Health Canada Quarterly Financial Report - For the quarter ended December 31, 2011

Table of Contents

• Introduction
• Basis of Presentation
• Highlights of Fiscal Quarter and Fiscal Year to Date (YTD) 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 program activities 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.

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting as prescribed by Treasury Board Accounting Standard 1.3. The accompanying Statement of Authorities presents the spending authorities granted to Health Canada by Parliament and those used by the Department consistent with the Main Estimates and Supplementary Estimates for the 2010-11 and 2011-12 fiscal years. 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.

Parliamentary authority is required before any money can be spent by the Government. Such authorities 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.

As part of the departmental performance reporting process, Health Canada prepares its annual departmental financial statements on a full accrual basis in accordance with Treasury Board accounting policies, which in turn are based on Canadian generally accepted accounting principles for the public sector. However, the spending authorities voted by Parliament remain on an expenditure basis.

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

Highlights of Fiscal Quarter and Fiscal Year to Date (YTD) Results

This quarterly financial report reflects the results of the current fiscal period in relation to the Main Estimates and Supplementary Estimates for fiscal year 2011-12, as well as subsequent budget adjustments approved by Treasury Board up to December 31, 2011.

A. Significant Changes to Authorities

The following graph and table present a comparison of authorities available for spending for the year at the end of each quarter, by fiscal year.

Authorities available for spending in fiscal year 2011-12 are $3,880 million at the end of the third quarter as compared with $3,789 million at the end of the third quarter of 2010-11, representing an increase of $91 million, or 2.4%. This increase is primarily attributable to the following:

• $48.4 million of allotments received for pay list requirements as compared with $14.6 million received in 2010-11,
• $91.5 million of allotments received for operating budget carry forwards as compared with $22.8 million received in 2010-11,
• $22.3 million for Indian Envelope growth; and
• $15.3 million in statutory authorities for disbursements to Canada Health Infoway Inc.

These increases are partially offset by a $67.5 million decrease in contributions funding for First Nations and Inuit health facilities and capital program. The $67.5 million was provided as part of Canada's Economic Action Plan announced in Budget 2009, and funded in fiscal years 2009-10 and 2010-11 only.

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

Planned re-spendable revenues to be netted against planned expenditures have increased by $59.6 million over the prior year. The Department updated its user fee regulations to ensure that they are appropriately aligned with expected increases in the cost of providing services. The revised regulations came into effect for 2011-12.

B. Significant Changes in Year to Date Expenditures

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

The following table provides a comparison of cumulative spending by vote for the current and previous fiscal years.

At the end of the third quarter of fiscal year 2011-12, the total year to date expenditures were $2,608 million, compared with $2,547 million reported in the same period of 2010-11, representing an increase of $61 million, or 2.4%.

Year to date Vote 1 net operating expenditures for 2011-12 were $1,349 million compared to $1,300 million in 2010-11, an increase of $49 million, or 3.8%. The majority of this increase is noted in personnel expenditures, and is primarily attributable to the liquidation of severance pay and termination benefits amounting to $35 million. Also contributing to the rise in personnel costs was an increase in the number of employees hired for cost recovery programs. This is partially offset by an increase in revenues netted against the vote due to revised user fee regulations which came into effect for fiscal year 2011-12.

Year to date Vote 10 grants and contributions expenditures decreased from $1,096 million in 2010-11 to $1,085 million in 2011-12, a reduction of $11 million or 1.0%. This decrease is primarily in the First Nations and Inuit health facilities and capital program.

Statutory year to date expenditures have increased from $139 million in 2010-11 to $164 million in 2011-12, an increase of $25 million or 18%. The most significant element of this variance is an increase in year to date expenditures made to Canada Health Infoway Inc. of $15 million. The payments for this statutory grant are expended according to the cash flow requirements requested by that organization for the fiscal year.

C. Quarterly Variances

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

Expenditures in the third quarter of fiscal 2011-12 were $866 million compared with $818 million for the third quarter of 2010-11, representing an increase of $48 million or 5.9% in quarterly spending. This increase reflects the timing of authorities becoming available for spending through Supplementary Estimates. In 2010-11 the Department received more through Supplementary Estimates A as opposed to Supplementary Estimates B, whereas in 2011-12, the reverse was the case.

Risks and Uncertainties

At Health Canada, risk management is a fundamental underpinning of good management and decision making. Canadians expect the department to be well managed and for its leaders to be accountable for the prudent stewardship of public funds, the safeguarding of public assets and the effective, efficient and economical use of its public resources. One of the principles that guides effective financial management is risk management. The department is responsible to ensure that effective and efficient systems of internal controls are in place, and that these controls are proportionate to the risks they aim to mitigate while at the same time supporting the achievement of its departmental program objectives.

The Department is operating in a dynamic environment characterized by internal and external drivers of change including: user fee and cost recovery models, new funding approved through Supplementary Estimates etc. Proactive, ongoing risk management in decision making is required to minimize any adverse impacts on services, program delivery, and the Department's overall capacity to deliver services to Canadians. Management is applying sound risk-based management to the financial stewardship of its departmental resources. In 2011-12, investment plan priorities were established and approved by senior management.

Included in Vote 1 net operating authorities are anticipated re-spendable revenues relating to the revised user fee regulations which came into effect for fiscal year 2011-12. This revenue model adds an element of risk to the Department's financial management environment should these user fees not be realized by year end.

Budget 2010 announced that the operating budgets of departments would be frozen at their 2010-11 levels for the fiscal years 2011-12 and 2012-13. The impact on departmental activities continues to be managed through a variety of mitigation strategies.

Significant Changes in Relation to Operations, Personnel and Programs

Shared Services Canada was created effective August 4, 2011, pursuant to  section 31.1 of the Financial Administration Act and Order in Council P.C. 2011-0877. Shared Services Canada's mandate is to streamline and reduce duplication of information technology services in the federal government in order to reduce costs, improve services, and leverage capacity in the public and private sectors through pooled resources and greater buying power.

As a result, Health Canada transferred the control and supervision of operational domains related to email and network services to Shared Services Canada, including telecommunications for voice and data. Approximately 255 Health Canada employees associated with the delivery of these services were transferred to the new department. During this transition period, Health Canada's Quarterly Financial Report continues to include financial information related to the transferred services.

There have been no other significant changes in relation to operations, personnel and programs over the last year.

Approved by:

Glenda Yeates
Deputy Minister
Ottawa, Canada
Date: February 29, 2012

Jamie Tibbetts
Chief Financial Officer
Ottawa, Canada
Date: February 29, 2012

Statement of Authorities (unaudited)

Pursuant to section 31.1 of the Financial Administration Act and Order in Council P.C. 2011-1297 effective November 15, 2011, all unexpended money relating to the new Shared Services Canada (operating and capital) has been deemed to be appropriated resulting in a reduction for the same amount in Health Canada's Vote 1 and Vote 5.

Departmental Budgetary Expenditures by Standard Object (unaudited)