Health Canada Quarterly Financial Report - For the quarter ended September 30, 2015

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
• 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.

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 2015-2016 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 2015-2016, as well as budget adjustments approved by Treasury Board up to September 30, 2015.

A. Significant Changes to Authorities

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.

(in Millions $)

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

Authorities available for spending in fiscal year 2015-2016 were $3,798 million at the end of the second quarter as compared with $3,795 million at the end of the second quarter of 2014-2015, representing a net increase of $3 million, or 0.1%.  This increase is primarily attributable to the following:

• $63.5 million increase for the growth in First Nations and Inuit Health programs and services;
• $29.3 million increase for the Implementation of the British Columbia Tripartite Framework Agreement on First Nation Health Governance for the transfer to the First Nations Health Authority;
• $23.1 million increase for the Renewal of the First Nations Water and Wastewater Action Plan;
• $23.0 million increase for the Territorial Health Investment Fund; and,
• $8.2 million increase for Preventing Prescription Drug Abuse.

These increases are partially offset by the following decreases:

• $140.8 million decrease for the sunsetting of funding in 2015-2016 for the Renewal of Federal Aboriginal Health Programs; and,
• $6.0 million decrease for the sunsetting of funding in 2015-2016 for the Sir Frederick Banting Building Retrofit.

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

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.

(in Millions $)

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

At the end of the second quarter of 2015-2016, total budgetary expenditures were $1,935 million compared with $1,959 million reported for the same period of 2014-2015, representing a decrease of $24 million or 1.3%, primarily in expenditures relating to grants and contributions and statutory expenditures.

Year to date net operating expenditures have decreased by approximately $1 million or 0.1% when compared to the second quarter of 2014-2015.  The significant variances in operating expenditures reported by standard object are as follows:

• $14.8 million decrease in personnel expenditures due primarily to the timing of recording of expenditures in relation to the spending of revenues collected under the Shared Services Partnership agreement with the Public Health Agency of Canada; and,
• $25.5 million decrease in other subsidies and payments due primarily to the one-time transition payment for implementing salary payment in arrears by the Government of Canada in the prior year.

These decreases are partially offset by:

• $15.1 million increase in transportation and communication as a result of increasing costs of transportation and a higher demand experienced during the year for nurses and patients associated with the Non-Insured Health Benefits program as compared with the prior year; and,
• $24.8 million increase in utilities, materials and supplies due to an increase in expenses for pharmaceutical and medical supplies which are demand-driven and can vary from year to year.

There was a decrease in Vote 10 – Grants and contributions year to date expenditures of $47 million or 4.5%, primarily due to changes in timing of disbursements.  The most significant items include:

• $17.9 million related to the sunsetting of large programs within the First Nations and Inuit Health programs, which were renewed in a Treasury Board Submission at the beginning of 2015-2016; and,
• $13.1 million related to the contribution agreement with the Canadian Partnership Against Cancer.

Statutory year to date expenditures have increased $24 million or 18.1% from $128 million in 2014-2015 to $152 million in 2015-2016, primarily due to:

• $3.6 million increase in employee benefit plan costs;
• $5.9 million increase in transfer payments made to Canada Health Infoway Inc. which are disbursed in accordance with the cash flow needs of that organization; and,
• $14.9 million increase due to the timing of recording of expenditures in relation to the spending of revenues collected under the Shared Services Partnership agreement.

C. Quarterly Variances

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

(in Millions $)

Expenditures in the second quarter of fiscal 2015-2016 were $902 million compared with $826 million for the second quarter of 2014-2015, representing an increase of $76 million or 9.1% in quarterly spending.

The increase in quarterly spending is due primarily to:

• $10.3 million increase in transportation and communication as a result of increasing costs of transportation and a higher demand experienced during the year for nurses and patients associated with the Non-Insured Health Benefits Program;
• $14.1 million increase in utilities, materials and supplies for pharmaceutical and medical supply costs resulting from increases in demand under the Non-Insured Health Benefits Program; and,
• $69.0 million increase in transfer payments related to the timing of disbursements relating to various First Nations and Inuit Health programs.

This increase is partially offset by a $27.7 million decrease in personnel costs due to the number of pay periods for salary expenditures charged against appropriations during the quarter as compared to the prior year.

Risks and Uncertainties

Health Canada 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.  Sound risk management equips the Department 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.

Health Canada 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 First Nations and Inuit and various levels of government, unforeseen health crises, scientific and technological change, and cyber security).

The Department employs integrated risk management tools to proactively and systematically recognize, understand, accommodate and capitalize on new challenges and opportunities, with a focus on results.  In addition, the Department has effective internal control systems in place, proportionate to the risks being managed. 

Prudent management within the financial context of operating budget freezes and declining carry forwards, is required to manage potential impacts on departmental programs and services.  Health Canada continues to manage through effective engagement across the Department, an augmented governance structure, as well as through the use of longer-term planning.  As such, 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.  Each branch is required to have a multi-year financial management plan that has been reviewed by this committee to confirm that it has a plan in place to address the financial context.

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 experience 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 change in senior management was made during the second quarter of 2015-2016:

• Ms. Shelley Borys was appointed Chief Audit Executive of the Portfolio Audit and Accountability Bureau in July 2015.

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

Approved by:

Original signed by Simon Kennedy

Simon Kennedy
Deputy Minister
Ottawa, Canada
Date:  November 13, 2015

Original signed by Jamie Tibbetts

Jamie Tibbetts
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date:  November 10, 2015

Statement of Authorities (Unaudited)

Departmental Budgetary Expenditures by Standard Object (Unaudited)