Health Canada Quarterly Financial Report - For the quarter ended June 30, 2018

Introduction
Basis of Presentation
Highlights of the 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.

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. The accompanying Statement of Authorities includes the Department's spending authorities granted by Parliament, and those used by the Department consistent with the Main Estimates for the 2018-2019 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 money can be spent by the Government. Approvals 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.

The Department uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental results reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

Highlights of the 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 Main Estimates for fiscal year 2018-2019, as well as budget adjustments approved by Treasury Board up to June 30, 2018.

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.

**Figure 1. Comparison of Net Budgetary Authorities and Expenditures for the Quarter Ended June 30 of Fiscal Years 2017-2018 and 2018-2019**

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.

Comparison of Authorities Available for Spending for the Year as at June 30 of Fiscal Years 2017-2018 and 2018-2019
Authorities available (in millions of dollars)	2017-2018	2018-2019	Variance
Vote 1 – Operating expenditures	1,957	750	(1,207)
Vote 5 – Capital expenditures	38	26	(12)
Vote 10 – Grants and contributions	2,165	1,387	(778)
Statutory	197	174	(23)
Total authorities	4,357	2,337	(2,020)

Authorities available for spending in fiscal year 2018-2019 were $2,337 million at the end of the first quarter as compared with $4,357 million at the end of the first quarter of 2017-2018, representing a decrease of $2,020 million, or 46%. This decrease is primarily attributable to:

$3,125.8 million decrease for the transfer of the First Nations and Inuit Health Branch (FNIHB) and related internal services to the Department of Indigenous Services Canada (ISC), per Orders in Council P.C. 2017-1465 and P.C. 2018-0381;
$25.9 million decrease in statutory spending authority for disbursements to Canada Health Infoway Inc.;
$19.3 million decrease in funding for maintaining and upgrading federal infrastructure assets; and,
$13.1 million decrease in funding for promoting clean growth and addressing climate change.

These decreases in authorities are partially offset by the following increases:

$850.0 million to strengthen Canada's Home Care and Mental Health Services Initiative;
$144.8 million to help address the opioid crisis;
$65.1 million to implement and administer a federal framework to legalize and strictly regulate cannabis;
$40.9 million for compensation related to collective agreements;
$32.7 million for maintaining core regulatory operations for therapeutic products;
$20.0 million in statutory spending authority for disbursements pursuant to section 103 of the Patent Act; and,
$17.9 million to improve accessibility, affordability and appropriate use of prescription drugs and medical devices.

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

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.

Comparison of Year-to-Date Expenditures for the Quarter Ended June 30 of Fiscal Years 2017-2018 and 2018-2019
Year-to-date expenditures (in millions of dollars)	2017-2018	2018-2019	Variance
Vote 1 – Operating expenditures	437	146	(291)
Vote 5 – Capital expenditures	-	1	1
Vote 10 – Grants and contributions	780	148	(632)
Statutory	56	45	(11)
Total year-to-date expenditures	1,273	340	(933)

At the end of the first quarter of 2018-2019, total budgetary expenditures were $340 million compared with $1,273 million reported for the same period of 2017-2018, representing a decrease of $933 million or 73%.

Year-to-date net operating expenditures have decreased by approximately $291 million or 67% when compared to the first quarter of 2017-2018. The significant variances in operating expenditures are as follows:

$126.0 million decrease in utilities, material and supplies is primarily the result of the transfer of FNIHB to ISC and consequent decreased expenditures for pharmaceutical and medical supplies;
$74.6 million decrease in professional and special services is primarily from the transfer of FNIHB to ISC and resulting decrease for Non-Insured Health Benefits;
$46.1 million decrease in transportation and communications is mainly from the transfer of FNIHB to ISC for Non-Insured patient travel; and,
$41.9 million decrease in personnel expenditures is primarily due to the transfer of employees from FNIHB and related internal services functions to ISC. This is partially offset by increases related to collective agreements and increased personnel for Canada's response to the opioid crisis and cannabis legalization.

There was a decrease in Vote 10 – Grants and contributions year-to-date expenditures of $632 million or 81%, resulting from the following offsetting factors:

$677.5 million decrease in contributions due to the transfer of FNIHB to ISC;
$14.5 million decrease from the timing of contribution payments made to Canada Heath Infoway;
$27.0 million increase from the timing of grants to support the Territorial Health Investment Fund;
$17.1 million increase in transfer payments for Home Care and Mental Health Services;
$11.7 million increase from the timing of contribution payments made to the Canada Brain Research Fund; and,
$9.9 million increase from the timing of contribution payments made for the Canadian Foundation for Health Improvement.

Statutory year-to-date expenditures have decreased by $11 million or 19% from $56 million in 2017-2018 to $45 million in 2018-2019 which is comprised of the following offsetting components:

$25.8 million decrease in statutory payments made to Canada Health Infoway Inc. which are disbursed in accordance with the organization's cash flow needs;
$4.5 million decrease in the government's contribution to employee benefit plans for those employees transferred to ISC and a reduction in the rate used for the calculation of employee benefit plans for 2018-2019. These are partially offset by the impact of increased personnel costs related to collective agreements, Canada's response to the opioid crisis, and cannabis legalization; and,
$20.0 million increase for a statutory payment made pursuant to section 103 of the Patent Act.

Risks and Uncertainties

Health Canada is dedicated to enhancing the health and well-being of Canadians. It 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 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 a 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 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. emerging health events and novel drug therapies), 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. Cost management and planning are also in place and are reported regularly to senior management for decision making.

As part of Budget 2017, Health Canada undertook a review of the Department's programs, operations, and resources. As part of the Treasury Board Policy on Results, the intent of the review was to take stock of the Department and its programs, ensure that Health Canada is well-aligned to deliver results, and examine options on how to make the best use of available resources. The Department is implementing the proposals that were identified in this review.

Significant Changes in Relation to Operations, Personnel and Programs

Effective November 30, 2017, the Department transferred the control and supervision of the First Nations and Inuit Health Branch to the Department of Indigenous Services Canada. Subsequently on April 1, 2018, the internal services that support the First Nations and Inuit Health Branch were also transferred to ISC. While the current year figures do not include expenditures related to First Nations and Inuit health programs or its related internal services, costs incurred for the transferred operations are embedded in the comparative figures for the prior year.

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: August 21, 2018

Original signed by Randy Larkin
Randy Larkin
Assistant Deputy Minister and
Chief Financial Officer
Ottawa, Canada
Date: August 13, 2018

Statement of Authorities (unaudited)

Fiscal year 2018-2019 (in thousands of dollars)
Authority	Total available for use for the year ending March 31, 2019^{Table 3 footnote *}	Used during the quarter ended June 30, 2018	Year-to-date used at quarter-end
Vote 1 – Operating expenditures	750,036	146,492	146,492
Vote 5 – Capital expenditures	26,098	590	590
Vote 10 – Grants and contributions	1,387,055	147,775	147,775
(S) Contributions to employee benefit plans	101,562	25,349	25,349
(S) Minister of Health – Salary and motor car allowance	86	21	21
(S) Spending of proceeds from the disposal of surplus Crown assets	386	79	79
(S) Refunds of amounts credited to revenues in previous years	3	3	3
(S) Payments in connection with the Patent Act (Patented medicines)	20,000	20,000	20,000
(S) Spending of revenues pursuant to section 4.2 of the Department of Health Act	51,463	-	-
Total authorities	2,336,689	340,309	340,309
(S) – Statutory Vote Table 3 footnote * Includes only Authorities available for use and granted by Parliament at quarter-end Return to Table 3 footnote * referrer

Fiscal year 2017-2018 (in thousands of dollars)
Authority	Total available for use for the year ending March 31, 2018^{Table 4 footnote *}	Used during the quarter ended June 30, 2017	Year-to-date used at quarter-end
Vote 1 – Operating expenditures	1,956,731	436,963	436,963
Vote 5 – Capital expenditures	37,540	401	401
Vote 10 – Grants and contributions	2,164,870	780,130	780,130
(S) Contributions to employee benefit plans	120,137	29,861	29,861
(S) Minister of Health – Salary and motor car allowance	84	21	21
(S) Spending of proceeds from the disposal of surplus Crown assets	15	2	2
(S) Refunds of amounts credited to revenues in previous years	79	79	79
(S) Canada Health Infoway Inc.	25,848	25,848	25,848
(S) Spending of revenues pursuant to section 4.2 of the Department of Health Act	51,463	-	-
Total authorities	4,356,767	1,273,305	1,273,305
(S) – Statutory Vote Table 4 footnote * Includes only Authorities available for use and granted by Parliament at quarter-end Return to Table 4 footnote * referrer

Departmental Budgetary Expenditures by Standard Object (unaudited)

Fiscal year 2018-2019 (in thousands of dollars)
Standard Object	Planned expenditures for the year ending March 31, 2019	Expended during the quarter ended June 30, 2018	Year-to-date used at quarter-end
Expenditures:
Personnel	796,519	158,869	158,869
Transportation and communications	20,449	2,467	2,467
Information	27,081	1,819	1,819
Professional and special services	140,886	27,944	27,944
Rentals	17,556	2,193	2,193
Repair and maintenance	29,181	1,331	1,331
Utilities, materials and supplies	25,909	1,657	1,657
Acquisition of land, buildings and works	-	371	371
Acquisition of machinery and equipment	26,097	878	878
Transfer payments	1,407,055	167,775	167,775
Other subsidies and payments	3,232	1,279	1,279
Total gross budgetary expenditures	2,493,965	366,583	366,583
Less revenues netted against expenditures:
Rights and privileges	62,530	11,312	11,312
Services non-regulatory	30,385	3,341	3,341
Services regulatory	64,361	11,621	11,621
Total revenues netted against expenditures	157,276	26,274	26,274
Total net budgetary expenditures	2,336,689	340,309	340,309

Fiscal year 2017-2018 (in thousands of dollars)
Standard Object	Planned expenditures for the year ending March 31, 2018	Expended during the quarter ended June 30, 2017	Year-to-date used at quarter-end
Expenditures:
Personnel	913,751	200,762	200,762
Transportation and communications	251,082	48,570	48,570
Information	16,688	1,288	1,288
Professional and special services	521,533	102,569	102,569
Rentals	9,729	1,307	1,307
Repair and maintenance	19,934	1,652	1,652
Utilities, materials and supplies	589,842	127,627	127,627
Acquisition of land, buildings and works	7,354	-	-
Acquisition of machinery and equipment	29,988	7,668	7,668
Transfer payments	2,190,718	805,978	805,978
Other subsidies and payments	3,472	2,348	2,348
Total gross budgetary expenditures	4,554,091	1,299,769	1,299,769
Less revenues netted against expenditures:
Rights and privileges	61,563	11,552	11,552
Services non-regulatory	72,822	2,991	2,991
Services regulatory	62,939	11,799	11,799
Services to other government departments	-	122	122
Total revenues netted against expenditures	197,324	26,464	26,464
Total net budgetary expenditures	4,356,767	1,273,305	1,273,305

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Date modified:: 2018-08-23

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