Health Canada Quarterly Financial Report - For the quarter ended June 30, 2014

Table of Contents

• 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
• Budget 2012 Implementation
• 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 A, as well as  Canada's Economic Action Plan 2012 (Budget 2012).

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting and using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities. 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 2014-2015 fiscal year.

The authority of Parliament 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 are based on Canadian public sector accounting standards. 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 Results

This quarterly financial report reflects the results of the current fiscal period in comparison to the authorities provided in the combination of the Main Estimates and Supplementary Estimates A for fiscal year 2014-2015, as well as budget adjustments approved by Treasury Board up to June 30, 2014.

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

A. Significant Changes to Authorities

The following table provides a comparison of authorities by vote for the first quarter of the current and previous fiscal years.

Authorities available for spending in fiscal year 2014-2015 are $3,727 million at the end of the first quarter as compared with $3,387 million at the end of the first quarter of 2013-2014, representing an increase of $340 million, or 10.0%. This increase is primarily attributable to the following:

• $311.7 million increase for the Stabilization of the First Nations and Inuit Health programming funding as indicated in Budget 2013;
• $63.1 million increase related to the British Columbia Tripartite Framework agreement on the First Nation Health Governance for the transfer of the responsibility for First Nations health programming in British Columbia to the First Nations Health Authority;
• $51.5 million increase in statutory spending authority as a result of the Shared Services Partnership agreement between Health Canada and the Public Health Agency of Canada (PHAC) to support the internal services provided by Health Canada to the PHAC;
• $49.4 million increase due to the annual 3% growth in the First Nations and Inuit Health Envelope;
• $14.0 million increase due to the renewal of funding for the Official Languages Health Contribution Program; and,
• $9.8 million increase in funding for changes in collective agreements.

These increases are partially offset by the following decreases:

• $59.1 million decrease for the completion of the three year implementation plan related to the Budget 2012 spending review;
• $30.0 million decrease for the sunsetting of funding in 2014-2015 of the Renewal of the Territorial Health System Sustainability Initiative;
• $26.7 million decrease for the sunsetting of funding in 2014-2015 for the First Nations Water and Wastewater Action Plan;
• $20.2 million decrease in statutory spending authority for disbursements to Canada Health Infoway Inc.;
• $10.0 million decrease in Employee Benefit Plan due to a rate adjustment as directed by Treasury Board Secretariat; and,
• $6.0 million decrease for the sunsetting of funding in 2014-2015 for Continuing a Comprehensive Strategy for Managing Bovine Spongiform Encephalopathy in Canada.

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

B. Significant Changes in Year to Date Expenditures

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

During the first quarter of 2014-2015, total budgetary expenditures were $1,133 million compared with $1,038 million reported for the same period of 2013-2014, representing an increase of $95 million or 9.1%, primarily in expenditures relating to grants and contributions.

Year to date net operating expenditures have decreased by approximately $43 million or 11.4% when compared to the first quarter of 2013-2014. The significant variances in operating expenditures reported by standard object are as follows:

• $37.5 million decrease in personnel expenditures due primarily to a one-time transition payment of $26.9 million for implementing salary payment in arrears by the Government of Canada and a decrease in one time payments for the liquidation of severance and termination benefits from previous year collective bargaining agreement settlements;
• $26.9 million increase in other subsidies and payments due to a one-time transition payment for implementing salary payment in arrears by the Government of Canada; and,
• $26.5 million in offsetting vote-netted revenues, which have increased, primarily due to cost recovery arrangements as part of the British Columbia tripartite framework agreement with the First Nations Health Authority in British Columbia.

There was an increase in Vote 10 - Grants and contributions year to date expenditures of $160 million or 29.6%, primarily due to:

• $116.1 million increase in disbursements related to changes following signing of the British Columbia tripartite framework agreement with the First Nations Health Authority;
• $5.1 million increase in contributions made following the renewal of funding for the Official Languages Health Contribution Program; and,
• the remaining increases due primarily to changes in timing of disbursements for some program agreements.

Statutory year to date expenditures have decreased $22 million from $121 million in 2013-2014 to $199 million in 2014-2015, primarily due to a decrease in transfer payments made to Canada Health Infoway Inc. which are disbursed in accordance with the cash flow needs of that organization.

Risks and Uncertainties

Health Canada, as a public sector organization, is dedicated to enhancing the health and well-being of Canadians and recognizes that its success in fulfilling its mandate is directly related to the effective management of risk. The Department employs integrated risk management tools to proactively, systematically and continuously recognize, understand, accommodate and capitalize on new challenges and opportunities, with a focus on results. The Department has effective internal control systems in place, proportionate to the risks being managed.

In a dynamic and complex environment characterized by internal and external drivers of change in Canada and abroad (e.g. new therapies and medications, evolving relationships between First Nations and Inuit and various levels of government, government-wide fiscal restraint), these factors are monitored to ensure departmental readiness to respond proactively, should any of these factors begin to impact on the Department's ability to deliver on its objectives. Effective risk management equips Health Canada 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 effective service delivery, better project management, and an increase in value for money.

Prudent management within the financial context of budget reductions, operating freezes and declining carry forwards is required to limit impacts on departmental programs and services. Health Canada continues to manage through effective engagement across the Department, augmented governance structure, as well as through the use of longer-term forecasting. As such, the Department established the executive-level committee on Finance, Investment Planning and Transformation with the mandate to recommend overall direction for financial management and control, and ensure alignment of investments with departmental strategies and transformation initiatives.

As of Budget 2013, growth in the First Nations and Inuit health, Non-Insured Health Benefits Program is based on 5% growth on actual (annual) expenditures from the prior fiscal year. Program expenditures endure natural fluctuations from year to year depending on a variety of factors beyond program control (e.g. drug pricing, location of provincial and territorial health services) 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. Trend monitoring, 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 over the last year.

Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012 that are being implemented in order to refocus government and programs; make it easier for Canadians and business to deal with their government; and, modernize and reduce the back office.

Health Canada conducted a comprehensive review of its operating and program spending. It placed priority on preserving activities central to its core mandate as a regulator, a service provider for First Nations and Inuit, and a leader in health care policy.

As a result, Health Canada is improving and transforming ways of conducting business that is resulting in efficiency gains, savings, and better value for money, while maintaining or enhancing accountability and services to Canadians.

In 2012-2013, the first year of implementation, Health Canada achieved savings of approximately $74.2 million. Savings have increased to $138.5 million in 2013-2014 and will result in ongoing savings of $197.6 million in 2014-2015. Authorities in the first quarter of fiscal year 2014-2015 are greater than the same period of last year ($3,727 million vs. $3,387 million) while expenditures in the first quarter of fiscal year 2014-2015 are higher than the same period of last year ($1,133 million vs. $1,038 million). The increase in authorities consists primarily of stabilization of the First Nations and Inuit Health programming funding. The increase in expenditures is primarily due to program payments in contributions.

Administrative Efficiencies and Rationalization of Structures and Functions (Internal Transformation)

Many changes are internal to Health Canada, and savings are being generated by simplifying and streamlining operations across all Health Canada branches. These include: consolidating operations; reducing and consolidating strategic policy work; consolidating and focusing on research and laboratory work and space; simplifying grants and contributions administration; and, achieving administrative and operational efficiencies throughout the Department.

These initiatives will achieve ongoing savings of $108.4 million.

Shared Services

Health Canada and the PHAC have consolidated several common internal services. A wide range of services, including human resources, information technology, communications, audit, evaluation, and certain financial functions have been merged into new units to serve both Health Canada and PHAC. Governance is in place and processes are being reengineered to enhance services and reduce costs.

This initiative will achieve ongoing savings of $17.9 million.

Grants and Contributions (Gs&Cs)

Grants and contributions funding will be concentrated in areas that have continued relevance to Canadians, align with the priorities of the Department and the Government, and have the most potential for success.

For pan-Canadian health organizations, Health Canada has reduced funding for most by 5% and has encouraged them to achieve savings through administrative efficiencies and reduced overhead.

Funding for the Health Care Policy Contribution Program has been reduced and targeted on key and emerging issues. Funding for the Women's Health Contribution Program has been eliminated as part of the Economic Action Plan 2012.

Recognizing that smoking is at an all-time low in Canada and that provincial, territorial and municipal governments have taken on a greater role in reducing tobacco use, funding for the Federal Tobacco Control Strategy has been reduced. Health Canada's efforts have been refocused to concentrate on more vulnerable populations such as First Nations and Inuit, whose communities have the highest smoking rates in Canada.

Grants and contributions funding in First Nations and Inuit Health are now focused on direct service delivery. Funding reductions are limited to areas such as research, building capacity, developing partnerships and networking in order to preserve front-line delivery services.

These initiatives will achieve ongoing savings of $58.5 million.

Streamlining Regulatory Operations and Administration

Core regulatory responsibilities for a variety of products, including drugs, food, consumer products and pesticides are maintained. Each of Health Canada's three regulatory branches is refocusing research on priority areas as well as restructuring some regulatory and policy operations in keeping with red tape reduction efforts.

These initiatives will achieve ongoing savings of $12.8 million.

Risk Management

Through planning and regular reporting on progress, Health Canada is managing the financial risks associated with achieving the reductions required as a result of Budget 2012. Sound management and focus on service delivery provides assurance that reduction plans are being achieved.

Approved by:

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 Authorities (Unaudited)

Departmental Budgetary Expenditures by Standard Object (Unaudited)