Quarterly Financial Report - Quarter ending December 31, 2012

1.0 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of Canada uses financial information to support decision making, for policy development, for service delivery and for historical reference.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 December 31, 2012.

This Departmental Quarterly Financial Report (QFR) reflects the results of the current fiscal period in relation to the Main Estimates, Supplementary Estimates (A), Supplementary Estimates (B), and Treasury Board funding for collective agreements and centrally funded items.

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 National Research Council Act, 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.

2.0 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 December 31, 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 December 31, 2012, and those as of December 31, 2011.

Comparison of Budgetary Authorities and Expenditures
As of December 31, 2012 and December 31, 2011
(in millions of dollars)

Long description of the table of Comparison of Budgetary Authorities and Expenditures

Comparison of Budgetary Authorities and Expenditures
as of December 31, 2012 and December 31, 2011
(in millions of dollars)

	Millions of dollars
	2012-2013	2011-2012
Authorities	$975.2	$770.5
Quarter 1	$141.3	$149.6
Quarter 2	$165.0	$164.5
Quarter 3	$166.3	$151.3
Total for Quarters 1-3	$472.6 (48.5% of Authorities)	$465.4 (60.0% of Authorities)

As shown in above graph, NRC’s expenditures totaled $166.3 million during the third quarter of the current fiscal year versus the previous year’s equivalent of $151.3 million. As a percentage of Authorities, this represents a decrease of 11.5% over the previous year. The following two sections elaborate on variances in Authorities and Year-to-date Expenditures.

2.2 Significant Changes to Authorities

For the period ending December 31, 2012, the authorities provided to NRC include the Main Estimates, Supplementary Estimates (A), Supplementary Estimates (B), TBS Central Votes, 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 2012-13 Statement of Authorities, NRC has seen a total increase in authorities of $170.2 million, or 22.0%, when compared with the September 30, 2012 Quarterly Financial Report.

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

	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						804.9
Industrial Research Assistance Program (Budget 2012)	1.4		90.0			91.4
Refocusing on business-lead research (Budget 2012)	61.1					61.1
Collective Agreements	12.3					12.3
Paylist Requirements (Treasury Board funded allowances)	6.6					6.6
Canadian Safety & Security Program		0.2				0.2
Planned Reductions in Departmental Spending (Budget 2012)	(1.3)					(1.3)
International Affiliations	(0.2)		0.2			-
Total increase in authorities in comparison to prior quarter	79.9	0.2	90.2	-	-	170.2
Authorities - Total available for use for the year ending March 31, 2013 - As of December 31, 2012						975.2

The quarterly increase in Authorities is mainly attributable to increases announced in Budget 2012 for IRAP, refocusing on business lead research, and funding for pay related items 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 December 31, were $472.6 million. This was $7.2 million, or 1.5% higher than the $465.4 million recorded at the end of the same time in 2011-12.

• Contributions expenditures increased by $10.2 million when compared with the previous fiscal year. This increase is mostly due to higher expenditures for the Digital Technologies Adoption Pilot Program of $8.3 million and increased contributions of $5.6 million to small and medium enterprises from the Industrial Research Assistance Program (IRAP). The increases were offset by a decline of $4.1M in TRIUMF contributions due to timing differences.
• The Employee Benefit Plan (EBP) expenditures are $7.8 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 decreased by $2.9 million, compared with the previous fiscal year. This change is attributable to a $5.8 million decrease in other operating expenditures and a $2.9 increase in personnel expenditures (excluding the EBP).
• Capital expenditures increased by $8.2 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 third quarter of FY2012-13 (Q3), the most significant risks identified as part of NRC’s Corporate Risk Profile for FY2013-14 relate in large part to ensuring that the organization has the design and management capacity in place to build and deliver the right programs for industry uptake as NRC continues its refocusing efforts to better meet the needs of Canadian stakeholders and industry. At the same time, NRC must effectively manage the associated changes and impacts – both internally with staff to maintain operations, and externally with partners and clients to sustain engagement.

Key internal and external factors affecting NRC’s risks include:

• Internally, as part of the organization’s refocusing efforts, new business and operating models have been implemented, including restructuring of corporate services to allow for greater efficiencies, as well as implementation of new financial management, program management and client relationship management processes and systems.
• Externally, the Canadian Government has endorsed NRC’s role to effect greater private sector innovation by doubling NRC-IRAP’s budget to $220M per year, impacting its level of activity.
• The ongoing fragile global economy and declining Canadian global competitiveness are anticipated to have an impact on the performance of NRC clients, potentially affecting NRC’s achievement of business targets.

To address the risks as defined in NRC’s Corporate Risk Profile for FY2013-14, areas of action for the organization will focus on:

• Building management capacity and expertise to design and mobilize an effective program-based management organization (including identifying the gaps and undertaking the necessary sourcing actions);
• Effectively managing NRC’s refocusing changes while sustaining operational efficiency (including continuing and new staff engagement initiatives and enhanced client relationship management through redesigned positions and function); and
• Enhancing operational effectiveness through continued training and support for new processes and systems, defining scope and responsibilities (including better integrating common services) to support NRC’s new operating model and continued efforts for streamlining where possible.

Moving forward, NRC’s corporate risks and progress against actions will be reviewed by NRC’s Senior Executive Committee on a quarterly basis for updates and adjustments where needed.

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 realigning its 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 2012-13 and $16.3 million per year starting in 2013-14 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.

6.0 Statement of Authorities

National Research Council Canada
For the quarter ended December 31, 2012
Statement of Authorities (unaudited)
(in thousands of dollars)

	Fiscal Year 2012-2013			Fiscal Year 2011-2012
	Total available for use for the year ending March 31, 2013Table 3 note 1	Used during the quarter ended December 31, 2012	Year to date used at quarter-end	Total available for use for the year ending March 31, 2012Table 3 note 3	Used during the quarter ended December 31, 2011Table 3 note 4	Year to date used at quarter-endTable 3 note 4
Vote 60 - Net Operating expendituresTable 3 note 3	404,647	76,422	276,882	389,848	84,460	279,806
Vote 65 - Capital expenditures	42,089	7,655	15,371	42,166	4,607	7,210
Vote 70 - Grants & contributions	259,566	51,440	109,854	164,535	34,732	99,643
Statutory revenueTable 3 note 2	228,367	20,674	40,132	123,047	14,795	40,533
Statutory EBP	40,514	10,128	30,385	50,954	12,738	38,215
Total Budgetary authorities	975,182	166,319	472,624	770,550	151,332	465,407

7.0 Departmental Budgetary Expenditures

National Research Council Canada
For the quarter ended December 31, 2012
Departmental budgetary expenditures by Standard Object (unaudited)
(in thousands of dollars)

	Fiscal Year 2012-2013			Fiscal Year 2011-2012
Expenditures	Planned expenditures for the year ending March 31, 2013	Expended during the quarter ended December 31, 2012	Year to date used at quarter-end	Planned expenditures for the year ending March 31, 2012Table 4 note 1	Expended during the quarter ended December 31, 2011Table 4 note 2	Year to date used at quarter-endTable 4 note 2
Personnel	404,412	90,094	278,235	352,004	83,587	277,306
Transportation & communications	19,747	1,920	7,140	21,155	3,742	10,277
Information	5,979	163	889	3,660	520	1,186
Professional & special services	43,888	8,003	24,399	68,885	9,469	22,178
Rentals	4,198	770	2,704	4,859	723	2,410
Repair & maintenance	17,633	2,401	7,734	20,539	3,591	9,056
Utilities, materials & supplies	74,901	9,201	30,104	90,749	12,722	30,930
Acquisition of machinery & equipment	9,690	1,087	1,299	13,573	1,129	2,079
Transfer payments	260,466	51,440	109,854	148,600	34,732	99,643
Other subsidies & payments	11,806	1,240	10,265	17,545	1,116	10,341
Total net budgetary expenditures	852,719	166,319	472,624	741,568	151,332	465,407