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Natural Sciences and Engineering Research Council of Canada Quarterly Financial Report for the Quarter Ended December 31, 2013 - Revised

Statement Outlining Results, Risks and Significant Changes in Operations, Personnel and Programs

• Introduction
• Highlights of Fiscal Quarter
• Risks and Uncertainties
• Significant Changes Related to Operations, Personnel and Programs
• Budget 2012 Implementation
• Statement of Authorities (unaudited) for the Quarter Ended December 31, 2013
• Departmental Budgetary Expenditures by Standard Object (unaudited) for the Quarter Ended December 31, 2013

Introduction

The Natural Sciences and Engineering Research Council of Canada (NSERC) was established in 1978 by the Natural Sciences and Engineering Research Council Act, and is a departmental corporation named in Schedule II of the  Financial Administration Act. NSERC’s purpose is to help make Canada a country of discoverers and innovators for the benefit of all Canadians, by supporting postsecondary students and postdoctoral fellows in their advanced studies, promoting discovery by funding the research programs of academic researchers, and stimulating partnerships between academia and industry. Further information on the NSERC mandate and program activities can be found in  Part II of the Main Estimates.

This Quarterly Financial Report (QFR) 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 and  Supplementary Estimates for 2013-14.

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes NSERC’s spending authorities granted by Parliament and those used by the department, consistent with the Main Estimates and Supplementary Estimates for the 2013-14 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 monies can be spent by the Government of Canada. Approvals are given in the form of annually approved limits through appropriation acts or through legislation in the form of statutory spending authorities for specific purposes.

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 were established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In 2013-14, the changes to departmental authorities were reflected in the 2013-14 Main Estimates tabled in Parliament.

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.

NSERC 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.

This quarterly report has not been subject to an external audit or review.

Highlights of Fiscal Quarter

Statement of Authorities

Available Authorities

As of December 31, 2013, NSERC’s total available authorities for 2013-14 amount to $1,066 million. The changes in available authorities are the result of previous federal budget announcements that impact both the operating authorities (vote 75), and the grants and scholarships program authorities (vote 80) in the current fiscal year. To date, for 2013-14, these changes resulted in a decrease in total authorities of $12.5 million (1.2%) over the prior year, of which $8.1 million (65% of the total changes) represented a decrease in NSERC’s grants and scholarships programs while the authorities for operating and employee benefits expenditures decreased by $4.4 million.

In this quarter (year to date), total available authorities incorporate the elements of the 2013-14 Supplementary Estimates (B) (SEB) in addition to the first quarter’s Supplementary Estimates (A) (SEA). The SEB is the second, and most significant, of three opportunities to approve changes in NSERC’s authority levels for the current fiscal year (other than transfers from Treasury Board votes). The vast majority of these changed elements are the result of previous federal budget announcements, while the balance relates to technical adjustments from Treasury Board and transfers between departments and agencies for specific initiatives. The future and ongoing impacts of SEB elements will be included in NSERC’s 2014-15 Main Estimates. For the ongoing elements from previous federal budget announcements or transfers between departments and agencies, only the net difference in the level of funding between the two fiscal years is presented in the explanation below. The net changes, amounting to the $12.5 million decrease in total available authorities between the current and previous fiscal year, are mainly comprised of the following elements:

• an increase of $15.0 million including $12.0 million to enhance the College and Community Innovation Program (CCI) (Budget 2013);
• an increase of $4.7 million for the Centres of Excellence for Commercialization and Research Program to create a more effective and efficient way to identify commercialization opportunities (Budget 2007);
• an increase of $0.9 million for the College-University Idea to Innovation Program (as part of the CCI initiative) (Budget 2011);
• an increase of $0.7 million as part of the agreement of the Terms and Conditions of Employment;
• an increase of $0.7 million associated with the Council’s Net Vote Authority in 2013-14;
• an increase of $0.5 million from an agreement with the National Research Council to continue funding for the Canadian Light Source (CLS) initiative;
• a decrease of $15.0 million to reduce government spending and find efficiencies;
• a decrease of $14.0 million for the CLS initiative due to the sun-setting of a portion of the program funding (Budget 2008);
• a decrease of $3.7 million related to the paylist expenditures reimbursed by Treasury Board (Vote 30) for the non-recurring pay out of severance (as per governmental changes in severance pay accumulation in 2012-13);
• a decrease of $1.2 million for a transfer to the Canadian Institutes of Health Research for the Business-Led Networks of Centres of Excellence Program which funds large-scale collaborative research networks that bring a wide range of research expertise to bear on specific challenges identified by an industrial sector;
• a decrease of $0.9 million for a transfer to the Canadian Institutes of Health Research for the Networks of Centres of Excellence Program to support the Canada-India Research Centre of Excellence initiative;
• a decrease of $0.1 million for a transfer to the Social Sciences and Humanities Research Council for the Networks of Centres of Excellence Program to support the Canada-India Research Centre of Excellence initiative; and
• a decrease of $0.1 million related to the reduction in the operating budget for the government’s cost-effectiveness initiatives resulting in the reduction of the travel budget and a transfer to Shared Services Canada for the streamlining of the procurement of end user device software.

Authorities Used in the Third Quarter

This departmental QFR reflects the results of the current fiscal period in relation to the 2013-14 Main Estimates and the Supplementary Estimates (A), for which full supply was released by Parliament on June 20, 2013, the Supplementary Estimates (B) which was approved December 16, 2013 and the approved carry-forward of operating funds from 2012-13 to 2013-14.

The total authorities used during the third quarter of 2013-14 amounted to $293.8 million (27.5% of the total available authorities). Of the total authorities available for grants and scholarships, $282.1 million (27.8%) was used during the third quarter. Of the total authorities available for operating expenditures, $11.7 million (23.0%) was used in the third quarter. The total expenditures in the third quarter are $3.8 million (1.3%) more than in the same quarter of the previous fiscal year. This increase is principally related to grants and scholarships programs. The increase in grants and scholarships expenditures ($3.9 million) is mainly due to payment timing differences and increased take-up in certain programs while the decrease in operating expenditures and employee benefits ($0.1 million) is due to the non-recurring cash-out of some benefits by NSERC employees in 2012-13, as per governmental changes in the accumulation of severance pay in the approved Terms and Conditions of Employment. 

Grants and scholarships payments vary between periods due to the cycle and results of the peer-reviewed program competitions, and the multi-year award profiles. The operating expenditures cover personnel and other operating expenses required to support the delivery of the grants and scholarships programs. Expenditures related to the Employee Benefit Plan are accounted for separately in statutory authorities. Although the majority of personnel expenditures and other operating costs are incurred in a consistent manner throughout the fiscal year, the balance of expenditures, including temporary employees hired for the peak competition season and travel costs for peer reviewers, occur in direct conjunction with the program cycle and are demand driven. As a large proportion of the program competitions occur in the final quarter of the fiscal year, the operating expenditures in each of the first three quarters are typically less than 25% of the annual operating available authorities.

Authorities Used Year-to-Date

Total authorities used cumulatively during the first three quarters of the 2013-14 fiscal year represented $819.0 million (77% of the available authorities) and represents a $3.4 million (0.4%) increase from the previous fiscal year. This overall increase is due to the $6.5 million increase in grants and scholarships authorities used during the first three quarters of 2013-14 related to an increased take-up in certain programs that are part of the Strategy for Partnerships and Innovation (SPI). This increase is offset by a decrease of $3.1 million in operating and employee benefit expenditures mainly related to non-recurring cash-out of some benefits by NSERC employees in 2012-13 as per governmental changes in severance pay accumulation. The proportion of the cumulative grants and scholarships authorities used in the first three quarters of the fiscal year is 77.3% in comparison with 76.1% in the previous fiscal year. It is expected that expenditures in the final quarter of the fiscal year will offset the slightly higher spending pattern of the first three quarters. NSERC spent 66.0% of its operating authorities and employee benefits plan to date in the current fiscal year, compared to 66.2% in 2012-13.

Authorities used based on Elapsed Time

Statement of Departmental Budgetary Expenditures by Standard Object

Variation in Amounts Available for Use in 2013-14

As described in the Available Authorities section, NSERC’s Parliamentary authorities have been decreased by $12.5 million for 2013‑14 to date over the prior year, consisting of a decrease in authorities for transfer payment programs ($8.1 million) and the decrease in authorities available for operating and employee benefit expenditures ($4.4 million).

Transfer Payments Expenditures (Grants and Scholarships)

Third Quarter Grants and Scholarships Expenditures

Transfer payments represent approximately 95% of NSERC’s available authorities. Variations may occur in transfer payment expenditures between quarters due to the nature of program cycles. During the third quarter of 2013-14, NSERC’s transfer payment expenditures have increased by $3.9 million compared to the same quarter of the previous fiscal year. The main factors in this increase include:

• An increase of $4.2 million due to a payment timing difference in the College and Community Innovation Program.
• An increase of $4.2 million related to the expanded program authorities and increased take-up in certain programs in the third quarter for the programs related to SPI ($2 million in Collaborative Research and Development Grants and $2.2 million in Engage Grants).
• An increase of $1.4 million for the Collaborative Research and Training Experience Program (CREATE) due to the number of new applications increasing by 25.6%. A total increase of $5 million in expenditures is expected by the end of the fiscal year.
• An increase of $1.4 million in the Centres of Excellence for Commercialization and Research Program due to a timing difference between funds received in SEA this year in comparison with SEB last year.
• An increase of $1.2 million in the Alexander Graham Bell scholarships due to a payment timing difference (authorities are the same as the previous year).
• A decrease of $4.7 million in the Strategic Network Grants Program due to a ramp-down of the program resulting from the Council’s change in priorities.
• A decrease of $3.8 million in the Major Resources Support Program due to a moratorium of the program.

Year-to-Date Grants and Scholarships Expenditures

At the end of the third quarter, NSERC spent $6.5 million more in grants and scholarships than what had been spent by the end of the same quarter in the previous fiscal year. The main factors in the net increase over the prior year include:

• An increase of $13.3 million over the previous year related to expanded program authorities and the related increased take-up in certain programs in the first three quarters for the programs related to SPI ($8.4 million in Collaborative Research and Development Grants and $4.9 million in Engage Grants).
• An increase of $4.8 million for the Collaborative Research and Training Experience Program (CREATE) due to the number of new applications increasing by 25.6%. A total increase of $5 million in expenditures is expected by the end of the fiscal year.
• An increase of $4.7 million in the Centres of Excellence for Commercialization and Research Program due to a timing difference between funds received in SEA this year in comparison with SEB last year. The expenditures were made in the fourth quarter last year.
• An increase of $2.4 million due to a payment timing difference in the College and Community Innovation Program.
• A decrease of $15.1 million in the Major Resources Support Program mainly due the reduction of the CLS budget and the moratorium of the program due to the Council’s change of priorities.
• A decrease of $3.6 million in the Strategic Network Grants Program due to a ramp-down of the program resulting from the Council’s change in priorities.

Transfer Payments Expenditures Trend

Third Quarter and Year-to-Date Personnel Expenditures

Personnel expenditures in support of program delivery account for the largest proportion of NSERC’s planned operating expenditures (approximately 70% of available operating authorities and planned operating expenditures for 2013-14). In comparison with the prior fiscal year, the personnel expenditures for the first three quarters of the fiscal year of 2013-14 decreased by $3.3 million (10.8%), $0.3 million occurring in the third quarter. This decrease is the result of governmental changes related to the cessation of severance pay accumulation for voluntary departures in the NSERC Terms and Conditions of Employment, where some non-recurring benefits to employees were paid out in 2012-13.

Third Quarter and Year-to-Date Non-Personnel Operating Expenditures

Non-personnel operating expenditures include all other operating costs related to the support of program delivery, a significant proportion of which relates to program competitions that take place predominantly during the last quarter of the fiscal year. The overall non-personnel expenditures for the first three quarters of 2013-14 increased slightly by $0.2 million (3.0%), in comparison with the same period the previous year, mainly due to increases occurring in professional and special services because of increasing technological advancement measures through the creation of enhancement efficiencies. These increases have been offset by decreases in acquisition of machinery and equipment as wells as repair and maintenance expenditures in comparison with the prior fiscal year.

Operating Expenditures Trend

Risks and Uncertainties

 Funding and Program Delivery Risk Factors

Through the Council’s most recent corporate risk identification exercise, the risks that have a potential financial impact or that deal with financial sustainability have been assessed. The impact on NSERC and the planned mitigation strategies related to these risks are discussed below.

External Risk Factors

NSERC is funded through annual parliamentary spending authorities and statutory authorities for program transfer payments (grants and scholarships programs) and its supporting operating expenditures. As a result, its program activities and operations are impacted by any changes to funding approved through Parliament. Accordingly, delivering programs can be affected by factors such as the economic climate, technological and scientific development, and evolving government priorities, which impact approved resource levels (total available authorities).

Research and innovation are part of global trends; therefore participation in our programs is not only influenced by the Canadian context, but also by initiatives and opportunities worldwide. Formal communications and external relation strategies are developed by NSERC to ensure that stakeholder relationships and expectations are managed effectively and that NSERC has fulfilled the research and innovation needs.

There is also the risk that NSERC fails to achieve its mandate and strategic outcomes. To mitigate this risk, an integrated planning process was launched by NSERC in 2012. This process will serve as the foundation for NSERC to plan all aspects of its business in an integrated manner and, to align priorities and resources accordingly.

Internal Risk Factors

NSERC is a knowledge-based organization that relies on maintaining its talented and committed workforce to deliver its programs. To retain its valuable human resources and their corporate memory, NSERC is continuing the implementation of a People Strategy that outlines the organization's commitments and action plan for developing talent and for building and sustaining a thriving and successful workplace and work culture. NSERC’s financial restraints are challenging the ability to hire the skilled resources needed to successfully achieve the transformation and realignment agendas to meet tomorrow’s needs. Potential consequences could include workload management issues and succession planning challenges.

NSERC is modernizing its business processes to adapt more efficiently to internal changes and to improve external client service.

The budgetary pressures have required internal reductions and reallocation measures. These pressures are compounded by the operational requirement to support an increased and broadened program base while processing an increasing number of applications and absorbing inflationary costs on operating expenditures within limited or decreasing operational envelopes. NSERC is also managing the requirement for the implementation of modernized technology solutions to better support program delivery. 

Thus far, NSERC has achieved the reduction of its operating pressures through economies of scale achieved by the shared administrative service arrangements with the Social Sciences and Humanities Research Council of Canada, corporate-wide prioritization and harmonization or reduction of activities, internal reallocations, and a focus on streamlining and generating efficiencies wherever possible. An established budgetary process with regular in-year budget reviews and formal reallocations for emerging priorities approved by senior management supports this endeavour. NSERC is also undertaking a revision of its operating and grant delivery systems and processes to generate further efficiencies and future savings.

NSERC is a lean agency in terms of operating funding provided to deliver existing and expanding programs (less than 5% of total resources). NSERC is pursuing business transformation to address restraint measures and funding cuts, and to enhance resource decision-making.

Significant Changes Related to Operations, Personnel and Programs

There were a number of important changes in comparison with the previous fiscal year that relate to operations, personnel and programs. These include the impacts generated by NSERC’s previously increased available program authorities, which resulted in expanded Strategy for Partnerships and Innovation program dimensions. Another prevalent influence involved the continuing implementation of government-wide operating budget constraint measures, for which details are described in the section below. The federal Budget 2013, tabled in March, included funding announcements with additional program dimensions that are being implemented by NSERC.

Budget 2012 Implementation

This section provides an overview of the cost containment and savings measures announced in Budget 2012 that are being 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.

Through the Budget 2012, NSERC has achieved reductions and savings of approximately $15 million in 2012-13 and $30 million in 2013-14 and ongoing. Over Budgets 2012 and 2013, the Government of Canada reinvested $30 million, annually on an ongoing basis, in support of the Strategy for Partnerships and Innovation, making the net impact on NSERC’s overall budget neutral for 2013-14.

NSERC examined all of its activities and investments, with the intention of streamlining operations and ensuring maximum efficiencies.

In realizing operating budget reductions and savings, a number of measures are being implemented to generate greater efficiency and effectiveness, including an enhanced use of technological advancements, such as teleconferencing and virtual meetings. A rigorous and cohesive approach to priority setting, project planning and training will further help the Council meet its goals.

Expenditures in the third quarter of 2013-14 are slightly higher than in the same period from the previous fiscal year. The difference between the two fiscal years is mainly due to payment timing differences in certain grants and scholarships programs.The operating expenditures in the third quarter have generally remained the same as the third quarter of the prior year, which reflects savings equivalent to inflationary pressures.

There was no incremental funding provided to NSERC to implement the cost savings measures.

There are no specific financial risks or uncertainties related to these savings.

Statement of Authorities (unaudited) for the Quarter Ended December 31, 2013

 

	Fiscal Year 2013-2014 (in thousands of dollars)
	Total available for use for the year ending March 31, 2014*	Used during the quarter ended December 31, 2013	Year-to-date used at quarter-end
Vote 75—Operating Expenditures	45,489	10,388	29,587
Less: Revenues netted against expenditures	728	-	-
Vote 75—Net Operating expenditures	44,761	10,388	29,587
Vote 80—Grants and Scholarships	1,015,686	282,100	785,611
Budgetary Statutory Authorities—Employee Benefits Plan	5,176	1,280	3,840
Total Budgetary Authorities	1,065,623	293,768	819,038
* Includes only authorities available for use and granted by Parliament at quarter-end.

 

 

	Fiscal Year 2012-2013 (in thousands of dollars)
	Total available for use for the year ending March 31, 2013*	Used during the quarter ended December 31, 2012	Year-to-date used at quarter-end
Vote 75—Operating Expenditures	49,815	10,463	32,493
Less: Revenues netted against expenditures	-	-	-
Vote 75—Net Operating expenditures	49,815	10,463	32,493
Vote 80—Grants and Scholarships	1,023,738	278,187	779,112
Budgetary Statutory Authorities—Employee Benefits Plan	5,338	1,332	3,998
Total Budgetary Authorities	1,078,891	289,982	815,603
* Includes only Authorities available for use and granted by Parliament at quarter-end.

Departmental Budgetary Expenditures by Standard Object (unaudited) for the Quarter ended December 31, 2013

 

	Fiscal Year 2013-2014 (in thousands of dollars)
	Planned expenditures for the year ending March 31, 2014	Expended during the quarter ended December 31, 2013	Year-to-date used at quarter-end
Expenditures
Personnel	34,882	8,997	26,934
Transportation and communications	4,398	606	1,480
Information	406	173	299
Professional and special services	7,474	1,585	3,477
Rentals	523	253	940
Repair and maintenance	886	(26)	10
Utilities, materials and supplies	342	61	163
Acquisition of machinery and equipment	1,754	19	124
Transfer payments	1,015,686	282,100	785,611
Total Gross Budgetary Expenditures	1,066,351	293,768	819,038
Less revenues netted against expenditures: Vote-Netted Revenues	728	-	-
Total Net Budgetary Expenditures	1,065,623	293,768	819,038

 

 

	Fiscal Year 2012-2013 (in thousands of dollars)
	Planned expenditures for the year ending March 31, 2013	Expended during the quarter ended December 31, 2012	Year-to-date used at quarter-end
Expenditures
Personnel	39,356	9,337	30,185
Transportation and communications	3,949	611	1,491
Information	427	107	190
Professional and special services	8,104	1,340	2,964
Rentals	411	79	211
Repair and maintenance	1,153	157	575
Utilities, materials and supplies	442	109	192
Acquisition of machinery and equipment	1,311	55	683
Transfer payments	1,023,738	278,187	779,112
Total Gross Budgetary Expenditures	1,078,891	289,982	815,603
Less revenues netted against expenditures: Vote-Netted Revenues	-	-	-
Total Net Budgetary Expenditures	1,078,891	289,982	815,603