approved in a given year by the date of this report, as well as Canada’s Budget 2018. 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) works to improve the quality of life of Canadians by ensuring that our natural resources are developed sustainably, providing a source of jobs, prosperity, and opportunity, while preserving our environment and respecting our communities and Indigenous peoples.

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 for the 2018-19 fiscal year, consistent with the Main Estimates, Supplementary Estimates (A) and allocations from Treasury Board central votes for the Operating and Capital budget carry forward and Budget Implementation. 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 money 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.

NRCan uses the full accrual method of accounting to prepare and present its annual unaudited departmental financial statements that are part of the departmental results reporting process. However, the spending 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 of December 31, 2018, which include Main Estimates, Supplementary Estimates (A) and allocations from the Budget Implementation Vote for which full supply was released, whereas the December 31, 2017 results include Main Estimates, Supplementary Estimates (A) and Supplementary Estimates (B). The details presented in this report focus on and compare the third quarter results of 2018-19 with those of 2017-18.

2.1 Authorities

As per Table 1, presented at the end of this document, and on Graph 1 below, as at December 31, 2018, NRCan has authorities available for use of $1,524 million in 2018-19 compared to $1,451.5 million as of December 31, 2017, for a net increase of $72.5 million or 5%.

Graph 1

Bar graph showing comparison of authorities as at December 31, 2018

Text version
Graph 1 Comparison of Authorities as at December 31, 2018
(in millions of dollars) Fiscal year 2017-2018
total available for use for the year ending
31-Mar-18
Fiscal year 2018-2019
total available for use for the year ending
31-Mar-19
Vote 1 - Operating 568 585
Vote 5 - Capital 69 32
Vote 10 - Grants and contributions 351 439
Statutory  464 468
Total budgetary authorities 1,452 1,524

The increase of $72.5 million in authorities in 2018-19 compared to 2017-18 is explained by the net change within Vote 1 operating expenditures, Vote 5 capital expenditures, Vote 10 grants and contributions, and statutory authorities. The following table provides a detailed explanation of these changes.

Changes to Voted and Statutory Authorities (2018-19 compared with 2017-18)
(in $000s)
Vote 1 - Operating
New and increased funding for the Green Infrastructure initiative 20,177
New funding for Impact Assessment and Regulatory Processes 9,966
New funding for Advancing Clean Technology 3,798
New funding for Green Construction Through Wood 2,306
New funding for the Impact Canada initiative 1,967
New funding for Protecting Jobs in Eastern Canada’s Forestry Sector (Spruce Budworm Early Intervention Strategy) 1,690
Reduction for retroactive payments related to collective bargaining disbursed in 2017-18 (10,427)
Reduction in funding year-over-year for the Federal Infrastructure Initiative (FII) as the program nears completion (5,977)
Transfers from Operating to Capital, as part of a planned increase in capital spending (5,907)
Reduction in funding year-over-year for the Geo-Mapping for Energy and Minerals Initiative (2,148)
Various minor net increases 1,879
Sub total Vote 1 - Operating 17,324
Vote 5 - Capital
Transfers from Operating to Capital, as part of a planned increase in capital spending 5,907
Proceeds from the sale of real property 4,900
Reduction in funding year-over-year for the FII as the program nears completion (45,956)
Decrease in Capital Budget Carry Forward (1,789)
Various minor net decreases (172)
Sub total Vote 5 - Capital (37,110)
Vote 10 - Grants & Contributions
New and increased funding for the Green Infrastructure initiative 58,722
New funding for Advancing Clean Technology 46,070
New funding for the Impact Canada initiative 26,283
New funding for Protecting Jobs in Eastern Canada’s Forestry Sector (Spruce Budworm Early Intervention Strategy) 9,200
New funding for the Implementation of the Indigenous Advisory and Monitoring Committees for Energy Infrastructure Projects 6,000
Increased funding for Adapting to the Impacts of Climate Change 5,000
Increased funding for Gunnar mine remediation due to reprofile from 2017-18 4,668
Increased funding for World Class Tanker Safety due to reprofile from 2016-17 2,100
Sunsetting of the Oil and Gas Clean Technology Program in 2017-18 (44,478)
Reduction in funding year-over-year for the Softwood Lumber Action Plan due to reprofile in 2017-18 (13,835)
Reduction in funding year-over-year for the ecoENERGY for Renewable Power program as the program nears completion  (12,875)
Various minor net increases 831
Sub total Vote 10 - Grants & Contributions 87,686
Statutory
Newfoundland Offshore Petroleum Resource Revenue Fund, as it was forecasted at the time of Main Estimates that more revenue would be collected in 2018-19 than in 2017-18, due to fluctuations in oil prices and variances in productionTable note * 5,140
Employee Benefit Plan (EBP) adjustments, due to increased salaries in 2018-19 compared to 2017-18, which was slightly offset by the EBP rate decrease in 2018-19 compared to 2017-18 2,100
Payments of the Crown Share Adjustment for Nova Scotia Offshore Petroleum Resources, as it reflects the declining production at the Sable Energy Project and its expected decommissioning by 2018-19 (1,380)
Nova Scotia Offshore Revenue Account, as it was forecasted at the time of Main Estimates that less revenue would be collected in 2018-19 than in 2017-18 due to variances in production and fluctuations in natural gas pricesTable note * (1,268)
Minister of Natural Resources – Salary and motor car allowance 2
Sub total Statutory 4,594
Total Variance 72,494

2.2 Budgetary Expenditures by Standard Object

The spending for the quarter ending December 31, 2018 amounts to $330.9 million or 22% of total funding available for the fiscal year, compared to $240.9 million or 17% for the same quarter last year. This increase of $90 million in spending is mainly related to an increase in expenditures for transfer payments in 2018-19 compared to the same type of expenditures in 2017-18, partially offset by a decrease in expenditures for Acquisition of land, buildings and works in 2018-19 compared to the same type of expenditures in 2017-18. Further analysis is presented in Graph 2 below for standard objects with significant expenses. Table 2 at the end of this document presents the spending for all standard objects.

Graph 2

Bar graph showing comparison of expenditures for significant standard objects as at December 31, 2018

Text version
Graph 2 Comparison of Expenditures for Significant Standard Objects as at December 31, 2018
(in thousands of dollars) Fiscal year 2017-2018
Expended during the quarter ended
31-Dec-17
Fiscal year 2018-2019
Expended during the quarter ended
31-Dec-18
Personnel 110,880 110,231
Professional and special services 25,851 27,782
Transfer payments  85,648 177,551
All Other Standard Objects 18,504 15,339
Total net budgetary expenditures 240,883 330,903

 

Variance in Budgetary Expenditures by Standard Object (2018-19 compared with 2017-18)

(in $000s)
Standard Object Explanation Variance between
2018-19 and 2017-18
Q3 expenditures
October 1 to December 31
Variance between
2018-19 and 2017-18
year-to-date expenditures
April 1 to December 31
Personnel The decrease in year to date salary spending is mainly due to the higher expenses incurred in Q2 last year related to retroactive payments and wage increases from collective bargaining settlements. This decrease is slightly offset by increases due to new hires to support new programs. (649) (12,738)
Professional and Special Services The increase in professional and special services is mainly due to contract renewals for existing programs, an increase in contracts related to new programs, increased services related to Information Management Technology transformation projects, as well due to increased real property repair projects in 2018-19. This is partially offset by a decrease related to FII, due to the majority of projects nearing completion. 1,931 4,437
Acquisition of land, buildings and works The decrease is related to FII, due to the majority of projects nearing completion.   (4,143) (9,167)
Transfer Payments The increase is mainly attributed to Statutory Atlantic Offshore transfers as a result of higher production and oil prices compared to last year. This is partially offset by a decrease in grants and contributions compared to last year due to some programs starting to end and contribution agreements expiring. 91,903 116,780
All Other Standard Objects The net increase is due to minor increases and decreases within different standard objects. 978 4,040
Total Variance   90,020 103,352

3. Risks and Uncertainties

NRCan recognizes that a solid understanding of its risk environment (both internal and external) is fundamental to the delivery of its mandate and fulfilment of its core responsibilities. Risk management equips the department to respond proactively to change and uncertainty by defining and understanding its operating environment and the factors that drive risk.  Risk considerations are integrated into strategic and operational decision- making, priority setting, and resource allocation in order to minimize potential negative impacts and maximize opportunities across the diverse range of services and operations.  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 confer significant large economic benefits, accounting for about 17% of Canada’s nominal Gross Domestic Product and the creation of 1.8 million jobs in 2017. Furthermore, our natural resources sectors inform Canada’s environmental performance. Our collective challenge 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 emissions.

During the third quarter of 2018-19, the department focused on managing its risks to advance priorities in the areas of energy infrastructure and market access, softwood lumber; regulatory review, Canada-U.S. relations (including aluminium and steel tariffs), clean technology, Indigenous reconciliation and Budget 2018 implementation, including funding for actions to support the Pan-Canadian Framework on Clean Growth and Climate Change. During this quarter, Canada, the United States and Mexico reached an agreement on NAFTA and signed the new Canada-United States-Mexico Agreement (CUSMA).

NRCan also managed uncertainties regarding its future funding level and spending. The Department continuously tracks program spending, following best practices that comply with the Financial Administration Act and requesting the reprofiling of funds, as required, to ensure program objectives continue to be met. NRCan pro-actively engages with central agencies to manage the financial uncertainty associated with the sunsetting of specific time-limited programs. The department also continues to assess ways to realign resources to address pressures and multi-year transformation initiatives. NRCan mitigates 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 monitor and integrate risk information into strategic and operational decision-making in support of advancing the prosperity of Canada’s natural resource sectors while also achieving environmental results through sustainable practices.

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

The appointment of Shawn Tupper as the Associate Deputy Minister of Natural Resources occurred in the third quarter of 2018-19.

Original signed by :

______________________________
Christyne Tremblay
Deputy Minister

February 25, 2019
Ottawa, Canada

 

______________________________
Cheri Crosby, CPA
Chief Financial Officer

February 18, 2019
Ottawa, Canada

 
Table 1: Statement of Authorities (unaudited)
(in thousands of dollars) Fiscal Year 2018-19 Fiscal Year 2017-18
Total available for use for the year ending March 31, 2019Table note * Used during the quarter ended December 31, 2018 Year-to-date used at quarter-end Total available for use for the year ending March 31, 2018Table note ** Used during the quarter ended December 31, 2017 Year-to-date used at quarter-end
Vote 1 - Net Operating Expenditures 584,916 135,994 395,345 567,592 127,380 392,677
Vote 5 - Capital Expenditures 32,072 3,182 8,606 69,182 13,503 25,633
Vote 10 - Grants and Contributions 438,821 42,092 99,673 351,135 49,659 116,346
Statutory Payments            
Minister of Natural Resources – Salary and motor car allowance 86 22 65 84 22 64
Contributions to employee benefit plans 56,614 13,904 41,710 54,514 13,350 40,051
Spending of amounts equivalent to proceeds from disposal of surplus crown assets - 4 4 - 56 56
Contribution to the Canada/Newfoundland Offshore Petroleum BoardTable note *** 8,835 (5,230) (2,023) 8,835 (2,257) 2,161
Contribution to the Canada/Nova Scotia Offshore Petroleum BoardTable note *** 4,355 (977) (414) 4,355 (44) 1,045
Payments to the Nova Scotia Offshore Revenue Account 5,356 62,279 64,702 6,624 2,241 5,802
Payments to the Newfoundland Offshore Petroleum Resource Revenue Fund 392,507 79,510 223,227 387,367 36,973 143,778
Crown Share Adjustment Payments for Nova Scotia Offshore Petroleum Resources 438 123 123 1,818 - 53
Total Statutory Payments 468,191 149,635 327,394 463,597 50,341 193,010
Total Budgetary Authorities 1,524,000 330,903 831,018 1,451,506 240,883 727,666

 

 

Table 2:  Budgetary Expenditures by Standard Object (unaudited)
(in thousands of dollars) Fiscal year 2018-2019 Fiscal year 2017-2018
Total available for use for the year ending March 31, 2019Table note * Expended during the quarter ended Dec 31, 2018 Year-to-date used at Quarter-end Total available for use for the year ending March 31, 2018Table note ** Expended during the quarter ended December 31, 2017 Year-to-date used at Quarter-end
Budgetary Expenditures:
Personnel 433,081 110,231 328,559 429,227 110,880 341,297
Transportation and communication 18,695 4,255 12,045 14,515 4,059 11,151
Information 7,045 1,243 2,851 5,524 1,303 3,274
Professional and special services 141,740 27,782 67,728 132,435 25,851 63,291
Rentals 18,550 2,001 11,618 33,315 (546) 10,739
Repair and maintenance 7,819 678 2,375 5,432 2,274 4,235
Utilities, materials and supplies 47,562 3,827 9,526 37,517 3,804 10,036
Acquisition of land, buildings and works 14,469 2,079 6,161 2,121 6,222 15,328
Acquisition of machinery and equipment 18,955 2,770 6,706 67,091 3,136 5,862
Transfer payments 850,312 177,551 385,041 760,133 85,648 268,261
Other subsidies and payments 2,897 3,123 10,992 2,661 3,019 10,670
Total Budgetary Expenditures 1,561,125 335,540 843,602 1,489,971 245,650 744,144
Less:            
Total  Revenues Netted Against Expenditures 37,125 4,637 12,584 38,465 4,767 16,478
Total Net Budgetary Expenditures 1,524,000 330,903 831,018 1,451,506 240,883 727,666

 

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