Federal Economic Development Agency for Southern Ontario – Quarterly Financial Report — Quarter ended September 30, 2012

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

For the quarter ended September 30, 2012

1. Introduction

This quarterly report should be read in conjunction with the Main Estimates and Supplementary Estimates A, as well as Canada's Economic Action Plan 2012 (Budget 2012), as 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. This report has not been subject to an external audit or review.

Authority, Mandate, & Program Activities

FedDev Ontario was created to support the competitiveness, innovation, and diversification of southern Ontario's economy by delivering strategic investments to businesses, not-for-profit organizations, and communities; establishing and strengthening collaborative partnerships with key economic stakeholders; and representing the region's interests at the federal and national level.

Further details on FedDev Ontario's authorities, mandate, and program activities can be found in the Report on Plans and Priorities, Part II of the Main Estimates, and Supplementary Estimates A.

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 2012–13 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.

The Agency uses the full accrual method of accounting to prepare and present 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.

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 2012 was tabled in Parliament on March 29, after the tabling of the Main Estimates on February 28, 2012. As a result, the measures announced in Budget 2012 could not be reflected in the 2012–13 Main Estimates.

In fiscal year 2012–13, frozen allotments will be established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In future years, the changes to departmental authorities will be implemented through the Annual Reference Level Update, as approved by Treasury Board and reflected in the subsequent Main Estimates tabled in Parliament.

2. Highlights of fiscal quarter and fiscal year-to-date results

Planned departmental spending is concentrated in grants and contributions. These account for more than 85 percent of total planned spending. The spending pattern of fiscal year 2011–12 is expected to continue in 2012–13. The most significant year-over-year change is due to the overall decrease in funding related to the Recreational Infrastructure Canada (RInC) program, which was part of Canada's Economic Action Plan (EAP) programming for which some projects were extended into fiscal year 2011–12.

Total authorities available for use for the year ending March 31, 2013 compared to total authorities available for use for the year ending March 31, 2012
(in millions of dollars)

[Description of the graph]

Total authorities available for use for the year ending March 31, 2013 compared to total authorities available for use for the year ending March 31, 2012
(in millions of dollars)

	2012-13	2011-12
Operating Spending Authorities	31.1	30.3
Program Spending Authorities	193.9	237.1

2.1 Authorities Analysis

The Statement of Authorities table reflects a significant decline in funding available for use, to $225.0 million in 2012–13 from $267.4 million in 2011–12. Grants and contributions account for the majority of the decrease in funding, and this is due to the conclusion of funding for the EAP initiatives, namely, RInC and select projects under the Community Adjustment Fund (CAF), which had been extended to October 31, 2011, and other changes in authorities, resulting in a net decrease (e.g., decrease to the Economic Development Initiative – Official Languages (EDI), and the end of the funding profile for the Brantford Greenwich-Mohawk Brownfield Remediation project).

Operating authorities have increased to $31.1 million (2 percent) from $30.3 million. This increase comes as a result of the operating carry-forward being recognized in Q2 this year, whereas it was not last year ($1.2 million increase), offset by the wrap-up of the RInC extensions for which additional operating authorities were provided ($1.7 million reduction from last year) and the transfer of operating authorities ($0.9 million) to Shared Services Canada. Further increases to authorities include $1.6 million for the administration of the Building Canada Fund – Communities Component (BCF-CC) on behalf of Infrastructure Canada and $0.4 million more to support the operations of the Ontario Federal Council (OFC). Note that the operating funds related to BCF-CC and the OFC were not part of the Agency's 2011–12 Main Estimates. Operating funds in support of these were transferred through Supplementary Estimates (B) and consequently were not included in the Agency's second quarter report for 2011–12.

2.2 Expenditure Analysis

Statement of Authorities

Used During the Quarter

In the second quarter of the 2012–13 fiscal year, total budgetary expenditures were $28.9 million, compared to $27.3 million reported in the same period of 2011–12, representing a year-over-year increase of $1.6 million (or 6 percent). This increase is attributable to a $1.1 million (or 5 percent) increase in quarterly grants and contributions spending and a $0.5 million (or 9 percent) increase in quarterly operating spending, mainly in the areas of personnel and rentals.

Year-to-Date Analysis

On a year-to-date basis, as of the end of the second quarter of fiscal year 2012–13, total budgetary expenditures were $42.8 million, compared to $41.6 million at the end of the same period of fiscal year 2011–12, representing a year-over-year increase of $1.2 million (or 3 percent). Most of this increase can be attributed to operating expenditures, which increased by $0.9 million (or 9 percent) over last year, mainly as a result of increased personnel and rental costs. This reflects the stabilization of the Agency's operations and programming. Grants and contributions expenditures remained stable, with a $0.2 million (or 1 percent) increase over last year.

Statement of Departmental Budgetary Expenditures by Standard Object

The following provides additional analysis of key variances at the standard-object level.

Used During the Quarter

The $0.5 million (or 10 percent) increase in second-quarter salary-related expenditures from fiscal year 2011–12 to fiscal year 2012–13 can be attributed to an increase of about 7 full-time equivalents since the same period last year. This has contributed to a reduced reliance on professional and special services, which is demonstrated by a $93,000 (or 11 percent) decrease in second-quarter costs in this area.

The increase in second-quarter rental costs is attributed to remaining lease obligations for space used in support of EAP. Additionally, the increase in second-quarter expenditures related to the acquisition of machinery and equipment is attributed to a consolidation of space in the Toronto office, which is discussed in the Budget 2012 implementation section.

Year-to-Date Analysis

The Agency's expenditures by standard object for the quarter and year to date reflect an increase of $1.2 million (3 percent) in expenditures relative to fiscal year 2011–12.

The variances in personnel ($1.1 million, or 12 percent increase) and professional services ($0.3 million, or 26 percent decrease) are attributed to the Agency establishing a more stable work force at its Kitchener headquarters, resulting in a reduction in the need for professional services to support its operations.

The $184,000 increase for rentals is attributed to remaining lease obligations for space used in support of EAP. The increase in costs related to the acquisition of machinery and equipment is related to Budget 2012 initiatives, such as the consolidation of the Toronto office and investments in technology to support more environmentally friendly office practices.

The $29,000 (or 67 percent) increase in information services costs can be attributed to a more consistent flow of project announcements, as well as increased efforts in stakeholder engagement.

3. Risks and Uncertainties

FedDev Ontario's Corporate Risk Profile has identified financial management, program administration, and reporting on the results and performance of its programs as areas of risk. These risks are mainly attributed to FedDev Ontario being a new agency within the federal government (launched in August 2009). Over the last two fiscal years, one of FedDev Ontario's management objectives has been to stabilize and improve its internal practices and procedures. These efforts are ongoing. Specific measures being undertaken to mitigate financial management and program administration risks include the implementation of additional policies and improved procedures and controls, and the provision of training and tools to its employees. New tools include the launch of a new management reporting system to support improved financial budgeting, forecasting, and reporting; and the introduction of an impact assessment tool to improve the effectiveness of project selection. Measures being undertaken to mitigate risks associated with performance reporting include a comprehensive evaluation plan and research agenda.

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

No significant changes in operations, personnel, or programs took place during the second quarter of fiscal year 2012–13.

5. Budget 2012 Implementation

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

FedDev Ontario will achieve Budget 2012 savings of $22.1 million by fiscal year 2014–15 through a series of measures to improve operating efficiency, while maintaining effectiveness of programs. These measures include the implementation of environmentally friendly office practices that will reduce paper usage and travel costs, as well as the consolidation of offices and internal services to eliminate duplication and reduce operating costs.

In the first year of implementation, FedDev Ontario will achieve savings of approximately $10.4 million. Savings will increase to $21.3 million in 2013–14 and will result in ongoing savings of $22.1 million by 2014–15.

As the results of Budget 2012 were not reflected in the 2012–13 Main Estimates, none of the variances in the Agency's authorities are related to Budget 2012 as of this time.

Expenditures in the second quarter of 2012–13 are $1.6 million more than in the same period last year. Budget 2012-related initiatives have had an effect on operating expenditures in the areas of acquisition of machinery and equipment and transportation and communications. In the second quarter, the Agency proceeded with the integration of program delivery by first consolidating operations at its Toronto office, leading to an increase in costs related to the acquisition of machinery and equipment; and second, by beginning to relocate Toronto-based program delivery staff to Kitchener, leading to an increase in relocation costs. FedDev Ontario has also made investments in high-efficiency printers and other information technology in support of more environmental office practices.

Overall, these measures are expected to result in increased cost savings for the Agency.

The balance of 2012–13 Budget 2012 savings will be reflected later in the fiscal year.

There was no incremental funding provided to FedDev Ontario to complete the above work, which has already occurred.

Approved by:

FedDev Ontario
Quarterly Financial Report
For the quarter ended September 30, 2012