Health Canada – 2014-15 Departmental Financial Statements

Table of Contents

• Statement of Management Responsibility Including Internal Control Over Financial Reporting
• Statement of Financial Position (Unaudited)
• Statement of Operations and Departmental Net Financial Position (Unaudited)
• Statement of Change in Departmental Net Debt (Unaudited)
• Statement of Cash Flows (Unaudited)
• Notes to the Financial Statements (Unaudited)
• Health Canada's Annex to the Statement of Management Responsibility Including Internal Control Over Financial Reporting
  1. Introduction
  2. Departmental system of internal control over financial reporting
     • 2.1 Internal control management
     • 2.2 Service arrangements relevant to financial statements
  3. Departmental assessment results during fiscal year 2014-15
  4. Departmental Action Plan
     • 4.1 Progress during fiscal year 2014-15
     • 4.2 Action plan for the next fiscal year and subsequent years

Statement of Management Responsibility Including Internal Control Over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2015, and all information contained in these statements rests with the management of Health Canada. These financial statements have been prepared by management using the Government's accounting policies, which are based on Canadian public sector accounting standards.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment, and gives due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the Department's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in Health Canada's Departmental Performance Report, is consistent with these financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting (ICFR) designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislation, regulations, authorities and policies.

Management seeks to ensure the objectivity and integrity of data in its financial statements through careful selection, training and development of qualified staff; through organizational arrangements that provide appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards, and managerial authorities are understood throughout the Department and through conducting an annual risk-based assessment of the effectiveness of the system of ICFR.

The system of ICFR is designed to mitigate risks to a reasonable level based on an ongoing process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.

A risk-based assessment of the system of ICFR for the year ended March 31, 2015 was completed in accordance with the Treasury Board Policy on Internal Control and the results and action plans are summarized in the annex.

The effectiveness and adequacy of the Department's system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of the Department's operations, and by the Departmental Audit Committee, which oversees management's responsibilities for maintaining adequate control systems and the quality of financial reporting.

The financial statements of Health Canada have not been audited.

Simon Kennedy
Deputy Minister
Ottawa, Canada
Date: August 31, 2015

Jamie Tibbetts
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: August 26, 2015

Statement of Financial Position (Unaudited)

As at March 31 (in thousands of dollars)

	2015	2014
Liabilities
Accounts payable and accrued liabilities (note 4)	$ 264,207	$ 263,733
Vacation pay and compensatory leave	39,110	38,739
Deferred revenue	7,858	6,579
Employee future benefits (note 5)	57,461	43,182
Other liabilities (note 6)	178,369	299,458
Total gross liabilities	547,005	651,691
Liabilities held on behalf of Government
Deferred revenue	(226)	(462)
Total liabilities held on behalf of Government	(226)	(462)
Total net liabilities	546,779	651,229
Financial assets
Due from Consolidated Revenue Fund	257,702	251,163
Accounts receivable and advances (note 7)	66,629	73,004
Total gross financial assets	324,331	324,167
Financial assets held on behalf of Government
Accounts receivable and advances (note 7)	(42,687)	(61,803)
Total financial assets held on behalf of Government	(42,687)	(61,803)
Total net financial assets	281,644	262,364
Departmental net debt	265,135	388,865
Non-financial assets
Tangible capital assets (note 8)	130,776	129,386
Total non-financial assets	130,776	129,386
Departmental net financial position	$ (134,359)	$ (259,479)

Contractual obligations (note 9)
Contingent liabilities (note 10)

The accompanying notes form an integral part of these financial statements.

Simon Kennedy
Deputy Minister
Ottawa, Canada
Date: August 31, 2015

Jamie Tibbetts
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: August 26, 2015

Statement of Operations and Departmental Net Financial Position (Unaudited)

For the Year Ended March 31 (in thousands of dollars)

	2015 Planned Results	2015	2014
Expenses
A health system responsive to the needs of Canadians	$ 326,284	$ 310,451	$ 299,527
Health risks and benefits associated with food, products, substances, and environmental factors are appropriately managed and communicated to Canadians	656,643	592,595	667,937
First Nations and Inuit communities and individuals receive health services and benefits that are responsive to their needs so as to improve their health status	2,717,806	2,704,110	2,575,798
Internal services	299,865	385,539	394,132
Expenses incurred on behalf of Government	(2,692)	518	8,598
Total expenses	3,997,906	3,993,213	3,945,992
Revenues
Sales of goods and services
Services of a regulatory nature	60,282	49,568	41,345
Rights and privileges	51,885	48,581	59,856
Services of a non-regulatory nature	209,749	198,989	169,130
Lease and use of public property	-	286	295
Revenues from fines	-	1,759	2,095
Interest	231	482	674
Other	136	1,562	6,082
Revenues earned on behalf of Government	(50,660)	(15,903)	(20,663)
Total revenues	271,623	285,324	258,814
Net cost of operations before government funding and transfers	3,726,283	3,707,889	3,687,178
Government funding and transfers
Net cash provided by Government		3,727,653	3,762,679
Change in due from Consolidated Revenue Fund		6,539	(54,621)
Services provided without charge by other government departments (note 12)		126,760	133,754
Transfer of tangible capital assets from/to other government departments		(20)	(43)
Transfer of the transition payments for implementing salary payments in arrears (note 13)		(27,923)	-
Transfer of assets and liabilities from/to other government departments (note 14)		-	(825)
Net revenue from operations after government funding and transfers		(125,120)	(153,766)
Departmental net financial position - Beginning of year		(259,479)	(413,245)
Departmental net financial position - End of year		$ (134,359)	$ (259,479)

Segmented information (note 15)

The accompanying notes form an integral part of these financial statements.

Statement of Change in Departmental Net Debt (Unaudited)

For the Year Ended March 31 (in thousands of dollars)

	2015	2014
Net revenue from operations after government funding and transfers	$ (125,120)	$ (153,766)
Change due to tangible capital assets
Acquisition of tangible capital assets	29,675	21,028
Amortization of tangible capital assets	(28,075)	(27,233)
Proceeds from disposal of tangible capital assets	(254)	(547)
Net loss (gain) on disposal of tangible capital assets including adjustments	115	(3,784)
Non-cash changes in tangible capital assets	(51)	(301)
Transfer of tangible capital assets from/to other government departments	(20)	(43)
Transfer of assets to Public Health Agency of Canada (note 14)	-	(124)
Total change due to tangible capital assets	1,390	(11,004)
Change due to prepaid expenses	-	(1,314)
Net decrease in departmental net debt	(123,730)	(166,084)
Departmental net debt - Beginning of year	388,865	554,949
Departmental net debt - End of year	$ 265,135	$ 388,865

The accompanying notes form an integral part of these financial statements.

Statement of Cash Flows (Unaudited)

For the Year Ended March 31 (in thousands of dollars)

	2015	2014
Operating activities
Net cost of operations before government funding and transfers	$ 3,707,889	$ 3,687,178
Non-cash items:
Amortization of tangible capital assets	(28,075)	(27,233)
Gain (loss) on disposal of tangible capital assets including adjustments	115	(3,784)
Non-cash changes in tangible capital assets	(51)	(301)
Services provided without charge by other government departments (note 12)	(126,760)	(133,754)
Transition payments for implementing salary payments in arrears (note 13)	27,923	-
Variations in Statement of Financial Position:
Decrease (increase) in accounts payable and accrued liabilities	(474)	60,852
Decrease (increase) in vacation pay and compensatory leave	(371)	(816)
Decrease (increase) in deferred revenue	(1,515)	7,676
Decrease (increase) in employee future benefits	(14,279)	49,490
Decrease (increase) in other liabilities	121,089	106,212
Increase (decrease) in accounts receivable and advances	12,741	(2,709)
Increase (decrease) in prepaid expenses	-	(1,314)
Transfer of assets and liabilities from/to other government departments (note 14)	-	701
Cash used in operating activities	3,698,232	3,742,198
Capital investing activities
Acquisition of tangible capital assets	29,675	21,028
Proceeds from disposal of tangible capital assets	(254)	(547)
Cash used in capital investing activities	29,421	20,481
Net cash provided by Government of Canada	$ 3,727,653	$ 3,762,679

The accompanying notes form an integral part of these financial statements.

Notes to the Financial Statements (Unaudited)

For the Year Ended March 31, 2015

1. Authority and objectives

The Department of Health was established effective July 12, 1996 under the Department of Health Act to participate in the promotion and preservation of the health of the people of Canada. It is named in Schedule I of the Financial Administration Act and reports through the Minister of Health. Priorities and reporting are aligned under the following strategic outcomes and related program activities:

Strategic Outcome 1: A health system responsive to the needs of Canadians

Canadians expect their governments to provide a health system that meets their needs and that delivers results effectively and efficiently. In addition to ensuring that it meets specific federal responsibilities, such as health services for federal employees and during international events held in Canada, Health Canada works with provincial and territorial governments as well as health organizations and other stakeholder groups to address the health objectives of Canadians. Research and policy analysis, support and funding to test innovations in health service delivery and monitoring of provincial and territorial application of the Canada Health Act all lead to continuing improvement in Canada's health system.

Program Activities:

• Canadian health system policy
• Specialized health services
• Official language minority community development

Strategic Outcome 2: Health risks and benefits associated with food, products, substances, and environmental factors are appropriately managed and communicated to Canadians

This Strategic Outcome seeks to ensure that the food that Canadians eat and products they use are as safe as possible and that threats to health are addressed effectively. It helps increase Canadians' understanding of factors that influence everyone's health such as environmental conditions and nutrition. It helps to limit the use and abuse of tobacco and illicit drugs.

Program Activities:

• Health products
• Food safety and nutrition
• Environmental risks to health
• Consumer product and workplace chemical safety
• Substance use and abuse
• Radiation protection
• Pesticides

Strategic Outcome 3: First Nations and Inuit communities and individuals receive health services and benefits that are responsive to their needs so as to improve their health status

This Strategic Outcome seeks to ensure that First Nations and Inuit living on reserve or in Inuit communities have access to health services as well as a limited range of medically necessary health-related goods and services not provided through private insurance plans, provincial/territorial health or social programs or other publicly funded programs. It seeks to reduce the gap in health outcomes between First Nations and Inuit and the Canadian population in general.

Program Activities:

• First Nations and Inuit primary health care
• Supplementary health benefits for First Nations and Inuit
• Health infrastructure support for First Nations and Inuit

Internal services

Health Canada has a range of internal services. Some, such as financial, administrative, real property, security, human resources, information management and Information Technology, provide the basic infrastructure that enables the Department to function while ensuring compliance to new and existing central agency policies. Other internal services in Health Canada address departmental and Health Portfolio needs such as general communications and policy activities, as well as managing relations with Parliamentarians, the Cabinet system and other government departments and levels of government. An additional set of internal service roles centre on critical departmental and government-wide responsibilities, such as ensuring the best value for Canadians through planning, accountability and tracking performance and results.

2. Summary of significant accounting policies

These financial statements have been prepared using the Government's accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

Significant accounting policies are as follows:

(a) Parliamentary authorities

The Department is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Department do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. The planned results amounts in the "Expenses" and "Revenues" sections of the Statement of Operations and Departmental Net Financial Position are the amounts reported in the Future-oriented Statement of Operations included in the 2014-15 Report on Plans and Priorities. Planned results are not presented in the "Government funding and transfers" section of the Statement of Operations and Departmental Net Financial Position and in the Statement of Change in Departmental Net Debt because these amounts were not included in the 2014-15 Report on Plans and Priorities.

(b) Net cash provided by Government

The Department operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the Department is deposited to the CRF and all cash disbursements made by the Department are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements, including transactions between departments of the Government.

(c) Amounts due from the Consolidated Revenue Fund

Amounts due from the CRF are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that the Department is entitled to draw from the CRF without further authorities to discharge its liabilities.

(d) Revenues

• Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
• Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. These revenues are recognized in the period in which the related expenses are incurred.
• Funds that have been received are recorded as deferred revenue, provided the Department has an obligation to other parties for the provision of goods, services or the use of assets in the future.
• Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
• Revenues that are non-respendable are not available to discharge the Department's liabilities. While the Deputy Head is expected to maintain accounting control, he or she has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of the entity's gross revenues.

(e) Expenses

Expenses are recorded on an accrual basis:

• Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established for the transfer payment program. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to transfer payment expense and as a receivable.
• Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
• Services provided without charge by other government departments for accommodation, employer contributions to the health and dental insurance plans, legal services and workers' compensation are recorded as operating expenses at their estimated cost.

(f) Employee future benefits

• i) Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multi-employer pension plan administered by the Government. The Department's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The Department's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.
• ii) Severance benefits: Employees entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services necessary to earn them are rendered. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

(g) Accounts receivable

Accounts receivable are stated at the lower of cost and net recoverable value. A valuation allowance is recorded for accounts receivable where recovery is considered uncertain.

(h) Contingent liabilities

Contingent liabilities are potential liabilities that may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or if an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

(i) Environmental liabilities

Environmental liabilities consist of estimated costs related to the remediation of contaminated sites. A liability for remediation of contaminated sites is recognized when all of the following criteria are satisfied: an environmental standard exists, contamination exceeds the environmental standard, the government is directly responsible or accepts responsibility, it is expected that future economic benefits will be given up and a reasonable estimate of the amount can be made. The liability reflects the Government's best estimate of the amount required to remediate the sites to the current minimum standard for its use prior to contamination. When the cash flows required to settle or otherwise extinguish a liability are expected to occur over extended future periods, a present value technique is used. The discount rate applied is taken from the government's consolidated revenue fund monthly lending rates for periods of one year and over. The discount rates used are based on the term rate associated with the estimated number of years to complete remediation.

The recorded environmental liabilities are adjusted each year, as required, for present value adjustments, inflation, new obligations, changes in management estimates and actual costs incurred.

(j) Tangible capital assets

All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. The Department does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections.

Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the asset as follows:

Tangible capital assets

Asset class	Sub-asset class	Amortization period
Buildings	Buildings	25 years
Works and infrastructure	Works and infrastructure	25 years
Leasehold improvements	Leasehold improvements	Lease term, max. 40 years
Machinery and equipment	Machinery and equipment	8-12 years
	Computer equipment	3-5 years
	Computer software	3 years
	In-house developed software	5 years
	Other equipment	5-12 years
Vehicles	Motor vehicles	4-7 years
	Other vehicles	10 years
Assets under construction	Buildings in progress of construction	Assets under construction are recorded in the applicable capital asset class in the year that they become available for use and are not amortized until they become available for use.
	Engineering works in progress of construction
	Work in progress for software
	Other construction or work in progress

(k) Measurement uncertainty

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, environmental liabilities, the liability for employee future benefits, allowance for doubtful accounts and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3. Parliamentary authorities

The Department receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Financial Position and the Statement of Operations and Departmental Net Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the Department has different net results of operations for the year on a government funding basis than on an accrual accounting basis. These differences are reconciled in the following tables:

(a) Reconciliation of net cost of operations to current year authorities used:

Reconciliation of net cost of operations to current year authorities used (in thousands of dollars)

	2015	2014
Net cost of operations before government funding and transfers	$ 3,707,889	$ 3,687,178
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets	(28,075)	(27,233)
Gain (loss) on disposal of tangible capital assets	115	(3,784)
Services provided without charge by other government departments (note 12)	(126,760)	(133,754)
Decrease (increase) in vacation pay and compensatory leave	(371)	(806)
Decrease (increase) in employee future benefits	(14,279)	49,901
Refund/adjustment of prior year's expenditures	31,826	61,462
Bad debt expense	702	8,643
Increase (decrease) in transfer payment accrual	5,359	(19,095)
Decrease in workforce adjustment measures	1,435	10,226
Statutory spending authority equivalent to revenues earned	63,092	64,670
Other	27,935	4,809
Total items affecting net cost of operations but not affecting authorities	(39,021)	15,039
Adjustments for items not affecting net cost of operations but affecting authorities:
Disbursement to Canada Health Infoway Inc.	87,957	106,194
Acquisitions of tangible capital assets	29,675	21,028
Transition payments for implementing salary payments in arrears (note 13)	27,923	-
Proceeds from disposal of Crown assets	51	54
Decrease in prepaid expenses	-	(1,314)
Total items not affecting net cost of operations but affecting authorities	145,606	125,962
Current year authorities used	$ 3,814,474	$ 3,828,179

(b) Authorities provided and used:

Authorities provided and used (in thousands of dollars)

	2015	2014
Authorities provided:
Vote 1 - Operating expenditures	$ 1,846,890	$ 1,955,617
Vote 5 - Capital expenditures	35,927	27,577
Vote 10 - Grants and contributions	1,755,536	1,660,584
Statutory amounts	271,455	303,543
Less:
Authorities available for future years	(305)	(602)
Lapsed authorities	(95,029)	(118,540)
Current year authorities used	$ 3,814,474	$ 3,828,179

4. Accounts payable and accrued liabilities

The following table presents details of the Department's accounts payable and accrued liabilities:

Accounts payable and accrued liabilities (in thousands of dollars)

	2015	2014
Accounts payable - External parties	$ 108,528	$ 112,613
Accounts payable - Other government departments and agencies	13,449	16,361
Total accounts payable	121,977	128,974
Accrued liabilities	142,230	134,759
Total accounts payable and accrued liabilities	$ 264,207	$ 263,733

In Canada's Economic Action Plan 2012, the Government announced savings measures to be implemented by departments over the next three fiscal years starting in 2012-13. As a result, the Department has recorded at March 31, 2015, an obligation for termination benefits for an amount of $0.7 million ($2.2 million in 2013-14) as part of accrued liabilities to reflect the estimated workforce adjustment costs.

5. Employee future benefits

(a) Pension benefits

The Department's employees participate in the public service pension plan (the "Plan"), which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plan benefits and they are indexed to inflation.

Both the employees and the Department contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to Economic Action Plan 2012, employee contributors have been divided into two groups – Group 1 relates to existing plan members as of December 31, 2012 and Group 2 relates to members joining the Plan as of January 1, 2013. Each group has a distinct contribution rate.

The 2014-15 expense amounts to the following:

Pension benefits (in thousands of dollars)

	2015	2014
Expense for the year	$ 83,978	$ 95,593

For Group 1 members, the expense represents approximately 1.41 times (1.60 times in 2013-14) the employee contributions and, for Group 2 members, approximately 1.39 times (1.50 times in 2013-14) the employee contributions.

The Department's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

(b) Severance benefits

The Department provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment. These severance benefits are not pre-funded. Benefits will be paid from future authorities.

As part of collective agreement negotiations with certain employee groups, and changes to conditions of employment for executives and certain non-represented employees, the accumulation of severance benefits under the employee severance pay program ceased for these employees commencing in 2012. Employees subject to these changes have been given the option to be immediately paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits on termination from the public service. These changes have been reflected in the calculation of the outstanding severance benefit obligation.

Information about the severance benefits, measured as at March 31, is as follows:

Severance benefits (in thousands of dollars)

	2015	2014
Accrued benefit obligation - Beginning of year	$ 43,182	$ 92,672
Transferred from/to other government departments (note 14)	-	409
Subtotal	43,182	93,081
Provision for the year	22,214	(580)
Benefits paid during the year	(7,935)	(49,319)
Accrued benefit obligation - End of year	$ 57,461	$ 43,182

6. Other liabilities

Other liabilities (in thousands of dollars)

	2015	2014
Canada Health Infoway Inc.	$ 171,306	$ 259,417
Other	7,063	40,041
Total other liabilities	$ 178,369	$ 299,458

Budget 2007 announced an allocation of $400.0 million to Canada Health Infoway Inc. Of this authority $369.9 million has been disbursed to date, $19.6 million in 2014-15, ($29.3 million in 2013-14). Budget 2009 announced an additional allocation of $500.0 million to Canada Health Infoway Inc. Of this 2009 authority $358.8 million has been disbursed to date, $68.5 million in 2014-15, ($77.4 million in 2013-14). The disbursed amounts include interest deemed to have been paid to Canada Health Infoway Inc.

The remaining other liabilities include amounts for contingent liabilities of $nil ($33.3 million in 2013-14) and Specified Purpose Accounts: Collaborative research projects $2.9 million ($2.4 million in 2013-14); miscellaneous federal/provincial projects $1.6 million ($1.6 million in 2013-14); and World Health Organization $0.1 million ($0.1 million in 2013-14).

7. Accounts receivable and advances

The following table presents details of the Department's accounts receivable and advances balances:

Accounts receivable and advances (in thousands of dollars)

	2015	2014
Accounts receivable - External parties	$ 67,981	$ 72,971
Accounts receivable - Other government departments and agencies	11,220	13,585
Employee advances	84	89
Subtotal	79,285	86,645
Allowance for doubtful accounts on receivables from external parties	(12,656)	(13,641)
Gross accounts receivable and advances	66,629	73,004
Accounts receivable held on behalf of Government	(42,687)	(61,803)
Net accounts receivable and advances	$ 23,942	$ 11,201

8. Tangible capital assets

Tangible capital assets (in thousands of dollars)

Capital assets	Opening balance	Acquisitions	Disposals/write-downs	Transfers and adjustments	Closing balance
Land	$ 1,175	$ -	$ -	$ -	$ 1,175
Buildings	135,249	-	(33)	153	135,369
Works and infrastructure	2,067	-	-	-	2,067
Leasehold improvements	26,475	-	-	-	26,475
Machinery and equipment	202,101	9,761	(1,779)	11,090	221,173
Vehicles	14,182	827	(1,404)	28	13,633
Assets under construction	14,976	19,087	-	(11,294)	22,769
Total	$ 396,225	$ 29,675	$ (3,216)	$ (23)	$ 422,661
Accumulated amortization	Opening balance	Amortization	Disposals/write-downs	Transfers and adjustments	Closing balance
Buildings	$ 111,874	$ 3,908	$ (28)	$ -	$ 115,754
Works and infrastructure	336	82	-	-	418
Leasehold improvements	21,711	692	-	-	22,403
Machinery and equipment	124,128	21,706	(1,741)	-	144,093
Vehicles	8,790	1,687	(1,308)	48	9,217
Total	$ 266,839	$ 28,075	$ (3,077)	$ 48	$ 291,885
Tangible capital assets net book value	Net book value 2014	Net change acquisitions and amortization	Net change disposals/ write-downs	Net change transfers and adjustments	Net book value 2015
Land	$ 1,175	$ -	$ -	$ -	$ 1,175
Buildings	23,375	(3,908)	(5)	153	19,615
Works and infrastructure	1,731	(82)	-	-	1,649
Leasehold improvements	4,764	(692)	-	-	4,072
Machinery and equipment	77,973	(11,945)	(38)	11,090	77,080
Vehicles	5,392	(860)	(96)	(20)	4,416
Assets under construction	14,976	19,087	-	(11,294)	22,769
Total	$ 129,386	$ 1,600	$ (139)	$ (71)	$ 130,776

Transfers from assets under construction represent assets that were put into use in the year and have been transferred to the other capital asset classes as applicable.

9. Contractual obligations

The nature of the Department's activities can result in multi-year contracts and obligations whereby the Department will be obligated to make future payments in order to carry out its transfer payment programs or when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

Contractual obligations (in thousands of dollars)

	Transfer payments	Operating contracts	Total
2015-16	1,279,532	73,634	1,353,166
2016-17	995,452	59,276	1,054,728
2017-18	750,894	29,265	780,159
2018-19	592,522	-	592,522
2019-20 and thereafter	2,076,258	-	2,076,258
Total	$ 5,694,658	$ 162,175	$ 5,856,833

10. Contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown.

Claims and litigation

Claims have been made against the Department in the normal course of operations. These claims include items with pleading amounts and others for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. The Department has recorded an allowance for claims and litigations where it is likely that there will be a future payment and a reasonable estimate of the loss can be made. Claims and litigations for which the outcome is not determinable and a reasonable estimate can be made by management amount to approximately $1,017.7 million in 2014-15 ($17.2 million in 2013-14).

11. Environmental liabilities

Remediation of contaminated sites

The government has developed a "Federal Approach to Contaminated Sites", which incorporates a risk-based approach to the management of contaminated sites. Under this approach the Government has inventoried the contaminated sites on federal lands that have been identified, allowing them to be classified, managed and recorded in a consistent manner. This systematic approach aides in the identification of the high risk sites in order to allocate limited resources to those sites which pose the highest risk to the environment and human health.

The Department has identified 1 site (1 site in 2013-14) where action is possible and for which a net liability of $167,000 ($167,000 in 2013-14) has been recorded. This liability represents management's best estimate of the amount required to complete the remediation of the site to the current minimum standard for its use prior to contamination, based on information available at the financial statement date. A net present value technique has been used since the cash flows are expected to occur over extended future periods.

The liability estimate is based on a future cash requirement. The Government of Canada lending rate applicable to loans with similar terms to maturity has been used to discount the estimated future expenditures. The March 2015 rates range from 0.61% for 2 year term to 2.12% for a 25 or greater year term.

The nature and source of the liability is contamination primarily associated with fuel storage and handling, e.g., accidental spills related to fuel storage tanks or former fuel handling practices, e.g. petroleum hydrocarbons, polyaromatic hydrocarbons and BTEX. The estimated total undiscounted expenditures are $169,000 ($171,000 in 2013-14).

12. Related party transactions

The Department is related as a result of common ownership to all government departments, agencies, and Crown corporations. The Department enters into transactions with these entities in the normal course of business and on normal trade terms. During the year, the Department received common services which were obtained without charge from other government departments as disclosed below.

(a) Common services provided without charge by other government departments:

During the year, the Department received services without charge from certain common service organizations, related to accommodation, legal services, the employer's contribution to the health and dental insurance plans and workers' compensation coverage. These services provided without charge have been recorded in the Department's Statement of Operations and Departmental Net Financial Position as follows:

Common services provided without charge by other government departments (in thousands of dollars)

	2015	2014
Employer's contribution to the health and dental insurance plans	$ 63,919	$ 67,640
Accommodation	59,603	62,971
Legal services	2,747	2,633
Worker's compensation	491	510
Total	$ 126,760	$ 133,754

The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, such as the payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General are not included in the Department's Statement of Operations and Departmental Net Financial Position. The costs of information technology infrastructure services provided by Shared Services Canada, following the transfer of responsibilities in November 2011 and April 2013, are also not included in the Department's Statement of Operations and Departmental Net Financial Position.

(b) Other transactions with related parties:

Other transactions with related parties (in thousands of dollars)

	2015	2014
Accounts payable - Other government departments and agencies	$ 13,449	$ 16,361
Accounts receivable - Other government departments and agencies	11,220	13,585
Expenses - Other government departments and agencies	110,186	102,416
Revenues - Other government departments and agencies	78,396	80,379

Expenses and revenues disclosed in (b) exclude common services provided without charge, which are already disclosed in (a).

13. Transfer of the transition payments for implementing salary payments in arrears

The Government of Canada implemented salary payments in arrears in 2014-15. As a result, a one-time payment was issued to employees and will be recovered from them in the future. The transition to salary payments in arrears forms part of the transformation initiative that replaces the pay system and also streamlines and modernizes the pay processes. This change to the pay system had no impact on the expenses of the Department. However, it did result in the use of additional spending authorities by the Department. Prior to year end, the transition payments for implementing salary payments in arrears were transferred to a central account administered by Public Works and Government Services Canada, who is responsible for the administration of the Government pay system.

14. Transfers from/to other government departments

(a) Effective April 1, 2013, assets and liabilities from Hazardous Materials Information Review Commission were transferred to the Department in accordance with Order in Council P.C. 2013-0339 and P.C. 2013-0340.

(b) Effective April 1, 2013, the Department transferred responsibility for the control and supervision of the Travelling Public Program Unit to the Public Health Agency of Canada in accordance with Order in Council P.C. 2013-0341, including the stewardship responsibility for the assets and liabilities related to the program.

As a result of the changes disclosed above, the Department transferred/was transferred the following assets and liabilities:

Transfers from/to other government departments (in thousands of dollars)

	Note 14 (a)	Note 14 (b)	Total
Assets
Account receivable	$ 38	$ (84)	$ (46)
Tangible capital assets (net book value)	-	(124)	(124)
Total assets transferred	38	(208)	(170)
Liabilities
Accounts payable and accrued liabilities	(266)	-	(266)
Allowance for vacation pay	(9)	29	20
Employee future benefits	(431)	22	(409)
Total liabilities transferred	(706)	51	(655)
Adjustment to the departmental net financial position	$ (668)	$ (157)	$ (825)

15. Segmented information

Presentation by segment is based on the Department's program alignment architecture. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in note 2. The following table presents the expenses incurred and revenues generated for the main programs, by major object of expense and by major type of revenue. The segment results for the period are as follows:

Segmented information (in thousands of dollars)

	A health system responsive to the needs of Canadians	Health risks and benefits associated with food, products, substances, and environmental factors are appropriately managed and communicated to Canadians	First Nations and Inuit communities and individuals receive health services and benefits that are responsive to their needs so as to improve their health status	Internal services	2015 Total	2014 Total
Expenses
Transfer payments	$ 253,359	$ 22,138	$ 1,429,816	$ -	$ 1,705,313	$ 1,608,860
Salaries and employee benefits	40,942	475,014	227,762	224,707	968,425	984,796
Utilities, materials and supplies	854	14,314	484,604	8,759	508,531	500,360
Professional and special services	11,242	45,944	323,460	73,944	454,590	471,230
Travel non-insured health patients	-	-	198,955	-	198,955	183,618
Accommodation	2,525	28,380	13,671	25,318	69,894	75,462
Amortization of tangible capital assets	219	9,773	2,409	15,674	28,075	27,233
Travel and relocation	665	5,926	17,255	1,749	25,595	27,871
Repair and maintenance	82	3,053	1,848	20,580	25,563	29,524
Information services	365	5,938	270	9,653	16,226	17,973
Rentals	186	1,930	981	4,760	7,857	8,252
Communications	91	1,087	2,731	1,780	5,689	7,067
Bad debts	-	-	-	(702)	(702)	(8,643)
Other	(79)	(20,902)	348	(683)	(21,316)	3,791
Expenses incurred on behalf of Government	-	-	-	518	518	8,598
Total expenses	310,451	592,595	2,704,110	386,057	3,993,213	3,945,992
Revenues
Sales of goods and services:
Services of a regulatory nature	-	46,373	-	3,195	49,568	41,345
Rights and privileges	1	45,201	-	3,379	48,581	59,856
Services of a non-regulatory nature	13,340	6,781	112,124	66,744	198,989	169,130
Lease and use of public property	-	4	177	105	286	295
Revenues from fines	-	1,759	-	-	1,759	2,095
Interest	-	-	-	482	482	674
Other	462	794	216	90	1,562	6,082
Revenues earned on behalf of Government	(463)	(14,085)	(760)	(595)	(15,903)	(20,663)
Total revenues	13,340	86,827	111,757	73,400	285,324	258,814
Net cost of operations before government funding and transfers	$ 297,111	$ 505,768	$ 2,592,353	$ 312,657	$ 3,707,889	$ 3,687,178

Health Canada's Annex to the Statement of Management Responsibility Including Internal Control Over Financial Reporting

Assessment of Internal Controls Over Financial Reporting and Action Plan for The Fiscal Year Ended March 31, 2015

1. Introduction

This document provides summary information on the measures taken by Health Canada (HC) to maintain an effective system of internal control over financial reporting (ICFR) including information on internal control management, assessment results and related action plans.

Detailed information on Health Canada's authority, mandate and program activities can be found in the 2014-15 Departmental Performance Report and the 2014-15 Report on Plans and Priorities.

2. Departmental system of internal control over financial reporting

2.1 Internal control management

Health Canada has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. A departmental internal control over financial reporting framework, approved by the Deputy Minister and the Chief Financial Officer, is in place and includes:

• Organizational Accountability Structures: Establish the means by which the leading authorities at Health Canada, i.e. Deputy Minister, Chief Financial Officer, Chief Audit Executive, the external Departmental Audit Committee, Assistant Deputy Ministers and Governance Committees, ensure proper accountability, stewardship and transparency in the conduct of financial management, risk and internal control, and stewardship over resources.
• Values and Ethics: Health Canada adheres to the Values and Ethics Code for the Public Sector and has implemented its internal Code of Conduct, which provides mechanisms for listening to employee concerns, ensuring broad training on values and ethics issues, and linking values and ethics to integrated risk management.
• Ongoing Communication and Training: Ensure that all Departmental employees are informed and trained on statutory requirements, policies and procedures for sound financial management and controls.
• Monitoring, Regular Updates and Assessments: Ensure that internal controls are monitored through ongoing assessments and updated as required. Results of such assessments are reported to the Deputy Head, Departmental Senior Management, and the Departmental Audit Committee (DAC) with action plans to remediate any deficiencies. DAC meets four times annually and provides advice to the Deputy Minister on the adequacy and functioning of the Department's risk management, control and governance frameworks and processes. In addition, the Portfolio Audit and Accountability Bureau conducts audits in accordance with the risk-based audit plan, including a recurring annual audit of key financial controls.

2.2 Service arrangements relevant to financial statements

Health Canada relies on other organizations for the processing of certain transactions that are recorded in its financial statements as follows:

Common Arrangements

• Public Works and Government Services Canada (PWGSC) centrally administers the payments of salaries and the procurement of goods and services, in accordance with the Health Canada Delegation of Authority, and provides accommodation services.
• The Treasury Board of Canada Secretariat provides Health Canada with information used to calculate various accruals and allowances, such as the accrued severance liability.
• The Department of Justice provides legal services to Health Canada.
• Shared Services Canada provides information technology (IT) infrastructure services to Health Canada in the areas of data centre and network services. The scope and responsibilities are addressed in the interdepartmental arrangement between Shared Services Canada and Health Canada.

Specific Arrangements

• Agriculture and Agri-Food Canada provides platform access to its human resources management system of record (PeopleSoft).
• Aboriginal Affairs and Northern Development Canada (AANDC) provides host services to Health Canada on their Grants and Contributions Information Management System (GCIMS).
• Pursuant to a contract with the Government of Canada, Express Scripts Canada (ESC), an external service provider, administers the Health Information and Claims Processing System for pharmacy, dental care, medical supplies and equipment benefits on behalf of the First Nations and Inuit Health Branch program. The external service provider has the authority and responsibility to ensure that claims paid on behalf of Health Canada for services provided to First Nations and Inuit clients are made in accordance with the terms and conditions set out by the First Nations and Inuit Health Branch program. Pursuant to the contract requirements, an independent annual assurance report on the operating effectiveness of controls is provided by the external service provider's independent auditors at the end of each reporting period in accordance with Canadian auditing standards.
• Through a Shared Services Partnership Agreement, Health Canada provides the Public Health Agency of Canada (PHAC) services including the following related to ICFR: human resources (pay and benefits), financial management (financial operations) and materiel management (procurement and contracting). Assurance on the shared controls of these services is provided through this Annex. Under this agreement, the PHAC also provides Health Canada with internal audit services which encompass audits related to financial management and controls.
• Health Canada provides PHAC, the Patented Medicine Prices Review Board, the Aboriginal Affairs and Northern Development Canada and the Canadian Northern Economic Development Agency with a financial system platform (SAP) to capture and report all financial transactions.

3. Departmental assessment results during fiscal year 2014-15

Since 2013-14, Health Canada has fully implemented an ongoing risk-based monitoring program to ensure that internal controls over financial reporting are maintained, monitored and reviewed, with timely corrective measures taken when issues are identified. The key findings from the current year's assessment activities are summarized below.

New or significantly amended key controls: Health Canada re-assesses key controls affected by new or significantly amended processes identified in its ongoing risk-based monitoring plan.

In 2014-15, Health Canada initiated the phased-in implementation of a new system for the management and reporting of transfer payments. The Grants and Contributions Information Management System (GCIMS) is hosted by AANDC. One of Health Canada program branches was transitioned to the GCIMS within the year and started to issue payments in November 2014. The other Health Canada program branch was transitioned but started issuing payment in April 2015. There are still a number of functionalities and modules that are planned to be implemented throughout 2015-16. Working collaboratively with AANDC, Health Canada will update the design and monitor the operating efficiency of key controls being amended. Once fully implemented, it is anticipated that this initiative will support the standardization of business processes, including its key controls.

Ongoing risk-based monitoring plan: Health Canada completed its assessment of the following processes in line with its 2014-15 ongoing risk-based monitoring plan: Entity Level Controls (including Budget); Financial Statements, Year End and Reporting; Revenues, Receivables and Receipts; Grants and Contributions; Capital Assets; and, Non-Insured Health Benefits provided to First Nations and Inuit communities and individuals via a contract with a third party. Monitoring was also conducted on some Information Technology General Controls related to access and program change.

Key controls tested as part of Health Canada's ongoing risk-based monitoring plan in 2014-15 were found to be operating effectively with no significant deficiencies identified. However, opportunities for improvement in the following areas were identified and are being addressed:

• The employee departure application needs to be used consistently; and
• The periodic review of system user access could be enhanced.

4. Departmental Action Plan

4.1 Progress during fiscal year 2014-15

Health Canada continued to conduct its ongoing risk-based monitoring according to the previous fiscal year's rotational plan as shown in the following table.

Progress of Ongoing Risk-Based Monitoring Testing for 2014-15

Key Control Areas	Status Completed as Planned
Entity Level Controls (including Budget)	Yes
Financial Statements, Year End and Reporting	Yes
Revenues, Receivables and Receipts	Yes
Grants and Contributions	Yes
Capital Assets	Yes
Non-Insured Health Benefits— Contract for Operations and Maintenance (O&M) under Express Scripts Canada (ESC)	Yes

In 2014-15, Health Canada also followed up on controls requiring enhancements as a result of prior year's assessments. The observations were addressed and the ongoing risk-based monitoring plan is the mechanism to retest these key controls.

In addition to the ongoing monitoring work that was planned in Health Canada's rotational ongoing risk-based monitoring plan for 2014-15, Health Canada also conducted some ongoing risk-based monitoring testing of Information Technology General Controls in the areas of access and change management.

4.2 Action plan for the next fiscal year and subsequent years

Health Canada's rotational ongoing risk-based monitoring plan over the next three years, based on an annual validation of the high-risk processes and controls and related adjustments to the ongoing monitoring plan as required, is shown in the following table.

Rotational Ongoing Risk-Based Monitoring Plan

Key Control Areas	Fiscal Year 2015-16	Fiscal Year 2016-17	Fiscal Year 2017-18
Entity Level Controls	No	No	Yes
Budget	No	No	Yes
Financial Statements, Year End and Reporting	Yes	Yes	Yes
Revenue, Receivables and Receipts	Yes	Yes	Yes
Purchasing, Payables and Payments	Yes	No	Yes
Grants and Contributions	Yes	Yes	Yes
Payroll	Yes	No	Yes
Capital Assets	No	Yes	No
Non-Insured Health Benefits — Contract for Operations and Maintenance (O&M) under Express Scripts Canada (ESC)	Yes	Yes	Yes
Non-Insured Health Benefits — O&M controls outside ESC Contract	Yes	No	Yes
Information Technology General Controls	Yes	No	Yes

Health Canada will also continue to re-assess the controls affected by significant changes in key control areas such as the migration to the Grants and Contributions Information Management System (GCIMS) which started in 2014-15.