Health Canada Quarterly Financial Report - For the quarter ended September 30, 2012

Table of Contents

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.  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 2012-13 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 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 Parliamentary business of supply, the Main Estimates are normally tabled in Parliament on or before March 1 preceding the new fiscal year.  Budget 2012 was tabled in Parliament on March 29, 2012 after the tabling of the Main Estimates on February 28, 2012.  As a result, the measures announced in the Budget 2012 could not be reflected in the 2012-13 Main Estimates.

In fiscal year 2012-13, frozen allotments have been established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012.  Future year changes to departmental authorities have been implemented through the Annual Reference Level Update and will be reflected in subsequent Main Estimates .

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.  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 Results

This quarterly financial report reflects the results of the current fiscal period in relation to the Main Estimates and Supplementary Estimates A for fiscal year 2012-13, as well as budget adjustments approved by Treasury Board up to September 30, 2012. 

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

Comparison of Net Budgetary Authorities and Year to Date Expenditures for the Quarters Ended September 30, 2011 and September 30, 2012

Bar chart showing a comparison of net budgetary authorities and year to date expenditures for the quarters ended September 30, 2011 and September 30, 2012 in millions of dollars.

2011-12 Net Budgetary Authorities = 3,535; 2011-12 Expenditures for the Quarter Ended September 30 = 1,742; 2012-13 Net Budgetary Authorities = 3,599; 2012-13 Expenditures for the Quarter Ended September 30 = 1,761.

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

Comparison of Authorities Available for Spending for the Year as at September 30 of Fiscal Years 2011-12 and 2012-13
Authorities available (in millions of dollars) 2011-12 2012-13 Variance
Vote 1 - Operating expenditures 1,861 1,895 34
Vote 5 - Capital expenditures 33 30 (3)
Vote 10 - Grants and contributions 1,445 1,449 4
Statutory 196 225 29
Total authorities 3,535 3,599 64

Authorities available for spending in fiscal year 2012-13 are $3,599 million as at the end of the second quarter, compared with $3,535 million as at the end of the second quarter of fiscal year 2011-12, representing an increase of $64 million, or 1.8%.  This increase is primarily attributable to the following:

  • $67.4 million increase for renewal of the Chemical Management Plan;
  • $46.6 million increase due to the 3% growth in the First Nations and Inuit Health Envelope;
  • $27.5 million increase for renewal of the Clear Air Regulatory Agenda;
  • $35.5 million increase due to the transfer of control and supervision of certain portions of the Internal Services functions from the Public Health Agency of Canada to Health Canada;
  • $27.0 million increase in statutory authorities for disbursements to Canada Health Infoway Inc., and
  • $10.0 million increase for the Brain Canada Foundation to support neuroscience research to advance knowledge for the treatment of brain disorders.

These increases are partially offset by the following:

  • $52.3 million decrease relating to the transfer to Shared Services Canada to provide ongoing support of the government-wide initiative for consolidation and transformation of IT Infrastructure;
  • $32.9 million decrease relating to the sunsetting of the two-year funding identified in Budget 2010 for the continued implementation of the Indian Residential Schools Settlement Agreement;
  • $26.7 million decrease relating to the sunsetting of the two-year extension of the First Nations Water and Wastewater Action Plan;
  • $26.7 million decrease for Paylist requirements relating to changes to and fluctuations in entitlements under collective agreements, primarily the liquidation of severance and termination benefits; and
  • $11.3 million decrease relating to the sunsetting of time-limited funding for review and reduction of backlogs of drug and medical device submissions.

Funding associated with the renewal of sunsetting programs relating to Indian Residential Schools and First Nations Water and Waste Management was included in Budget 2012 and is anticipated to be included in future estimates.

The following graph provides a comparison of net budgetary authorities and cumulative 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 and September 30 of Fiscal Years 2011-12 and 2012-13

Bar chart showing a comparison of net budgetary authorities and year to date expenditures for the quarters ended June 30, September 30 and December 31 of Fiscal Years 2011-12 and 2012-13 in millions of dollars.

2011-12 Net Budgetary Authorities = 3,858; 2011-12 Year to date Expenditures to June 30 = 874; 2011-12 Year to date Expenditures to September 30 = 1,742; 2011-12 Year to date Expenditures to December 31 = 2,599; 2012-13 Net Budgetary Authorities = 3,819; 2012-13 Year to date Expenditures to June 30 = 936; 2012-13 Year to date Expenditures to September 30 = 1,761; 2012-13 Year to date Expenditures to December 31 = 2,628.

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

Comparison of Year to Date Expenditures for the Quarter Ended September 30 of Fiscal Years 2011-12 and 2012-13
Year to date expenditures (in millions of dollars) 2011-12 2012-13 Variance
Vote 1 - Operating expenditures 877 856 (21)
Vote 5 - Capital expenditures 2 4 2
Vote 10 - Grants and contributions 733 744 11
Statutory 130 157 27
Total year to date expenditures 1,742 1,761 19

During the second quarter of the 2012-13 fiscal year, total budgetary expenditures were $1,761 million compared with $1,742 million reported in the same period of 2011-12, representing an increase of $19 million or 1.1%.

Year to date operating expenditures have decreased by approximately $21 million or 2.3% when compared to the second quarter of 2011-12.  There are noteworthy underlying fluctuations in certain areas of expenditures as follows:

  • Personnel expenditures have decreased $20.4 million year to date, due primarily to:
    • a $26.6 million decrease from the prior year which contained one time payments for the liquidation of severance and termination benefits as per collective bargaining agreement settlements;
    • an $8.5 million decrease in salary costs related to the transfer of operations and employees to Shared Services Canada;
    • a $4.3 million increase in salaries resulting from the transfer and consolidation of certain Internal Services functions between Health Canada and the Public Health Agency of Canada; and
    • an $8.3 million increase in termination benefits paid as a result of Workforce Adjustment measures.
  • Repair and maintenance year to date expenditures have decreased $13.2 million due primarily to the transfer of certain information technology services to Shared Services Canada, and an overall reduction in the cost of maintaining laboratories; and
  • Utilities, materials and supplies have increased by $8.9 million over the prior year due primarily to a rise in pharmaceutical and medical supply costs resulting from increases under the Non-insured Health Benefits Program; as well as the costs associated with growth in the Marihuana Medical Access Program.

Grants and contributions year to date expenditures increased by $11 million primarily due to a new program payment to the Brain Canada Foundation of $10 million in 2012-13.

Statutory year to date expenditures have increased from $130 million in 2011-12 to $157 million in 2012-13. The most significant element of this increase relates to a $27 million increase in year to date expenditures made to Canada Health Infoway Inc. The payments for this statutory grant are expended according to the cash flow requirements of that organization.

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 and September 30 of Fiscal Years 2011-12 and 2012-13

Bar chart showing a comparison of quarterly expenditures for the quarters ended June 30, September 30 and December 31 of Fiscal Years 2011-12 and 2012-13 in millions of dollars.

2011-12 Expenditures for the Quarter Ended June 30 = 874; 2011-12 Expenditures for the Quarter Ended September 30 = 868; 2011-12 Expenditures for the Quarter Ended December 31 = 858; 2012-13 Expenditures for the Quarter Ended June 30 = 936; 2012-13 Expenditures for the Quarter Ended September 30 = 826; 2012-13 Expenditures for the Quarter Ended December 31 = 867.

Expenditures in the second quarter of fiscal 2012-13 were $826 million compared with $868 million for the second quarter of 2011-12, representing a decrease of $42 million or 4.9% in quarterly spending.

This decrease is primarily due to:

  • Payments in lieu of severance and termination benefits disbursed during the second quarter of 2011-12 of $26.6 million; and
  • Changes in timing of disbursements for certain transfer payments where the payments had been advanced to the first quarter of the fiscal year, namely, Drug Treatment Funding Program $5.1 million, Canadian Partnership Against Cancer $4.4 million and Official Languages Health Contribution Program $4.2 million.

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 ensures that effective and efficient systems of internal controls are in place, and that these controls are proportionate to the risks being managed.

The Department is operating in a dynamic and complex environment characterized by internal and external drivers of change including: user fee and cost recovery models, new funding approved through Supplementary Estimates, organizational restructuring aimed at expenditure reduction, etc. Proactive, ongoing risk management in decision making is in place at Health Canada to minimize adverse impacts on the Department's capacity to deliver services to Canadians. Management applies sound risk-based management practices to the financial stewardship of its resources through the annual development of a Corporate Risk Profile. Management recognizes, understands, accommodates and capitalizes on new challenges and opportunities.

Vote 1 - Operating includes re-spendable revenues relating to the user fee regulations which came into effect starting in 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. Governance and financial management practices including monitoring and audit are in place to mitigate risks.

As well, 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, such as:

  • Managing attrition strategically - replacement for vacancies resulting from normal attrition is being managed at the departmental level against corporate-wide priorities. This helps ensure that Health Canada has the appropriate capacity to deliver on its core mandate while lessening the impact on the workforce.
  • Corporate investment planning - identification of resources from across the Department in support of implementing key business re-engineering, lab renewal, facility maintenance, and IT infrastructure projects. This leverages investments projects across the department and increases the return on investment.
  • Ongoing restraints and streamlining - continued scrutiny on travel, conference attendance and hospitality expenditures, and streamlining of administrative functions.

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.  While the current year figures do not include expenditures related to Shared Services Canada, costs incurred for the transferred operations are embedded in the comparative figures for the prior year.

Assisted Human Reproduction Canada was dissolved on September 30, 2012, pursuant to Order in Council P.C. 2012-1136 and when subsection 713(2) and sections 721 to 723, 726 and 741 to 751 of the Jobs, Growth and Long-term Prosperity Act came into force.  As a result, the administration and enforcement of the Assisted Human Reproduction Act is now being assumed by Health Canada.

Mr. Paul Rochon was appointed to the position of Associate Deputy Minister on August 7, 2012. 

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

Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012 that will be 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 will improve and transform ways of conducting business that will result in efficiency gains, savings, and better value for money, while maintaining or enhancing accountability and services to Canadians.

In the first year of implementation, Health Canada will achieve savings of approximately $74.2 million. Savings will increase to $138.5 million in 2013-14 and will result in ongoing savings of $197.6 million by 2014-15. Authorities and expenditures in the second quarter of FY 2012-13 are slightly higher than the same period of last year.

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

Many changes are internal to Health Canada, and savings will be 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 Public Health Agency of Canada (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 is reducing funding for most by 5% by 2014-15 and has encouraged them to achieve savings through administrative efficiencies and reduced overhead.

Funding for the Health Care Policy Contribution Program will be reduced and targeted on key and emerging issues. Funding for the Women's Health Contribution Program, a non-service delivery program which was established at a time when there were not many programs aimed towards women's health, will be eliminated.

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 will be 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 will be 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 expects to manage 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 will be achieved.

To mitigate risk and ensure adequate resources for key health priorities, new funding for Health Canada was referenced in Budget 2012. This includes:

  • Funding to build and renovate water infrastructure on reserves and to support the development of a long-term strategy to improve water quality in First Nations communities;
  • Funding to continue measures to enhance surveillance and early detection of food safety risks, and improve response capabilities to food-borne illness emergencies;
  • Funding to support a research project at McMaster University to evaluate team-based approaches to health care delivery. The project will evaluate ways to achieve better health outcomes for patients while also making the health care system more cost-effective, through greater implementation of medical teams; and
  • Funding to establish and integrate a network of mental health-related professionals. Research will be centered on treating depression, with a focus on suicide prevention and post-traumatic stress disorder.

Approved by:

Glenda Yeates
Deputy Minister
Ottawa, Canada
Date:  November 28, 2012

Jamie Tibbetts
Chief Financial Officer
Ottawa, Canada
Date:  November 27, 2012

Statement of Authorities (unaudited)

Fiscal year 2012-13 (in thousands of dollars)
Authority Total available for use for the year ending March 31, 2013 Used during the quarter ended September 30, 2012 Year to date used at quarter-end
Includes only Authorities available for use and granted by Parliament at quarter end
Total available for use does not reflect measures announced in Budget 2012
(S) - Statutory Vote
Vote 1 - Operating expenditures 1,894,643 482,039 856,152
Vote 5 - Capital expenditures 30,313 2,590 3,700
Vote 10 - Grants and contributions 1,449,573 307,201 744,544
(S) Contributions to employee benefit plans 134,948 33,737 67,474
(S) Minister of Health - Salary and motor car allowance 78 20 39
(S) Spending of proceeds from the disposal of surplus Crown assets 386 30 54
(S) Refunds of amounts credited to revenues in previous years 44 19 44
(S) Canada Health Infoway Inc. 89,361 0 89,361
(S) Collection agency fees 4 3 4
(S) Court Awards 10 10 10
Total authorities 3,599,360 825,649 1,761,382
Fiscal year 2011-12 (in thousands of dollars)
Authority Total available for use for the year ending March 31, 2012 Used during the quarter ended September 30, 2011 Year to date used at quarter-end
Includes only Authorities available for use and granted by Parliament at quarter end
(S) - Statutory Vote
Vote 1 - Operating expenditures 1,860,580 501,064 876,576
Vote 5 - Capital expenditures 32,666 2,185 2,367
Vote 10 - Grants and contributions 1,444,698 331,132 732,681
(S) Contributions to employee benefit plans 134,151 33,537 67,075
(S) Minister of Health - Salary and motor car allowance 78 20 39
(S) Spending of proceeds from the disposal of surplus Crown assets 219 8 56
(S) Refunds of amounts credited to revenues in previous years 511 19 511
(S) Canada Health Infoway Inc. 62,387 0 62,387
(S) Collection agency fees 16 2 16
Total authorities 3,535,306 867,967 1,741,708

Departmental Budgetary Expenditures by Standard Object (unaudited)

Fiscal year 2012-13 (in thousands of dollars)
Standard Object Planned expenditures for the year ending March 31, 2013 Expended during the quarter ended September 30, 2012 Year to date used at quarter-end
Planned expenditures do not reflect measures announced in Budget 2012
Expenditures:      
Personnel 924,174 257,620 465,663
Transportation andcommunications 279,234 49,202 84,084
Information 29,103 1,153 1,655
Professional and special services 462,149 99,730 171,808
Rentals 14,985 7,202 8,365
Repair and maintenance 36,175 (1,938) 6,680
Utilities, materials and supplies 400,235 113,969 208,442
Acquisition of lands, buildings and works 2,566 1,092 2,150
Acquisition of machinery and equipment 42,356 6,927 11,590
Transfer payments 1,538,934 307,201 833,905
Other subsidies and payments 623 81 (208)
Total gross budgetary expenditures 3,730,534 842,239 1,794,134
       
Less revenues netted against expenditures:      
Rights and privileges 53,634 2,628 7,199
Services non-regulatory 21,886 5,064 8,960
Services regulatory 55,654 8,898 16,593
Total revenues netted against expenditures 131,174 16,590 32,752
       
Total net budgetary expenditures 3,599,360 825,649 1,761,382
Fiscal year 2011-12 (in thousands of dollars)
Standard Object Planned expenditures for the year ending March 31, 2012 Expended during the quarter ended September 30, 2011 Year to date used at quarter-end
Expenditures:      
Personnel 913,820 273,859 486,044
Transportation and communications 258,452 52,460 88,123
Information 17,717 1,503 1,838
Professional and special services 439,495 102,491 171,198
Rentals 19,446 3,101 6,339
Repair and maintenance 44,327 8,314 19,831
Utilities, materials and supplies 414,690 109,897 199,523
Acquisition of lands, buildings and works 6,415 656 697
Acquisition of machinery and equipment 40,674 7,352 12,231
Transfer payments 1,507,085 331,257 795,214
Other subsidies and payments 2,381 (771) (3,683)
Total gross budgetary expenditures 3,664,502 890,119 1,777,355
       
Less revenues netted against expenditures:
Rights and privileges 52,165 7,863 11,954
Services non-regulatory 21,876 4,359 7,730
Services regulatory 55,155 9,930 15,963
Total revenues netted against expenditures 129,196 22,152 35,647
       
Total net budgetary expenditures 3,535,306 867,967 1,741,708
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