Health Canada – 2015-16 Departmental Financial Statements

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, 2016, 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, 2016 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 25, 2016

Randy Larkin
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: August 18, 2016

Statement of Financial Position (Unaudited)
As at March 31
(in thousands of dollars) 2016 2015
Liabilities
Accounts payable and accrued liabilities (note 4) $ 267,134 $ 264,207
Vacation pay and compensatory leave 37,535 39,110
Deferred revenue 8,905 7,858
Employee future benefits (note 6) 52,886 57,461
Other liabilities (note 7) 96,373 178,369
Total gross liabilities 462,833 547,005
Liabilities held on behalf of Government
Deferred revenue (200) (226)
Total liabilities held on behalf of Government (200) (226)
Total net liabilities 462,633 546,779
Financial assets
Due from Consolidated Revenue Fund 261,145 257,702
Accounts receivable and advances (note 8) 57,357 66,629
Total gross financial assets 318,502 324,331
Financial assets held on behalf of Government
Accounts receivable and advances (note 8) (35,160) (42,687)
Total financial assets held on behalf of Government (35,160) (42,687)
Total net financial assets 283,342 281,644
Departmental net debt 179,291 265,135
Non-financial assets
Tangible capital assets (note 9) 135,225 130,776
Total non-financial assets 135,225 130,776
Departmental net financial position $ (44,066) $ (134,359)

Contractual obligations (note 10)
Contingent liabilities (note 11)

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

Simon Kennedy
Deputy Minister
Ottawa, Canada
Date: August 25, 2016

Randy Larkin
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: August 18, 2016

Statement of Operations and Departmental Net Financial Position (Unaudited)
For the Year Ended March 31
(in thousands of dollars) 2016
Planned Results
2016 2015
Expenses
A health system responsive to the needs of Canadians $ 342,476 $ 319,968 $ 310,451
Health risks and benefits associated with food, products, substances, and environmental factors are appropriately managed and communicated to Canadians 674,480 629,043 592,595
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 2,706,151 2,843,393 2,704,110
Internal services 301,194 359,153 385,539
Expenses incurred on behalf of Government (2,817) (3,802) 518
Total expenses 4,021,484 4,147,755 3,993,213
Revenues
Sales of goods and services
Services of a regulatory nature 58,538 45,611 49,568
Rights and privileges 64,709 54,736 48,581
Services of a non-regulatory nature 217,119 204,564 198,989
Lease and use of public property 294 265 286
Revenues from fines 2,388 1,807 1,759
Interest 717 334 482
Other 319 1,472 1,562
Revenues earned on behalf of Government (14,411) (16,755) (15,903)
Total revenues 329,673 292,034 285,324
Net cost of operations before government funding and transfers 3,691,811 3,855,721 3,707,889
Government funding and transfers
Net cash provided by Government of Canada - 3,813,726 3,727,653
Change in due from Consolidated Revenue Fund - 3,443 6,539
Services provided without charge by other government departments (note 12) - 128,953 126,760
Transfer of the transition payments for implementing salary payments in arrears (note 13) - (263) (27,923)
Transfer of tangible capital assets from (to) other government departments - 155 (20)
Net revenue from operations after government funding and transfers - (90,293) (125,120)
Departmental net financial position - Beginning of year - (134,359) (259,479)
Departmental net financial position - End of year - $ (44,066) $ (134,359)

Segmented information (note 14)

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) 2016 2015
Net revenue from operations after government funding and transfers $ (90,293) $ (125,120)
Change due to tangible capital assets
Acquisition of tangible capital assets 30,608 29,675
Amortization of tangible capital assets (25,713) (28,075)
Proceeds from disposal of tangible capital assets (253) (254)
Gain (loss) on disposal of tangible capital assets including adjustments (279) 115
Non-cash changes in tangible capital assets (69) (51)
Transfer of tangible capital assets from (to) other government departments 155 (20)
Total change due to tangible capital assets 4,449 1,390
Net decrease in departmental net debt (85,844) (123,730)
Departmental net debt - Beginning of year 265,135 388,865
Departmental net debt - End of year $ 179,291 $ 265,135

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) 2016 2015
Operating activities
Net cost of operations before government funding and transfers $ 3,855,721 $ 3,707,889
Non-cash items:
Amortization of tangible capital assets (25,713) (28,075)
Gain (loss) on disposal of tangible capital assets including adjustments (279) 115
Non-cash changes in tangible capital assets (69) (51)
Services provided without charge by other government departments (note 12) (128,953) (126,760)
Transition payments for implementing salary payments in arrears (note 13) 263 27,923
Variations in Statement of Financial Position:
Decrease (increase) in accounts payable and accrued liabilities (2,927) (474)
Decrease (increase) in vacation pay and compensatory leave 1,575 (371)
Decrease (increase) in deferred revenue (1,073) (1,515)
Decrease (increase) in employee future benefits 4,575 (14,279)
Decrease (increase) in other liabilities 81,996 121,089
Increase (decrease) in accounts receivable and advances (1,745) 12,741
Cash used in operating activities 3,783,371 3,698,232
Capital investing activities
Acquisition of tangible capital assets 30,608 29,675
Proceeds from disposal of tangible capital assets (253) (254)
Cash used in capital investing activities 30,355 29,421
Net cash provided by Government of Canada $ 3,813,726 $ 3,727,653

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

Notes to the Financial Statements (Unaudited)
For the Year Ended March 31, 2016

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 Financial Position and in the Statement of Operations and Departmental Net 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 2015-16 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 2015-16 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
  1. Pension benefits: Eligible employees participate in the Public Service Pension Plan (the "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.
  2. 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. For remediation costs with estimated future cash flows spanning more than 25 years, the 25-year Government of Canada lending rate is used as the discount rate.

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) 2016 2015
Net cost of operations before government funding and transfers $ 3,855,721 $ 3,707,889
Adjustments for items affecting net cost of operations but not affecting authorities:
 Amortization of tangible capital assets (25,713) (28,075)
 Gain (loss) on disposal of tangible capital assets (279) 115
 Services provided without charge by other government departments (note 12) (128,953) (126,760)
 Decrease (increase) in vacation pay and compensatory leave 1,575 (371)
 Decrease (increase) in employee future benefits 4,575 (14,279)
 Refund/adjustment of prior years' expenditures 15,882 31,826
 Bad debt expense (4,340) 702
 Increase (decrease) in transfer payment accrual (7,953) 5,359
 Decrease (increase) in workforce adjustment measures 578 1,435
 Statutory spending authority equivalent to revenues earned 55,536 63,092
 Other 899 27,935
Total items affecting net cost of operations but not affecting authorities (88,193) (39,021)
Adjustments for items not affecting net cost of operations but affecting authorities:
 Disbursement to Canada Health Infoway Inc. 82,700 87,957
 Acquisitions of tangible capital assets 30,608 29,675
Transition payments for implementing salary payments in arrears (note 13) 263 27,923
 Proceeds from disposal of Crown assets 33 51
Total items not affecting net cost of operations but affecting authorities 113,604 145,606
Current year authorities used $ 3,881,132 $ 3,814,474
(b) Authorities provided and used:
Authorities provided and used
(in thousands of dollars) 2016 2015
Authorities provided:
Vote 1 - Operating expenditures $ 1,832,092 $ 1,846,890
Vote 5 - Capital expenditures 34,939 35,927
Vote 10 - Grants and contributions 1,810,890 1,755,536
Statutory amounts   253,657 271,455
Less:
Authorities available for future years - (305)
Lapsed authorities (50,446) (95,029)
Current year authorities used $ 3,881,132 $ 3,814,474

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) 2016 2015
Accounts payable - External parties $ 99,730 $ 108,528
Accounts payable - Other government departments and agencies 7,054 13,449
Total accounts payable 106,784 121,977
Accrued liabilities 160,350 142,230
Total accounts payable and accrued liabilities $ 267,134 $ 264,207

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, 2016, an obligation for termination benefits for an amount of $0.1 million ($0.7 million in 2014-15) as part of accrued liabilities to reflect the estimated workforce adjustment costs.

5. 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 aids 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 2014-15) where action is possible and for which a net liability of $173,000 ($167,000 in 2014-15) 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, adjusted for inflation using a forecast Consumer Price Index (CPI) rate of 2%. Inflation is included in the undiscounted amount. 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 2016 rates range from 0.62% for 2 year term to 2.13% 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 $174,000 ($169,000 in 2014-15).

6. 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 2015-16 expense amounts to the following:

Pension benefits
(in thousands of dollars) 2016 2015
Expense for the year $ 81,556 $ 83,978

For Group 1 members, the expense represents approximately 1.25 times (1.41 times in 2014-15) the employee contributions and, for Group 2 members, approximately 1.24 times (1.39 times in 2014-15) 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) 2016 2015
Accrued benefit obligation - Beginning of year $ 57,461 $ 43,182
Provision for the year 229 22,214
Benefits paid during the year (4,804) (7,935)
Accrued benefit obligation - End of year $ 52,886 $ 57,461

7. Other liabilities

Other liabilities
(in thousands of dollars) 2016 2015
Canada Health Infoway Inc. $ 88,479 $ 171,306
Other 7,894 7,063
Total other liabilities $ 96,373 $ 178,369

Budget 2007 announced an allocation of $400.0 million to Canada Health Infoway Inc. Of this authority $382.7 million has been disbursed to date, $12.8 million in 2015-16, ($19.6 million in 2014-15). Budget 2009 announced an additional allocation of $500.0 million to Canada Health Infoway Inc. Of this 2009 authority $428.8 million has been disbursed to date, $69.9 million in 2015-16, ($68.5 million in 2014-15). 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 $0.4 million ($ nil in 2014-15) and Specified Purpose Accounts: Collaborative research projects $3.1 million ($2.9 million in 2014-15); miscellaneous federal/provincial projects $1.6 million ($1.6 million in 2014-15); and World Health Organization $0.1 million ($0.1 million in 2014-15).

8. 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) 2016 2015
Accounts receivable - External parties $ 61,233 $ 67,981
Accounts receivable - Other government departments and agencies 11,183 11,220
Employee advances 55 84
Subtotal 72,471 79,285
Allowance for doubtful accounts on receivables from external parties (15,114) (12,656)
Gross accounts receivable and advances 57,357 66,629
Accounts receivable held on behalf of Government (35,160) (42,687)
Net accounts receivable and advances $ 22,197 $ 23,942

9. 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 135,369 - - - 135,369
Works and infrastructure 2,067 - - - 2,067
Leasehold improvements 26,475 - - - 26,475
Machinery and equipment 221,173 13,304 (3,631) 2,565 233,411
Vehicles 13,633 1,539 (1,046) 31 14,157
Assets under construction 22,769 15,765 (440) (1,432) 36,662
Total $ 422,661 $ 30,608 $ (5,117) $ 1,164 $ 449,316
Accumulated amortization Opening balance Amortization Disposals/write-downs Transfers and adjustments Closing balance
Buildings $ 115,754 $ 2,648 $ - $ - $ 118,402
Works and infrastructure 418 83 - - 501
Leasehold improvements 22,403 691 - - 23,094
Machinery and equipment 144,093 20,856 (3,577) 1,048 162,420
Vehicles 9,217 1,435 (1,008) 30 9,674
Total $ 291,885 $ 25,713 $ (4,585) $ 1,078 $ 314,091
Tangible capital assets net book value Net book value
2015
Net change acquisitions and amortization Net change disposals/write-downs Net change transfers and adjustments Net book value
2016
Land $ 1,175 $ - $ - $ - $ 1,175
Buildings 19,615 (2,648) - - 16,967
Works and infrastructure 1,649 (83) - - 1,566
Leasehold improvements 4,072 (691) - - 3,381
Machinery and equipment 77,080 (7,552) (54) 1,517 70,991
Vehicles 4,416 104 (38) 1 4,483
Assets under construction 22,769 15,765 (440) (1,432) 36,662
Total $ 130,776 $ 4,895 $ (532) $ 86 $ 135,225

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.

10. 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
2016-17 $ 1,397,216 $ 72,658 $ 1,469,874
2017-18 1,005,880 44,654 1,050,534
2018-19 770,349 - 770,349
2019-20 705,971 - 705,971
2020-21 and thereafter 1,549,392 - 1,549,392
Total $ 5,428,808 $ 117,312 $ 5,546,120

11. 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 other items 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 $1,040.3 million in 2015-16 ($1,017.7 million in 2014-15).

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) 2016 2015
Employer's contribution to the health and dental insurance plans $ 66,904 $ 63,919
Accommodation 58,554 59,603
Legal services 2,986 2,747
Worker's compensation 509 491
Total $ 128,953 $ 126,760

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 Services and Procurement 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) 2016 2015
Accounts payable - Other government departments and agencies $ 7,054 $ 13,449
Accounts receivable - Other government departments and agencies 11,183 11,220
Expenses - Other government departments and agencies 102,511 110,186
Revenues - Other government departments and agencies 71,144 78,396

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 Services and Procurement Canada, who is responsible for the administration of the Government pay system.

14. 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 2016
Total
2015
Total
Expenses
Transfer payments $ 260,699 $ 34,048 $ 1,494,129 $ (109) $ 1,788,767 $ 1,705,313
Salaries and employee benefits 41,020 472,631 222,008 212,269 947,928 968,425
Utilities, materials and supplies 720 14,506 525,994 13,138 554,358 508,531
Professional and special services 12,987 49,290 347,906 68,580 478,763 454,590
Travel non-insured health patients - - 212,609 - 212,609 198,955
Accommodation 2,419 28,205 13,393 24,441 68,458 69,894
Travel and relocation 741 6,526 19,675 1,325 28,267 25,595
Amortization of tangible capital assets 176 9,403 2,053 14,081 25,713 28,075
Repair and maintenance 97 2,946 1,951 12,625 17,619 25,563
Information services 209 6,689 362 2,821 10,081 16,226
Rentals 196 1,955 946 4,343 7,440 7,857
Communications 83 1,319 2,533 1,386 5,321 5,689
Bad debts - - - 4,340 4,340 (702)
Other 621 1,525 (166) (87) 1,893 (21,316)
Expenses incurred on behalf of Government - - - (3,802) (3,802) 518
Total expenses 319,968 629,043 2,843,393 355,351 4,147,755 3,993,213
Revenues
Sales of goods and services:
Services of a regulatory nature - 41,877 - 3,734 45,611 49,568
Rights and privileges - 51,288 - 3,448 54,736 48,581
Services of a non-regulatory nature 14,643 6,845 124,664 58,412 204,564 198,989
Lease and use of public property - - 164 101 265 286
Revenues from fines - 1,807 - - 1,807 1,759
Interest - - - 334 334 482
Other 194 1,004 175 99 1,472 1,562
Revenues earned on behalf of Government (191) (15,187) (937) (440) (16,755) (15,903)
Total revenues 14,646 87,634 124,066 65,688 292,034 285,324
Net cost of operations before government funding and transfers $ 305,322 $ 541,409 $ 2,719,327 $ 289,663 $ 3,855,721 $ 3,707,889

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, 2016

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 2015-16 Departmental Performance Report and the 2015-16 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 Departmental Audit Committee (DAC), Assistant Deputy Ministers and Governance Committees, ensure proper accountability, stewardship and transparency in the conduct of financial management, risk management 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 Minister, Departmental Senior Management, and the 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 Office of Audit and Evaluation 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 Services and Procurement Canada (PSPC) 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).
  • Indigenous and Northern Affairs Canada (INAC) provides host services to Health Canada for the 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) with 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, INAC, 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 2015-16

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 GCIMS, hosted by INAC, for the management and reporting of transfer payments. More functionalities and modules were implemented throughout 2015-16. For 2016-17, system enhancements are expected to continue with the adoption of new modules. Working collaboratively with INAC, Health Canada has updated the design and continues to monitor operating effectiveness of its key controls to support the progress of business process standardization.

Ongoing risk-based monitoring plan: Health Canada completed its assessment of the following processes in line with its 2015-16 ongoing risk-based monitoring plan: Financial Statements and Year End and Reporting; Revenue, Receivables and Receipts; Purchasing, Payables, and Payments; Grants and Contributions; Payroll; Non-Insured Health Benefits provided to First Nations and Inuit communities and individuals; and Information Technology General Controls.

Key controls tested as part of Health Canada’s ongoing risk-based monitoring plan in 2015-16 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:

  • Consistency in the use of the online employee departure application;
  • Frequency of the periodic reviews of system user access;
  • Continuity of regional Non-Insured Health Benefits systems; and,
  • Quality assurance review on Journal Vouchers.

4. Departmental Action Plan

4.1 Progress during fiscal year 2015-16

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 2015-16
Key Control Areas Status
Completed as Planned
Financial Statements, Year End and Reporting Yes
Revenue Receivables and Receipts Yes
Purchasing Payables and Payments Yes
Grants and Contributions Yes
Payroll Yes
Non-Insured Health Benefits— Contract for Operations and Maintenance (O&M) under Express Scripts Canada (ESC) Yes
Non-Insured Health Benefits— Contract for Operations and Maintenance (O&M) non-ESC Yes
IT General Controls Yes
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 2016-17 Fiscal Year 2017-18 Fiscal Year 2018-19
Entity Level Controls No Yes No
Budget No Yes No
Financial Statements, Year End and Reporting Yes Yes Yes
Revenue, Receivables and Receipts Yes Yes Yes
Purchasing, Payables and Payments No Yes No
Grants and Contributions Yes Yes Yes
Payroll Yes Yes Yes
Capital Assets Yes No Yes
Non-Insured Health Benefits – Contract for Operations and Maintenance (O&M) under Express Scripts Canada (ESC) No Yes No
Non-Insured Health Benefits — O&M controls outside ESC Contract Yes Yes Yes
Information Technology General Controls (ITGC) Yes Yes Yes
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