Health Canada Quarterly Financial Report - For the quarter ended September 30, 2020

Table of Contents

• 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 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. 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 and Supplementary Estimates for the 2020-2021 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 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 and Supplementary Estimates A for fiscal year 2020-2021, as well as budget adjustments approved by Treasury Board up to September 30, 2020.

A. Significant Changes to Authorities

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

The following table provides a comparison of total authorities available by vote at the end of 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 2019-2020 and 2020-2021

Authorities available (in millions of dollars)	2019-2020	2020-2021	Variance
Vote 1 - Operating expenditures	801	754	(47)
Vote 5 - Capital expenditures	20	16	(4)
Vote 10 - Grants and contributions	1,556	1,628	72
Statutory	170	425	255
Total authorities	2,547	2,823	276

Authorities available for spending in fiscal year 2020-2021 are $2,823 million at the end of the second quarter as compared with $2,547 million at the end of the second quarter of 2019-2020, representing a net increase of $276 million, or 11%. This increase is primarily attributable to the following:

• $253.3 million in statutory funding for payments for Drugs, Medical Devices, and Virtual Care;
• $150.0 million increase in funding for strengthening Canada's Home and Community Care and Mental Health and Addiction Services Initiative;
• $41.0 million in funding for compensation related to Collective Agreements;
• $21.2 million increase in funding for enhancing the Federal Response to the Opioids Crisis in Canada;
• $17.6 million in funding for continuing to legalize and strictly regulate Cannabis;
• $15.1 million in funding for the Terry Fox Research Institute and Ovarian Cancer Canada to support cancer research;
• $11.5 million in funding for Canada Brain Research Fund Program; and,
• $9.3 million in statutory funding for payments to support Canada's initial response to COVID-19.

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

• $216.9 million in authorities waiting receipt of full supply;
• $16.2 million decrease in funding to Expand Federal Thalidomide Financial Support;
• $10.9 million decrease in the Department's operating and capital budget carry-forwards; and,
• $10.1 million decrease in statutory spending authority for disbursements to Canada Health Infoway Inc.

The fluctuations in authorities available for spending are most notable in the following standard objects: Transfer payments; Acquisitions of Machinery and Equipment; and Personnel.

B. Significant Changes in Year-to-Date Expenditures

The following graph provides a comparison of net budgetary authorities and year-to-date spending by quarter for the current and previous fiscal years.

The following table provides a comparison of year-to-date spending by vote at the end of 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 2019-2020 and 2020-2021

Year-to-date expenditures (in millions of dollars)	2019-2020	2020-2021	Variance
Vote 1 - Operating expenditures	441	369	(72)
Vote 5 - Capital expenditures	5	1	(4)
Vote 10 - Grants and contributions	751	869	118
Statutory	67	113	46
Total year-to-date expenditures	1,264	1,352	88

At the end of the second quarter of 2020-2021, total budgetary expenditures were $1,352 million compared with $1,264 million reported for the same period of 2019-2020, representing an increase of $88 million or 7%.

Year-to-date net operating expenditures have decreased by approximately $72 million or 16% when compared to the second quarter of 2019-2020. The significant variances in operating expenditures are as follows:

• $41.6 million increase in personnel expenditures primarily due to timing in the number of pay periods recorded to the end of the second quarter, the cost of supplementary hours to support the Department's COVID-19 initiatives, and continued growth in the cannabis, controlled substances and opioid programs;
• $90.1 million decrease in other subsidies and payments, mainly due to a legal settlement and one-time ex gratia payments for approved survivors under the Canadian Thalidomide Survivors Support Program disbursed in the prior year;
• $4.7 million decrease in expenditures related to the timing of allocation of expenditures against statutory authorities under the Shared Services Partnership with the Public Health Agency of Canada; and,
• $12.7 million increase in revenues, which results in a decrease in net operating expenditures, mainly the result of a change in timing of cash receipts for licensing applications, which can vary from year to year, and an increase in revenues for Employee Assistance Services.

There was an increase in Vote 10 - Grants and contributions year-to-date expenditures of $118 million or 16%, resulting from the following offsetting factors:

• $75.1 million increase in contribution expenditures due mainly to an increased amount of funding available in 2020-2021 for Home Care and Mental Health program and timing of payments;
• $16.5 million increase from the timing of payments to the Canadian Partnership Against Cancer;
• $16.5 million increase from the timing of payments to Canada Health Infoway Inc.;
• $6.4 million increase from the timing of grant payments to support the Territorial Health Investment Fund; and,
• $8.8 million decrease in contribution expenditures from the timing of payments made to the Canadian Foundation for Healthcare Improvement.

Statutory year-to-date expenditures have increased by $46 million or 68% from $67 million in 2019-2020 to $113 million in 2020-2021 that is mainly comprised of the following offsetting components:

• $27.9 million increase in expenditures for virtual care pursuant to the Public Health Events of National Concern Payments Act, consisting primarily of expenditures for the mental health and substance use portal to provide Canadians with credible information about mental health, as well as access to self-assessment tools, self-guided resources, peer support, and direct psycho-social support services (e.g. counselling) delivered through digital modalities;
• $15.0 million increase in advertising costs for COVID-19 messaging incurred on behalf of the Public Health Agency of Canada under the Shared Services Partnership;
• $4.7 million increase in expenditures related to the timing of allocation of expenditures against statutory authorities under the Shared Services Partnership with the Public Health Agency of Canada; and,
• $10.1 million decrease in statutory payments made to Canada Health Infoway Inc., since the final amounts under this arrangement were fully disbursed in the prior year.

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 year 2020-2021 were $358 million compared with $366 million for the second quarter of 2019-2020, representing a decrease of $8 million or 2.2% in quarterly spending.

The decrease in quarterly spending is due primarily to:

• $77.3 million decrease in other subsidies and payments, mainly due to a legal settlement and one-time ex gratia payments for approved survivors under the Canadian Thalidomide Survivors Support Program disbursed in the prior year;
• $12.8 million increase in revenues, which results in a decrease in net operating expenditures, mainly the result of a change in timing of cash receipts for licensing applications, which can vary from year to year, and an increase in revenues for Employee Assistance Services;
• $39.5 million increase in personnel expenditures primarily due to an increase in the number of pay periods recorded during the second quarter when compared with the prior year, and the cost of supplementary hours to support the Department's COVID-19 initiatives;
• $23.9 million increase in grants and contributions resulting from timing differences on payments, including:
  • $23.0 million increase for Canada Health Infoway;
  • $13.6 million increase for Canadian Partnership Against Cancer; and,
  • $8.6 million decrease for Canadian Foundation for Healthcare Improvement; and,
• $10.5 million increase in expenditures for virtual care pursuant to the Public Health Events of National Concern Payments Act, consisting primarily of expenditures for the mental health and substance use portal to provide Canadians with credible information about mental health, as well as access to self-assessment tools, self-guided resources, peer support, and direct psycho-social support services (e.g. counselling) delivered through digital modalities.

Risks and Uncertainties

Health Canada is dedicated to enhancing the health and well-being of Canadians. It operates in a dynamic and complex environment, facing several challenges as it works to deliver results for Canadians. Its organizational environment is characterized by both internal and external drivers of change, which could potentially be disruptive to the Department's ability to achieve its objectives e.g., unforeseen health crises such as the 2019 coronavirus disease (COVID-19) pandemic, new innovative products, technologies, substances, foods and emerging product categories, evolving relationships between various levels of government, scientific and technological change, and cyber security.

The Department monitors and responds to health concerns, originating at home and internationally, that affect the health and safety of Canadians. This includes events such as the COVID-19 outbreak. This pandemic has reminded everyone of the risks associated with unforeseen health crises. Health Canada is working closely with the Public Health Agency of Canada, other organizations within the federal Health Portfolio, Provinces, Territories and other levels of government, Indigenous organizations, industry, health professionals and international regulatory counterparts, to contribute to the global response to this public health challenge.

Health Canada recognizes that successfully fulfilling its mandate is directly related to 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. Additionally, it can lead to more effective service delivery, better project management, and an increase in value for money, and, ultimately better results for Canadians.

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 long-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.

Program expenditures experience natural fluctuations from year to year depending on a variety of factors beyond program control (e.g., emerging health events such as the COVID-19 pandemic), thus creating risk. For example, since the start of the COVID-19 outbreak in Canada, the Chief Financial Officer Branch at Health Canada has been a strategic partner and enabler with regard to the Department's response to this public health crisis.

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.

Significant Changes in Relation to Operations, Personnel and Programs

A. Operations and Personnel

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

B. Programs

The following new program/existing program changes have been announced in response to the COVID-19 pandemic:

Funding to Support Medical Research

The Government of Canada has committed funding to ensure Canadians have access to the drugs they need to treat the symptoms of COVID-19.

Ensuring an Ongoing Effective Regulatory Response

Health Canada will receive $37.2 million over two years to support the department's ongoing regulatory response to the pandemic. These investments will continue to facilitate timely access to safe drugs and medical devices that combat COVID-19, such as vaccines, treatments and diagnostic devices, and support effective compliance and enforcement.

Leading the Whole-of-Government Response

Health Canada and the Public Health Agency of Canada are continuing to provide national leadership to Canada's domestic response to the COVID-19 pandemic. This has included supporting increased strategy, integration and analytical capacity to support decision-making by the Minister of Health, the Health Portfolio and the Cabinet Committee on COVID-19, and informing the measured reopening of the economy and society through effective policy advice. As such, the Government of Canada committed $15.0 million to Health Canada to support the ongoing protection of the health and safety of Canadians, foster economic resilience during reopening and recovery, assist in maintaining domestic and international reputations and provide continuity in government operations.

Safe Restart Agreement

In July 2020, the Prime Minister announced the Safe Restart Agreement with the objective to ensure that Canada has the resources and information it needs to reopen the economy safely. As part of the Safe Restart Agreement, the Government of Canada has committed $303.4 million to Health Canada for testing-related activities, to support contact tracing activities, and to support data management.

Approved by:

Original signed by Stephen Lucas
Stephen Lucas
Deputy Minister
Ottawa, Canada
Date: November 19, 2020

Original signed by Edward de Sousa
Edward de Sousa
Acting Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: November 18, 2020

Statement of Authorities (unaudited)

Fiscal year 2020-2021 (in thousands of dollars)

Authority	Total available for use for the year ending March 31, 2021Footnote *	Used during the quarter ended September 30, 2020	Year-to-date used at quarter-end
Vote 1 - Operating expenditures	753,642	218,883	368,996
Vote 5 - Capital expenditures	15,823	838	941
Vote 10 - Grants and contributions	1,628,453	82,893	869,719
(S) Contributions to employee benefit plans	111,361	27,840	55,680
(S) Minister of Health - Salary and motor car allowance	89	23	45
(S) Collection Agency Fees	5	4	5
(S) Payment pursuant to section 24(1) of the Financial Administration Act	-	24	12
(S) Spending of proceeds from the disposal of surplus Crown assets	91	-	-
(S) Spending of revenues pursuant to section 4.2 of the Department of Health Act	51,463	13,683	26,147
(S) Payments to support Canada's initial response to COVID-19 pursuant to the Public Health Events of National Concern Payments Act	9,288	2,753	2,903
(S) Payments for drugs, medical devices and virtual care pursuant to the Public Health Events of National Concern Payments Act	253,264	10,664	28,036
Total authorities	2,823,479	357,605	1,352,484
Footnote 3 Includes only Authorities available for use and granted by Parliament at quarter end (S) - Statutory Vote Return to footnote * referrer

Fiscal year 2019-2020 (in thousands of dollars)

Authority	Total available for use for the year ending March 31, 2020Footnote *	Used during the quarter ended September 30, 2019	Year-to-date used at quarter-end
Vote 1 - Operating expenditures	800,713	272,087	441,643
Vote 5 - Capital expenditures	20,458	4,140	4,891
Vote 10 - Grants and contributions	1,556,438	58,992	750,859
(S) Contributions to employee benefit plans	107,899	26,398	52,797
(S) Minister of Health - Salary and motor car allowance	88	22	44
(S) Spending of proceeds from the disposal of surplus Crown assets	81	-	-
(S) Refunds of amounts credited to revenues in previous years	59	59	59
(S) Canada Health Infoway Inc.	10,131	-	10,131
(S) Collection Agency Fees	18	13	18
(S) Spending of revenues pursuant to section 4.2 of the Department of Health Act	51,463	4,040	4,040
Total authorities	2,547,348	365,751	1,264,482
Footnote 2 Includes only Authorities available for use and granted by Parliament at quarter end (S) - Statutory Vote Return to footnote * referrer

Departmental Budgetary Expenditures by Standard Object (Unaudited)

Fiscal year 2020-2021 (in thousands of dollars)

Standard Object	Planned expenditures for the year ending March 31, 2021	Expended during the quarter ended September 30, 2020	Year-to-date used at quarter-end
Expenditures:
Personnel	861,520	239,667	419,383
Transportation and communications	17,172	882	2,114
Information	18,711	10,972	18,689
Professional and special services	131,367	61,912	87,533
Rentals	14,604	4,605	5,986
Repair and maintenance	14,544	2,101	3,537
Utilities, materials and supplies	20,737	2,962	3,497
Acquisition of land, buildings and works	1,782	124	124
Acquisition of machinery and equipment	59,752	(11,638)	6,984
Transfer payments	1,828,453	82,917	869,731
Other subsidies and payments	9,610	3,289	5,003
Total gross budgetary expenditures	2,978,252	397,793	1,422,581
Less revenues netted against expenditures:
Rights and privileges	34,054	1,648	4,146
Services of a non-regulatory nature	28,321	12,963	14,724
Services of a regulatory nature	87,174	25,577	51,227
Other fees and charges	5,224	-	-
Total revenues netted against expenditures	154,773	40,188	70,097
Total net budgetary expenditures	2,823,479	357,605	1,352,484

Fiscal year 2019-2020 (in thousands of dollars)

Standard Object	Planned expenditures for the year ending March 31, 2020	Expended during the quarter ended September 30, 2019	Year-to-date used at quarter-end
Expenditures:
Personnel	851,684	194,828	367,542
Transportation and communications	25,737	2,957	5,999
Information	26,531	5,672	8,559
Professional and special services	139,213	34,403	59,637
Rentals	21,726	3,481	6,156
Repair and maintenance	17,846	2,038	3,803
Utilities, materials and supplies	28,730	4,585	6,523
Acquisition of land, buildings and works	-	2,985	2,989
Acquisition of machinery and equipment	25,087	2,634	4,477
Transfer payments	1,566,569	58,991	760,989
Other subsidies and payments	3,847	80,593	95,208
Total gross budgetary expenditures	2,706,970	393,167	1,321,882
Less revenues netted against expenditures:
Rights and privileges	63,655	(848)	2,478
Services non-regulatory nature	30,386	9,271	13,170
Services of a regulatory nature	65,581	18,993	41,640
Services to other government departments	-	-	112
Total revenues netted against expenditures	159,622	27,416	57,400
Total net budgetary expenditures	2,547,348	365,751	1,264,482