ARCHIVED - Quarterly Financial Report - Quarter ending June 30, 2011

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

A)   Introduction

The Government of Canada uses financial information to support decision making, for policy development, for service delivery and for historical reference. These financial statements have been prepared to respond to these requirements. These statements should be read in conjunction with the Main Estimates for fiscal year 2011-2012. They have been prepared by management as required by section 65.1 of the Financial Administrative Act and in the form and manner prescribed by the Treasury Board. Although these statements have not been subject to an external audit or review, NRC attests that they are an accurate and true reflection of the period ending June 30, 2011.

This Departmental Quarterly Financial Report (QFR) reflects the results of the current fiscal period in relation to the Main Estimates (and Supplementary Estimates A, as applicable) for which full supply was released on June 27, 2011.

NRC Mandate

The National Research Council of Canada (NRC) exists under the National Research Council Act and is a Departmental corporation named in Schedule II of the Financial Administration Act. The mission of NRC is to work with clients and partners to provide strategic research, scientific and technical services to develop and deploy solutions to meet Canada's current and future industrial and societal needs.

Under the National Research Council Act, NRC is responsible for:

• Undertaking, assisting or promoting scientific and industrial research in fields of importance to Canada;
• Providing vital scientific and technological services to the research and industrial communities;
• Investigating standards and methods of measurement;
• Working on the standardization and certification of scientific and technical apparatus and instruments and materials used or usable by Canadian industry;
• Operating and administering any astronomical observatories established or maintained by the Government of Canada;
• Establishing, operating and maintaining a national science library; and
• Publishing and selling or otherwise distributing such scientific and technical information as the Council deems necessary.

To learn more about NRC's legislative framework, visit the National Research Council of Canada’s Web site.

This quarterly financial 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; and
• has not been subject to an external audit or review.

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the Department's spending authorities granted by Parliament and those used by the Department consistent with the Main Estimates and Supplementary Estimates (as applicable) for the 2011-2012 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 for 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 authorities (pursuant to paragraph 5(1) (e) of the National Research Council Act, the NRC has authority to expend revenues it has received through the conduct of its operations).

When Parliament is dissolved for the purposes of a general election, 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.

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

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

This section highlights the significant items which contributed to the changes to resources available for the year and actual expenditures for the quarter ended June 30, 2011.

Authorities Analysis

Comparison of Net Budgetary Authorities and Expenditures as of June 30, 2010 and June 30, 2011 (in millions $)

At the end of the first quarter in fiscal year 2010-11, the NRC's total planned spending authorities were $924.7 million while, for the same period in 2011-12, they were $742.3 million, a decline of $182.4 million from fiscal 2010-11. The decrease is mainly attributable to the sun-setting funds which NRC received in FY 2009-10 and FY 2010-11 under Canada's Economic Action Plan (EAP), as announced in Budget 2009. In the final year of EAP 2010-11, NRC received $157.9 million in sun-setting funds:

• $100.0 million in the Grants & Contributions vote for distribution through NRC's Industrial Research Assistance Program (IRAP);
• $45.0 million ($42.7 million in Contribution funds and $2.3 million in Operating funds) transferred from the Federal Development Agency for Southern Ontario (FedDev Ontario) for distribution in Southern Ontario (FedDev Ontario) under the terms and condition of the IRAP program;
• $10.4 million in the Capital vote for the modernizing and maintaining NRC laboratories and other research facilities across Canada; and
• $2.5 million in the Operating vote for remediation work under the Accelerated Federal Contaminated Sites Action Plan (FCSAP).

The balance of the planned spending authorities' reduction of $24.5 million includes:

• $10.3 million from the 2008 Strategic Review;
• $6.0 million related to the Genomics Research and Development Initiative, currently up for renewal;
• $5.4 million in salaries for retroactive payments made in 2010-11 from collective agreement settlements;
• $4.4 million on-going reduction for cost containment announced in Budget 2010;
• $3.0 million in capital funds which were re-profiled into 2010-11;
• $2.3 million in forecasted decrease in revenue spending, that NRC earns from its operations;
• $3.3 million increase for the capital carry forward from fiscal 2010-11; and
• $3.6 million increase for other adjustments.

An analysis of the authorities used during the first trimester of the 2011-12 fiscal year reveals that there was a decline of approximately $19.0 million, when compared to the same period in the previous fiscal year, primarily explained by changes in the following areas:

• Operating authorities declined by $7.1 million, due to the one time retroactive salary payments made last year, cost containment and the implementation of a new strategy.
• Grants & Contributions vote authorities declined by $11.6 million, which is directly attributable to the sun-setting of funds received for EAP.
• Capital vote authorities declined by $3.1 million due to the implementation of a new Project Management Framework in support of the implementation of NRC's Investment Plan. This new framework has slightly delayed the flow of capital expenditures, as the processes are in their initial stages of implementation.
• Revenue authorities increased by $1.5 million due to the timing of payments.
• Statutory EBP payments increased by $1.3 million. EBP expenditures are based on the estimated salary expenditures as listed in the Main Estimates and are adjusted at year end based on actual salary expended.

Budgetary Expenditures by Standard Object

Total planned gross expenditures have decreased by approximately $182 million, when comparing 2010-2011 to 2011-2012. $143 million of the decrease is directly attributable to the sun-setting of transfer payment funds received for EAP and the transfer from FedDev Ontario. The $39 million balance of the decrease relates predominantly to reductions in expenditures, such as personnel costs, utilities, materials and supplies and the acquisition of machinery and equipment and is attributable to other initiatives already mentioned above.

From a quarterly perspective, the NRC has taken specific budgetary measures in 2011-12 to meet the Budget 2010 operating budget freeze and to attain long term financial sustainability through a more focused direction. Management is reviewing various options to adjust to this constraint in funding or the impact on departmental activities has been managed through the following actions and mitigation strategies, including the review of its internal services to identify potential efficiencies through a modified service delivery mechanism, budget reductions for investment in the new strategy, the implementation of video conferencing that has reduced travel expenditures by more than 30% since 2008-09, and restrictions on hiring.

C)   Risks and Uncertainties

The NRC's primary source of funding is from voted parliamentary appropriations but is also partially funded through its statutory authority under the NRC Act to re-spend the revenue collected from its operations. The NRC maintains a highly skilled, knowledge-based workforce which serves both the private and public sectors. The NRC is faced with the challenge of securing funding during challenging economic times, from both sectors, in order to maintain its high level of service and facilitate the development and deployment of innovative technologies.

The NRC is in the first year of implementing its new Strategy to 2031. Its corporate risk profile identified the following high risk areas and risk management strategies, resulting from the key changes planned for NRC:

1. Focusing on Outcomes and Impacts
   
   During this period of global recession, NRC, its clients, partners and collaborators face financial pressures in this time of economic uncertainty. In response to this risk, NRC will be implementing specific initiatives for strengthened financial management and revenue generation strategies. In addition, the launch of NRC's new strategy will focus programs and activities on outcomes and impacts with specified targets to ensure that resources are used in a cost-effective and efficient manner, leading to longer-term financial sustainability. Business processes will be streamlined and/or augmented accordingly to support program plans while addressing workload capacity and organizational agility issues.
   
   
2. Defining and Managing Change
   
   Effective implementation of the new strategy is contingent on NRC's ability to align its culture, behaviours and mindset, supporting structures, governance and practices. NRC is ensuring that the necessary changes will be well defined with suitable plans in place to implement and manage those changes. Considerations for managing change will include a review of and potential changes to business models, communication, governance and individual and organizational competencies and capabilities.
   
   
3. Building Leadership, Engagement and Highly Qualified Personnel
   
   Workforce planning numbers point to the urgency of NRC's succession work and fiscal restraint has been a continuing part of the context in which NRC operates. Previously, succession planning focused on those already in the leadership ranks. Now, however, demographics show that increasing numbers of employees in the leadership and feeder pools are eligible for retirement. In response to these risks, NRC has continued its focus on evolving its leadership development program (LEAD) to build leadership capacity at all levels of the organization.
   
   The change to NRC's business model could mean that, as NRC reduces the number of areas in which it works, and focuses its efforts in specific program areas, finding the right person with the right competencies at the right time could become more challenging. NRC is currently revising its hiring policy and procedures in order to create more flexibility for hiring managers. As well HRB has recently modified its hiring structure to build more specialized recruitment expertise for mission critical competencies.
   
   NRC will also focus on enhancing and streamlining recruitment activities, resulting in specialized sourcing and recruitment expertise.

D)    Significant changes in relation to operations, personnel and programs

There have been a number of changes to senior level personnel, since April 2010, starting with the appointment of a new President (Deputy Minister) in April 2010, a new Vice President of Engineering in May 2011 and most recently the Vice-President, Corporate Management and Chief Financial Officer. As noted throughout the quarterly report, the NRC's implementation of a new strategy will have a significant impact on supporting structures, governance and business practices; however, there are no significant operational changes to report at this time.

Approved by:

John R. McDougall, P.Eng.
President
National Research Council of Canada
Ottawa
Date: 24 November 2011

Michel Piché, M.P.A., CMA, CIA
VP, Corporate Management, and Chief Financial Officer
National Research Council of Canada
Ottawa
Date: 24 November 2011

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National Research Council Canada
Departmental Quarterly Financial Report
For the quarter ended June 30, 2011

Statement of Authorities (unaudited)
($000's)

	Fiscal Year 2011-2012			Fiscal Year 2010-2011
	Total available for use for the year ending March 31, 2012*	Used during the quarter ended June 30, 2011	Year to date used at quarter-end	Total available for use for the year ending March 31, 2011*	Used during the quarter ended June 30, 2010	Year to date used at end of quarter
Vote 60 - Net Operating expenditures	387,340	94,826	94,826	413,532	101,916	101,916
Vote 65 - Capital expenditures	41,305	768	768	51,554	3,886	3,886
Vote 70 - Grants & contributions	139,650	30,503	30,503	290,854	42,093	42,093
Statutory revenue**	123,047	10,787	10,787	123,144	9,329	9,329
Statutory EBP	50,954	12,738	12,738	45,582	11,395	11,395
Total Budgetary authorities	742,296	149,622	149,622	924,666	168,619	168,619
Non-Budgetary authorities	–	–	–	–	–	–
Total Authorities	742,296	149,622	149,622	924,666	168,619	168,619

* Includes only Authorities available for use and granted by Parliament at quarter-end.

** Includes Statutory Revenue available for use pursuant to paragraph 5(1)(e) of the National Research Council Act.

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National Research Council of Canada
Departmental Quarterly Financial Report
For the quarter ended June 30, 2011

Departmental budgetary expenditures by Standard Object (unaudited)
($000's)

	Fiscal Year 2011-2012			Fiscal Year 2010-2011
Expenditures:	Planned expenditures for the year ending March 31, 2012	Expended during the quarter ended June 30, 2011	Year to date used at quarter-end	Planned expenditures for the year ending March 31, 2011	Expended during the quarter ended June 30, 2010	Year to date used at quarter-end
Personnel	366,270	98,667	98,667	374,674	102,448	102,448
Transportation & communications	22,779	3,111	3,111	27,020	3,638	3,638
Information	3,018	261	261	4,236	524	524
Professional & special services	52,062	4,715	4,715	47,914	5,561	5,561
Rentals	4,276	693	693	4,080	749	749
Repair & maintenance	17,385	2,726	2,726	16,491	2,361	2,361
Utilities, materials & supplies	69,944	6,695	6,695	75,586	9,231	9,231
Acquisition of land, buildings & works	–	–	–	–	–	–
Acquisition of machinery & equipment	48,676	284	284	68,310	273	273
Transfer payments	139,650	30,503	30,503	290,854	42,093	42,093
Public debt charges	–	–	–	–	–	–
Other subsidies & payments	18,236	1,967	1,967	15,501	1,741	1,741
Total budgetary expenditures	742,296	149,622	149,622	924,666	168,619	168,619