Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended September 30, 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 are consistent with the Main Estimates, 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 September 30, 2018, which include Main Estimates and allocations from the Budget Implementation Vote for which full supply was released, whereas the September 30, 2017 results include Main Estimates and Supplementary Estimates (A). The details presented in this report focus on and compare the second 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 September 30, 2018, NRCan has authorities available for use of $1,500.9 million in 2018-19 compared to $1,385.4 million as of September 30, 2017, for a net increase of $115.5 million or 8%.

The increase of $115.5 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.

2.2 Budgetary Expenditures by Standard Object

The spending for the quarter ending September 30, 2018 amounts to $299.2 million or 20% of total funding available for the fiscal year, compared to $284.3 million or 21% for the same quarter last year. This increase of $14.9 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 offset by a decrease in personnel expenditures in 2018-19 compared to the same type of expenditures in 2017-18. Below further analysis is presented for standard objects with significant expenses. Table 2 at the end of this document presents the spending for all standard objects.

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 second quarter of 2018-19, the department focused on managing its risks to advance priorities in the areas of energy infrastructure, softwood lumber; regulatory review, Canada-U.S. relations (including North American Free Trade Agreement and 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.

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 the Honourable Amarjeet Sohi as the Minister of Natural Resources occurred in the second quarter of 2018-19.

The appointment of Paul Lefebvre as the Parliamentary Secretary to the Minister of Natural Resources occurred in the second quarter of 2018-19.

In addition, the appointment of a new Executive Director and General Counsel of NRCan’s Legal Services Unit occurred in the second quarter of 2018-19.

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