Health Canada Quarterly Financial Report - For the quarter ended December 31, 2019

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 service provider, 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 A for the 2019-2020 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 2019-2020, as well as budget adjustments approved by Treasury Board up to December 31, 2019.

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 2018-2019 and 2019-2020 — **Figure 1.**

The following table provides a comparison of total authorities available by vote at the end of the third quarter of the current and previous fiscal years.

**Comparison of Authorities Available for Spending for the Year as at December 31 of Fiscal Years 2018-2019 and 2019-2020**
Authorities available (in millions of dollars)	2018-2019	2019-2020	Variance
Vote 1 – Operating expenditures	807	925	118
Vote 5 – Capital expenditures	29	23	(6)
Vote 10 – Grants and contributions	1,396	1,556	160
Statutory	181	174	(7)
Total authorities	2,413	2,678	265

Total authorities available for spending at the end of the third quarter of fiscal year 2019-2020 were $2,678 million as compared with $2,413 for 2018-2019, representing a net increase of $265 million, or 11%. This increase is primarily attributable to the following:

$250.0 million increase in funding for Strengthening Canada's Home and Community Care and Mental Health and Addiction Services Initiative;
$70.0 million increase in funding for out-of-court settlements;
$31.1 million increase in funding for continuing to legalize and strictly regulate cannabis;
$25.5 million increase in funding for compensation related to collective agreements;
$25.0 million increase in funding to Canada Health Infoway Inc. for advancing digital health innovation;
$21.4 million increase in funding for Bringing Innovation to Regulations; and,
$7.9 million increase in funding to the Canadian Partnership Against Cancer.

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

$135.5 million in funding, primarily for contributions related to opioids that were distributed to provinces and territories through the one-time Emergency Treatment Fund in 2018-2019, to increase the availability of treatment services for substance use disorder in their jurisdictions;
$20.0 million in statutory spending authority for disbursements pursuant to section 103 of the Patent Act; and,
$13.5 million in sunsetting funding for maintaining and upgrading federal infrastructure assets.

The fluctuations in authorities available for spending are most notable in the following standard objects: personnel; professional and special services; repair and maintenance; transfer payments; and other subsidies and payments.

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 2018-2019 and 2019-2020 — **Figure 2.**

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 Expenditures for the Quarter Ended December 31 of Fiscal Years 2018-2019 and 2019-2020**
Year-to-date expenditures (in millions of dollars)	2018-2019	2019-2020	Variance
Vote 1 – Operating expenditures	557	669	112
Vote 5 – Capital expenditures	9	9	-
Vote 10 – Grants and contributions	840	1,372	532
Statutory	103	112	9
Total year-to-date expenditures	1,509	2,162	653

At the end of the third quarter of 2019-2020, total budgetary expenditures were $2,162 million compared with $1,509 million reported for the same period of 2018-2019, representing an increase of $653 million or 43%.

Year-to-date net operating expenditures have increased by approximately $112 million or 20% when compared to the third quarter of 2018-2019. The significant variances in operating expenditures are as follows:

$38.9 million increase in personnel expenditures, primarily due to annual salary increments for inflation and step increases, retroactive salary payments from signed collective agreements, and increase in the number of personnel supporting the continued growth in the cannabis, controlled substances and opioid programs;
$92.3 million increase in other subsidies and payments, mainly due to a legal settlement, and additional one-time ex gratia payments for approved survivors under the recently approved Canadian Thalidomide Survivors Support Program; and,
$8.4 million increase in revenues, which results in a decrease in net operating expenditures, mainly the result of a change in timing of cash receipts for licensing applications, which can vary from year to year. There was also a reclassification of drug and medical device establishment licensing fees from rights and privileges revenues to revenues from services of a regulatory nature resulting in a variation between these categories.

There was an increase in Vote 10 – Grants and contributions year-to-date expenditures of $532 million or 63%, resulting from the following offsetting factors:

$525.5 million increase in payments for Home Care and Mental Health Services;
$39.9 million increase from the timing of contribution payments made to the Canada Health Infoway Inc.;
$21.4 million increase from the timing of payments to support the Canadian Partnership Against Cancer;
$55.5 million decrease from a one-time transfer payment made in 2018-2019 to provinces and territories for the purpose of emergency treatment funding relating to problematic substance use and the opioid crisis to help reduce opioid-related harms and deaths; and,
$15.0 million decrease from the timing of payments to Brain Canada.

Statutory year-to-date expenditures have increased by $9 million or 9% from $103 million in 2018-2019 to $112 million in 2019-2020 that is mainly comprised of the following offsetting components:

$21.5 million increase 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;
$4.2 million increase in statutory payments made to Canada Health Infoway Inc., which are disbursed in accordance with the organization’s cash flow needs; and,
$20.0 million decrease for a statutory payment made in the prior year pursuant to section 103 of the Patent Act.

Quarterly Variances

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

Expenditures in the third quarter of fiscal year 2019-2020 were $897 million compared with $856 million for the third quarter of 2018-2019, representing an increase of $41 million or 5% in quarterly spending.

The increase in quarterly spending is due primarily to:

$28.0 million increase in personnel costs resulting primarily from annual salary increments for inflation and step increases, retroactive salary payments from signed collective agreements, increase in the number of personnel supporting the continued growth in the cannabis, controlled substances and opioid programs, and timing of allocation of expenditures incurred as part of the Shared Services Partnership with the Public Health Agency of Canada against statutory authorities; and,
$25.9 million increase in grants and contributions resulting from:
- timing differences on payments, including:
  - $39.9 million increase for Canada Health Infoway Inc.;
  - $28.4 million increase for Contribution to the Canadian Partnership Against Cancer;
  - $19.9 million increase to support the Territorial Health Investment Fund;
  - $10.1 million increase to support Brain Canada; and,
  - $7.1 million decrease for the Contribution to the Canadian Foundation for Health Improvement.
- $57.2 million decrease from a one-time transfer payment made in 2018-2019 to provinces and territories for the purpose of emergency treatment funding relating to problematic substance use and the opioid crisis.

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, shifting expectations around government service delivery and digital modernization, and cybersecurity threats).

Health Canada recognizes that successfully fulfilling its mandate is directly related to 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. Additionally, it can lead to more effective service delivery, better project management, an increase in value for money, and, ultimately, better results for Canadians.

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 long-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.

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

Ms. Patty Hajdu was appointed Minister of Health in November 2019.

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

Approved by:

Original signed by Stephen Lucas
Stephen Lucas
Deputy Minister
Ottawa, Canada
Date: February 23, 2020

Original signed by Edward de Sousa for
Randy Larkin
Assistant Deputy Minister and
Chief Financial Officer
Ottawa, Canada
Date: February 14, 2020

Statement of Authorities (unaudited)

**Fiscal year 2019-2020 (in thousands of dollars)**
Authority	*Total available for use for the year ending March 31, 2020^{Footnote }**	Used during the quarter ended December 31, 2019	Year-to-date used at quarter-end
Vote 1 – Operating expenditures	925,358	226,783	668,426
Vote 5 – Capital expenditures	22,857	4,474	9,365
Vote 10 – Grants and contributions	1,556,438	620,892	1,371,751
^{Footnote (S)} Contributions to employee benefit plans	111,200	26,399	79,196
^{Footnote (S)} Minister of Health – Salary and motor car allowance	88	22	66
^{Footnote (S)} Spending of proceeds from the disposal of surplus Crown assets	119	-	-
^{Footnote (S)} Refunds of amounts credited to revenues in previous years	59	-	59
^{Footnote (S)} Canada Health Infoway Inc.	10,131	-	10,131
^{Footnote (S)} Collection Agency Fees	23	5	23
^{Footnote (S)} Spending of revenues pursuant to section 4.2 of the Department of Health Act	51,463	18,447	22,487
Total authorities	2,677,736	897,022	2,161,504
Footnote * Includes only Authorities available for use and granted by Parliament at quarter end Return to footnote * referrer Footnote (S) Statutory Vote Return to footnote (S) referrer

**Fiscal year 2018-2019 (in thousands of dollars)**
Authority	*Total available for use for the year ending March 31, 2019^{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
^{Footnote (S)} Contributions to employee benefit plans	102,430	25,349	76,046
^{Footnote (S)} Minister of Health – Salary and motor car allowance	86	21	64
^{Footnote (S)} Spending of proceeds from the disposal of surplus Crown assets	478	17	62
^{Footnote (S)} Refunds of amounts credited to revenues in previous years	3	-	3
^{Footnote (S)} Canada Health Infoway Inc.	5,937	-	5,937
^{Footnote (S)} Payments in connection with the Patent Act (Patented medicines)	20,000	-	20,000
^{Footnote (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
Footnote * Includes only Authorities available for use and granted by Parliament at quarter end Return to footnote * referrer Footnote (S) Statutory Vote Return to footnote (S) referrer

Departmental Budgetary Expenditures by Standard Object (unaudited)

**Fiscal year 2019-2020 (in thousands of dollars)**
Standard Object	Planned expenditures for the year ending March 31, 2020	Expended during the quarter ended December 31, 2019	Year-to-date used at quarter-end
Expenditures:
Personnel	899,077	241,882	609,424
Transportation and communications	26,035	5,216	11,215
Information	26,766	7,100	15,659
Professional and special services	148,529	37,104	96,741
Rentals	22,140	6,370	12,526
Repair and maintenance	17,846	4,260	8,063
Utilities, materials and supplies	29,024	4,930	11,453
Acquisition of land, buildings and works	-	907	3,896
Acquisition of machinery and equipment	27,525	4,583	9,060
Transfer payments	1,566,569	620,892	1,381,881
Other subsidies and payments	73,847	803	96,011
Total gross budgetary expenditures	2,837,358	934,047	2,255,929
Less revenues netted against expenditures:
Rights and privileges	28,689	10,027	12,505
Services non-regulatory	30,386	5,737	18,907
Services regulatory	100,547	15,664	57,304
Services to other government departments	-	5,597	5,709
Total revenues netted against expenditures	159,622	37,025	94,425
Total net budgetary expenditures	2,677,736	897,022	2,161,504

**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

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Date modified:: 2020-09-02

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