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Natural Sciences and Engineering Research Council of Canada Quarterly Financial Report for the Quarter Ended December 31, 2014

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, 2014
• Departmental Budgetary Expenditures by Standard Object (Unaudited) for the Quarter Ended December 31, 2014

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 theFinancial 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 2014-15.

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 agency, consistent with the Main Estimates and Supplementary Estimates for the 2014-15 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. 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.

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 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, 2014, NSERC’s total available authorities for 2014-15 amounted to $1,089 million. To date, for 2014-15, total authorities have increased by $23.1 million (2.2%) over the prior year, with $22.3 million coming from an increase in NSERC’s grant and scholarship programs, and $0.8 million from increased authorities for operating expenditures and employee benefits. The changes in available authorities are the result of previous federal budget announcements that impact both the operating authorities (vote 1), and the grant and scholarship program authorities (vote 5) in the current fiscal year. The net changes between the current and previous fiscal year comprise the following elements:

• an increase of $15 million to support advanced research in the natural sciences and engineering (Budget 2014);
• an increase of $3.6 million to establish new Canada Excellence Research Chairs (Budget 2011);
• an increase of $3.5 million in the Centres of Excellence for Commercialization and Research program, which develops effective and efficient ways to identify commercialization opportunities (Budget 2007);
• an increase of $1.8 million from the National Research Council for the Canadian Light Source initiative;
• a decrease of $0.1 million for the College and Community Innovation Program, which enables Canadian colleges to increase their capacity to work with local companies, particularly small and medium-sized enterprises (SMEs);
• a decrease of $0.5 million to the Business-Led Networks of Centres of Excellence program, which creates links between innovative businesses and Canada’s best researchers, helping to create and sustain knowledge-based jobs; and
• Other reductions totaling less than $0.2 million include transfers to other departments, the Web Renewal Initiative and a reduction in operating budget for late fees and interest charges incurred in 2013-14.

Authorities Used in the Third Quarter
This QFR reflects the results of the current fiscal period in relation to the 2014-15 Main Estimates, Supplementary Estimates (A) (SEA),for which full supply was released by Parliament on June 20, 2014, and Supplementary Estimates (B) (SEB) which was approved December 16^th,2014.

The total authorities used during the third quarter of 2014-15 amounted to $292.3 million (27% of the total available authorities; 27% of total authorities used for grant and scholarship programs; and 21% for operating expenditures and employee benefits). The expenditures are $1.4 million less than at the end of the same quarter in the previous fiscal year. This decrease is principally related to operating expenditures. The decrease in operating expenditures is mainly due to a reduction for professional and special services related to the timing of projects requiring professional expertise and assistance.

Grant and scholarship payments vary between periods due to the competition cycles and results of peer-reviewed programs and multi-year award profiles. Operating expenditures cover personnel and other operating expenses required to support the delivery of grant and scholarship 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, are tied to the program cycle and demand driven. As a large proportion of 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 nine months of 2014‑15 fiscal year represented $828.9 million (76% of the available authorities). This represents $9.8 million more than the previous fiscal year. The main factors for this overall increase include previously expanded program authorities in specific programs; increasing demand in some programs; and payment timing differences between the first, second and third quarters. The proportion of the cumulative grant and scholarship authorities used in the fiscal year decreased to 76.7% in 2014-15 from 77.3% in the previous fiscal year. The cumulative authorities used in this fiscal year for operating expenditures and the employee benefit plan decreased by $1.1 million over the previous fiscal year. NSERC has spent 63.7% of its operating authorities and the employee benefit plan in the current fiscal year, compared with 66.9% in 2013-14. Total operating expenditures to date in 2014-15 are generally consistent with the previous year.

Authorities used based on Elapsed Time

Statement of Departmental Budgetary Expenditures by Standard Object

Variation in Amounts Available for Use in 2014-15
As described in the Available Authorities section, NSERC’s parliamentary authorities have increased by $23.1 million to date in 2014-15 over the previous year, with the bulk of this increase attributable to the increase in authorities for transfer payment programs ($22.3 million).

Transfer Payment Expenditures (Grants and Scholarships)

Third Quarter Grant and Scholarship Expenditures
Transfer payments represent 95.3% of NSERC’s available authorities. Variations occur in transfer payment expenditures between quarters due to the nature of program cycles. During the third quarter of 2014-15, NSERC’s transfer payment expenditures have decreased by $0.4 million compared with the same quarter of the previous fiscal year. There are a number of differences in specific programs from year to year:

• an increase of $2.6 million over the previous year related to some expanded program authorities in the Collaborative Research and Development Grants;
• an increase of $2.6 million over the previous year related to timing differences on payments for the Networks of Centres of Excellence;
• an decrease of $2.8 million over the previous year in the College and Community Innovation Program related to a timing difference on payments between years;
• a decrease of $1.6 million over the previous year in the Alexander Graham Bell Canada Graduate Scholarships-Doctoral Program due to a timing difference on payments; and
• a decrease of $1.2 million in the Strategic Network Grants Program to support other funding priorities aligned with NSERC’s Strategy for Partnerships and Innovation.

Year-to-Date Grant and Scholarship Expenditures
At the end of the third quarter, NSERC spent $11 million more in grants and scholarships than it had spent by the end of the same quarter in the previous fiscal year. The main factors in the net increase over the previous year include:

• an increase of $7.8 million over the previous year related to some expanded program authorities, and the related increased take-up in certain programs of the Strategy for Partnerships and Innovation (Collaborative Research and Development Grants and Engage Grants);
• an increase of $4.8 million over the previous year in the College and Community Innovation Program related to two factors: an increase of program authorities from Budget 2013 and a timing difference on payments between years;
• an increase of $4.1 million over last year in the Business-Led Networks of Centres of Excellence program due to a timing difference on payments;
• an increase of $3.5 million over last year in the College and Community Innovation Program – Applied Research and Development Grants due to a timing difference on payments;
• an increase of $3.2 million over last year in the Collaborative Research and Training Experience Program—this year, the number of new applications increased, and an increase of $5.0 million in expenditures is expected in this program by the end of the fiscal year;
• an increase of $2.6 million over last year, due to the creation of the new Collaborative and Thematic Resources Support in Mathematics and Statistics Program;
• an increase of $2.3 million over last year in the Automotive Partnership Canada Awarded Projects due to a timing difference on payments;
• a decrease of $8.1 million over last year in the Major Resources Support Program, due to two factors: a decrease of program authorities and a timing difference on payments in the Canadian Light Source initiative;
• a decrease of $5.0 million in the Strategic Network Grants program to support other funding priorities aligned with NSERC’s Strategy for Partnerships and Innovation; and
• a decrease of $4.2 million in the Centres of Excellence for Commercialization and Research program due to payment timing differences.

Grants and Scholarships 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 69% of available operating authorities and planned operating expenditures for 2014-15). The personnel expenditures for the first three quarters of 2014-15 are generally in line with the comparable expenditures of the prior year.

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 final quarter of the fiscal year. Total non-personnel expenditures to date in 2014-15 are generally consistent with the prior year. Decreased expenditures during the first three quarters of this fiscal year for professional and special services ($1.4 million) related to the timing of projects requiring professional expertise and assistance.

Operating Expenditures Trend

Risks and Uncertainties

Funding and Program Delivery Risk Factors
Through the 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 (grant and scholarship programs) and for its supporting operating expenditures. As a result, its program activities and operations are impacted by any changes to funding approved through Parliament. Accordingly, program delivery can be affected by factors such as the economic and political 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 NSERC programs is influenced not only 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 identified 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 is firmly in place. This process serves 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 developing a human resources 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 is challenged by 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 transforming its business in order improve external client service and increase efficiencies.

Thus far, NSERC has achieved operational efficiencies through economies of scale 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). This efficiency is in part due to the thousands of volunteer peer reviewers offering their expertise in the rigorous evaluation of funding applications. In addition, 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

A number of important changes, in comparison with the previous fiscal year, relate to operations, personnel and programs. These include the impacts generated by NSERC’s previously increased available authorities, which resulted in expanding the Strategy for Partnerships and Innovation program dimensions. Another significant influence involved the continuing implementation of government-wide operating budget constraint measures and the government’s efforts to return to a balanced budget, details of which are described in the section below. Federal Budget 2014, tabled in March 2014, included funding announcements describing additional program dimensions that will be implemented by NSERC, after Treasury Board and Parliament approvals, over the course of the fiscal year.

Dr. B. Mario Pinto has been appointed as the new President of NSERC. Dr. Pinto’s appointment was effective on November 15, 2014.

Budget 2012 Implementation

This section provides an overview of the 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 administrative processes.

Through Canada’s Economic Action Plan, NSERC had achieved savings of approximately $30 million as of 2013-14. Over Budget 2012, Budget 2013 and Budget 2014, the Government of Canada has reinvested $45 million annually in NSERC’s grant and scholarship programs, resulting in a net increase of $15 million to NSERC’s overall budget.

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

In realizing operating budget 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 NSERC meet its goals.

Expenditures in the third quarter of 2014-15 are higher than in the same period of the previous fiscal year. The difference between the two fiscal years is due mainly to increases in take-up in some programs. NSERC’s operating expenditures have generally remained the same as in the comparable period of the previous year—a reflection of savings equivalent to the inflationary pressures.

There was no incremental funding provided to NSERC to implement the above cost-saving measures.

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

Statement of Authorities (Unaudited) for the Quarter Ended December 31, 2014

	Fiscal Year 2014-2015 (in thousands of dollars)
	Total available for use for the year ending March 31, 2015*	Used during the quarter ended December 31, 2014	Year-to-date used at quarter-end
Vote 1—Operating Expenditures	45,873	9,380	28,601
Less: Revenues netted against expenditures	139	-	-
Vote 1—Net Operating Expenditure	45,734	9,380	28,601
Vote 5—Grants and Scholarships	1,038,039	281,736	796,575
Budgetary Statutory Authorities—Employee Benefits Plan	4,957	1,232	3,695
Total Budgetary Authorities	1,088,730	292,348	828,871
* Includes only Authorities available for use and granted by Parliament at quarter-end.

 

	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 1—Operating Expenditures	45,489	10,388	29,587
Less: Revenues netted against expenditures	728	-	-
Vote 1—Net Operating Expenditure	44,761	10,388	29,587
Vote 5—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.

Departmental Budgetary Expenditures by Standard Object (Unaudited) for the Quarter Ended December 31, 2014

	Fiscal Year 2014-2015 (in thousands of dollars)
	Planned expenditures for the year ending March 31, 2015	Expended during the quarter ended December 31, 2013	Year-to-date used at quarter-end
Expenditures
Personnel	35,007	8,846	26,327
Transportation and communications	4,409	531	1,514
Information	407	65	314
Professional and special services	7,493	901	2,082
Rentals	524	160	640
Repair and maintenance	888	7	36
Utilities, materials and supplies	343	20	90
Acquisition of machinery and equipment	1,759	35	95
Other subsidies and payments	-	47	1,198
Transfer payments	1,038,039	281,736	796,575
Total Gross Budgetary Expenditures	1,088,869	292,348	828,871
Less: Revenues netted against expenditures	139	-	-
Total budgetary expenditures	1,088,730	292,348	828,871

 

	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
Other subsidies and payments	-	-	-
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	728	-	-
Total budgetary expenditures	1,065,623	293,768	819,038