Federal Economic Development Agency for Southern Ontario - Quarterly Financial Report - Quarter ended June 30, 2011

Statement outlining results, risks and significant changes in operations, personnel, and programs

For the quarter ended June 30, 2011

1. Introduction

This quarterly report should be read in conjunction with the Main Estimates and Supplementary Estimates A for which full supply was released on June 27, 2011. It reflects results in relation to this funding. 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 the Treasury Board Accounting Standard 1.3. It has not been subject to an external audit or review.

A summary description of Federal Economic Development Agency for Southern Ontario (FedDev Ontario) program activities can be found in Part II of the Main Estimates.

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the agency's spending authorities granted by Parliament and those used by the agency consistent with the Main Estimates and Supplementary Estimates A for the 2011–12 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 moneys 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.

When Parliament is dissolved for the purposes of a general election, as occurred during the first quarter of this fiscal year (2011–12), section 30 of the Financial Administration Act authorizes the Governor General, under certain conditions, to issue a special warrant authorizing the Government to withdraw funds from the Consolidated Revenue Fund. A special warrant is deemed to be an appropriation for the fiscal year in which it is issued. During the first quarter of 2011–12, FedDev Ontario was granted $30.3 million in special warrants, with $23.9 million allocated for program spending and $6.4 million for operating expenses.

The agency uses the full accrual method of accounting to prepare and present its annual financial statements that are part of the agency's performance reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

2. Highlights of fiscal quarter and fiscal year to date (YTD) results

2.1 Authorities Analysis

As reflected in the attached Statement of Authorities, FedDev Ontario has seen a decrease in authorities from the previous year of about 42% ($194.6 million reduction).

Program spending authorities under Vote 55 have decreased by 44% ($187.5 million). This material decrease is mainly due to the sunsetting of the programs related to the Economic Action Plan, such as the Community Adjustment Fund (CAF), Recreational Infrastructure Canada (RInC), Ontario Potable Water Program (OPWP), and the Canada-Ontario Infrastructure Program (COIP). Through an announcement made by the Prime Minister on December 2, 2010, certain Economic Action Plan programs were given an extension until October 31, 2011. Within FedDev Ontario, only the RInC program met the criteria for extension. This has resulted in a partial reprofile of program funding from fiscal year 2010–11 which has been approved under Supplementary Estimates A.

Operating authorities have decreased by 19% ($7.1 million). The reduction in operating authorities comes as a result of the completion of most start-up costs, such as the fit-up of FedDev offices, the relocation costs related to new employee hires, and the anticipated reduced dependence on third-party suppliers for the provision of services such as financial operations, accommodations, procurement, and various other services.

2.2 Expenditure Analysis

On an overall basis, expenditure patterns in the first quarter of 2011–12 are at a slower pace than they were during the same period in 2010–11, especially on the program spending side. The slower pace of program spending can be attributed to the fact that for the agency's core funding, only a few projects were approved prior to the 2011 general election and the subsequent special warrant period. Moreover, as many of FedDev Ontario's programs were recently launched throughout the Fall 2010 and are in the process of being fully implemented, the agency was unable to approve projects late in 2010–11 and early 2011–12 during and post-election until a Minister for FedDev Ontario was appointed. The pace of spending on the operations side is similar to last year, taking into consideration the reduction of budgetary authorities in this area for 2011–12.

In regards to Special Warrants, out of the $30.3 million allocated a total of $13.6 million was spent ($9.5 million in program spending and $4.1 million in operating), representing 45% of the Special Warrants granted for the period. This level of spending can be attributed to many of the factors described above, and to the close monitoring of spending during the period.

Statement of Authorities

In the first quarter of the 2011–12 fiscal year total budgetary expenditures were $14.4 million compared to $25 million reported in the same period of 2010–11. Most of this decrease can be attributed to the sunsetting of programs related to the Economic Action Plan, as program spending declined by $11.6 million (or 55%) compared to last year.

Statement of Departmental Budgetary Expenditures by Standard Object

The $1.4 million (or 49%) increase in salary-related expenditures in the first quarter of 2011–12 can be explained by a 51% increase in full-time staff from the same period last year the number of full time employees (FTEs) increased from 146 to 220 during this period.

The reduction in transportation and communications costs ($54,000 or 20%) over this period last year can be attributed to the reduced number of relocations taking place currently when compared to this time last year. There was also less travel for government-related business as these were constrained during the Special Warrant period.

The reduction in professional and special services expenditures ($288,000 or 39%) can be attributed to the reduced reliance on temporary help for program delivery, the reduced reliance on third party service providers for financial services, and the reduction of training-related expenditures compared to the same period last year.

3. Risks and Uncertainties

As an organization that has existed for less than two years, FedDev Ontario faces a number of external and internal risks. The dominant risks focus on the need to formalize internal procedures and the wrap-up of programs related to the Economic Action Plan. Another risk involves the ability to deliver new programs such as the Southern Ontario Advantage, which was launched throughout fall 2010. Internal risks which have a potential impact relate to the implementation of FedDev Ontario's plans to reduce reliance on third party delivery of internal services and implementation of plans to stabilize its business processes and systems.

Budget 2010 announced that the operating budgets of departments would be frozen at their 2010–11 levels for the fiscal years 2011–12 and 2012–13. Management is reviewing various options to adjust to this constraint in funding.

There is a risk that financial forecasts generated by the department will be inaccurate, due to insufficient claims and information from partners and recipients. This risk could cause an eventual lapse of funds. The majority of the department's transfer payments occur in the latter part of fiscal year. This can contribute to some uncertainty when forecasting cash requirements to Parliament. Within the first quarter, the unique spending profile for contribution programs will indicate a low proportion of the department's authorities as being spent, however future quarters will show higher proportions of authorities spent. It should be noted that federal spending is not a measure of economic activity. Once projects are approved, Contribution Agreements are negotiated and work begins (designs, engineering, procurement) long before claims are submitted for federal reimbursement.

Mitigation of Risks/Uncertainties:

The department is taking steps to minimize the size of future funding lapses and improve its expenditure forecasting over the long-term. Particular emphasis is being placed on ensuring that:

• Forecasted expenditures submitted by partners better reflect the real cash flow needs of their projects;
• Project progress is monitored appropriately to identify potential funding lapses earlier in the fiscal year; and
• Claims are submitted as quickly as possible by partners for the costs they have incurred and advances are used in situations where client need is documented and deemed appropriate (e.g., not-for-profit clients).

However, funding lapses cannot ever be totally eliminated due to the complex nature of projects. In particular, numerous projects can encounter legitimate delays that are related to environmental assessments, public consultations, shortages in materials and labour, weather, etc.

4. Significant changes in relation to operations, personnel and programs

During the 2011–12 fiscal year, FedDev Ontario will be transitioning from a short-term stimulus provider to a provider of programs which will provide long-term benefits for the economy of southern Ontario. This assistance will be provided by the various initiatives under the Southern Ontario Advantage initiative.

On April 1, 2011, FedDev Ontario assumed control over the Ontario Federal Council (OFC) from Human Resources and Skills Development Canada (HRSDC). This means that FedDev Ontario will now be responsible for all OFC-related operational expenses, which will create pressures on operating budgets until funding for the OFC is transferred from HRSDC to FedDev Ontario.

Approved by:

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FedDev Ontario
Quarterly Financial Report
For the quarter ended June 30, 2011

Statement of Authorities (unaudited)

Fiscal Year 2011–2012 (in thousands of dollars)

	Total available for use for the year ending March 31, 20121	Used during the quarter ended June 30, 2011	Year to date used at quarter-end
1 Includes approved estimates documents as at quarter end. (Return to reference 1)
Vote 50-Net Operating Expenditures	27,223	4,092	4,092
Vote 55-Grants and Contributions	237,067	9,512	9,512
Budgetary statutory authorities
Employee benefit plans	3,113	778	778
Grants and contributions	—	—	—
Other	—	—	—
Total Budgetary authorities	267,403	14,382	14,382
Non-budgetary authorities	—	—	—
Total authorities	267,403	14,382	14,382

Fiscal Year 2010–2011 (in thousands of dollars)(continued)

	Total available for use for the year ending March 31, 20112	Used during the quarter ended June 30, 2010	Year to date used at quarter-end
2 Includes approved estimates documents as at quarter end. (Return to reference 2)
Vote 50-Net Operating Expenditures	34,011	2,975	2,975
Vote 55-Grants and Contributions	424,523	21,121	21,121
Budgetary statutory authorities
Employee benefit plans	3,431	858	858
Grants and contributions	—	—	—
Other	—	—	—
Total Budgetary authorities	461,965	24,954	24,954
Non-budgetary authorities	—	—	—
Total authorities	461,965	24,954	24,954

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FedDev Ontario
Quarterly Financial Report
For the quarter ended June 30, 2011

Departmental budgetary expenditures by Standard Object (unaudited)

Table 1: Departmental budgetary expenditures by Standard Object (unaudited)

	Fiscal Year 2011–2012
(in thousands of dollars)	Planned expenditures for the year ending March 31, 20123	Expended during the quarter ended June 30, 2011	Year to date used at quarter-end
3 Includes approved estimates documents as at quarter end. (Return to reference 3) 4 Includes employee benefit plan (EBP) expenses (Return to reference 4)
Expenditures:
Personnel4	21,904	4,174	4,174
Transportation and communications	1253	215	215
Information	176	7	7
Professional and special services	6,096	442	442
Rentals	14	8	8
Repair and maintenance	188	–	–
Utilities, materials and supplies	171	20	20
Acquisition of land, buildings and works	—	—	—
Acquisition of machinery and equipment	332	4	4
Transfer payments	237,067	9,512	9,512
Other subsidies and payments	202	—	—
Total budgetary expenditures	267,403	14,382	14,382

Table 1: Departmental budgetary expenditures by Standard Object (unaudited)(continued)

	Fiscal Year 2010–2011
(in thousands of dollars)	Planned expenditures for the year ending March 31, 20115	Expended during the quarter ended June 30, 2010	Year to date used at quarter-end
5 Includes approved estimates documents as at quarter end. (Return to reference 5) 6 Includes employee benefit plan (EBP) expenses (Return to reference 6)
Expenditures:
Personnel6	23,615	2,795	2,795
Transportation and communications	3,793	269	269
Information	412	8	8
Professional and special services	7,412	730	730
Rentals	275	5	5
Repair and maintenance	137	—	—
Utilities, materials and supplies	686	22	22
Acquisition of land, buildings and works	—	—	—
Acquisition of machinery and equipment	1,112	4	4
Transfer payments	424,523	21,121	21,121
Other subsidies and payments	—	–	—
Total budgetary expenditures	461,965	24,954	24,954