Health Canada Quarterly Financial Report - For the quarter ended September 30, 2016

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 programs 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.

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

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 2016-2017 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.

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 2016-2017, as well as budget adjustments approved by Treasury Board up to September 30, 2016.

A. Significant Changes to Authorities

The following table 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.

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 2016-2017 were $4,011 million at the end of the second quarter as compared with $3,798 million at the end of the second quarter of 2015-2016, representing a net increase of $213 million, or 5.6%. This increase is primarily attributable to the following:

• $114.4 million increase for health programs for Aboriginal populations;
• $94.9 million increase for affordable housing and social infrastructure projects (Budget 2016);
• $83.5 million increase for growth in First Nations and Inuit health programs and services;
• $25.4 million increase to address climate change and air pollution (Budget 2016);
• $16.9 million increase for the Implementation of the British Columbia Tripartite Framework Agreement on First Nation Health Governance;
• $12.7 million increase to maintain and upgrade federal infrastructure assets (Budget 2016); and,
• $12.0 million increase for the Canadian Foundation for Healthcare Improvement.

These increases are partially offset by the following decreases:

• $56.5 million decrease for the sunsetting of funding in 2015-2016 for the Renewal of funding to implement the Indian Residential School Settlement Agreement;
• $36.3 million decrease in statutory spending authority for disbursements to Canada Health Infoway Inc.;
• $27.5 million decrease for the sunsetting of funding in 2015-2016 for the Clean Air Regulatory Agenda Funding (CARA);
• $14.2 million decrease due to the re-profile of funding for the Brain Canada Foundation; and,
• $13.1 million decrease in the department's Operating and Capital budget carry-forwards.

The fluctuations in authorities available for spending are most notable in the following standard objects: personnel; professional and special services; utilities, materials and supplies; acquisition of land, buildings and works; acquisition of machinery and equipment; 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.

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 2016-2017, total budgetary expenditures were $2,059 million compared with $1,935 million reported for the same period of 2015-2016, representing an increase of $124 million or 6.4%.

Year to date net operating expenditures have increased by approximately $38 million or 4.9% when compared to the second quarter of 2015-2016. The significant variances in operating expenditures reported by standard object are as follows:

• $7.9 million increase in transportation and communication primarily as a result of increased transportation costs for nurses and patients associated with the Non-Insured Health Benefits program, which are demand-driven and can vary from year to year;
• $19.5 million increase in professional and special services due to:
  • an increase in cost and of demand for medical professional services associated with the Non-Insured Health Benefits program;
  • changes to the legal services funding model, which has resulted in a variation to the timing of expenditures made to the Department of Justice; and,
• $13.9 million increase in utilities, materials and supplies due primarily to an increase in expenses for pharmaceutical and medical supplies which are demand-driven and can vary from year to year.

There was an increase in Vote 10 - Grants and contributions year to date expenditures of $125 million or 12.5%, primarily due to:

• $99.2 million increase in disbursements for First Nations and Inuit health programs including:
  • enhancement of health research;
  • an annual escalation to the British Columbia Tripartite Framework Agreement with the First Nations Health Authority;
  • Non-Insured Health Benefit expenditures which are primarily demand-driven and can vary from year to year; and,
  • support of the Health System Integration Fund and Aboriginal Health Human Resources initiative;
• $16.8 million increase related to the timing of disbursements to the Canadian Partnership Against Cancer; and,
• $12.0 million increase for disbursements to the Canadian Foundation for Healthcare Improvement.

Statutory year to date expenditures have decreased $36 million or 23.6% from $152 million in 2015-2016 to $116 million in 2016-2017, 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.

Expenditures in the second quarter of fiscal 2016-2017 were $843 million compared with $902 million for the second quarter of 2015-2016, representing a decrease of $59 million or 6.5% in quarterly spending.

The decrease in quarterly spending is due primarily to:

• $19.0 million decrease in professional and special services comprised of:
  • expenditures related to the Non-Insured Health Benefits program which are demand-driven and can vary from period to period; and,
  • changes to the legal services funding model, which has resulted in a variation to the timing of expenditures made to the Department of Justice;
• $21.4 million decrease in utilities, materials and supplies for pharmaceutical and medical supply costs resulting from increases in demand under the Non-Insured Health Benefits program; and,
• $15.4 million decrease in transfer payments related to the timing of disbursements for:
  • Canadian Partnership Against Cancer;
  • Canadian Blood Services; and,
  • Canadian Institute for Health Information.

Expenditures reported for professional and special services and utilities, materials and supplies in quarter one reflected an increase in spending as a result of demand-driven variances experienced in the Non-Insured Health Benefits program. Although the above-noted second quarter year-over-year expenditure variances indicate a decrease in these standard objects, combined with the quarter one expenditures, the year-to-date expenditures reflect an overall increase.

Risks and Uncertainties

Health Canada is dedicated to enhancing the health and well-being of Canadians and 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).

Health Canada 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 more effective service delivery, better project management, and an increase in value for money.

As a result, the Department employs integrated risk management tools, including the development of an annual Corporate Risk Profile and monitoring of risk management strategies, to proactively and systematically recognize, understand, accommodate and capitalize on new challenges and opportunities, with a focus on results. In addition, the Department has appropriate internal control systems in place, proportionate to the risks being managed.

Prudent management within a constrained fiscal environment 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, a sound governance structure, as well as through the use of longer-term planning. 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.

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. Growth in the Non-Insured Health Benefits program is based on 5% growth on actual (annual) expenditures from the prior fiscal year. 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

Ms. Jennifer Hollington was appointed to the position of Assistant Deputy Minister of the Communications and Public Affairs Branch in September 2016.

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 24, 2016

Original signed by Randy Larkin
Randy Larkin
Assistant Deputy Minister and
Chief Financial Officer
Ottawa, Canada
Date: November 24, 2016

Statement of Authorities (Unaudited)

Departmental Budgetary Expenditures by Standard Object (Unaudited)