Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended June 30, 2012

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 Economic Action Plan 2012 (Budget 2012). 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 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 resources sector to the economy and improve the quality of life of Canadians.

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 and Supplementary Estimates A for the 2012-2013 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. Budget 2012 was tabled in Parliament on March 29, after the tabling of the Main Estimates on February 28, 2012. As a result, the measures in Budget 2012 could not be reflected in the 2012-2013 Main Estimates.

In fiscal year 2012-2013, frozen allotments will be established by Treasury Board authority in departmental votes to prohibit the spending of funds identified as savings measures in Budget 2012. In future years, the changes to departmental authorities will be implemented through the Annual Reference Level Update, as approved by Treasury Board, and reflected in the subsequent Main Estimates tabled in Parliament.

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.

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

This Departmental Quarterly Financial Report reflects the results as at June 30, 2012, including Main Estimates and Supplementary Estimates A for which full supply was released. The details presented in this report focus on and compare the first quarter results of 2012-2013 with those of 2011-2012.

Authorities

As per Table 1, presented at the end of this document, and as shown in Graph 1 below, as at June 30, 2012, NRCan has authorities available for use of $2,820.6 million in 2012-2013 compared to $3,659.4 million in 2011-2012, for a net decrease of $838.8 million or 22.9%.

Graph 1

The decrease of $838.8 million in authorities in 2012-2013 compared to 2011-2012 is explained by the net effect of both decreases and increases within operating expenditures, capital expenditures, grants and contributions, and statutory authorities.

For operating expenditures, a net increase of $98.7 million in authorities is explained by the following year-over-year changes:

• an increase of $91.2 million for the Port Hope Area Initiative as part of a planned adjustment to the program financial profile;
• increases of $33 million for the ecoENERGY Efficiency program and $32.7 million for the ecoENERGY Innovation Initiative as these programs were announced in Budget 2011 and funding received in Supplementary Estimates B in 2011-2012;

These increases were offset by decreases of:

• $31.5 million as a result of the transfer to Shared Services Canada as part of the Administrative Services Review; and
• $13.1 million as part of a planned adjustment to the financial profile of the Clean Energy Fund.

For grants and contributions, a net decrease of $515.6 million in authorities is explained by the following year-over-year changes:

• a decrease of $538.6 million for the Pulp and Paper Green Transformation program as the three-year, $1 billion program terminated on March 31, 2012;
• a decrease of $48.1 million for the ecoENERGY Technology Initiative and $21.8 million for the ecoENERGY for Biofuels Producer Incentive, reflecting the adjusted profiles of these multi-year programs with variable annual commitments;
• a decrease of $17.4 million for the Non-reactor Based Isotope Supply program that sunset on March 31, 2012. Funds committed in Budget 2012 for the successor Isotope Technology Acceleration program will be reflected in Supplementary Estimates B;
• a decrease of $80.4 million from resources available in Vote 10 – Grants and Contributions due to a reprofiling of funds and used to reduce the amount of new appropriations required and identified in Supplementary Estimates A;

These were offset by increases of:

• $138 million for the Clean Energy Fund and $37.5 million for Sustainable Development Technology Canada (SDTC) for the Next Generation Biofuels Fund, reflecting adjustments to the financial profiles; and
• $27.9 million for the ecoENERGY Innovation Initiative as the program was announced in Budget 2011 and funding was received in Supplementary Estimates B in 2011-2012.

For statutory items, a net decrease of $418.6 million in authorities is explained largely by:

• decreases of $436.1 million in the Newfoundland Offshore Petroleum Resource Revenue Fund and $43.9 million in the Nova Scotia Offshore Revenue Account, caused by fluctuations in oil and gas prices and production levels;

Offset by:

• an increase of $59.3 million for the statutory grant to Sustainable Development Technology Canada for the Next Generation Biofuels Fund.

There are also smaller increases and decreases within the appropriated funding and in other statutory departmental programs.

Budgetary Expenditures by Standard Object

Year-to-date as at June 30, 2012, spending amounts to $259.3 million or 9.2% of total funding available, compared to $278.1 million or 7.6% at the same time last year. The year-to-date decrease of $18.8 million in expenditures between 2012-2013 and 2011-2012 is represented in Graph 2 below and in Table 2 at the end of this document across significant standard objects.

Graph 2

Personnel expenditures are comparable in the first quarter of 2011-2012 ($113.5 million) and 2012-2013 ($116.4 million). The net increase of $2.9 million is mainly related to salary advances provided to other government departments in relation to the multi-partite energy research and development programs such as the Program of Energy Research and Development and the ecoENERGY Innovation Initiative. In 2011-2012, payments by NRCan to partner departments were deferred to the second quarter as NRCan, along with other departments, was managing under a constrained Governor General Warrants cash management environment during the 2011 federal election period. These higher payments in 2012-2013 are offset by a decrease in salary explained by the transfer of 76 positions to Shared Services Canada as per the Order-in-Council (P.C. 2011-1297) signed on November 15, 2011 transferring responsibility for email, data centre and network services to the new agency.

The increase of $18.7 million in expenditures for professional and special services between the first quarter of 2012-2013 and 2011-2012 is explained by the following:

• $8.3 million for operating funding advances to other government departments under the Program of Energy Research and Development and the ecoENERGY Innovation Initiative as explained above for salaries;
• $6.3 million for contract work and payments under programs (e.g., the Nuclear Legacy Liability Program) approved by Parliament at the end of June 2011 that are more advanced in the first quarter of 2012-2013 than in the first quarter last year; and
• increases resulting from achievement of more contract milestones requiring payment in the first quarter of 2012-2013 as compared to the first quarter of 2011-2012 in such programs as Geo-mapping for Energy and Minerals, Targeted Geoscience Initiative 4 and the Polar Continental Shelf Program in Resolute Bay.

Transfer payments decreased by a net $19.7 million between the first quarters of 2012-2013 and 2011-2012, generally reflecting the changes in annual funding authorities previously explained.

3. Risks and Uncertainties

NRCan manages a number of risks, the most prominent of which are identified in its internal Corporate Risk Profile. A certain number of these risks are financial, including risks associated with financial forecasting and the use of a new financial management system (risks associated with the implementation of Budget 2012 measures are discussed in the section ‘Budget 2012 Implementation’). These risks are being monitored and managed on an ongoing basis and inform discussions and decisions at the senior management level.

Like other departments, NRCan has to manage within an environment of fiscal restraint while mitigating the risks to the delivery of its core mandate and commitments. NRCan has been implementing the following actions in this respect:

• Some of the pressures are alleviated through attrition – not staffing vacant positions created by retirement, combined with implementation of internal efficiencies;
• Vigilant review is conducted on all planned salary and planned operating expenditures;
• All staffing actions are closely monitored to ensure budget authorities are respected – in particular, new staffing actions are carefully reviewed to ensure that employees affected by fiscal restraint measures are considered first and that work force adjustment costs are therefore minimized; and
• Internal discipline and monitoring and reporting measures have been enhanced to ensure reduced expenditure levels in the areas of travel, hospitality and conferences.

NRCan is also closely monitoring its operating budget by conducting a comprehensive monthly analysis of trends and forecasting in salary expenditures and non-salary expenditures at both the departmental and sector levels to ensure affordability and sustainability.

Finally, NRCan is taking steps to ensure proper use of its new financial system, SAP. These include conducting comprehensive user training so that risks associated with user error are minimized and that reliable financial information is used to make informed decisions.

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

Information on the impact of Budget 2012 can be found in the section ‘Budget 2012 Implementation’ below. Budget 2012 measures are situated within a broader context of diminishing departmental resources, arising from a number of factors, including the anticipated sunsetting or reduction over time of a number of grants and contributions programs.

On November 15, 2011, an Order-In-Council (P.C. 2011-1297) was signed to transfer to Shared Services Canada the responsibility for providing email, data centre and network services from a number of organizations across the Government of Canada, including NRCan. This resulted in NRCan transferring 76 funded positions to Shared Services Canada. NRCan’s quarterly financial report ending June 30, 2012 no longer reflects expenditures related to the transferred services.

5. Budget 2012 Implementation

This section provides an overview of the measures announced in Budget 2012 which aims to refocus government and programs; make it easier for Canadians and business to deal with their government; and modernize and reduce the back office.

NRCan’s budget will be adjusted to implement ongoing annual savings of $107 million by 2014-2015. In achieving this, NRCan will be focussing on its core role and responsibilities. Internal corporate services will be reduced and NRCan’s organizational structure and operations will be streamlined.

In the first year of implementation, NRCan will achieve savings of $67.8 million. Savings will increase to $84.7 million in 2013-2014 and $107 million in 2014-2015 and future years.

In implementing these changes, NRCan has made it a priority to treat its employees with transparency and fairness. In cases where the Workforce Adjustment directive has been applied, NRCan is facing some level of uncertainty with respect to its salary forecasting due to options available to employees and implementation of the process straddling two financial years. This risk is being mitigated by the ongoing work of our Implementation Steering Committee chaired by the Deputy Minister and the Departmental Workforce Adjustment Committee.

Approved by:

Table 1: Statement of Authorities (unaudited)

(in thousands of dollars)	Fiscal year 2012-2013			Fiscal year 2011-2012
	Total available for use for the year ending* March 31, 2013	Used during the quarter ended June 30, 2012	Used year-to-date at quarter-end	Total available for use for the year ending* March 31, 2012	Used during the quarter ended June 30, 2011	Used year-to-date at quarter-end
Vote 1 - Net Operating Expenditures	797,950	145,604	145,604	699,342	159,021	159,021
Vote 5 - Capital Expenditures	16,597	238	238	19,892	756	756
Vote 10 - Grants and Contributions	751,919	6,645	6,645	1,267,523	48,053	48,053
Statutory Payments
Minister of Natural Resources – Salary and motor car allowance	78	19	19	78	-	-
Contributions to employee benefit plans	59,716	14,929	14,929	58,743	-	-
Grant to the Canada Foundation for Sustainable Development Technology	59,338	-	-	-	-	-
Payment to the Canada/Newfoundland Offshore Petroleum Board	7,756	1,909	1,909	6,825	-	-
Contribution to the Canada/Nova Scotia Offshore Petroleum Board	3,450	888	888	3,400	-	-
Payment to the Nova Scotia Offshore Revenue Account	135,846	8,427	8,427	179,663	13,224	13,224
Payment to the Newfoundland Offshore Petroleum Resource Revenue Fund	987,902	80,687	80,687	1,423,982	57,011	57,011
Total Statutory Payments	1,254,086	106,859	106,859	1,672,691	70,235	70,235
Total Budgetary Authorities	2,820,552	259,346	259,346	3,659,448	278,065	278,065

 

* Includes only authorities available for use and granted by Parliament at quarter-end: Main and Supplementary Estimates (A).
** Total available for use does not reflect measures announced in Budget 2012, except for the renewal of the Major Projects Management Office, which was included in Supplementary Estimates A and is included in the total available.

Table 2: Budgetary Expenditures by Standard Object (unaudited)

(in thousands of dollars)	Fiscal year 2012-2013			Fiscal year 2011-2012
	Planned expenditures for the year ending March 31, 2013	Expended during the quarter ended June 30, 2012	Year-to-date used at Quarter end	Planned expenditures for the year ending March 31, 2012	Expended during the quarter ended June 30, 2011	Year-to-date used at quarter-end
Budgetary Expenditures:
Personnel	402,004	116,418	116,418	386,403	113,464	113,464
Transportation and communication	39,241	2,620	2,620	26,600	3,351	3,351
Information	7,861	538	538	6,430	174	174
Professional and special services	358,284	32,934	32,934	309,972	14,224	14,224
Rentals	15,771	3,918	3,918	10,010	2,009	2,009
Repair and maintenance	6,434	280	280	5,142	201	201
Utilities, materials and supplies	21,935	2,117	2,117	16,762	2,023	2,023
Acquisition of land, buildings and works	16,597	-	-	19,892	756	756
Acquisition of machinery and equipment	31,987	658	658	25,085	812	812
Transfer payments	1,946,211	98,556	98,556	2,881,393	118,286	118,286
Other subsidies and payments	7,560	5,890	5,890	5,671	25,322	25,322
Total Budgetary Expenditures	2,853,885	263,929	263,929	3,693,360	280,622	280,622
Less:
Total  Revenues Netted Against Expenditures	33,333	4,583	4,583	33,912	2,557	2,557
Total Net Budgetary Expenditures	2,820,552	259,346	259,346	3,659,448	278,065	278,065

* Planned expenditures do not reflect measures announced in Budget 2012, except for the renewal of the Major Projects Management Office, which was included in Supplementary Estimates A and had started spending prior to June 30, 2012.