ARCHIVED - Quarterly Financial Report - Quarter ending September 30, 2012

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

1. 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of Canada uses financial information to support decision making, for policy development, for service delivery and for historical reference.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 and Supplementary Estimates as well as Canada's Economic Action Plan 2012 (Budget 2012). They have 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. 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 financial position for the period ending September 30, 2012.

This Departmental Quarterly Financial Report (QFR) reflects the results of the current fiscal period in relation to the Main Estimates and Supplementary Estimates (A).

1.1 NRC Mandate

The National Research Council 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 innovation support, 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.

Further details on NRC's legislative framework, authority, mandate and program activities can be found in Part II of the Main Estimates and the Report on Plans and Priorities.

1.2 Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the NRC's spending authorities granted by Parliament and those used by the NRC consistent with the Main Estimates and Supplementary Estimates for 2012-13. 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.

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 the 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.

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 (pursuant to paragraph 5(1)(e) of the http://laws-lois.justice.gc.ca/eng/acts/N-15/page-1.html#h-4, the NRC has authority to expend revenues it has received through the conduct of its operations).

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.

2. Highlights of Fiscal Quarter and Fiscal Year to Date (YTD) results

This section highlights the items that contributed most significantly to the changes in budgetary authorities for the current fiscal year and to the actual expenditures for the quarter that ended on September 30, 2012, compared with the previous fiscal year. This section should be read in conjunction with NRC's Statement of Authorities and Departmental Budgetary Expenditures by Standard Object table.

2.1 Authorities and Expenditures

The following graph provides a comparison of the budgetary authorities and expenditures as of September 30, 2012, and those as of September 30, 2011.

Comparison of Budgetary Authorities and Expenditures
As of September 30, 2012 and September 30, 2011
(in millions of dollars)

As shown in above graph, NRC's expenditures totaled $165.0 million during the second quarter of the current fiscal year which is very comparable to the previous year's equivalent of $164.5 million. This represents a slight decrease of 4.2% in comparison to Authorities. The following two sections elaborate on variances in Authorities and Year-to-date Expenditures.

2.2 Significant Changes to Authorities

For the period ending September 30, 2012, the authorities provided to NRC include both the Main Estimates and Supplementary Estimates (A), Statutory Revenue Carry Forward and approved Voted Capital and Operating Budget Carry Forwards. NRC has not received any Supplementary Estimates (A) funding during this fiscal year.

As reflected in the 2012–2013 Statement of Authorities, NRC has seen a total increase in authorities of $8.0 million, or 1.0%, when compared with the June 30, 2012 Quarterly Financial Report.

For the year ending March 31, 2013 - As of September 30, 2012
Significant Changes to Authorities (unaudited)
(in thousands of dollars)

Empty cell: for position only	Vote 60 Operating	Vote 65 Capital	Vote 70 Grants & Contributions	Statutory Revenues	Contributions to EBP	Total
Authorities - Total available for use for the year ending March 31, 2013 - As of September 30, 2012						796,9
Add :
Operating Budget Carry Forward	1,1					1,1
Capital Budget Carry Forward		6,9				6,9
Total increase in authorities in comparison to prior year	1,1	6,9				8,0
Authorities - Total available for use for the year ending March 31, 2013 - As of September 30, 2012						804,9

The quarterly increase in Authorities is attributable to the additions of the Operating Budget Carry Forward and the Capital Budget Carry Forward, both allocated via Treasury Board Votes during this quarter.

2.3 Significant Changes to Budgetary Expenditures

This section should be read in conjunction with NRC’s Departmental Budgetary Expenditures by Standard Object table.

2.3.1 Variances in Year-to-date Expenditures

Expenditures for 2012-13, as of September 30, were $306.3 million. This was $7.8 million, or 2.5% lower than the $314.1 million recorded at the end of the same time in 2011-12.

• Contributions expenditures dropped by $6.5 million when compared with the previous fiscal year. The decrease is primarily comprised of lower contributions of $3.9 million to small and medium enterprises from the Industrial Research Assistance Program (IRAP) and a decline of $4.1M in TRIUMF contributions due to timing differences. These decreases are somewhat offset by an increase of $3.3M for the new Digital Technologies Adoption Pilot Program.
• Revenue expenditures are $6.3 million less than compared with the previous fiscal year. This difference is due to timing differences in allocating operating expenditures to statutory revenue.
• The Employee Benefit Plan (EBP) expenditures are $5.2 million less than the same period during the previous fiscal year. EBP expenditures are based on estimated salary expenditures, as listed in the Main Estimates, and are adjusted at year end to reflect actual salary expenditures.
• Net operating expenditures increased by $5.1 million, compared with the previous fiscal year. This change is attributable to a $6.1 million decrease in personnel expenditures (excluding the EBP) and to a $11.2 million increase to other operating expenditures. These other operating expenditures increases are due to a $5.7 million increase in utilities, materials & supplies and to delays in charging these to revenue expenditures which will be corrected as the year progresses.
• Capital expenditures increased by $5.1 million. Last fiscal year, the new framework for the NRC Investment Plan caused delays in the flow of capital expenditures.

3.0 Risks and Uncertainties

3.1 NRC Corporate Risks

During the second quarter of FY2012-13, NRC has been continuing its work to develop and launch its realigned programs and portfolios to best address Canadian industry challenges. The work has taken longer to complete than anticipated due to capacity issues and drawing resources from ongoing operations. A Portfolio Assessment Team is currently in place to help expedite advancement of portfolio and program development, and better enable GMs with the necessary tools and support to manage their challenges with portfolio implementation. The Program and Project Services group, with other Corporate Common Services has also been working closely to support program development.

With the delay above, finances will require close monitoring (currently on a monthly and more detailed quarterly basis) to balance program spending and revenues. With NRC's transition to accrual accounting and the new Financial Management process in the Spring, programs are also still in a learning curve in this area and the system requirements — training is ongoing, with corporate support for the transition.

Progress has been made on NRC's Departmental Security Plan, including establishment of the process, tools and implementation of more formalized Business Continuity Planning — potentially lowering Security risk from high to medium. As the transition to Shared Services Canada continues, nevertheless, there are heightened risks around change management in the areas of IT services and procurement given that the processes are concurrently being developed. With the ongoing implementation of new processes and systems (e.g., Business Management Support), and new management teams being developed within the portfolios, change management more broadly will be a continued area of risk to be managed moving ahead and ensuring staff and client remain engaged along the way.

4.0 Significant changes in relation to operations, personnel and programs

NRC is transitioning to a program based market driven organization to address Canadian industry challenges. As a result the NRC is currently replacing and realigning its people and resources to meet this objective.

5.0 Budget 2012 Implementation

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

Budget 2012 identified savings of $1.3 million in 2012-2013 and $16.3 million per year starting in 2013-2014 for NRC. This latter amount is offset by $1.1M in Fiscal Framework Credits, resulting in net savings of $15.2M per year. These represent cost savings associated with sun-setting certain projects and programs, and through new organizational efficiencies.

The impact of Budget 2012 will be minimal this fiscal year and greater savings will be reflected beginning next fiscal year.

Approved by:

6.0 Statement of Authorities (unaudited)

Statement of Authorities (unaudited)
National Research Council Canada
For the quarter ended September 30, 2012

(in thousands of dollars)

Empty cell: for position only	Fiscal Year 2012-2013			Fiscal Year 2011-2012
Empty cell: for position only	Total available for use for the year ending March 31, 2013*	Used during the quarter ended September 30, 2012	Year to date used at quarter-end	Total available for use for the year ending March 31, 2012	Used during the quarter ended September 30, 2011	Year to date used at quarter-end
Vote 60 - Net Operating Expenditures	324,745	107,531	200,460	387,339	100,520	195,346
Vote 65 - Capital Expenditures	41,892	7,183	7,717	41,305	1,836	2,604
Vote 70 - Grants & contributions	169,416	30,968	58,414	139,650	34,409	64,911
Statutory revenue**	228,367	9,175	19,458	123,047	14,951	25,737
Statutory EBP	40,514	10,128	20,257	50,954	12,738	25,477
Total Budgetary authorities	804,933	164,985	306,306	742,296	164,454	314,075

* Includes only Authorities available for use and granted by Parliament at quarter-end. Total available for use does not reflect measures announced in Budget 2012.

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

7.0 Departmental budget expenditures by Standard Object (unaudited)

National Research Council Canada
For the quarter ended September 30, 2012
Departmental budgetary expenditures by Standard Object (unaudited) (in thousands of dollars)

Empty cell: for position only	Fiscal Year 2012-2013			Fiscal Year 2011-2012
Expenditures	Planned expenditures for the year ending March 31, 2013*	Expended during the quarter ended September 30, 2012	Year to date used at quarter-end	Planned expenditures for the year ending March 31, 2012	Expended during the quarter ended September 30, 2011	Year to date used at quarter-end
Personnel	313,985	93,177	188,141	366,270	95,053	193,720
Transportation & communications	31,051	2,965	5,396	22,779	3,424	6,535
Information	9,397	238	796	3,018	404	665
Professional & special services	69,016	11,456	16,086	52,062	7,994	12,709
Rentals	6,604	1,196	1,974	4,276	994	1,687
Repair & maintenance	27,741	3,664	5,320	17,385	2,739	5,465
Utilities, materials & supplies	117,737	13,871	20,941	69,944	11,512	18,208
Acquisition of machinery & equipment	50,550	184	212	48,676	666	950
Transfer payments	169,416	30,967	58,414	139,650	34,409	64,911
Other subsidies & payments	9,435	7,266	9,026	18,236	7,258	9,225
Total net budgetary expenditures	804,933	164,985	306,306	742,296	164,454	314,075

* Planned expenditures do not reflect measures announced in Budget 2012.