Archived - Health Canada Quarterly Financial Report - For the quarter ended December 31, 2018

Introduction
Basis of Presentation
Highlights of Fiscal Quarter and Fiscal Year-to-Date Results
Risks and Uncertainties
Significant Changes in Relation to Operations, Personnel and Programs
Statement of Authorities (unaudited)
Departmental Budgetary Expenditures by Standard Object (unaudited)

Introduction

Health Canada is the federal department responsible for helping Canadians maintain and improve their health. In keeping with the Department's commitment to making this country's population among the healthiest in the world as measured by longevity, lifestyle and effective use of the public health care system, its main responsibilities are as a regulator, a catalyst for innovation, a funder, and an information provider. A summary of Health Canada's programs may be found in Part II of the Main Estimates. Health Canada administers the Canada Health Act which embodies national principles to ensure a universal and equitable publicly-funded health care system.

This quarterly financial report has been prepared by management as required by section 65.1 of the Financial Administration Act in the form and manner prescribed by the Treasury Board, and should be read in conjunction with the Main Estimates and Supplementary Estimates A.

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

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the Department's spending authorities granted by Parliament, and those used by the Department consistent with the Main Estimates and Supplementary Estimates for the 2018-2019 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 money can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts, or through legislation in the form of statutory spending authority for specific purposes.

The Department uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental results reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

Highlights of Fiscal Quarter and Fiscal Year-to-Date Results

This quarterly financial report reflects the results of the current fiscal period in comparison to the authorities provided in the Main Estimates and Supplementary Estimates A for fiscal year 2018-2019, as well as budget adjustments approved by Treasury Board up to December 31, 2018.

A. Significant Changes to Authorities

The following graph provides a comparison of net budgetary authorities available for spending at the end of each quarter of the current and previous fiscal years.

**Comparison of Net Budgetary Authorities as at June 30, September 30 and December 31 of Fiscal Years 2017-2018 and 2018-2019 (in millions of dollars)**

The following table provides a comparison of year-to-date authorities by vote at the end of the third quarter of the current and previous fiscal years.

Comparison of year-to-date authorities by vote for the third quarter of 2017-2018 and 2018-2019
Authorities available (in millions of dollars)	2017-2018	2018-2019	Variance
Vote 1 – Operating expenditures	1,683	807	(876)
Vote 5 – Capital expenditures	41	29	(12)
Vote 10 – Grants and contributions	1,789	1,396	(393)
Statutory	219	181	(38)
Total authorities	3,732	2,413	(1,319)

Year-to-date authorities available for spending in fiscal year 2018-2019 were $2,413 million at the end of the third quarter as compared with $3,732 million at the end of the third quarter of 2017-2018, representing a net decrease of $1,319 million, or 35%. This decrease is primarily attributable to the following:

$2,208.9 million decrease for the transfer of the First Nations and Inuit Health Branch (FNIHB) and related internal services to the Department of Indigenous Services Canada (ISC), per Orders in Council P.C. 2017-1465 and P.C. 2018-0381;
$19.9 million decrease in statutory spending authority for disbursements to Canada Health Infoway Inc.;
$19.3 million decrease related to a funding level decrease of budgetary spending authorities for maintaining and upgrading federal infrastructure assets;
$18.3 million decrease in the Department's operating and capital budget carry-forwards; and,
$13.1 million decrease in funding for promoting clean growth and addressing climate change due to the sunsetting of funding for the indoor air quality component of the Addressing Air Pollution Horizontal Initiative. Funding for this initiative has since been renewed; and,
$10.0 million decrease in statutory spending authority for disbursements pursuant to section 103 of the Patent Act.

The decreases noted above are partially offset by the following increases:

$850.0 million in funding for strengthening Canada's Home and Community Care and Mental Health and Addiction Services Initiative; and,
$153.8 million in funding for helping address the opioid crisis.

The fluctuations in authorities available for spending are most notable in the following standard objects: personnel; transportation and communications; professional and special services; utilities, materials and supplies; transfer payments; and revenues netted against expenditures for services of a non-regulatory nature.

B. Significant Changes in Year-to-Date Expenditures

The following graph provides a comparison of net budgetary authorities and year-to-date spending by quarter for the current and previous fiscal years.

**Comparison of Net Budgetary Authorities and Year-to-Date Expenditures for the Quarters Ended June 30, September 30 and December 31 of Fiscal Years 2017-2018 and 2018-2019 (in millions of dollars)**

The following table provides a comparison of year-to-date spending by vote at the end of the third quarter of the current and previous fiscal years.

Comparison of Year-to-Date Spending by Vote for the Quarter Ended December 31 of Fiscal Years 2017-2018 and 2018-2019
Year-to-date expenditures (in millions of dollars)	2017-2018	2018-2019	Variance
Vote 1 – Operating expenditures	1,353	557	(796)
Vote 5 – Capital expenditures	8	9	1
Vote 10 – Grants and contributions	1,577	840	(737)
Statutory	161	103	(58)
Total year-to-date expenditures	3,099	1,509	(1,590)

At the end of the third quarter of 2018-2019, total budgetary expenditures were $1,509 million compared with $3,099 million reported for the same period of 2017-2018, representing a decrease of $1,590 million or 51%.

Year-to-date net operating expenditures have decreased by $796 million or 59% when compared to the third quarter of 2017-2018. The significant variances in operating expenditures reported by standard object are as follows:

$362.4 million decrease in utilities, materials and supplies is mainly a result of the transfer of FNIHB to ISC and consequent decreased expenditures for pharmaceuticals and medical supplies;
$212.6 million decrease in professional and special services is primarily due to the transfer of FNIHB to ISC and resulting decrease in such services for the Non-Insured Health Benefits program and the timing of expenditures to the Public Health Agency of Canada under the Shared Services Partnership Agreement. The decrease is partially offset by an increase in spending for various projects requiring informatics and IT services, increased usage of the Employee Assistance Program (EAP) and consequent higher demand for psychologists and mental health services, and increased services to support the climate change program;
$150.6 million decrease in transportation and communications is mainly due to the transfer of FNIHB to ISC and ensuing decrease in Non-Insured patient travel expenditures, partially offset by the cost for cannabis public education campaign mail outs;
$121.9 million decrease in personnel costs, including related employee benefit plan costs, is primarily due to the transfer of FNIHB to ISC, combined with a decrease of bonuses and retroactive salary payments resulting from the signing of collective agreements, and partially offset by increased personnel in the cannabis and controlled substances programs; and,
$17.4 million decrease in acquisition of machinery and equipment is mainly due to the transfer of FNIHB to ISC and resulting decrease in medical equipment expenditures related to the Non-Insured Health Benefits program.

The decreases noted above are partially offset by the following:

$74.9 million decrease in revenues for services of a non-regulatory nature, associated mainly with the Non-Insured Health Benefits program.

There was a decrease in Vote 10 – Grants and contributions year-to-date expenditures of $737 million or 47%, primarily due to:

$1,324.2 million decrease in contributions resulting from the transfer of FNIHB to ISC; and,
$10.3 million decrease in expenditures due to the timing of payments to support the Canadian Partnership Against Cancer.

The decreases noted above are partially offset by the following:

$489.6 million increase in expenditures related to the initiative for strengthening Canada's Home and Community Care and Mental Health and Addiction Services;
$70.0 million increase in expenditures for establishing a one-time Emergency Treatment Fund to help reduce opioid-related harms and deaths;
$27.0 million increase in expenditures due to the timing of payment of grants for the Territorial Health Investment Fund; and,
$6.1 million increase in expenditures due to the timing of payment of contributions to Canada Health Infoway.

Statutory year-to-date expenditures have decreased by $58 million or 36% from $161 million in 2017-2018 to $103 million in 2018-2019. The variance is comprised mainly of the following offsetting components:

$19.9 million decrease in statutory payments made to Canada Health Infoway Inc. which are disbursed in accordance with the organization's cash flow needs;
$15.6 million decrease related to the timing of allocation of expenditures incurred as part of the Shared Services Partnership with the Public Health Agency of Canada against statutory authorities;
$11.1 million decrease in the government's contribution to employee benefit plans for those employees transferred to ISC and a reduction in the rate used for the calculation of employee benefit plans for 2018-2019. These are partially offset by the impact of increased personnel costs related to collective agreements, and increased staffing in the cannabis and controlled substances programs; and,
$10.0 million decrease in spending for a statutory payment made pursuant to section 103 of the Patent Act.

C. Quarterly Variances

The following graph presents a comparison of quarterly spending by quarter and by fiscal year.

**Comparison of Quarterly Expenditures for the Quarters Ended June 30, September 30 and December 31 of Fiscal Years 2017-2018 and 2018-2019 (in millions of dollars)**

Expenditures in the third quarter of fiscal year 2018-2019 were $856 million compared to $852 million for the third quarter of 2017-2018, representing an increase of $4 million or 1% in quarterly spending.

The increase in quarterly spending is due primarily to the following offsetting components:

$222.9 million increase in transfer payments and timing of expenditures related to:
- the new initiative for strengthening Canada's Home and Community Care and Mental Health and Addiction Services Initiative;
- establishing a one-time Emergency Treatment Fund to help reduce opioid-related harms and deaths; and,
- disbursements related to the Canadian Foundation for Healthcare Improvement, Mental Health Commission of Canada, and Canadian Safety Patient Institute.
These increases are partially offset by a decrease in transfer payments resulting from the transfer of FNIHB to ISC, statutory expenditures pursuant to section 103 of the Patent Act, and timing differences of disbursements for supporting the Canadian Partnership Against Cancer;
$94.0 million decrease in utilities, materials and supplies primarily attributable to the transfer of FNIHB to ISC and consequent decreased expenditures for pharmaceuticals and medical supplies;
$59.6 million decrease in professional and special services primarily comprised of the transfer of FNIHB to ISC and resulting decrease in such services for the Non-Insured Health Benefits program and the timing of expenditures to the Public Health Agency of Canada under the Shared Services Partnership Agreement, and partially offset by the increase in spending for various projects requiring informatics and IT services, increased usage of the EAP and consequent higher demand for psychologists and mental health services, and increased services to support the climate change program;
$42.2 million decrease in transportation and communications mainly attributable to the transfer of FNIHB to ISC for Non-Insured patient travel expenditures, partially offset by costs for the cannabis public education campaign;
$29.1 million decrease in personnel costs due to the transfer of FNIHB employees to ISC combined with decreases from bonuses and retroactive salary payments resulting from the signing of collective agreements, and partially offset by increased personnel costs in the cannabis and controlled substances programs; and,
$9.9 million decrease in revenues for services of a non-regulatory nature, mainly from the Non-Insured Health Benefits program.

Risks and Uncertainties

Health Canada is dedicated to enhancing the health and well-being of Canadians. It operates in a dynamic and complex environment characterized by internal and external drivers of change, which could potentially be disruptive to the Department's ability to achieve its objectives (e.g. new innovative products, technologies, substances, foods and emerging product categories, evolving relationships between various levels of government, unforeseen health crises, scientific and technological change, and cyber security).

Health Canada recognizes that its success in fulfilling its mandate is directly related to the effective management of risk. Sound risk management equips the Department to respond proactively to change and uncertainty by using risk-based information to support effective decision-making, resource allocation, and, ultimately, better results for Canadians. Additionally, it can lead to more effective service delivery, better project management, and an increase in value for money.

As a result, the Department employs integrated risk management tools, including the development of a Corporate Risk Profile and monitoring of risk management strategies, to proactively and systematically recognize, understand, accommodate and capitalize on new challenges and opportunities, with a focus on results. In addition, the Department has appropriate internal control systems in place, proportionate to the risks being managed.

Prudent management within a constrained fiscal environment is required to manage potential impacts on departmental programs and services. Health Canada continues to manage through effective engagement across the Department, a sound governance structure, as well as through the use of longer-term planning. The Department's executive-level committee on Finance, Investment Planning and Transformation recommends overall direction for financial management and control, and ensures alignment of investments with departmental strategies and transformation initiatives. Each branch is required to have a multi-year financial management plan that has been reviewed by this committee to confirm that it has a plan in place to address the financial context.

Program expenditures experience natural fluctuations from year to year depending on a variety of factors beyond program control (e.g. emerging health events and novel drug therapies), thus creating risk. Enhanced monitoring of expenditures is undertaken, including assessment of expenditures against projected spending as well as previous years' trends and available resources to manage these risks. Cost management and planning are also in place and are reported regularly to senior management for decision making.

Significant Changes in Relation to Operations, Personnel and Programs

There have been no significant changes in relation to operations, personnel and programs during this quarter.

Approved by:

Original signed by Simon Kennedy
Simon Kennedy
Deputy Minister
Ottawa, Canada
Date: February 26, 2019

Original signed by Randy Larkin
Randy Larkin
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: February 14, 2019

Statement of Authorities (unaudited)

Fiscal year 2018-2019 (in thousands of dollars)
Authority	Total available for use for the year ending March 31, 2019^{Table 3 Footnote *}	Used during the quarter ended December 31, 2018	Year-to-date used at quarter-end
Vote 1 – Operating expenditures	807,319	230,012	556,797
Vote 5 – Capital expenditures	28,944	5,648	8,814
Vote 10 – Grants and contributions	1,396,133	594,954	839,931
(S) Contributions to employee benefit plans	102,430	25,349	76,046
(S) Minister of Health – Salary and motor car allowance	86	21	64
(S) Spending of proceeds from the disposal of surplus Crown assets	478	17	62
(S) Refunds of amounts credited to revenues in previous years	3	-	3
(S) Canada Health Infoway Inc.	5,937	-	5,937
(S) Payments in connection with the Patent Act (Patented medicines)	20,000	-	20,000
(S) Spending of revenues pursuant to section 4.2 of the Department of Health Act	51,463	-	1,001
Total authorities	2,412,793	856,001	1,508,655
Table 3 Footnote * Includes only Authorities available for use and granted by Parliament at quarter end Table 3 Return to footnote * referrer (S) – Statutory Vote

Fiscal year 2017-2018 (in thousands of dollars)
Authority	Total available for use for the year ending March 31, 2018^{Table 4 Footnote *}	Used during the quarter ended December 31, 2017	Year-to-date used at quarter-end
Vote 1 – Operating expenditures	1,682,606	429,958	1,352,859
Vote 5 – Capital expenditures	41,545	5,447	8,031
Vote 10 – Grants and contributions	1,788,612	342,079	1,577,222
(S) Contributions to employee benefit plans	110,609	27,473	87,195
(S) Minister of Health – Salary and motor car allowance	84	21	70
(S) Spending of proceeds from the disposal of surplus Crown assets	280	35	77
(S) Refunds of amounts credited to revenues in previous years	146	16	146
(S) Canada Health Infoway Inc.	25,848	-	25,848
(S) Collection agency fees	1	-	1
(S) Court awards	1,188	3	1,188
(S) Payments in connection with the Patent Act (Patented medicines)	30,000	30,000	30,000
(S) Spending of revenues pursuant to section 4.2 of the Department of Health Act	51,463	16,602	16,602
Total authorities	3,732,382	851,634	3,099,239
Table 4 Footnote * Includes only Authorities available for use and granted by Parliament at quarter end Table 4 Return to footnote * referrer (S) – Statutory Vote

Departmental Budgetary Expenditures by Standard Object (unaudited)

Fiscal year 2018-2019 (in thousands of dollars)
Standard Object	Planned expenditures for the year ending March 31, 2019	Expended during the quarter ended December 31, 2018	Year-to-date used at quarter-end
Expenditures:
Personnel	805,000	213,898	554,794
Transportation and communications	24,491	7,701	13,889
Information	32,754	8,994	14,245
Professional and special services	167,419	40,532	98,684
Rentals	19,940	5,180	8,948
Repair and maintenance	34,347	5,198	10,412
Utilities, materials and supplies	31,032	4,845	11,389
Acquisition of land, buildings and works	-	2,857	4,109
Acquisition of machinery and equipment	28,944	4,469	8,760
Transfer payments	1,422,070	594,953	865,867
Other subsidies and payments	4,072	760	3,628
Total gross budgetary expenditures	2,570,069	889,387	1,594,725
Less revenues netted against expenditures:
Rights and privileges	62,530	13,151	30,814
Services non-regulatory	30,385	4,524	16,145
Services regulatory	64,361	13,718	36,999
Services to other government departments	-	1,993	2,112
Total revenues netted against expenditures	157,276	33,386	86,070
Total net budgetary expenditures	2,412,793	856,001	1,508,655

Fiscal year 2017-2018 (in thousands of dollars)
Standard Object	Planned expenditures for the year ending March 31, 2018	Expended during the quarter ended December 31, 2017	Year-to-date used at quarter-end
Expenditures:
Personnel	894,676	243,039	697,040
Transportation and communications	202,424	49,936	164,532
Information	17,801	1,798	4,539
Professional and special services	480,014	100,138	316,755
Rentals	5,289	4,919	11,998
Repair and maintenance	17,260	3,920	8,856
Utilities, materials and supplies	453,109	98,871	373,882
Acquisition of land, buildings and works	8,001	2,064	2,197
Acquisition of machinery and equipment	33,346	9,028	26,655
Transfer payments	1,844,460	372,079	1,633,069
Other subsidies and payments	9,215	4,679	14,257
Total gross budgetary expenditures	3,965,595	890,471	3,253,780
Less revenues netted against expenditures:
Rights and privileges	61,518	11,584	28,171
Services non-regulatory	108,776	14,416	91,090
Services regulatory	62,919	12,837	35,157
Services to other government departments	-	-	123
Total revenues netted against expenditures	233,213	38,837	154,541
Total net budgetary expenditures	3,732,382	851,634	3,099,239

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