Quarterly Financial Report
For the quarter ended September 30, 2012
Statement outlining results, risks and significant changes in operations, personnel and program

Introduction

This quarterly report 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. This quarterly report should be read in conjunction with the Main Estimates as well as Canada's Economic Action Plan 2012 (Budget 2012).

Infrastructure Canada's raison d'être is to lead the Government of Canada's efforts in addressing Canada's public infrastructure challenges. Strong, modern, world-class public infrastructure is a key factor in achieving the Government of Canada's priorities of a stronger economy, a cleaner environment and more prosperous, safer communities.

Further information on Infrastructure Canada's mandate, responsibilities, and programs can be found in the Infrastructure Canada 2012-13 Main Estimates and Infrastructure Canada's previous Quarterly Financial Report for 2012-13 also known as Infrastructure Canada's previous Quarterly Financial Report for FY 2012-13.

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the Infrastructure Canada spending authorities granted by Parliament and those used by Infrastructure Canada consistent with the Main Estimates for the 2012-13 fiscal year (FY). 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.

Infrastructure Canada uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental 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 FY. 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 the Budget 2012 could not be reflected in the 2012-13 Main Estimates.

It should be noted that this quarterly report has not been subject to an external audit or review.

Highlights of Fiscal Quarter and Fiscal Year to Date (YTD) Results

This section highlights the significant items that contributed to the change in resources available for use from FY 2012-13 to FY 2011-12 and in actual expenditures from the quarter ended September 30, 2011 to the quarter ended September 30, 2012.

In FY 2012-13 Infrastructure Canada is working with provinces, territories, the Federation of Canadian Municipalities, and other stakeholders to develop a long-term plan for public infrastructure that extends beyond the expiry of the Building Canada Plan. During FY 2011-12, management reviewed various options to transition from a focus on delivering the Economic Action Plan (EAP) to a focus on core longer-term programming including the permanent Gas Tax Fund and the Building Canada Plan.

Figure 1: Expenditures Compared to Annual Authorities (as at September 30^th)

Significant Changes on the Statement of Authorities table

As can be seen in Figure 1, in the current year, Infrastructure Canada has $5.1B in Total Authorities available for use at Quarter 2 (Q2), compared to $4.9B at Q2 in the prior year, representing a total increase of approximately $0.2B. This increase can be explained primarily by a net increase of $219M to Contributions' authorities (Vote 45 and Statutory Contributions' authorities) available for use, as detailed in the Infrastructure Canada 2012-13 Main Estimates and Infrastructure Canada's previous Quarterly Financial Report for 2012-13 also known as Infrastructure Canada's previous Quarterly Financial Report for FY 2012-13.

There is also a net increase of $8.1M (16.1%) in Operating authorities (Vote 40) available for use in Q2 of FY 2012-13 when compared to Q2 of FY 2011-12. However, Infrastructure Canada is expecting to have an overall decrease in Operating authorities available for use on a full-year basis (since the 2011-12 authorities were increased through Supplementary Estimates), to provide for the end of the EAP programs.

The Department has used 29.8% ($1.5B) of its Total authorities available for use in the current FY, compared to 43.7% ($2.1B) at the same point in the prior FY. This change is related to a 14% ($606M) decrease in the use of Contributions' authorities available for use in the current FY. This decrease can be partly attributed to the completion of programs under the EAP including:

• Building Canada Fund – Communities Component Top-Up ($80.5M was spent by Q2 of FY 2011-12. The 'Top-Up' portion of this program is now complete so no expenses were incurred in FY 2012-13)
• Infrastructure Stimulus Fund ($50M was spent by Q2 of FY 2011-12. This program is now complete so no expenses were incurred in FY 2012-13)
• Provincial/Territorial Base Infrastructure Program – Accelerated ($20M was spent by Q2 of FY 2011-12. The 'Accelerated' portion of this program is now complete so no expenses were incurred in FY 2012-13)

The year-to-year variance in use of the Department's Contributions' authorities available for use is also due to the following variances:

• A decrease of $233M in expenditures under the Gas Tax Fund can be explained primarily by the fact that during FY 2011-12, additional payments were made to Alberta because of the late acceptance of the provinces' FY 2010-11 Annual Expenditure Report.
• A decrease of $119M in expenditures under the Building Canada Fund – Major Infrastructure Fund is due to the implementation of a new forecasting methodology by the Department and by its Federal Delivery Partners (FDPs), resulting in lower forecasts and the Department advancing less funds to the FDPs than the prior FY.
• A decrease of $104M in expenditures under sunsetting programs (Canada Strategic Infrastructure Fund, Municipal Rural Infrastructure Fund, and the Border Infrastructure Fund) is also due to the new forecasting methodology and the Department advancing less funds to FDPs than the prior FY.

Year-to-date expenditures under the Green Infrastructure Fund (GIF) totaled $1.4M in FY 2012-13 and these expenditures are reflected in the Department's Contributions' authorities available for use and in the Department's statutory authority for GIF. It is important to note that Parliamentary approval is not required for expenditures related to statutory amounts and that it is within the normal course of business that statutory expenditures will in some cases exceed planned spending estimates. A change to the forecast statutory item under GIF was identified in the Supplementary Estimates 'B' and will be reflected in the Q3 quarterly financial report.

The Department's use of Operating authorities as at Q2 has also decreased in the current FY (34.7% used/$20.2M), compared to the same point in the prior FY (50.6% used/$25.3M). This decrease is mainly due to cost savings measures implemented in the department as well as a reduction in expenditures related to Shared Services Canada (SSC) which is now incurring expenses that Infrastructure Canada incurred in the prior FY. These decreases are described further in the following section.

Significant Changes to the Departmental budgetary expenditures by Standard Object table

There are significant variances between several of the FY 2012-13 and FY 2011-12 'Planned expenditures by standard object.' 'Planned expenditures by standard object' for FY 2012-13 were based on historical averages. In the future, these will be adjusted to remove anomalies or changes in program costs.

When comparing the amounts expended as at Q2 in FY 2012-13 to Q2 in FY 2011-12, there are significant variances in the following standard objects:

• Personnel ($783K decrease);
• Transportation and communication ($220K decrease);
• Professional and special services ($4M decrease);
• Rentals ($316K increase);
• Repair and maintenance ($36K decrease);
• Utilities, materials, and supplies ($27K decrease);
• Acquisition of machinery and equipment ($228K decrease);
• Transfer payments ($606M decrease); and
• Other subsidies and payments ($162K decrease).

The decrease of $606M in Transfer payments is described in the Significant Changes on the Statement of Authorities table section of this report.

Despite the decrease of $783K from last year in the year-to-date amount expended on Personnel, the Department has used 51.1% of its FY 2012-13 planned amount on Personnel at halfway through the FY. Full-year expenditures on Personnel are expected to fall within the planned amount.

Most of the decreases in amounts expended by standard object relate to cost-saving measures implemented in the department, especially in the areas of training, travel, and contractors which affect Transportation and communication; Professional and special services; and Acquisition of machinery and equipment. In addition, the creation of SSC had an impact on the amounts expended in some standard objects because SSC now incurs telecommunications costs and information technology (IT) special services costs on behalf of Infrastructure Canada.

The increase of $316K in the year-to-date amount expended under Rentals is mainly caused by a difference in the timing of invoices received between fiscal years.

Risks and Uncertainties

In Budget 2010 – Leading the Way on Jobs and Growth, the Minister of Finance announced that the operating budgets of departments, as appropriated by Parliament, would be frozen at their 2010-11 levels for the years 2011-12 and 2012-13. Infrastructure Canada has no ongoing base level of funding for administration and operating costs. Its operating requirements have always been funded entirely from infrastructure programs and related administrative costs are confirmed by Treasury Board on an annual basis. Without ongoing operating funding, it is challenging to predict how a budget freeze will affect Infrastructure Canada's operations.

While the department works continuously with its partners to ensure that contribution forecasts are as accurate as possible, and to re-profile Infrastructure Canada's funding to meet the needs of its partners, there remains a risk that actual transfer payment expenses will be less than forecast, resulting in lapses of funds. Funding lapses occur for a number of reasons: for example, the Department's partners may encounter delays in getting their projects underway or built, or may be late in submitting claims to the federal government for work that has already been completed.

To respond to this risk, Infrastructure Canada has raised the issue with provincial/territorial ministers and deputy ministers, and the Department's federal delivery partners. Particular emphasis is being placed on:

• Ensuring that forecasted expenditures submitted by partners better reflect the real cash flow needs of their infrastructure projects; and
• Claims are submitted as quickly as possible by partners for the costs they have incurred.

Despite these efforts, funding lapses under contribution programs will never be eliminated due to the complex nature of infrastructure projects. The realities of construction projects include challenges like the time it takes to plan and implement infrastructure projects, severe weather, and shortages or delays in the receipt of professional services or materials.

Significant Changes in Relation to Operations, Personnel and Programs

Shared Services Canada is providing IT infrastructure services to the department, in accordance with their mandate to streamline and reduce duplication in the government's IT services. A portion of the Department's operating budget will be transferred to SSC through Supplementary Estimates.

Marie Lemay was appointed Associate Deputy Minister, Infrastructure effective August 27, 2012.

Budget 2012 Implementation

Measures announced in Budget 2012 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.

Infrastructure Canada continues to take steps to carefully and thoughtfully exercise budgetary restraint.

Approval by Senior Officials

Approved by:

Signed in Ottawa, Canada, November 29, 2012

Quarterly Financial Report
For the quarter ended September 30, 2012
Statement of Authorities (unaudited)
Fiscal year 2012-2013
(in thousands of dollars)

	Total available for use for the year ending March 31, 2013 * note 1	Used during the quarter ended September 30, 2012	Year-to-date used at quarter-end
Vote 40 - Operating expenditures	58,092	10,518	20,171
Vote 45- Contributions	5,045,585	364,121	1,297,872
Budgetary Statutory Authorities** note 2
(S) - Contributions to employee benefit plans	4,973	1,244	2,487
(S) - Provincial-Territorial Infrastructure Base Funding Program	-	-	-
(S) - Green Infrastructure Fund	-	812	812
Total Budgetary authorities	5,108,649	376,694	1,521,341
Total authorities	5,108,649	376,694	1,521,341

Statement of Authorities (unaudited) (continued)
Fiscal year 2011-2012
(in thousands of dollars)

	Total available for use for the year ending March 31, 2012 * note 1	Used during the quarter ended September 30, 2011	Year-to-date used at quarter-end
Vote 40 - Operating expenditures	50,031	14,450	25,292
Vote 45- Contributions	4,693,333	1,146,745	2,083,934
Budgetary statutory authorities** note 2
(S) - Contributions to employee benefit programs	5,038	1,259	2,519
(S) - Provincial - Territorial Infrastructure Base Funding Program	62,652	20,000	20,000
(S) - Green Infrastructure Fund	70,118	174	441
Total Budgetary authorities	4,881,172	1,182,628	2,132,186
Total authorities	4,881,172	1,182,628	2,132,186

*Includes only Authorities approved for use by Parliament at quarter-end.

**Parliamentary approval is not required for expenditures related to statutory amounts. It is within the normal course of business that statutory expenditures will, in some cases, exceed planned spending estimates.

Quarterly Financial Report
For the quarter ended September 30, 2012
Departmental budgetary expenditures by Standard Object (unaudited)
Fiscal year 2012-2013
(in thousands of dollars)

	Planned expenditures for the year ending March 31, 2013	Expended during the quarter ended September 30, 2012	Year-to-date used at quarter-end
Expenditures:
Personnel	33,893	8,662	17,303
Transportation and communications	900	182	264
Information	687	84	148
Professional and special services	13,923	1,792	2,886
Rentals	3,746	929	1,927
Repair and maintenance	254	2	2
Utilities, materials and supplies	145	16	28
Acquisition of land, buildings and works	-	-	-
Acquisition of machinery and equipment	873	7	9
Transfer payments	5,045,585	364,932	1,498,683
Other subsidies and payments	8,644	88	91
Total net budgetary expenditures	5,108,649	376,694	1,521,341

Departmental budgetary expenditures by Standard Object (unaudited) (continued)
Fiscal year 2011-2012
(in thousands of dollars)

	Planned expenditures for the year ending March 31, 2012	Expended during the quarter ended September 30, 2011	Year-to-date used at quarter-end
Expenditures:
Personnel	33,027	8,884	18,086
Transportation and communications	606	298	484
Information	5,816	77	150
Professional and special services	10,389	5,106	6,898
Rentals	1,920	809	1,611
Repair and maintenance	320	22	38
Utilities, materials and supplies	168	39	55
Acquisition of land, buildings and works	-	-	-
Acquisition of machinery and equipment	2,798	225	237
Transfer payments	4,826,103	1,166,917	2,104,374
Other subsidies and payments	25	251	253
Total net budgetary expenditures	4,881,172	1,182,628	2,132,186