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

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 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 September 30, 2014.

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

Comparison of Authorities Available for Spending for the Year as at June 30 and September 30 of Fiscal Years 2013-2014 and 2014-2015

Comparison of Authorities Available for Spending for the Year as at June 30 and September 30 of Fiscal Years 2013-2014 and 2014-2015

Bar chart showing a comparison of authorities available for spending for the year as at June 30 and September 30 of fiscal years 2013-2014 and 2014-2015 in millions of dollars.

2013-2014 Authorities available as at June 30 = 3,387; 2013-2014 Authorities available as at September 30 = 3,385; 2014-2015 Authorities available as at June 30 = 3,727; 2014-2015 Authorities available as at September 30 = 3,795.

A. Significant Changes to Authorities

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

Comparison of Authorities Available for Spending for the Year as at September 30 of Fiscal Years 2013-2014 and 2014-2015
Authorities available (in millions of dollars) 2013-2014 2014-2015 Variance
Vote 1 - Operating expenditures 1,721 1,838 117
Vote 5 - Capital expenditures 29 35 6
Vote 10 - Grants and contributions 1,419 1,684 265
Statutory 216 238 22
Total authorities 3,385 3,795 410

Authorities available for spending in fiscal year 2014-2015 are $3,795 million at the end of the second quarter as compared with $3,385 million at the end of the second quarter of 2013-2014, representing an increase of $410 million, or 12.1%. 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;
  • $66.4 million increase for operating and capital budget carry forwards received in 2014-2015;
  • $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 spending authority due to a rate adjustment as directed by Treasury Board Secretariat;
  • $6.0 million decrease for the sunsetting of funding in 2014-2015 for Continuing a Comprehensive Strategy for Managing Bovine Spongiform Encephalopathy in Canada; and,
  • $5.0 million decrease for funding related to government advertising programs.

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

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.

Comparison of Net Budgetary Authorities and Year to Date Expenditures for the Quarters Ended June 30 and September 30 of Fiscal Years 2013-2014 and 2014-2015

Comparison of Net Budgetary Authorities and Year to Date Expenditures for the Quarters Ended June 30 and September 30 of Fiscal Years 2013-2014 and 2014-2015

Bar chart showing a comparison of net budgetary authorities and year to date expenditures for the quarters ended June 30 and September 30 of Fiscal Years 2013-2014 and 2014-2015 in millions of dollars.

2013-2014 Net Budgetary Authorities = 3,385; 2013-2014 Year to date Expenditures to June 30 = 1,038; 2013-2014 Year to date Expenditures to September 30 = 1,928; 2014-2015 Net Budgetary Authorities = 3,795; 2014-2015 Year to date Expenditures to June 30 = 1,133; 2014-2015 Year to date Expenditures to September 30 = 1,959.

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

Comparison of Year to Date Expenditures for the Quarter Ended September 30 of Fiscal Years 2013-2014 and 2014-2015
Year to date expenditures (in millions of dollars) 2013-2014 2014-2015 Variance
Vote 1 - Operating expenditures 838 779 (59)
Vote 5 - Capital expenditures 3 5 2
Vote 10 - Grants and contributions 934 1,047 113
Statutory 153 128 (25)
Total year to date expenditures 1,928 1,959 31

During the second quarter of 2014-2015, total budgetary expenditures were $1,959 million compared with $1,928 million reported for the same period of 2013-2014, representing an increase of $31 million or 1.6%, primarily in expenditures relating to grants and contributions.

Year to date net operating expenditures have decreased by approximately $59 million or 7.1% when compared to the second quarter of 2013-2014. The significant variances in operating expenditures reported by standard object are as follows:

  • $54.2 million decrease in personnel expenditures due primarily to:
    • a change in the timing of recording salary expenditures incurred to date resulting from the implementation of salary payment in arrears by the Government of Canada;
    • a decrease related to payments made during 2013-2014 for retroactive adjustments and the liquidation of severance and termination benefits payable from collective bargaining agreement settlements signed in the previous year; and,
    • the resulting decrease in personnel costs following the transfer of regional employees to the First Nations Health Authority under the British Columbia Tripartite Framework Agreement;
  • $24.6 million increase in other subsidies and payments due primarily to a one-time transition payment for implementing salary payment in arrears by the Government of Canada;
  • $10.4 million increase in utilities, materials and supplies which includes non-insured health benefits which are demand driven and can fluctuate from one year to the next; and,
  • $29.5 million in offsetting vote-netted revenues, which have increased primarily due to cost recovery arrangements as part of the 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 $113 million or 12.2%, primarily due to:

  • $85.8 million increase in transfer payments following the signing of the British Columbia Tripartite Framework Agreement with the First Nations Health Authority;
  • $7.9 million increase in contributions related to 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 $25 million from $153 million in 2013-2014 to $128 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.

C. Quarterly Variances

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

Description - Comparison of Quarterly Expenditures for the Quarters Ended June 30 and September 30 of Fiscal Years 2013-2014 and 2014-2015

Description - Comparison of Quarterly Expenditures for the Quarters Ended June 30 and September 30 of Fiscal Years 2013-2014 and 2014-2015

Bar chart showing a comparison of quarterly expenditures for the quarters ended June 30 and September 30 of Fiscal Years 2013-2014 and 2014-2015 in millions of dollars.

2013-2014 Expenditures for the Quarter Ended June 30 = 1,038; 2013-2014 Expenditures for the Quarter Ended September 30 = 889; 2014-2015 Expenditures for the Quarter Ended June 30 = 1,133; 2014-2015 Expenditures for the Quarter Ended September 30 = 826.

Expenditures in the second quarter of fiscal 2014-2015 were $826 million compared with $889 million for the second quarter of 2013-2014, representing a decrease of $63 million or 7.1% in quarterly spending.

The decrease in quarterly spending is due primarily to:

  • $21.7 million decrease in personnel costs due primarily to payments made during 2013-2014 for retroactive adjustments and the liquidation of severance and termination benefits payable from collective bargaining agreement settlements signed in the previous year and the resulting decrease in personnel costs following the transfer of regional employees to the First Nations Health Authority under the British Columbia Tripartite Framework Agreement; and,
  • $45.6 million decrease in transfer payments related to the timing of disbursements relating to various First Nation and Inuit Health programs, which were advanced during the first quarter of the current fiscal year as compared with the second quarter of the prior year.

This decrease is offset by an $8.2 million increase in utilities, materials and supplies due primarily to a rise in pharmaceutical and medical supply costs resulting from increases in demand under the Non-Insured Health Benefits Program.

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

The following changes in senior management were made during the second quarter of 2014-2015:

  • Mr. Sony Perron was appointed Senior Assistant Deputy Minister of the First Nations and Inuit Health Branch in July 2014;
  • Ms. Debbie Beresford-Green was appointed Assistant Deputy Minister of the Corporate Services Branch in August 2014; and,
  • Mr. Anil Arora was appointed Assistant Deputy Minister of the Health Products and Food Branch in September 2014.

There have been no other 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 have been 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 second quarter of fiscal year 2014-2015 are greater than the same period of last year ($3,795 million vs. $3,385 million) while expenditures in the second quarter of fiscal year 2014-2015 are lower than the same period of last year ($826 million vs. $889 million). The increase in authorities consists primarily of stabilization of the First Nations and Inuit Health programming funding. The decrease 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 are achieving 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 is achieving ongoing savings of $17.9 million.

Grants and Contributions (G&Cs)

Grants and contributions funding is being 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 are achieving 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: November 21, 2014

Jamie Tibbetts
Assistant Deputy Minister and
Chief Financial Officer
Ottawa, Canada
Date: November 18, 2014

Statement of Authorities (Unaudited)

Fiscal year 2014-2015 (in thousands of dollars)
Authority Total available for use for the year ending March 31, 2015* Includes only Authorities available for use and granted by Parliament at quarter end Used during the quarter ended September 30, 2014 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 1,837,796 445,908 778,699
Vote 5 - Capital expenditures 35,150 3,569 5,055
Vote 10 - Grants and contributions 1,683,745 347,404 1,047,133
(S - Statutory Vote) Contributions to employee benefit plans 115,510 28,878 57,755
(S - Statutory Vote) Minister of Health - Salary and motor car allowance 80 20 40
(S - Statutory Vote) Spending of proceeds from the disposal of surplus Crown assets 714 19 23
(S - Statutory Vote) Refunds of amounts credited to revenues in previous years 551 116 551
(S - Statutory Vote) Canada Health Infoway Inc. 68,364 0 68,364
(S - Statutory Vote) Collection agency fees 3 1 3
(S - Statutory Vote) Court awards 165 119 164
(S - Statutory Vote) Transfer payments in connection with the Budget Implementation Act 1,082 359 1,082
(S - Statutory Vote) Spending of revenues pursuant to section 4.2 of the Department of Health Act 51,463 0 626
Total authorities 3,794,623 826,393 1,959,495
Fiscal year 2013-2014 (in thousands of dollars)
Authority Total available for use for the year ending March 31, 2014 * includes only Authorities available for use and granted by Parliament at quarter end Used during the quarter ended September 30, 2013 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 1,721,057 462,154 838,369
Vote 5 - Capital expenditures 28,641 1,823 3,123
Vote 10 - Grants and contributions 1,419,262 393,338 933,587
(S - Statutory Vote) Contributions to employee benefit plans 126,743 31,665 63,329
(S - Statutory Vote) Minister of Health - Salary and motor car allowance 79 19 39
(S - Statutory Vote) Spending of proceeds from the disposal of surplus Crown assets 478 37 63
(S - Statutory Vote) Refunds of amounts credited to revenues in previous years 635 339 635
(S - Statutory Vote) Canada Health Infoway Inc. 88,548 0 88,548
(S - Statutory Vote) Collection agency fees 2 1 2
Total authorities 3,385,445 889,376 1,927,695

Departmental Budgetary Expenditures by Standard Object (Unaudited)

Fiscal year 2014-2015 (in thousands of dollars)
Standard Object Planned expenditures for the year ending March 31, 2015 Expended during the quarter ended September 30, 2014 Year to date used at quarter-end
Expenditures:
Personnel 842,617 233,837 402,790
Transportation and communications 223,259 47,346 79,315
Information 28,548 1,579 2,134
Professional and special services 775,723 109,083 185,047
Rentals 23,254 3,321 6,029
Repair and maintenance 35,890 4,303 6,110
Utilities, materials and supplies 345,421 117,857 214,015
Acquisition of land, buildings and works 9,815 1,706 2,533
Acquisition of machinery and equipment 25,335 7,810 13,237
Transfer payments 1,753,191 347,762 1,116,578
Other subsidies and payments 2,410 684 27,966
Total gross budgetary expenditures 4,065,463 875,288 2,055,754
Less revenues netted against expenditures:
Rights and privileges 55,115 5,166 16,343
Services non-regulatory 158,010 34,562 63,539
Services regulatory 57,715 9,143 16,353
Services to other government departments 0 24 24
Total revenues netted against expenditures 270,840 48,895 96,259
Total net budgetary expenditures 3,794,623 826,393 1,959,495
Fiscal year 2013-2014 (in thousands of dollars)
Standard Object Planned expenditures for the year ending March 31, 2014 Expended during the quarter ended September 30, 2013 Year to date used at quarter-end
Expenditures:
Personnel 855,171 255,543 462,036
Transportation and communications 300,398 52,879 82,361
Information 20,353 2,140 2,848
Professional and special services 464,193 106,013 181,801
Rentals 13,950 5,185 9,058
Repair and maintenance 36,021 5,169 6,944
Utilities, materials and supplies 419,285 109,705 203,575
Acquisition of land, buildings and works 1,488 448 911
Acquisition of machinery and equipment 25,553 7,819 14,073
Transfer payments 1,507,809 393,338 1,022,135
Other subsidies and payments 10,265 2,993 3,326
Total gross budgetary expenditures 3,654,486 941,232 1,989,068
Less revenues netted against expenditures:
Rights and privileges 54,622 11,462 16,194
Services non-regulatory 158,096 30,608 34,032
Services regulatory 56,323 9,786 11,147
Total revenues netted against expenditures 269,041 51,856 61,373
Total net budgetary expenditures 3,385,445 889,376 1,927,695
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