Health Canada - 2013-14 Departmental Financial Statements

Table of Contents

Statement of Management Responsibility Including Internal Control Over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2014, and all information contained in these statements rests with the management of Health Canada. These financial statements have been prepared by management using the Government's accounting policies, which are based on Canadian public sector accounting standards.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment, and gives due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the Department's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in Health Canada's Departmental Performance Report, is consistent with these financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting (ICFR) designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislation, regulations, authorities and policies.

Management seeks to ensure the objectivity and integrity of data in its financial statements through careful selection, training and development of qualified staff; through organizational arrangements that provide appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards, and managerial authorities are understood throughout the Department and through conducting an annual risk-based assessment of the effectiveness of the system of ICFR.

The system of ICFR is designed to mitigate risks to a reasonable level based on an ongoing process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.

A risk-based assessment of the system of ICFR for the year ended March 31, 2014 was completed in accordance with the Treasury Board Policy on Internal Control and the results and action plans are summarized in the annex.

The effectiveness and adequacy of the Department's system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of the Department's operations, and by the Departmental Audit Committee, which oversees management's responsibilities for maintaining adequate control systems and the quality of financial reporting.

The financial statements of Health Canada have not been audited.

George Da Pont
Deputy Minister
Ottawa, Canada
Date: August 12, 2014

Jamie Tibbetts
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: August 11, 2014

Statement of Financial Position (Unaudited)

As at March 31 (in thousands of dollars)
2014 2013

Contractual obligations (note 9)
Contingent liabilities (note 10)

The accompanying notes form an integral part of these financial statements.

Liabilities
Accounts payable and accrued liabilities (note 4) $ 263,733 $ 324,585
Vacation pay and compensatory leave 38,739 37,923
Deferred revenue 6,579 15,203
Employee future benefits (note 5) 43,182 92,672
Other liabilities (note 6) 299,458 405,670
Total gross liabilities 651,691 876,053
Liabilities held on behalf of Government
Deferred revenue (462) (1,410)
Total liabilities held on behalf of Government (462) (1,410)
Total net liabilities 651,229 874,643
Financial assets
Due from Consolidated Revenue Fund 251,163 305,784
Accounts receivable and advances (note 7) 73,004 61,381
Total gross financial assets 324,167 367,165
Financial assets held on behalf of Government
Accounts receivable and advances (note 7) (61,803) (47,471)
Total financial assets held on behalf of Government (61,803) (47,471)
Total net financial assets 262,364 319,694
Departmental net debt 388,865 554,949
Non-financial assets
Prepaid expenses - 1,314
Tangible capital assets (note 8) 129,386 140,390
Total non-financial assets 129,386 141,704
Departmental net financial position $ (259,479) $ (413,245)

George Da Pont
Deputy Minister
Ottawa, Canada
Date: August 12, 2014

Jamie Tibbetts
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: August 11, 2014

Statement of Operations and Departmental Net Financial Position (Unaudited)

For the Year Ended March 31 (in thousands of dollars)
2014
Planned Results
2014 2013
Restated (note 14)

Segmented information (note 13)

The accompanying notes form an integral part of these financial statements.

Expenses
A health system responsive to the needs of Canadians $ 352,768 $ 299,527 $ 344,186
Health risks and benefits associated with food, products, substances, and environmental factors are appropriately managed and communicated to Canadians 664,177 667,937 637,258
First Nations and Inuit communities and individuals receive health services and benefits that are responsive to their needs so as to improve their health status 2,207,751 2,575,798 2,418,636
Internal services 295,995 394,132 396,553
Expenses incurred on behalf of Government (730) 8,598 (14,536)
Total expenses 3,519,961 3,945,992 3,782,097
Revenues
Sales of goods and services
Services of a regulatory nature 53,424 41,345 49,125
Rights and privileges 57,898 59,856 29,064
Services of a non-regulatory nature 21,869 169,130 81,842
Lease and use of public property - 295 287
Revenues from fines - 2,095 2,565
Interest - 674 244
Other 2 6,082 4,555
Revenues earned on behalf of Government (17,344) (20,663) (20,075)
Total Revenues 115,849 258,814 147,607
Net cost of operations before government funding and transfers 3,404,112 3,687,178 3,634,490
Government funding and transfers
Net cash provided by Government 3,385,766 3,762,679 3,703,325
Change in due from Consolidated Revenue Fund (96,262) (54,621) 9,877
Services provided without charge by other government departments (note 11) 129,192 133,754 134,430
Transfer of tangible capital assets from/to other government departments - (43) (77)
Transfer of assets and liabilities from/to other government departments (note 12) 755 (825) (3,702)
Net cost (revenue) from operations after government funding and transfers (15,339) (153,766) (209,363)
Departmental net financial position - Beginning of year (597,985) (413,245) (622,608)
Departmental net financial position - End of year $ (582,646) $ (259,479) $ (413,245)

Statement of Change in Departmental Net Debt (Unaudited)

For the Year Ended March 31 (in thousands of dollars)
2014
Planned Results
2014 2013

The accompanying notes form an integral part of these financial statements.

Net cost (revenue) from operations after government funding and transfers $ (15,339) $ (153,766) $ (209,363)
Change due to tangible capital assets
Acquisition of tangible capital assets 28,641 21,028 32,860
Amortization of tangible capital assets (26,435) (27,233) (26,603)
Proceeds from disposal of tangible capital assets - (547) (279)
Net loss on disposal of tangible capital assets including adjustments (1,691) (3,784) (1,393)
Non-cash changes in tangible capital assets - (301) (140)
Transfer of tangible capital assets from/to other government departments - (43) (77)
Transfer of assets to Public Health Agency of Canada (note 12) - (124) (966)
Total change due to tangible capital assets 515 (11,004) 3,402
Change due to prepaid expenses - (1,314) (11,086)
Net decrease in departmental net debt (14,824) (166,084) (217,047)
Departmental net debt - Beginning of year 743,831 554,949 771,996
Departmental net debt - End of year $ 729,007 $388,865 $554,949

Statement of Cash Flows (Unaudited)

For the Year Ended March 31 (in thousands of dollars)
2014 2013
Restate (note 14)

The accompanying notes form an integral part of these financial statements.

Operating activities
Net cost of operations before government funding and transfers $ 3,687,178 $ 3,634,490

Non-cash items:

Amortization of tangible capital assets (27,233) (26,603)
Loss on disposal of tangible capital assets (3,784) (1,393)
Non-cash changes in tangible capital assets (301) (140)
Services provided without charge by other government departments (note 11) (133,754) (134,430)
Variations in Statement of Financial Position:
Decrease (increase) in accounts payable and accrued liabilities 60,852 38,775
Decrease (increase) in vacation pay and compensatory leave (816) (386)
Decrease (increase) in deferred revenue 7,676 (10,217)
Decrease (increase) in employee future benefits 49,490 50,545
Decrease (increase) in other liabilities 106,212 123,515
Increase (decrease) in accounts receivable and advances (2,709) 4,938
Increase (decrease) in prepaid expenses (1,314) (11,086)
Transfer of assets and liabilities from/to other government departments (note 12) 701 2,736
Cash used in operating activities 3,742,198 3,670,744
Capital investing activities
Acquisition of tangible capital assets 21,028 32,860
Proceeds from disposal of tangible capital assets (574) (279)
Cash used in capital investing activities 20,481 32,581
Net cash provided by Government of Canada $3,762,679 $3,703,325

Notes to the Financial Statements (Unaudited)

For the Year Ended March 31, 2014

1. Authority and objectives

The Department of Health was established effective July 12, 1996 under the Department of Health Act to participate in the promotion and preservation of the health of the people of Canada. It is named in Schedule I of the Financial Administration Act and reports through the Minister of Health. Priorities and reporting are aligned under the following strategic outcomes and related program activities:

Strategic Outcome 1: A health system responsive to the needs of Canadians

Canadians expect their governments to provide a health system that meets their needs and that delivers results effectively and efficiently. In addition to ensuring that it meets specific federal responsibilities, such as health services for federal employees and during international events held in Canada, Health Canada works with provincial and territorial governments as well as health organizations and other stakeholder groups to address the health objectives of Canadians. Research and policy analysis, support and funding to test innovations in health service delivery and monitoring of provincial and territorial application of the Canada Health Act all lead to continuing improvement in Canada's health system.

Program Activities:

  • Canadian health system
  • Specialized health services
  • Official language minority community development

Strategic Outcome 2: Health risks and benefits associated with food, products, substances, and environmental factors are appropriately managed and communicated to Canadians

This Strategic Outcome seeks to ensure that the food that Canadians eat and products they use are as safe as possible and that threats to health are addressed effectively. It helps increase Canadians' understanding of factors that influence everyone's health such as environmental conditions and nutrition. It helps to limit the use and abuse of tobacco and illicit drugs.

Program Activities:

  • Health products
  • Food safety and nutrition
  • Environmental risks to health
  • Consumer product and workplace chemical safety
  • Substance use and abuse
  • Radiation protection
  • Pesticides

Strategic Outcome 3: First Nations and Inuit communities and individuals receive health services and benefits that are responsive to their needs so as to improve their health status

This Strategic Outcome seeks to ensure that First Nations and Inuit living on reserve or in Inuit communities have access to health services as well as a limited range of medically necessary health-related goods and services not provided through private insurance plans, provincial/territorial health or social programs or other publicly funded programs. It seeks to reduce the gap in health outcomes between First Nations and Inuit and the Canadian population in general.

Program Activities:

  • First Nations and Inuit primary health care
  • Supplementary health benefits for First Nations and Inuit
  • Health infrastructure support for First Nations and Inuit

Internal services

Health Canada has a range of internal services. Some, such as financial, administrative, real property, security, human resources, information management and Information Technology, provide the basic infrastructure that enables the Department to function while ensuring compliance to new and existing central agency policies. Other internal services in Health Canada address departmental and Health Portfolio needs such as general communications and policy activities, as well as managing relations with Parliamentarians, the Cabinet system and other government departments and levels of government. An additional set of internal service roles centre on critical departmental and government-wide responsibilities, such as ensuring the best value for Canadians through planning, accountability and tracking performance and results.

2. Summary of significant accounting policies

These financial statements have been prepared using the Government's accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

Significant accounting policies are as follows:

(a) Parliamentary authorities

The Department is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Department do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Financial Position and in the Statement of Operations and Departmental Net Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. The planned results amounts in the Statement of Operations and Departmental Net Financial Position and Statement of Change in Departmental Net Debt are the amounts reported in the future-oriented financial statements included in the 2013-14 Report on Plans and Priorities.

(b) Net cash provided by Government

The Department operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the Department is deposited to the CRF and all cash disbursements made by the Department are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements, including transactions between departments of the Government.

(c) Amounts due from the Consolidated Revenue Fund

Amounts due from the CRF are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that the Department is entitled to draw from the CRF without further authorities to discharge its liabilities.

(d) Revenues

  • Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
  • Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. These revenues are recognized in the period in which the related expenses are incurred.
  • Funds that have been received are recorded as deferred revenue, provided the Department has an obligation to other parties for the provision of goods, services or the use of assets in the future.
  • Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
  • Revenues that are non-respendable are not available to discharge the Department's liabilities. While the Deputy Head is expected to maintain accounting control, he or she has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of the entity's gross revenues.

(e) Expenses

Expenses are recorded on the accrual basis:

  • Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established for the transfer payment program. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to transfer payment expense and as a receivable.
  • Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
  • Services provided without charge by other government departments for accommodation, employer contributions to the health and dental insurance plans, legal services and workers' compensation are recorded as operating expenses at their estimated cost.

(f) Employee future benefits

  1. Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multi-employer pension plan administered by the Government. The Department's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The Department's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.
  2. Severance benefits: Employees entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services necessary to earn them are rendered. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

(g) Accounts receivable

Accounts receivable are stated at the lower of cost and net recoverable value. A valuation allowance is recorded for accounts receivable where recovery is considered uncertain.

(h) Contingent liabilities

Contingent liabilities are potential liabilities that may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or if an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

(i) Environmental liabilities

Environmental liabilities consist of estimated costs related to the remediation of environmentally contaminated sites as well as estimated costs related to obligations associated with future asset restoration.

Remediation liabilities are recorded as accrued liabilities to recognize the estimated costs related to the management and remediation of contaminated sites where the Department is obligated, or likely to be obligated, to remediate the sites. If the responsibility to remediate is undeterminable, the amount is disclosed as a contingent liability. If the responsibility to remediate is undeterminable and a reasonable estimate cannot be made, the nature, source and extent of contamination is disclosed as a contingent liability.

(j) Tangible capital assets

All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. The Department does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections.

Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the asset as follows:

Tangible capital assets
Asset class Sub-asset class Amortization period
Buildings Buildings 25 years
Works and infrastructure Works and infrastructure 25 years
Leasehold improvements Leasehold improvements Lease term, max. 40 years
Machinery and equipment Machinery and equipment 8-12 years
Computer equipment  3-5 years
Computer software 3 years
In-house developed software 5 years
Other equipment 5-12 years
Vehicles Motor vehicles 4-7 years
Other vehicles 10 years
Assets under construction Buildings in progress of construction Assets under construction are recorded in the applicable capital asset class in the year that they become available for use and are not amortized until they become available for use.
Engineering works in progress of construction
Work in progress for software
Other construction or work in progress 

(k) Measurement uncertainty

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, environmental liabilities, the liability for employee future benefits, allowance for doubtful accounts and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3. Parliamentary authorities

The Department receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Financial Position and the Statement of Operations and Departmental Net Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the Department has different net results of operations for the year on a government funding basis than on an accrual accounting basis. These differences are reconciled in the following tables:

(a) Reconciliation of net cost of operations to current year authorities used:

Reconciliation of net cost of operations to current year authorities used (in thousands of dollars)
2014 2013 Restated
(note 14)
Net cost of operations before government funding and transfers $ 3,687,178 $ 3,634,490
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets (27,233) (26,603)
Loss on disposal of tangible capital assets (3,784) (1,354)
Services provided without charge by other government departments (133,754) (134,430)
Decrease (increase) in vacation pay and compensatory leave (806) 658
Decrease in employee future benefits 49,901 52,088
Refund/adjustment of prior year's expenditures 61,462 34,026
Bad debt expense 8,643 (14,376)
Increase (decrease) in transfer payment accrual (19,095) 22,562
Decrease in Workforce adjustment measures 10,226 52,774
Statutory spending authority equivalent to revenues earned 64,670 47,260
Other 4,809 9,761
Total items affecting net cost of operations but not affecting authorities 3,702,217 3,676,856
Adjustments for items not affecting net cost of operations but affecting authorities:
Disbursement to Canada Health Infoway Inc. 106,194 122,492
Acquisitions of tangible capital assets 21,028 32,860
Proceeds from disposal of Crown assets 54 36
Decrease in prepaid expenses (1,314) (11,086)
Total items not affecting net cost of operations but affecting authorities 125,962 144,302
Current year authorities used $ 3,828,179 $ 3,821,158

(b) Authorities provided and used:

Authorities provided and used (in thousands of dollars)
2014 2013
Authorities provided:
Vote 1 - Operating expenditures $ 1,955,617 $ 2,115,935
Vote 5 - Capital expenditures 27,577 37,351
Vote 10 - Grants and contributions 1,660,584 1,520,090
Statutory amounts 303,543 309,782
Less:
Authorities available for future years (602) (314)
Lapsed authorities (118,540) (161,686)
Current year authorities used $ 3,828,179 $ 3,821,158

4. Accounts payable and accrued liabilities

The following table presents details of the Department's accounts payable and accrued liabilities:

Accounts payable and accrued liabilities (in thousands of dollars)
2014 2013
Accounts payable - External parties $ 112,613 $ 138,386
Accounts payable - Other government departments and agencies 16,361 13,676
Total accounts payable 128,974 152,062
Accrued liabilities 134,759 172,523
Total accounts payable and accrued liabilities $ 263,733 $ 324,585

In Canada's Economic Action Plan 2012, the Government announced savings measures to be implemented by departments over the next three fiscal years starting in 2012-13. As a result, the Department has recorded at March 31, 2014, an obligation for termination benefits for an amount of $2.2 million ($12.4 million in 2012-13) as part of accrued liabilities to reflect the estimated workforce adjustment costs.

5. Employee future benefits

(a) Pension benefits

The Department's employees participate in the public service pension plan (the "Plan"), which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2% per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plan benefits and they are indexed to inflation.

Both the employees and the Department contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to Canada's Economic Action Plan 2012, employee contributions have been divided into two groups - Group 1 relates to existing plan members as of December 31, 2012 and Group 2 relates to members joining the Plan as of January 1, 2013. Each group has a distinct contribution rate.

The 2013-14 expense amounts to the following:

Pension benefits (in thousands of dollars)
2014 2013
Expense for the year $ 95,593 $ 99,071

For Group 1 members, the expense represents approximately 1.6 times (1.7 times in 2012-13) the employee contributions and, for Group 2 members, approximately 1.5 times (1.6 times in 2012-13) the employee contributions.

The Department's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

(b) Severance benefits

The Department provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment. These severance benefits are not pre-funded. Benefits will be paid from future authorities.

As part of collective agreement negotiations with certain employee groups, and changes to conditions of employment for executives and certain non-represented employees, the accumulation of severance benefits under the employee severance pay program ceased for these employees commencing in 2012. Employees subject to these changes have been given the option to be immediately paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits on termination from the public service. These changes have been reflected in the calculation of the outstanding severance benefit obligation.

Information about the severance benefits, measured as at March 31, is as follows:

Severance benefits (in thousands of dollars)
2014 2013
Accrued benefit obligation - Beginning of year $ 92,672 $ 143,217
Transferred from/to other government departments (note 12) 409 1,543
Subtotal 93,081 144,760
Provision for the year (580) (15,767)
Benefits paid during the year (49,319) (36,321)
Accrued benefit obligation - End of year $ 43,182 $ 92,672

6. Other liabilities

Other liabilities (in thousands of dollars)
2014 2013
Canada Health Infoway Inc. $ 259,417 $ 366,086
Other 40,041 39,584
Total other liabilities $ 299,458 $ 405,670

Budget 2007 announced an allocation of $400.0 million to Canada Health Infoway Inc. Of this authority $350.3 million has been disbursed to date, $29.3 million in 2013-14, ($27.5 million in 2012-13). Budget 2009 announced an additional allocation of $500.0 million to Canada Health Infoway Inc. Of this 2009 authority $290.3 million has been disbursed to date, $77.4 million in 2013-14, ($95.7 million in 2012-13). The disbursed amounts include interest deemed to have been paid to Canada Health Infoway Inc.

The remaining other liabilities include amounts for contingent liabilities of $33.3 million ($33.0 million in 2012-13) and Specified Purpose Accounts: Collaborative research projects $2.4 million ($2.6 million in 2012-13); miscellaneous federal/provincial projects $1.6 million ($1.7 million in 2012-13); and World Health Organization $0.1 million ($0.1 million in 2012-13).

7. Accounts receivable and advances

The following table presents details of the Department's accounts receivable and advances balances:

Accounts receivable and advances (in thousands of dollars)
2014 2013
Accounts receivable - External parties $72,971 $77,545
Accounts receivable - Other government departments and agencies 13,585 8,140
Employee advances  89 95
Subtotal  86,645 85,780
Allowance for doubtful accounts on receivables from external parties (13,641) (24,399)
Gross accounts receivable and advances 73,004 61,381
Accounts receivable held on behalf of Government (61,803) (47,471)
Net accounts receivable and advances $11,201 $13,910

8. Tangible capital assets

Capital assets (in thousands of dollars)
  Opening balance Acquisitions Disposals/ write-downs Transfers and adjustments Closing balance
Land $ 1,177 $ - $ (2) $ - $ 1,175
Buildings 135,180 1,559 (2,020) 530 135,249
Works and infrastructure 2,067 - - - 2,067
Leasehold improvements 26,475 - - - 26,475
Machinery and equipment 189,728 7,958 (7,115) 11,530 202,101
Vehicles 17,071 2,158 (4,804) (243) 14,182
Assets under construction 21,532 9,353 (3,336) (12,573) 14,976
Total $ 393,230 $ 21,028 $ (17,277) $ (756) $ 396,225
 
Accumulated amortization (in thousands of dollars)
  Opening balance Current year amortization Disposals/ write-downs Transfers and adjustments Closing balance
Buildings $ 108,712 $ 4,762 $ (1,600) $ - $ 111,874
Works and infrastructure 253 83 - - 336
Leasehold improvements 21,020 691 - - 21,711
Machinery and equipment 111,427 19,905 (7,057) (147) 124,128
Vehicles 11,428 1,792 (4,289) (141) 8,790
Total $ 252,840 $ 27,233 $ (12,946) $ (288) $ 266,839
 
Tangible capital assets net book value (in thousands of dollars)
  Net book value 2013 Net change acquisitions and amortization Net change disposals/ write-downs Net change transfers and adjustments Net book value 2014
Land $ 1,177 $ - $ (2) $ - $ 1,175
Buildings 26,468 (3,203) (420) 530 23,375
Works and infrastructure 1,814 (83) - - 1,731
Leasehold improvements 5,455 (691) - - 4,764
Machinery and equipment 78,301 (11,947) (58) 11,677 77,973
Vehicles 5,643 366 (515) (102) 5,392
Asset under construction 21,532 9,353 (3,336) (12,573) 14,976
Total $ 140,390 $(6,205) $ (4,331) $ (468) $ 129,386

Transfers from assets under construction represent assets that were put into use in the year and have been transferred to the other capital asset classes as applicable.

Effective April 1, 2013, the Department transferred assets with a net book value of $123,646 to the Public Health Agency of Canada. This transfer is included in the transfers and adjustments column (note 12).

9. Contractual obligations

The nature of the Department's activities can result in multi-year contracts and obligations whereby the Department will be obligated to make future payments in order to carry out its transfer payment programs or when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

Contractual obligations (in thousands of dollars)
Transfer payments Non-insured health benefits Total
2014-15 $1,376,652 $11,575 $1,388,227
2015-16 960,040 - 960,040
2016-17 797,139 - 797,139
2017-18 652,074 - 652,074
2018-19 and thereafter 2,483,586 - 2,483,586
Total $6,269,491 $ 11,575 $ 6,281,066

10. Contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are grouped into two categories as follows:

(a) Environmental liabilities

The Department has identified 1 site (1 site in 2012-13) where it is obligated, or likely to be obligated, to remediate for which a remediation liability of $167,000 ($170,000 in 2012-13) has been recorded in accrued liabilities. The Department's ongoing efforts to assess contaminated sites may result in additional environmental liabilities related to newly identified sites, or changes in the assessments of existing sites. These liabilities will be accrued by the Department in the year in which they become likely and are reasonably estimable.

(b) Claims and litigation

Claims have been made against the Department in the normal course of operations. These claims include items with pleading amounts and other for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. The Department has recorded an allowance for claims and litigations where it is likely that there will be a future payment and a reasonable estimate of the loss can be made. Claims and litigations for which the outcome is not determinable and a reasonable estimate can be made by management amount to approximately $17.2 million in 2013-14 ($40 thousand in 2012-13).

11. Related party transactions

The Department is related as a result of common ownership to all government departments, agencies, and Crown corporations. The Department enters into transactions with these entities in the normal course of business and on normal trade terms. During the year, the Department received common services which were obtained without charge from other government departments as disclosed below.

(a) Common services provided without charge by other government departments:

During the year, the Department received services without charge from certain common service organizations, related to accommodation, legal services, the employer's contribution to the health and dental insurance plans and workers' compensation coverage. These services provided without charge have been recorded in the Department's Statement of Operations and Departmental Net Financial Position as follows:

Common services provided without charge by other government departments (in thousands of dollars)
2014 2013
Employer's contribution to the health and dental insurance plans $ 67,640 $ 70,601
Accommodation 62,971 60,983
Legal services 2,633 2,351
Worker's compensation 510 495
Total $ 133,754 $ 134,430

The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, such as the payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General are not included in the Department's Statement of Operations and Departmental Net Financial Position. The costs of information technology infrastructure services provided by Shared Services Canada, following the transfer of responsibilities in November 2011 and April 2013, are also not included in the Department's Statement of Operations and Departmental Net Financial Position.

(b) Other transactions with related parties:

Other transactions with related parties (in thousands of dollars)
2014 2013
Accounts payable - Other government departments and agencies $16,361 13,676
Accounts receivable - Other government departments and agencies 13,585 8,140
Expenses - other government departments and agencies 102,416 96,845
Revenues - other government departments and agencies 80,379 62,388

Expenses and revenues disclosed in (b) exclude common services provided without charge, which are already disclosed in (a).

12. Transfers from/to other government departments

2014

  • (a) On April 3, 2013, the Department transferred responsibility for the acquisition and provision of hardware and software, including security software, for workplace technology devices to Shared Services Canada pursuant to Order-in-Council 2013-0368, including the stewardship responsibility for the assets and liabilities related to the program.
     
    During the transition period, the Department continued to administer the transferred activities on behalf of Shared Services Canada. The administered expenses amounted to $407 thousand for the year. These expenses are not recorded in the financial statements.
  • (b) Effective April 1, 2013, the Department was transferred assets and liabilities from Hazardous Materials Information Review Commission in accordance with Order in Council P.C. 2013-0339 and P.C. 2013-0340.
  • (c) Effective April 1, 2013, the Department transferred responsibility for the control and supervision of the Travelling Public Program Unit to the Public Health Agency of Canada in accordance with Order in Council P.C. 2013-0341, including the stewardship responsibility for the assets and liabilities related to the program.

2013

  • (d) Effective June 30, 2012, the Department transferred the responsibility for the control and supervision of portions of the federal public administration in the Department of Health known as the Audit and Accountability Bureau, the Departmental Performance Measurement and Evaluation Directorate, the International Affairs Directorate and the Emergency Preparedness and Response Unit to the Public Health Agency of Canada in accordance with Order in Council P.C. 2012-0965 and Order in council P.C. 2012-0950, including the stewardship responsibility for the assets and liabilities related to the programs.
  • (e) Effective June 30, 2012, the Department was transferred the responsibility for the control and supervision of portions of the federal public administration from the Public Health Agency of Canada known as the Communications Directorate, the Human Resources Directorate, the Information Management and Information Technology Directorate, the Facilities and Safety Division, the Integrated Security Services Division, the Access to Information and Privacy Office, the Financial Policy, Systems and Operations Division, and the Assets and Material Management Division in accordance with Order in Council P.C. 2012-0965, including the stewardship responsibility for the assets and liabilities related to the programs.
  • (f) Effective September 30, 2012, the Department was transferred assets and liabilities from Assisted Human Reproduction Canada in accordance with Order in Council P.C. 2012-1136.

As a result of the changes disclosed above, the Department transferred/was transferred the following assets and liabilities:

2014 Transfers from/to other government departments (in thousands of dollars)
Note 12 (b) Note 12 (c) Total
Assets
Accounts receivable $ 38 $ (84) $ (46)
Tangible capital assets (net book value) (note 8) - (124) (124)
Total assets transferred 38 (208) (170)
Liabilities
Accounts payable and accrued liabilities (266) - (266)
Allowance for vacation pay (9) 29 20
Employee future benefits (note 5) (431) 22 (409)
Total liabilities transferred (706) 51 (655)
Adjustment to the departmental net financial position $ (668) $ (157) $ (825)
 
2013 Transfers from/to other government departments (in thousands of dollars)
Note 12 (d) Note 12 (e) Note 12 (f) Total
Assets
Accounts receivable $ - $ - $ 256 $ 256
Tangible capital assets (net book value) (note 8) (966) - - (966)
Total assets transferred (966) - 256 (710)
Liabilities
Accounts payable and accrued liabilities - - (405) (405)
Allowance for vacation pay 796 (1,821) (19) (1,044)
Employee future benefits (note 5) 1,663 (3,131) (75) (1,543)
Total liabilities transferred 2,459 (4,952) (499) (2,992)
Adjustment to the departmental net financial position $ 1,493 $ (4,952) $ (243) $ (3,702)

13. Segmented information

Presentation by segment is based on the Department's program alignment architecture. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in note 2. The following table presents the expenses incurred and revenues generated for the main programs, by major object of expense and by major type of revenue. The segment results for the period are as follows:

Segmented information (in thousands of dollars)
A health system responsive to the needs of Canadians Health risks and benefits associated with food, products, substances, and environmental factors are appropriately managed and communicated to Canadians First Nations and Inuit communities and individuals receive health services and benefits that are responsive to their needs so as to improve their health status Internal services 2014 Total 2013 Total Restated
(note 14)
Expenses
Transfer payments $ 254,562 $ 29,376 $ 1,324,922 $ - $ 1,608,860 $ 1,468,347
Salaries and employee benefits 30,599 501,126 229,888 223,183 984,796 951,238
Utilities, materials and supplies 755 23,743 457,885 17,977 500,360 490,184
Professional and special services 10,322 51,832 335,017 74,059 471,230 486,423
Travel non-insured health patients - - 183,618 - 183,618 189,817
Accommodation 2,182 29,741 15,138 28,401 75,462 73,399
Repair and maintenance 98 2,517 2,458 24,451 29,524 25,340
Travel and relocation 473 6,694 18,946 1,758 27,871 33,025
Amortization of tangible capital assets 248 8,945 2,612 15,428 27,233 26,603
Information services 121 10,403 891 6,558 17,973 17,813
Rentals 77 1,395 1,032 5,748 8,252 10,343
Communications 101 1,996 3,151 1,819 7,067 8,246
Other (11) 169 240 3,393 3,791 1,479
Bad debts - - - (8,643) (8,643) 14,376
Expenses incurred on behalf of Government - - - 8,598 8,598 (14,536)
Total expenses 299,527 667,937 2,575,798 402,730 3,945,992 3,782,097
Revenues
Sales of goods and services:
-Services of a regulatory nature - 38,166 - 3,179 41,345 49,125
-Rights and privileges - 56,959 - 2,897 59,856 29,064
-Services of a non-regulatory nature 12,252 6,767 79,930 70,181 169,130 81,842
-Lease and use of public property - - 193 102 295 287
Revenues from fines - 2,095 - - 2,095 2,565
Interest - - - 674 674 244
Other 1,004 4,625 288 165 6,082 4,555
Revenues earned on behalf of Government (1,004) (17,705) (1,079) (875) (20,663) (20,075)
Total revenues 12,252 90,907 79,332 76,323 258,814 147,607
Net cost from continuing operations $ 287,275 $ 577,030 $ 2,496,466 $ 326,407 $ 3,687,178 $ 3,634,490

14. Adjustments to Prior Year's Results

During the preparation of the current year's financial statements there was a reinterpretation of the application of Treasury Board Accounting Standards as they relate to the following account: Revenues earned on behalf of Government. Consequently, the comparative financial statements presented for the year ended March 31, 2013 have been restated. The effect of the adjustment is presented in the table below.

Adjustments to Prior Year's Results (in thousands of dollars)
2013
As previously stated
Effect of change 2013 Restated
Statement of Operations and Departmental Net Financial Position
Revenues earned on behalf of Government $ (67,335) $ 47,260 $ (20,075)
Net cost of operations before government funding and transfers 3,681,750 (47,260) 3,634,490
Net cash provided by Government 3,750,585 (47,260) 3,703,325
Statement of Cash Flows
Net cost of operations before government funding and transfers $ 3,681,750 $ (47,260) $ 3,634,490
Cash used in operating activities 3,718,004 (47,260) 3,670,744
Net cash provided by Government 3,750,585 (47,260) 3,703,325
Note 3(a)
Net cost of operations before government funding and transfers $ 3,681,750 $ (47,260) $ 3,634,490
Statutory spending authority equivalent to revenues earned - 47,260 47,260
Note 13
Revenues earned on behalf of Government $ (67,335) $ 47,260 $ (20,075)
Net cost from continuing operations 3,681,750 (47,260) 3,634,490

15. Comparative information

Comparative figures have been reclassified to conform to the current year's presentation.

Health Canada's Annex to the Statement of Management Responsibility Including Internal Control Over Financial Reporting

Assessment of Internal Controls Over Financial Reporting and Action Plan for the fiscal year ended March 31, 2014

1. Introduction

This document provides summary information on the measures taken by Health Canada (HC) to maintain an effective system of internal control over financial reporting (ICFR) including information on internal control management, assessment results and related action plans.

Detailed information on Health Canada's authority, mandate and program activities can be found in the 2013-14 Departmental Performance Report and the 2013-14 Report on Plans and Priorities.

2. Departmental system of internal control over financial reporting

2.1 Internal control management

Health Canada has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. A departmental internal control over financial reporting framework, approved by the Deputy Minister and the Chief Financial Officer, is in place and includes:

  • Organizational Accountability Structures: Establish the means by which the leading authorities at Health Canada, i.e. Deputy Minister, Chief Financial Officer, Chief Audit Executive, the external Departmental Audit Committee, Assistant Deputy Ministers and Governance Committees, ensure proper accountability, stewardship and transparency in the conduct of financial management, risk and internal control, and stewardship over resources.
  • Values and Ethics: Health Canada adheres to the Values and Ethics Code for the Public Sector and has implemented its internal Code of Conduct, which provides mechanisms for listening to employee concerns, ensuring broad training on values and ethics issues, and linking values and ethics to integrated risk management.
  • Ongoing Communication and Training: Ensure that all Departmental employees are informed and trained on statutory requirements, policies and procedures for sound financial management and controls.
  • Monitoring, Regular Updates and Assessments: Ensure that internal controls are monitored through ongoing assessments and updated as required. Results of such assessments are reported to the Deputy Head, Departmental Senior Management, and the Departmental Audit Committee (DAC) with action plans to remediate any deficiencies. DAC meets four times annually and provides advice to the Deputy Minister on the adequacy and functioning of the Department's risk management, control and governance frameworks and processes.

2.2 Service arrangements relevant to financial statements

Health Canada relies on other organizations for the processing of certain transactions that are recorded in its financial statements as follows:

Common Arrangements
  • Public Works and Government Services Canada (PWGSC) centrally administers the payments of salaries and the procurement of goods and services, in accordance with the Health Canada Delegation of Authority, and provides accommodation services.
  • The Treasury Board of Canada Secretariat provides Health Canada with information used to calculate various accruals and allowances, such as the accrued severance liability.
  • The Department of Justice provides legal services to Health Canada.
  • Agriculture and Agri-Food Canada provides platform access to its human resources management system of record (PeopleSoft).
  • Shared Services Canada provides information technology (IT) infrastructure services to Health Canada in the areas of data centre and network services. The scope and responsibilities are addressed in the interdepartmental arrangement between Shared Services Canada and Health Canada.
Specific Arrangements
  • Pursuant to a contract with the Government of Canada, Express Scripts Canada (ESC), an external service provider, administers the Health Information and Claims Processing System for pharmacy, dental care, medical supplies and equipment benefits on behalf of the First Nations and Inuit Health Branch program. The external service provider has the authority and responsibility to ensure that claims paid on behalf of Health Canada for services provided to First Nations and Inuit clients are made in accordance with the terms and conditions set out by the First Nations and Inuit Health Branch program. Pursuant to the contract requirements, an independent annual assurance report on the operating effectiveness of controls is provided by the external service provider's independent auditors at the end of each reporting period in accordance with Canadian auditing standards.
  • Through a Shared Services Partnership Agreement, Health Canada provides the Public Health Agency of Canada (PHAC) services including the following related to ICFR: human resources (pay and benefits), financial management (financial operations) and materiel management (procurement and contracting). Assurance on the shared controls of these services is provided through this Annex. Under this agreement, the PHAC also provides HC with internal auditing services which encompass audits related to financial management and controls.
  • HC provides PHAC and the Patented Medicine Prices Review Board with a financial system platform (SAP) to capture and report all financial transactions. During the 2013-14 fiscal year, Health Canada also started to provide similar services to Aboriginal Affairs and Northern Development Canada and to the Canadian Northern Economic Development Agency. As per the Master Agreements, Health Canada provides assurance that the key controls in the SAP system are properly managed in accordance with the associated Treasury Board policies including the Policies on Internal Control, Stewardship of Financial Management Systems, and Financial Resource Management, Information and Reporting.

3. Departmental assessment results during fiscal year 2013-14

During 2013-14, Health Canada was in a position to fully implement an ongoing risk-based monitoring program to ensure internal controls over financial reporting are maintained, monitored and reviewed, with timely corrective measures taken when issues are identified. The key findings from the current year's assessment activities are summarized below.

New or significantly amended key controls: Health Canada re-assesses key controls affected by new or significantly amended processes identified in its ongoing risk-based monitoring plan. In fiscal year 2013-14 Health Canada successfully delivered a major transformation initiative known as Procure to Pay (P2P).

P2P has revolutionised the transactional environment for accounting and procurement by creating a single, integrated shared services platform serving both HC and PHAC and, was designed to achieve the following objectives:

  • Re-engineering, through enabling technology and workflow, the end-to-end accounting and procurement transaction processes operated by HC as a shared service;
  • Eliminating paper signatures where possible and moving to a paperless environment, with integrated workflow and electronic approvals directly in SAP;
  • Consolidating 14 regional accounting sites into two national hubs in Ottawa and Winnipeg, serving Eastern and Western Canada respectively; and,
  • Regrouping the multiple and dispersed HC and PHAC procurement teams across Canada into a more centralized, shared services procurement organization.

This initiative strengthened financial practices through the standardization of end to end business processes from procurement to payment and the implementation of automated data validation and controls.

Ongoing risk-based monitoring plan: Health Canada completed its assessment of the following processes in line with its 2013-14 ongoing risk-based monitoring plan: Budget; Financial Statements, Year End and Reporting; Purchasing, Payables and Payments; Grants and Contributions; Payroll; and, Non-Insured Health Benefits provided to First Nations and Inuit communities and individuals.

Key controls tested as part of Health Canada's ongoing risk-based monitoring plan in 2013-14 were found to be operating effectively with no significant deficiencies identified. However, opportunities for improvement were identified in the following areas related to newly consolidated regional accounting sites, which are being addressed by the two national accounting hubs:

  • Operating practices for the safeguarding of supporting documentation are being clarified; and,
  • Standard practices are being improved to assist with the performance of the quality assurance process on payments.

4. Departmental action plan

4.1 Progress during fiscal year 2013-14

During 2013-14, Health Canada fully implemented its ongoing risk-based monitoring plan and strategy for the first year of its three year plan. Health Canada conducted its ongoing risk-based monitoring according to the previous fiscal year's rotational plan and work to be undertaken in each key control area was completed as planned as shown in the following table.

Progress of Ongoing Risk-Based Monitoring Testing for 2013-14
Key Control Areas Status
Completed as Planned

Table 4.1 footnotes

Table 4.1 footnote 1

Ongoing Risk-Based Monitoring Testing during 2013-14 focused on remediated controls from the previous year's operating effectiveness testing.

Return to table 4.1 footnote 1 referrer

BudgetTable 4.1 footnote 1 Yes
Financial Statements, Year End and Reporting Yes
Purchasing, Payables and Payments Yes
Grants and Contributions Yes
Payroll Yes
Non-Insured Health Benefits -- Contract for Operations and Maintenance (O&M) under Express Scripts Canada (ESC) Yes
Non-Insured Health Benefits -- O&M controls outside ESC contract Yes

In 2013-14, Health Canada also followed up on controls requiring enhancements as a result of prior years' operating effectiveness testing. The observations were addressed and the Ongoing Risk-Based Monitoring Plan will be the mechanism to retest these key controls.

4.2 Action plan for the next fiscal year and subsequent years

Health Canada's rotational ongoing risk-based monitoring plan over the next three years, based on an annual validation of the high-risk processes and controls and related adjustments to the ongoing monitoring plan as required, is shown in the following table.

Rotational Ongoing Risk-Based Monitoring Plan
Key Control Areas Fiscal year 2014-15 Fiscal year 2015-16 Fiscal year 2016-17
X = planned monitoring
Entity Level Controls X    
Budget X    
Financial Statements, Year End and Reporting X X X
Revenue, Receivables and Receipts X X X
Purchasing, Payables and Payments   X  
Grants and Contributions X X X
Payroll   X  
Capital Assets X   X
Non-Insured Health Benefits - Contract for Operations and Maintenance (O&M) under Express Scripts Canada (ESC) X X X
Non-Insured Health Benefits - O&M controls outside ESC Contract   X  
Information Technology General Controls   X  

Health Canada will also re-assess the controls affected by significant changes in key control areas such as the move to the Grants and Contributions Information Management System (GCIMS) starting in 2014-2015. Health Canada is replacing its current systems used to manage Grants and Contributions (G&Cs) transactions and adopting the GCIMS used by Aboriginal Affairs and Northern Development Canada. The phased-in implementation of this system is expected to improve data collection, analysis, performance measurement and reporting.

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