Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended June 30, 2013

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), and the Net Budgetary Authorities published on the Treasury Board Secretariat website, as well as Canada’s Economic Action Plan 2013 (Budget 2013). 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.^Footnote1

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 2013-14 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 2013 was tabled in Parliament on March 21, after the tabling of the Main Estimates on February 25, 2013, while 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 2013 could not be reflected in the 2013-14 Main Estimates and Budget 2012 was not reflected in the 2012-13 Main Estimates.

In fiscal year 2013-14, frozen allotments will be established by Treasury Board authority in departmental votes to prohibit the spending of funds identified as savings measures in Budget 2013. 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 2012-13 for savings measures in Budget 2012.

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 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, 2013, 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 2013-14 with those of 2012-13.

Authorities

As per Table 1, presented at the end of this document, and Graph 1 below, as at June 30, 2013, NRCan has authorities available for use of $2,779 million in 2013-14 compared to $2,820.6 million in 2012-13, for a net decrease of $41.6 million or 1.5%.

Graph 1

Text version - Graph 1

(in thousands of dollars)	Fiscal year 2012-2013 Total available for use for the year ended 31-Mar-13	Fiscal year 2013-14 Total available for use for the year ending 31-Mar-14
Vote 1 - Operating	798	800
Vote 5 - Capital	17	26
Vote 10 - Grants and contributions	752	639
Statutory	1,254	1,315
Total budgetary authorities	2,821	2,779

The decrease of $41.6 million in authorities in 2013-14 compared to 2012-13 is explained by the net effect of both decreases and increases within operating expenditures, capital expenditures, grants and contributions, and statutory authorities, as per the following.

For operating expenditures, a net increase of $1.4 million in authorities is explained mainly by the following year-over-year changes:

Increases:

• $34.5 million for the Nuclear Legacy Liabilities Program as part of a planned adjustment to the program financial profile;
• $11.5 million for the Advertising Campaign Program as it was reflected in Supplementary Estimates (B) in 2012-13;
• $11.2 million for the Forest Innovation Program and Expanding Market Opportunities Program as it was reflected in Supplementary Estimates (B) in 2012-13; and
• $1.3 million for the Isotope Technology Acceleration Program as it was reflected in Supplementary Estimates (B) in 2012-13.

Decreases:

• $20.7 million for the Geo-mapping for Energy and Minerals Program as it sunsetted on March 31, 2013;
• $18.9 million for the Budget 2012 Savings Measures that are not included in any specific programs mentioned in these operating expenditures as the amount was frozen after the first quarter of 2012-13;
• $16.1 million for the Port Hope Area Initiative as part of a planned adjustment to the program financial profile; and
• $2.6 million for the transfer to Capital Budget of existing NRCan funding for the Revitalization of NRCan’s Satellite Station Facilities across Canada.

For capital expenditures, a net increase of $8.9 million in authorities is explained mainly by the following year-over-year changes:

Increases:

• $15.1 million for the Revitalization of NRCan’s Satellite Station Facilities across Canada;
• $2.6 million for the transfer from Operating Budget of existing NRCan funding for the Revitalization of NRCan’s Satellite Station Facilities across Canada; and
• $0.4 million for the relocation of the CANMET Materials Technology Laboratory to Hamilton.

Decrease:

• $9.1 million for the construction of the Canadian Forces Arctic Training Centre in Resolute Bay, Nunavut, as the project was almost completed in 2012-13.

For grants and contributions, a net decrease of $113 million in authorities is explained mainly by the following year-over-year changes:

Increases:

• $37.9 million for the Forest Innovation Program and Expanding Market Opportunities Program as it was reflected in Supplementary Estimates (B) in 2012-13;
• $8.6 million for the Isotope Technology Acceleration Program as it was reflected in Supplementary Estimates (B) in 2012-13; and
• $7.6 million for the Investments in Forest Industry Transformation Program due to the reprofiling of funds from 2011-12 to 2013-14.

Decreases:

• $81 million for Clean Energy Fund is due to a planned adjustment to the program financial profile;
• $59.7 million for the ecoENERGY for Biofuels Producer Incentive, reflecting the adjusted profiles of this multi-year program with variable annual commitments;
• $12.5 million for the grant to Sustainable Development Technology Canada for the Next Generation Biofuels Fund, reflecting the adjusted profiles of this multi-year program with variable annual commitments;
• $6.4 million for the Budget 2012 Savings Measures that are not included in any specific programs mentioned in these grants and contributions as it was frozen after the first quarter of 2012-13; and
• $5.2 million for the Clean Energy Agenda - ecoENERGY Renewable Power Initiative related to the Budget 2012 Savings Measures.

For statutory items, a net increase of $61.1 million in authorities is explained mainly by:

Increases:

• $154.2 million in the Newfoundland Offshore Petroleum Resource Revenue Fund as expectations are that more revenue will be collected in 2013-14 than in 2012-13; and
• $22.5 million pertaining to the Crown Share Adjustment Payments for Nova Scotia Offshore Petroleum Resources as this is a new program for 2013-14.

Decreases:

• $59.3 million for the statutory grant to Sustainable Development Technology Canada for the Next Generation Biofuels Fund (SDTC) as SDTC’s cash flow does not require funding for 2013-14; and
• $56.5 million in the Nova Scotia Offshore Revenue Account, caused by fluctuations in oil and gas prices and production levels.

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

As at June 30, 2013, year-to-date spending amounts to $249.1 million or 9% of total funding available, compared to $259.3 million or 9.2% at the same time last year. The year-to-date decrease of $10.2 million in expenditures between 2013-14 and 2012-13 is represented in Graph 2 below and in Table 2 at the end of this document across significant standard objects.

Graph 2

Text version - Graph 2

(in thousands of dollars)	Fiscal year 2012-2013 Expended during the quarter ended 30-Jun-12	Fiscal year 2013-2014 Expended during the quarter ending 30-Jun-13
Personnel	116,418	107,740
Professional and special services	32,934	50,061
Transfer payments	98,556	78,037
Total gross budgetary expenditures	259,346	249,106

The decrease of $8.7 million in personnel expenditures between the first quarters of 2013-14 ($107.7 million) and 2012-13 ($116.4 million) is related mainly to delays in processing salary advances to other government departments in relation to the multi-party energy research and development programs such as the Program of Energy Research and Development and the ecoENERGY Innovation Initiative. In addition to the delayed salary payments, the net decrease of NRCan personnel expenditures is also attributed to work force adjustments as a result of the Budget 2012 Savings Measures.

The increase of $17.1 million in expenditures for professional and special services between the first quarters of 2013-14 ($50 million) and 2012-13 ($32.9 million) is mainly explained by the following:

Increases:

• $11.6 million for contract work and payments under programs (e.g., the Port Hope Area Initiative, Forest Innovation Program and Expanding Market Opportunities Program) that are more advanced in the first quarter of 2013-14 than in the first quarter last year;
• $8.2 million for the special payment to the US Department of Energy related to fees for repatriation of enriched uranium under the Nuclear Legacy Liabilities Program; and
• $1.3 million for the contracting and planning of environmental remediation work commenced in fiscal year 2012-13.

Decreases:

• $7.0 million for operating funding advances to other government departments under the Program of Energy Research and Development and the ecoENERGY Innovation Initiative as explained previously in the personnel expenditures section.

Additional increases resulted from achievement of more contract milestones requiring payment in the first quarter of 2013-14 as compared to the first quarter of 2012-13 with Public Works and Government Services Canada for Operations and Utilities and in Information Technology (IT) professional and special services (IT consultants, professional IT business analysts, and IT programmers) to help with Windows 7 deployment.

The decrease of $20.5 million in expenditures for transfer payments between the first quarters of 2013-14 ($78 million) and 2012-13 ($98.5 million), generally reflecting the changes in annual funding authorities previously explained, such as:

Decreases:

• $34.4 million for the payment to the Newfoundland Offshore Petroleum Resource Revenue Fund. This statutory payment mirrors royalty revenues collected in relation to offshore oil and gas activity and fluctuates based on oil and gas prices and production levels; and
• $6.5 million for the payment to the Nova Scotia Offshore Revenue Account. This statutory payment mirrors royalty revenues collected in relation to offshore oil and gas activity and fluctuates based on oil and gas prices and production levels.

Increases:

• $10.1 million for the Forest Innovation Program and Expanding Market Opportunities Program as it was reflected in Supplementary Estimates (B) in 2012-13;
• $8.3 million for the ecoENERGY for Biofuels program mainly due to delays in payment processing in 2012-13. Payments were made only in July 2012;
• $0.7 million for the ecoENERGY Renewable Power initiative due to increased production at the end of the previous fiscal year. Renewable energy resources production can vary significantly from quarter to quarter and from year to year; and
• $0.6 million for the Isotope Technology Acceleration Program as it was reflected in Supplementary Estimates (B) in 2012-13.

3. Risks and Uncertainties

NRCan manages a number of risks, the most prominent of which are identified in its Corporate Risk Profile. Some of these risks are financial, such as those arising from the delivery of large projects based on partnerships or grants and contributions programs. Risks associated with the implementation of Budget 2012 Savings Measures are discussed in the section ‘Budget 2012 Implementation’. These risks are being monitored and managed on an ongoing basis.

While Canada continues to outperform many of its peers in the G-7, the global economy remains volatile, impacting segments of Canada’s export-dependent resource sectors. This continues to affect the pace at which projects based on partnerships with external stakeholders and industry – including joint research, development and demonstration projects – can be implemented. NRCan has mitigated financial impacts by closely tracking program uptake, following best practices in accordance with the Financial Administration Act and requesting the reprofiling of funds, as required, to ensure program as well as fiscal objectives continue to be met.

NRCan continues to manage some uncertainty, albeit less than in previous quarters, related to employee departures and the provision of transition support measures as part of the implementation of Budget 2012 Savings Measures. This issue is compounded by the annual sunsetting of specific time-limited NRCan programs and corresponding impact on staff. NRCan mitigates the financial aspect of these risks through scenario planning, close tracking of workforce adjustment progress, and regular adjustments to its salary forecast. The Department continues to provide support to all of its employees affected by the Budget 2012 Savings Measures who have not yet secured an alternate position and wish to remain in the Public Service.

NRCan also continues to closely monitor its operating budget by conducting a monthly analysis of trends and forecasting in salary expenditures and non-salary expenditures, and comprehensive quarterly reviews, to ensure affordability and sustainability.

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

Effective April 2013, NRCan appointed a new Chief Financial Officer/Assistant Deputy Minister of the Corporate Management and Services Sector.

In addition to the new CFO, a number of promotions and transfers occurred at the Assistant Deputy Minister level, driven by promotion and retirement. This impacted the Science and Policy Integration Sector, the Minerals and Metals Sector, the Energy Sector and the Innovation and Energy Technology Sector.

The Office of Energy and Research Development was transferred from the Energy Sector to the Innovation and Energy Technology Sector.

5. Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012 that are being implemented in order to refocus government and programs; make it easier for Canadians and businesses to deal with their government; and, modernize and reduce the back office.

NRCan’s budget has been adjusted to implement ongoing annual savings of $107 million by 2014-15, together with annual savings of $5 million associated with the horizontal review of the International Assistance Envelope. In achieving these savings, NRCan will streamline corporate support to ensure sustainability and achieve internal efficiencies; focus on core roles and alignment with Government priorities; focus on work that provides clear economic benefits and adapts to changing industry circumstances; and scale back programs to maintain affordability. In the first year of implementation, NRCan achieved savings of $67.8 million. Savings increased to $84.7 million in 2013-14 and will rise to $107 million in 2014-15 and future years. In addition, annual savings of $5 million, which began in 2012-13, were achieved through the horizontal review of the International Assistance Envelope. In implementing these changes, NRCan has made it a priority to treat its employees in an equitable, transparent and respectful manner. The transition to a smaller workforce is largely complete and the department is supporting its employees still engaged in the adjustment process. A planning, monitoring and reporting framework for tracking implementation of Budget 2012 savings measures is in place. Progress on financial, HR and operational adjustments for specific savings initiatives is being tracked on a quarterly basis.

Other measures referenced in Budget 2012, which provided NRCan with renewed of new funding for a total of $162 million over two years, included:

• Supporting the Major Projects Management Office Initiative
  ($9 million to NRCan);
• Continuing the ongoing transformation of the forest sector through market development and innovation support ($105 million);
• Supporting the development of alternatives to existing medical isotope production technologies through the Isotope Technology Acceleration Program ($17 million);
• Revitalizing NRCan’s satellite station facilities across Canada ($23 million); and
• Supporting the Port Hope Area Initiative ($8 million).

Original signed by
____________________________
Serge P. Dupont
Deputy Minister

Original signed by
____________________________
Kami Ramcharan, CMA
Chief Financial Officer

August 21, 2013
Ottawa, Canada

August 21, 2013
Ottawa, Canada

Table 1: Statement of Authorities (unaudited)

(in thousands of dollars)	Fiscal year 2013-2014			Fiscal year 2012-2013
	Total available for use for the year ending March 31, 2014*	Used during the quarter ended June 30, 2013	Used year-to-date at Quarter-end	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
Vote 1 - Net Operating Expenditures	799,352	155,301	155,301	797,950	145,604	145,604
Vote 5 - Capital Expenditures	25,535	822	822	16,597	238	238
Vote 10 - Grants and Contributions	638,924	26,977	26,977	751,919	6,645	6,645
Statutory Payments
Minister of Natural Resources - Salary and motor car allowance	79	20	20	78	19	19
Contributions to employee benefit plans	59,957	14,927	14,927	59,716	14,929	14,929
Canada Foundation for Sustainable Development Technology Grant	-	-	-	59,338	-	-
Contribution to the Canada/Newfoundland Offshore Petroleum Board	7,756	1,913	1,913	7,756	1,909	1,909
Contribution to the Canada/Nova Scotia Offshore Petroleum Board	3,550	938	938	3,450	888	888
Payments to the Nova Scotia Offshore Revenue Account	79,339	1,969	1,969	135,846	8,427	8,427
Payments to the Newfoundland Offshore Petroleum Resource Revenue Fund	1,142,062	46,239	46,239	987,902	80,687	80,687
Crown Share Adjustment Payments for Nova Scotia Offshore Petroleum Resources	22,460	-	-	-	-	-
Total Statutory Payments	1,315,203	66,006	66,006	1,254,086	106,859	106,859
Total Budgetary Authorities	2,779,014	249,106	249,106	2,820,552	259,346	259,346

* Total available for use includes only authorities available for use and granted by Parliament at quarter-end through the Main Estimates and Supplementary Estimates (A) and does not reflect measures announced in Budget 2013.
** 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 2013-2014			Fiscal year 2012-2013
	Planned expenditures for the year ending March 31, 2014*	Expended during the quarter ended June 30, 2013	Year-to-date used at Quarter end	Planned expenditures for the year ending March 31, 2013**	Expended during the quarter ended June 30, 2012	Year-to-date used at Quarter-end
Budgetary Expenditures:
Personnel	404,149	107,740	107,740	402,004	116,418	116,418
Transportation and communication	39,679	2,539	2,539	39,241	2,620	2,620
Information	10,792	3,448	3,448	7,861	538	538
Professional and special services	336,497	50,061	50,061	358,284	32,934	32,934
Rentals	20,352	3,220	3,220	15,771	3,918	3,918
Repair and maintenance	8,110	190	190	6,434	280	280
Utilities, materials and supplies	32,288	2,207	2,207	21,935	2,117	2,117
Acquisition of land, buildings and works	24,982	-	-	16,597	-	-
Acquisition of machinery and equipment	33,682	2,380	2,380	31,987	658	658
Transfer payments	1,894,091	78,037	78,037	1,946,211	98,556	98,556
Other subsidies and payments	10,160	6,092	6,092	7,560	5,890	5,890
Total Budgetary Expenditures	2,814,782	255,914	255,914	2,853,885	263,929	263,929
Less:
Total Revenues Netted Against Expenditures	35,768	6,808	6,808	33,333	4,583	4,583
Total Net Budgetary Expenditures	2,779,014	249,106	249,106	2,820,552	259,346	259,346

* Planned expenditures do not reflect measures announced in Budget 2013.
**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.