Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended June 30, 2015

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 2015 (Budget 2015). 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 2015-16 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 2014-15 or 2015-16.

In fiscal year 2015-16, frozen allotments will be established by Treasury Board authority in departmental votes to prohibit the spending of funds identified as savings measures in Budget 2015. 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 2014-15 for savings measures in Budget 2014.

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, 2015, 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 2015-16 with those of 2014-15.

Authorities

As per Table 1, presented at the end of this document, and on Graph 1 below, as at June 30, 2015, NRCan has authorities available for use of $2,492.3 million in 2015-16 compared to $2,729.7 million as of June 30, 2014, for a net decrease of $237.4 million or 9%.

The decrease of $237.4 million in authorities in 2015-16 compared to 2014-15 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 increase of $47.9 million between the authorities available for use at the end of the first quarters of 2015-16 ($892.7 million) and 2014-15 ($844.8 million) is explained mainly by the following year-over-year changes:

Increases:

• $36.3 million for the Nuclear Legacy Liabilities Program as part of a planned adjustment to the program financial profile;
• $19.5 million for the United Nations Convention on the Law of the Sea (UNCLOS) - Mapping of the North Pole Program, as this funding was approved in fiscal year 2014-15 through Supplementary Estimates (B);
• $18.1 million for the Port Hope Area Initiative as part of a planned adjustment to the program financial profile;
• $5.3 million for the Federal Infrastructure Program, which is new in fiscal year 2015-16; and
• $4.3 million for the Geo-mapping for Energy and Minerals Program as part of a planned adjustment to the program financial profile.

Decreases:

• $20.3 million for the Stakeholder Engagement and Outreach Campaign to Build Prosperity for Canada - International Advertising Component, as the program sunsetted on March 31, 2015;
• $8.5 million for Advisory Services for the restructuring of Atomic Energy of Canada Limited, as part of a planned adjustment to the program financial profile; and
• $5.2 million for the transfers between Operating and Capital as part of an alignment exercise.

For Vote 5 capital expenditures, a net increase of $41.5 million between the authorities available for use at the end of the first quarters of 2015-16 ($54.3 million) and 2014-15 ($12.8 million) is explained mainly by the following year-over-year changes:

Increases:

• $38.6 million for the Federal Infrastructure Program, which is new in fiscal year 2015-16;
• $5.2 million for the transfers between Operating and Capital as part of an alignment exercise; and
• $1 million for the Targeted Geoscience Initiative, which was renewed in fiscal year 2015-16 through Supplementary Estimates (A).

Decreases:

• $4.2 million for the Revitalization of NRCan’s Satellite Station Facilities across Canada as the program sunsetted on March 31, 2015.

For Vote 10 grants and contributions, a net decrease of $137.4 million between the authorities available for use at the end of the first quarters of 2015-16 ($306.6 million) and 2014-15 ($444 million) is explained mainly by the following year-over-year changes:

Increases:

• $21 million for the Investments in Forest Industry Transformation Program due to a planned adjustment to the program financial profile.

Decreases:

• $99 million for the ecoENERGY for Biofuels Producer Incentive due to a planned adjustment to the program financial profile;
• $25 million for the grant to Sustainable Development Technology Canada for the Next Generation Biofuels Fund as the appropriated portion of the program sunsetted on March 31, 2015;
• $9.4 million for the Clean Energy Fund as part of a planned adjustment to the program financial profile;
• $6.5 million for the Grant to Sustainable Development Technology Canada for the Sustainable Development Technology Fund due to a planned adjustment to the program financial profile;
• $5.4 million for the Wind Power Production Incentive Program due to fact that the program concluded two contribution agreements with wind project developers during the preceding fiscal year. The decrease reflects a planned adjustment in the program financial profile; and
• $4.6 million for the ecoENERGY Innovation Initiative as part of a planned adjustment to the program financial profile.

For statutory items, a net decrease of $189.3 million between the first quarters of 2015-16 ($1,238.7 million) and 2014-15 ($1,428 million) is explained mainly by:

Increases:

• $6.5 million in the Nova Scotia Offshore Revenue Account as expectations at the time of Main Estimates were that less revenue will be collected in 2015-16 than in 2014-15.

Decreases:

• $118.2 million in the Newfoundland Offshore Petroleum Resource Revenue Fund as expectations at the time of Main Estimates were that more revenue will be collected in 2015-16 than in 2014-15;
• $79.3 million for the Canada Foundation for Sustainable Development Technology - Next Generation Biofuels Fund – Statutory as the expectation at the time of Main Estimates was that no statutory funding would be disbursed; and
• $1.3 million pertaining to the Crown Share Adjustment Payments for Nova Scotia Offshore Petroleum Resources due to a planned adjustment to the program financial profile.

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 June 30, 2015 amounts to $209.2 million or 8.4% of total funding available for the fiscal year, compared to $251.9 million or 9.2% for the same quarter last year. This decrease is mainly related to a decrease in transfer payments in 2015-16 compared to payments in 2014-15. 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.

The net increase of $2.0 million in personnel expenditures between the first quarters of 2015-16 ($104.9 million) and 2014-15 ($102.9 million) is mainly due to the timing of expenditures from one year to the next, with advances to other government departments being processed in the first quarter of 2015-16 instead of the second quarter, as was the case in 2014-15.

The net decrease of $9.2 million in expenditures for professional and special services between the first quarters of 2015-16 ($32 million) and 2014-15 ($41.2 million) is mainly explained by the following:

Decreases:

• $10.3 million for the Nuclear Legacy Liabilities Program, which is mainly due to the timing of a large payment which occurred in Q1 of 2014-15, whereas no payment was required in Q1 of 2015-16.

The net decrease of $24 million in expenditures for transfer payments between the first quarters of 2015-16 ($63.7 million) and 2014-15 ($87.7 million) primarily consists of:

Increases:

• $3.9 million due to the timing of expenditures from one year to the next for various programs.

Decreases:

• $26.3 million for the decrease in statutory Atlantic Offshore transfers resulting from the reduction in oil and natural gas prices; and
• $1.6 million for the Forest Innovation and Expanding Market Opportunities program due to a planned adjustment in the financial profile of the program.

In addition, the decrease of $11 million in the first quarter of 2015-16 ($2.7 million) compared to the first quarter of 2014-15 ($13.7 million) for “Other subsidies and payments” is mainly due to a one-time transition payment of $12.3 million for implementing salary payment in arrears by the Government of Canada in 2014-15.

3. Risks and Uncertainties

NRCan recognizes that a solid understanding of its risk environment is fundamental in achieving its strategic outcomes and maintaining operational efficiency and effectiveness. Within the confines of its mandate and the authority at its disposition, NRCan endeavours to respond to uncertainties, including opportunities, in the global and domestic contexts and their potential impacts on Canada’s natural resource sectors.

While the medium-term global demand for natural resources remains positive, Canada’s growth in 2015 is expected to be lower than initially projected due to the significant drop in oil prices and a recent slowdown in global economic growth. For the Department, this means closely monitoring the impacts of these developments on the achievement of the government’s priorities in resource-related infrastructure, market development and environmental performance, and, to the extent possible, using its policies and programs to mitigate these impacts.

In addition to being responsive to its external context, NRCan also manages uncertainties regarding its future funding level and spending. On the funding front, a number of its programs are sunsetting, which will impact both its grants and contributions programs and its operating and capital budgets. With regard to spending, the Department is working to mitigate the costs related to unfunded collective bargaining. The Department 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 has taken steps to stabilize the funding for its internal services, while providing flexibility to adjust them as the size of the department evolves. NRCan further mitigates its financial risks by 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. Finally, NRCan continues to engage with central agencies to manage the financial uncertainty associated with the sunsetting of specific programs.

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

The appointment of a new Assistant Deputy Minister for the Earth Sciences Sector occurred in the first quarter of 2015-16.

No other significant changes in relation to operations, personnel or programs occurred during the first quarter of 2015-16.

Table 1: Statement of Authorities (unaudited)

(in thousands of dollars)

	Fiscal year 2015-16			Fiscal year 2014-15
	Total available for use for the year ending March 31, 2016*	Used during the quarter ended June 30, 2015	Used year-to-date at quarter-end	Total available for use for the year ending March 31, 2015**	Used during the quarter ended June 30, 2014	Used year-to-date at quarter-end
Vote 1 - Net Operating Expenditures	892,703	130,424	130,424	844,823	148,286	148,286
Vote 5 - Capital Expenditures	54,287	995	995	12,777	2,192	2,192
Vote 10 - Grants and Contributions	306,609	24,316	24,316	444,039	21,942	21,942
Statutory Payments
Minister of Natural Resources – Salary and motor car allowance	82	21	21	80	20	20
Contributions to employee benefit plans	56,645	14,083	14,083	55,168	13,792	13,792
Canada Foundation for Sustainable Development Technology Grant	-	-	-	79,338	-	-
Contribution to the Canada/Newfoundland Offshore Petroleum Board	8,835	2,209	2,209	7,756	2,209	2,209
Contribution to the Canada/Nova Scotia Offshore Petroleum Board	3,965	1,003	1,003	3,550	938	938
Payments to the Nova Scotia Offshore Revenue Account	74,752	1,649	1,649	68,216	6,721	6,721
Payments to the Newfoundland Offshore Petroleum Resource Revenue Fund	1,081,331	34,497	34,497	1,199,509	55,850	55,850
Crown Share Adjustment Payments for Nova Scotia Offshore Petroleum Resources	13,055	-	-	14,394	-	-
Total Statutory Payments	1,238,666	53,462	53,462	1,428,011	79,530	79,530
Total Budgetary Authorities	2,492,265	209,197	209,197	2,729,651	251,950	251,950

* 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 2015.
** 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 2014.

Table 2:  Budgetary Expenditures by Standard Object (unaudited) 

(in thousands of dollars)

	Fiscal year 2015-16			Fiscal year 2014-15
	Planned expenditures for the year ending March 31, 2016*	Expended during the quarter ended June 30, 2015	Year-to-date used at Quarter- end	Planned expenditures for the year ending March 31, 2015**	Expended during the quarter ended June 30, 2014	Year-to-date used at Quarter-end
Budgetary Expenditures:
Personnel	394,827	104,936	104,936	390,814	102,957	102,957
Transportation and communications	15,926	2,686	2,686	25,856	1,247	1,247
Information	12,915	494	494	9,871	714	714
Professional and special services	492,621	32,002	32,002	430,295	41,203	41,203
Rentals	15,276	4,052	4,052	17,123	3,376	3,376
Repair and maintenance	9,832	421	421	5,705	319	319
Utilities, materials and supplies	33,329	2,106	2,106	28,537	1,823	1,823
Acquisition of land, buildings and works	7,071	-	-	6,713	152	152
Acquisition of machinery and equipment	51,468	885	885	24,897	3,033	3,033
Transfer payments	1,488,547	63,674	63,674	1,816,802	87,660	87,660
Other subsidies and payments	5,532	2,655	2,655	8,089	13,714	13,714
Total Budgetary Expenditures	2,527,344	213,911	213,911	2,764,701	256,198	256,198
Less:
Total  Revenues Netted Against Expenditures	35,079	4,714	4,714	35,051	4,248	4,248
Total Net Budgetary Expenditures	2,492,265	209,197	209,197	2,729,651	251,950	251,950

* Planned expenditures do not reflect measures announced in Budget 2015.
** Planned expenditures do not reflect measures announced in Budget 2014.