Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended June 30, 2017

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 2017. 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 are consistent with the Main Estimates and Supplementary Estimates (A) for the 2017-18 fiscal year. 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 at June 30, 2017, 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 2017-18 with those of 2016-17.

Authorities

As per Table 1, presented at the end of this document, and on Graph 1 below, as at June 30, 2017, NRCan has authorities available for use of $1,348.6 million in 2017-18 compared to $1,686.4 million as of June 30, 2016, for a net decrease of $337.8 million or 20%.

The decrease of $337.8 million in authorities in 2017-18 compared to 2016-17 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 $20.0 million between the authorities available for use at the end of the first quarters of 2017-18 ($497.4 million) and 2016-17 ($517.4 million) is explained mainly by the following year-over-year changes:

Decreases:

• $23.8 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;
• $4.8 million for the professional services reduction announced in Budget 2016; and
• $2.5 million for the sunsetting of the ecoENERGY for Biofuels program in 2016-17.

Increases:

• $6.2 million for the transfers from Capital to Operating, as part of a planned decrease in capital spending;
• $2.9 million for Marine Conservation Targets, due to a planned adjustment to the program financial profile; and
• $2.5 million for the Clean Growth and Climate Change programs, due to a planned adjustment to the program financial profile.

For Vote 5 capital expenditures, a net decrease of $26.8 million between the authorities available for use at the end of the first quarters of 2017-18 ($55.8 million) and 2016-17 ($82.6 million) is explained mainly by the following year-over-year changes:

Decreases:

• $14.7 million for the Federal Infrastructure Initiative, due to a planned adjustment to the program financial profile;
• $6.2 million for the transfers from Capital to Operating, as part of a planned decrease in capital spending; and
• $6.1 million for the Enhancing National Earthquake Monitoring initiative, due to a planned adjustment to the program financial profile.

For Vote 10 grants and contributions, a net increase of $49.2 million between the authorities available for use at the end of the first quarters of 2017-18 ($332.9 million) and 2016-17 ($283.7 million) is explained mainly by the following year-over-year changes:

Increases:

• $66.8 million for the Clean Growth and Climate Change programs, due to a planned adjustment to the program financial profile;
• $34.5 million for the Green Infrastructure envelope (i.e., Electric Vehicle Demonstrations and Deployment), due to a planned adjustment to the program financial profile; and
• $7.0 million for the Youth Employment Strategy, as this program received additional funding in Budget 2017.

Decreases:

• $25.1 million for the sunsetting of the ecoENERGY for Biofuels program in 2016-17;
• $18.4 million for the ecoENERGY for Renewable Power program, due to a planned adjustment to the program financial profile; and,
• $17.3 million for the Sustainable Development Technology Canada (SDTC) Sustainable Development Technology Fund, due to the transfer of responsibility for SDTC to the Department of Innovation, Science and Economic Development.

For statutory items, a net decrease of $340.2 million between the first quarters of 2017-18 ($462.6 million) and 2016-17 ($802.8 million) is explained mainly by:

Decreases:

• $325.9 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 2017-18 than in 2016-17, due to fluctuations in oil prices and variances in production^{Footnote 1};
• $8.2 million in the Nova Scotia Offshore Revenue Account, as forecasts at the time of Main Estimates were that less revenue would be collected in 2017-18 than in 2016-17 due to variances in production and fluctuations in natural gas prices^{Footnote 1}; and
• $5.9 million in Employee Benefit Plan adjustment, as the rate decreased in 2017-18 compared to 2016-17.

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, 2017 amounts to $202.4 million or 15% of total funding available for the fiscal year, compared to $195.4 million or 12% for the same quarter last year. This increase of $7.0 million in spending is mainly related to an increase in expenditures for personnel in 2017-18 compared to the same type of expenditures in 2016-17. 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 $8.6 million in personnel expenditures between the first quarters of 2017-18 ($110.7 million) and 2016-17 ($102.1 million) is largely due to the timing of transfers issued to Other Government Departments for the Energy Innovation Program; personnel program spending that began after the first quarter last fiscal year, but at the beginning of this fiscal year; retroactive payments and wage increases arising from collective bargaining settlements; and new hires supporting various programs.

There is no significant variation in expenditures for professional and special services between the first quarters of 2017-18 ($18.6 million) and 2016-17 ($18.7 million).

The net increase of $2.2 million in expenditures for transfer payments between the first quarters of 2017-18 ($68.0 million) and 2016-17 ($65.8 million) primarily consists of:

Increases:

• $20.9 million for statutory Atlantic offshore transfers as a result of higher production and increased oil prices; and,
• $1.7 million for the ecoENERGY for Renewable Power program due to increased production which lead to higher incentive payments in 2017-18.

Decreases:

• $19.6 million for payments made in the first quarter of 2016-17 to SDTC, a program whose responsibility was subsequently transferred to the Department of Innovation, Science and Economic Development; and,
• $0.7 million for Investments in Forest Industry Transformation and Expanding Market Opportunities due to the timing of claim requests between quarters.

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 16% of Canada’s nominal gross domestic product and 1.7 million jobs in 2016. Furthermore, they inform 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 emissions. During the first quarter, the department focused on managing its risks to advance priorities in the areas of softwood lumber; regulatory review, including modernization of the National Energy Board; Canada-U.S. relations; clean technology; Indigenous reconciliation; and Budget 2017 implementation, including funding for actions to support the Pan-Canadian Framework on Clean Growth and Climate Change.

NRCan 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 a new Assistant Deputy Minister for the Strategic Policy and Results Sector and a new Executive Director and General Counsel for NRCan’s Legal Services Unit occurred in the first quarter of 2017-18.

No other significant changes in relation to operations, personnel or programs occurred during the first quarter of 2017-18.

Original signed by:

Table 1:  Statement of Authorities (unaudited)  

(in thousands of dollars)	Fiscal year 2017-18			Fiscal year 2016-17
	Total available for use for the year ending March 31, 2018*	Used during the quarter ended June 30, 2017	Used year-to-date at quarter-end	Total available for use for the year ending March 31, 2017**	Used during the quarter ended June 30, 2016	Used year-to-date at quarter-end
Vote 1 - Net Operating Expenditures	497,392	117,558	117,558	517,355	111,733	111,733
Vote 5 - Capital Expenditures	55,781	3,465	3,465	82,589	4,532	4,532
Vote 10 - Grants and Contributions	332,870	23,294	23,294	283,665	39,663	39,663
Statutory Payments
Minister of Natural Resources – Salary and motor car allowance	84	21	21	84	7	7
Contributions to employee benefit plans	53,524	13,351	13,351	59,384	13,324	13,324
Canada Foundation for Sustainable   Development Technology Grant	-	-	-	-	2,290	2,290
Contribution to the Canada/  Newfoundland Offshore Petroleum Board	8,835	-	-	8,835	-	-
Contribution to the Canada/Nova Scotia  Offshore Petroleum Board	4,355	1,089	1,089	4,013	2,178	2,178
Payments to the Nova Scotia Offshore  Revenue Account	6,624	740	740	14,828	622	622
Payments to the Newfoundland Offshore  Petroleum Resource Revenue Fund	387,367	42,925	42,925	713,253	21,084	21,084
Crown Share Adjustment Payments for Nova  Scotia Offshore Petroleum Resources	1,818	-	-	2,408	-	-
Total Statutory Payments	462,607	58,126	58,126	802,805	39,505	39,505
Total Budgetary Authorities	1,348,650	202,443	202,443	1,686,414	195,433	195,433

* 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) which reflects some measures announced in Budget 2017.
** 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) which reflects some measures announced in Budget 2016.

Table 2:  Budgetary Expenditures by Standard Object (unaudited)

(in thousands of dollars)	Fiscal year 2017-18			Fiscal year 2016-17
	Planned expenditures for the year ending March 31, 2018*	Expended during the quarter ended June 30, 2017	Year-to-date used at Quarter-end	Planned expenditures for the year ending March 31, 2017**	Expended during the quarter ended June 30, 2016	Year-to-date used at Quarter-end
Budgetary Expenditures:
Personnel	395,879	110,721	110,721	401,370	102,120	102,120
Transportation and communication	13,028	2,805	2,805	13,660	2,427	2,427
Information	4,980	701	701	9,126	554	554
Professional and special services	99,119	18,563	18,563	113,436	18,665	18,665
Rentals	33,166	2,084	2,084	32,969	4,115	4,115
Repair and maintenance	5,333	1,250	1,250	4,059	1,993	1,993
Utilities, materials and supplies	36,987	1,955	1,955	33,374	2,460	2,460
Acquisition of land, buildings and works	2,121	2	2	38,058	-	-
Acquisition of machinery and equipment	53,669	946	946	46,532	1,131	1,131
Transfer payments	741,868	68,048	68,048	1,027,002	65,837	65,837
Other subsidies and payments	965	183	183	5,698	412	412
Total Budgetary Expenditures	1,387,115	207,258	207,258	1,725,284	199,714	199,714
Less:
Total  Revenues Netted Against Expenditures	38,465	4,815	4,815	38,870	4,281	4,281
Total Net Budgetary Expenditures	1,348,650	202,443	202,443	1,686,414	195,433	195,433

* Planned expenditures reflect some measures announced in Budget 2017.
** Planned expenditures reflect some measures announced in Budget 2016.