Health Canada – 2017-18 Departmental Financial Statements

Table of Contents

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, 2018, 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 of Canada'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 Health Canada's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in Health Canada's Departmental Results 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 Health Canada 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, 2018 was completed in accordance with the Treasury Board Policy on Financial Management and the results and action plans are summarized in the annex.

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

The financial statements of Health Canada have not been audited.

Simon Kennedy
Deputy Minister
Ottawa, Canada
Date: August 21, 2018

Randy Larkin
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: August 21, 2018

Statement of Financial Position (Unaudited)
As at March 31

(in thousands of dollars) 2018 2017
Liabilities
Accounts payable and accrued liabilities (note 4) $ 185,275  $ 287,899
Vacation pay and compensatory leave 39,604 42,057
Deferred revenue 10,507 7,976
Employee future benefits (note 6) 33,327 40,965
Other liabilities (note 7) 100,250 118,519
Total gross liabilities 368,963 497,416
Liabilities held on behalf of Government
Deferred revenue (9) (173)
Total liabilities held on behalf of Government (9) (173)
Total net liabilities 368,954 497,243
Financial assets
Due from Consolidated Revenue Fund 141,404 273,252
Accounts receivable and advances (note 8) 83,284 88,080
Total gross financial assets 224,688 361,332
Financial assets held on behalf of Government
Accounts receivable and advances (note 8) (22,892) (56,001)
Total financial assets held on behalf of Government (22,892) (56,001)
Total net financial assets 201,796 305,331
Departmental net debt 167,158 191,912
Non-financial assets
Tangible capital assets (note 9) 142,602 141,057
Total non-financial assets 142,602 141,057
Departmental net financial position $ (24,556) $ (50,855)

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 21, 2018

Randy Larkin
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: August 21, 2018

Statement of Operations and Departmental Net Financial Position (Unaudited)
For the Year Ended March 31

(in thousands of dollars) 2018
Planned Results
2018 2017
Expenses
A health system responsive to the needs of Canadians $ 376,378  $ 430,778  $  359,330
Health risks and benefits associated with food, products, substances, and environmental factors are appropriately managed and communicated to Canadians 684,844 706,401 695,323
Internal services 260,156 406,777 339,286
Expenses incurred on behalf of Government (533) (939) 323
Total expenses 1,320,845 1,543,017 1,394,262
Revenues
Sales of goods and services
     Services of a regulatory nature 61,644 58,314 56,183
     Rights and privileges 70,481 57,768 53,113
     Services of a non-regulatory nature 82,072 84,436 79,954
     Lease and use of public property 278 21 86
Revenues from fines 1,818 1,491 986
Interest 437 340 211
Other 267 1,578 1,736
Revenues earned on behalf of Government (14,670) (19,650) (16,131)
Total revenues 202,327 184,298 176,138
Net cost from continuing operations 1,118,518 1,358,719 1,218,124
Transferred operations (note 13)
Expenses 3,148,009 2,243,559 3,102,718
Revenues 5,450 83,561 124,904
Total cost of transferred operations 3,142,559 2,159,998 2,977,814
Net cost of operations before government funding and transfers 4,261,077 3,518,717 4,195,938
Government funding and transfers
Net cash provided by Government of Canada   3,546,121 4,045,138
Change in due from Consolidated Revenue Fund   (131,848) 12,107
Services provided without charge by other government departments (note 12)   122,821 131,921
Transfer of the transition payments for implementing salary payments in arrears   (14) (17)
Other transfers of assets and liabilities (to) from other government departments   (13)           -  
Transfer of assets and liabilities to the Department of Indigenous Services Canada (note 13)   7,949           -  
Net cost of (revenue from) operations after government funding and transfers   (26,299) 6,789
Departmental net financial position - Beginning of year   (50,855) (44,066)
Departmental net financial position - End of year    $ (24,556)  $ (50,855)

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) 2018 2017
Net cost of (revenue from) operations after government funding and transfers $ (26,299) $ 6,789
Change due to tangible capital assets
Acquisition of tangible capital assets 31,396 29,011
Amortization of tangible capital assets (22,138) (22,668)
Proceeds from disposal of tangible capital assets (210) (500)
Gain (loss) on disposal of tangible capital assets including adjustments 92 (11)
Transfer of tangible capital assets (to) from other government departments (25)           -  
Transfer of tangible capital assets to Department of Indigenous Services Canada (note 13) (7,570)           -  
Total change due to tangible capital assets 1,545 5,832
Net increase (decrease) in departmental net debt (24,754) 12,621
Departmental net debt - Beginning of year 191,912 179,291
Departmental net debt - End of year $ 167,158 $ 191,912

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) 2018 2017
Operating activities
Net cost of operations before government funding and transfers $ 3,518,717 $ 4,195,938
Non-cash items:
Amortization of tangible capital assets (22,138) (22,668)
Gain (loss) on disposal of tangible capital assets including adjustments 92 (11)
Services provided without charge by other government departments (note 12) (122,821) (131,921)
Transition payments for implementing salary payments in arrears 14 17
Variations in Statement of Financial Position:
Decrease (increase) in accounts payable and accrued liabilities 102,624 (20,765)
Decrease (increase) in vacation pay and compensatory leave 2,453 (4,522)
Decrease (increase) in deferred revenue (2,695) 902
Decrease (increase) in employee future benefits 7,638 11,921
Decrease (increase) in other liabilities 18,269 (22,146)
Increase (decrease) in accounts receivable and advances 28,313 9,882
Transfer of salary overpayments to (from) other government departments (12)           -  
Transfer of financial assets and liabilities to Department of Indigenous Services Canada (note 13) (15,519)           -  
Cash used in operating activities 3,514,935 4,016,627
Capital investing activities
Acquisition of tangible capital assets 31,396 29,011
Proceeds from disposal of tangible capital assets (210) (500)
Cash used in capital investing activities 31,186 28,511
Net cash provided by Government of Canada $ 3,546,121 $ 4,045,138

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

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 programs:

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.

Programs:

  • 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.

Programs:

  • Health Products 
  • Food Safety and Nutrition
  •  Environmental Risks to Health
  • Consumer Product and Workplace Hazardous Materials
  • 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.

Programs:

  • First Nations and Inuit Primary Health Care
  • Supplementary Health Benefits for First Nations and Inuit
  • Health Infrastructure Support for First Nations and Inuit

Responsibility for this strategic outcome was transferred to the Department of Indigenous Services Canada effective November 30, 2017 (note 13).

Internal Services

Internal Services are groups of related activities and resources that are administered to support the needs of programs and other corporate obligations of an organization. Internal services include only those activities and resources that apply across an organization, and not those provided to a specific program. The groups of activities are Management and Oversight Services; Communications Services; Legal Services; Human Resources Management Services; Financial Management Services; Information Management Services; Information Technology Services; Real Property Services; Materiel Services; and Acquisition Services.

2. Summary of significant accounting policies

These financial statements are prepared using the department'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 2017-18 Departmental Plan. 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 2017-18 Departmental Plan.

(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. Revenues are then recognized in the period in which the related expenses are incurred.
  • Deferred revenue consists of amounts received in advance of the delivery of goods and rendering of services that will be recognized as revenue in a subsequent fiscal year as it is earned.
  • Other revenues are recognized in the period the event giving rise to the revenues occurred.
  • 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 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 as a reduction of the entity's gross revenues.

(e) Expenses

  • Transfer payments are recorded as an expense in the year the transfer is authorized and all eligibility criteria have been met by the recipient.
  • 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 carrying value.

(f) Employee future benefits

  1. Pension benefits: Eligible employees participate in the Public Service Pension Plan (the "Plan"), a multiemployer 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: The accumulation of severance benefits for voluntary departures ceased for applicable employee groups. The remaining obligation for employees who did not withdraw benefits 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 initially recorded at cost and where necessary, are discounted to reflect their concessionary terms. When necessary, an allowance for valuation is recorded to reduce the carrying value of accounts receivable to amounts that approximate their net recoverable value.

(h) Non-financial assets

The costs of acquiring land, buildings, equipment and other capital property are capitalized as tangible capital assets and, except for land, are amortized to expense over the estimated useful lives of the assets, as described in Note 9. All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. Tangible capital assets do not include immovable assets located on reserves as defined in the Indian Act, works of art, museum collection and Crown land to which no acquisition cost is attributable; and intangible assets.

(i) Contingent liabilities

Contingent liabilities are potential liabilities which may become actual liabilities when one or more future events occur or fail to occur. If the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, a provision is accrued and an expense recorded to other expenses. 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.

(j) Contingent assets

Contingent assets are possible assets which may become actual assets when one or more future events occur or fail to occur. If the future event is likely to occur or fail to occur, the contingent asset is disclosed in the notes to the financial statements.

(k) Environmental liabilities

An environmental liability for the 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 future cash flows required to settle or otherwise extinguish a liability are estimable, predictable and expected to occur over extended future periods, a present value technique is used. The discount rate used reflects the Government's cost of borrowing, associated with the estimated number of years to complete remediation.

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

If the likelihood of the Government's responsibility is not determinable, a contingent liability is disclosed in the notes to the financial statements.

(l) Measurement uncertainty

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported and disclosed amounts of assets, liabilities, revenues and expenses reported in the financial statements and accompanying notes at March 31. The estimates are based on facts and circumstances, historical experience, general economic conditions and reflect the Government's best estimate of the related amount at the end of the reporting period. 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.

(m) Related party transactions

Related party transactions, other than inter-entity transactions, are recorded at the exchange amount.

Inter-entity transactions are transactions between commonly controlled entities. Inter-entity transactions, other than restructuring transactions, are recorded on a gross basis and are measured at the carrying amount, except for the following:

  1. Services provided on a recovery basis are recognized as revenues and expenses on a gross basis and measured at the exchange amount.
  2. Certain services received on a without charge basis are recorded for departmental financial statement purposes at the carrying amount.

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. The 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) 2018 2017
Net cost of operations before government funding and transfers $ 3,518,717 $ 4,195,938
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets (22,138) (22,668)
Gain (loss) on disposal of tangible capital assets 193 (11)
Services provided without charge by other government departments (122,821) (131,921)
Decrease (increase) in vacation pay and compensatory leave (6,155) (4,522)
Decrease (increase) in employee future benefits (2,255) 11,921
Refund/adjustment of prior years' expenditures 19,538 20,779
Bad debt expense (1,562) 715
Increase (decrease) in transfer payment accrual (12,619) 2,926
Decrease (increase) in workforce adjustment measures (10) 112
Statutory spending authority equivalent to revenues earned 57,330 55,026
Other (3,156) (52,725)
Total items affecting net cost of operations but not affecting authorities (93,655) (120,368)
Adjustments for items not affecting net cost of operations but affecting authorities:
Disbursement to Canada Health Infoway Inc. 25,848 37,878
Acquisition of tangible capital assets 31,396 29,011
Salary overpayments 8,103 9,785
Issuance of accountable advances 586 785
Transition payments for implementing salary payments in arrears 14 17
Proceeds from disposal of Crown assets 44 171
Total items not affecting net cost of operations but affecting authorities 65,991 77,647
Current year authorities used $ 3,491,053 $ 4,153,217

(b) Authorities provided and used

Authorities provided and used
(in thousands of dollars) 2018 2017
Authorities provided:
Vote 1 - Operating expenditures $ 1,676,824 $ 1,987,121
Vote 5 - Capital expenditures 42,012 36,587
Vote 10 - Grants and contributions 1,789,471 2,039,369
Statutory amounts 217,327 205,334
Less:
Authorities available for future years (254) (49)
Lapsed authorities (234,327) (115,145)
Current year authorities used $ 3,491,053 $ 4,153,217

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) 2018 2017
Accounts payable - Other government departments and agencies $ 22,021 $ 7,347
Accounts payable - External parties 30,509 102,275
Total accounts payable 52,530 109,622
Accrued liabilities 132,745 178,277
Total accounts payable and accrued liabilities $ 185,275 $ 287,899

5. Environmental liabilities

Remediation of contaminated sites

The Government's "Federal Approach to Contaminated Sites" sets out a framework for management of contaminated sites using a risk-based approach. Under this approach the Government has inventoried the contaminated sites identified on federal lands, allowing them to be classified, managed and recorded in a consistent manner. This systematic approach aids in identification of the high risk sites in order to allocate limited resources to those sites which pose the highest risk to human health and the environment.

The Department has identified 1 site (1 site in 2016-17) where action is possible and for which a liability of $39,000 ($101,000 in 2016-17) has been recorded. This liability represents management's best estimate of the costs required to remediate 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 1.9% (2.0% in 2016-17). Inflation is included in the undiscounted amount. The Government of Canada's cost of borrowing by reference to the actual zero-coupon yield curve for Government of Canada bonds has been used to discount the estimated future expenditures. The March 2018 rates range from 1.79% (0.76% in 2016-17) for a 2 year term to 2.24% (2.39% in 2016-17) for a 30 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 $39,000 ($101,000 in 2016-17).

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 2017-18 expense amounts to the following:

Pension benefits
(in thousands of dollars) 2018 2017
Expense for the year $ 73,988 $ 80,056

For Group 1 members, the expense represents approximately 1.01 times (1.12 times in 2016-17) the employee contributions and, for Group 2 members, approximately 1.00 times (1.08 times in 2016-17) 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 Consolidated Financial Statements of the Government of Canada, as the Plan's sponsor.

(b) Severance benefits

Severance benefits provided to the Department's employees were previously based on an employee's eligibility, years of service and salary at termination of employment. However, since 2011 the accumulation of severance benefits for voluntary departures progressively ceased for substantially all employees. Employees subject to these changes were given the option to be paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits upon departure from the public service. By March 31, 2018, substantially all settlements for immediate cash out were completed. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities.

The changes in the obligations during the year were as follows:

Severance benefits
(in thousands of dollars) 2018 2017
Accrued benefit obligation - Beginning of year $ 40,965 $ 52,886
Transfer to Department of Indigenous Services Canada, effective November 30, 2017 (note 13) (9,892)   -
Subtotal 31,073 52,886
Provision for the year 3,754 (9,115)
Benefits paid during the year (1,500) (2,806)
Accrued benefit obligation - End of year $ 33,327 $ 40,965

7. Other liabilities

Other liabilities
(in thousands of dollars) 2018 2017
Canada Health Infoway Inc. $ 24,469 $ 50,477
Other  75,781  68,042
Total other liabilities $ 100,250 $ 118,519

Budget 2007 announced an allocation of $400.0 million to Canada Health Infoway Inc. This authority has been fully disbursed, $7.8 million in 2017-18 ($9.4 million in 2016-17). Budget 2009 announced an additional allocation of $500.0 million to Canada Health Infoway Inc. Of this 2009 authority $475.5 million has been disbursed to date, $18.2 million in 2017-18 ($28.6 million in 2016-17). 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 $70.0 million ($60.9 million in 2016-17) and Specified Purpose Accounts: Collaborative research projects $3.1 million ($3.1 million in 2016-17); Miscellaneous federal/provincial projects $1.4 million ($1.7 million in 2016-17); and World Health Organization $0.1 million ($0.1 million in 2016-17).

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) 2018 2017
Accounts receivable - Other government departments and agencies $ 46,052 $ 19,808
Accounts receivable - External parties 20,476 63,304
Employee advances 19,309 17,967
Subtotal 85,837 101,079
Allowance for doubtful accounts on receivables from external parties (2,553) (12,999)
Gross accounts receivable and advances 83,284 88,080
Accounts receivable held on behalf of Government (22,892) (56,001)
Net accounts receivable and advances $ 60,392 $ 32,079

9. Tangible capital assets

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 asset class in the year they are put into service and are not amortized until they are put into service.
Engineering works in progress of construction
Work in progress for software
Other construction or work in progress
Tangible capital assets (in thousands of dollars)
Cost Opening balance Acquisitions Disposals and write-offs Transfers and adjustments Closing balance
Land $ 1,175 $ - $ - $ - $ 1,175
Buildings 161,415 132 - - 161,547
Works and infrastructure 2,067 - - - 2,067
Leasehold improvements 26,475 - - - 26,475
Machinery and equipment 247,371 14,885 (2,320) (2,477) 257,459
Vehicles 14,028 1,568 (868) (9,600) 5,128
Assets under construction 19,653 14,811  -  (10,498) 23,966
Total $ 472,184 $ 31,396 $ (3,188) $ (22,575) $ 477,817
Accumulated amortization Opening balance Amortization Disposals and write-offs Transfers and adjustments Closing balance
Buildings $ 120,286 $ 2,830 $ - $ - $ 123,116
Works and infrastructure 584 83 - - 667
Leasehold improvements 23,786 691 - - 24,477
Machinery and equipment 177,357 17,470 (2,319) (8,884) 183,624
Vehicles 9,114 1,064 (852) (5,995) 3,331
Total $ 331,127 $ 22,138 $ (3,171) $ (14,879) $ 335,215
Net book value Net book value 2017 Net change acquisitions and amortization Net change disposals and write-offs Net change transfers and adjustments Net book  value 2018
Land $ 1,175 $ - $ - $ - $ 1,175
Buildings 41,129 (2,698) - - 38,431
Works and infrastructure 1,483 (83) - - 1,400
Leasehold improvements 2,689 (691) - - 1,998
Machinery and equipment 70,014 (2,585) (1) 6,407 73,835
Vehicles 4,914 504 (16) (3,605) 1,797
Assets under construction 19,653 14,811 - (10,498) 23,966
Total $ 141,057 $ 9,258 $ (17) $ (7,696) $ 142,602

Adjustments include assets under construction of $10,498 thousand that were transferred to the other categories upon completion of the assets.

Effective November 30, 2017, the Department transferred machinery and equipment and vehicles with a net book value of $7,570 thousand to the Department of Indigenous Services Canada. This transfer is included in the adjustment columns (refer to note 13 for further detail on the transfer).

10. Contractual obligations

The nature of the Department's activities may result in some 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
2018-19 $ 339,273
2019-20 344,700
2020-21 333,337
2021-22 318,088
2022-23 and subsequent 26,059
Total $ 1,361,457

11. Contingent liabilities and contingent assets

(a) 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 $1,515.0 million ($1,523.3 million in 2016-17) at March 31, 2018.

(b) Contingent assets
Contingent assets arise in the normal course of operations and their ultimate disposition is unknown. The Department has made claims against external parties for which recovery or gain is likely to materialize, however a reasonable estimate cannot be made. Contingent assets are not recognized in the financial statements.

12. Related party transactions

The Department is related as a result of common ownership to all government departments, agencies, and Crown corporations. Related parties also include individuals who are members of key management personnel or close family members of those individuals, and entities controlled by, or under shared control of, a member of key management personnel or a close family member of that individual.

The Department enters into transactions with these entities in the normal course of business and on normal trade terms. In addition, the Department has agreements with Agriculture and Agri-Food Canada, the Canadian Northern Economic Development Agency, Indigenous and Northern Affairs Canada, the Patented Medicine Prices Review Board and the Public Health Agency of Canada related to the provision of various finance and administrative services.

(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 at the carrying value 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) 2018 2017
Employer's contribution to the health and dental insurance plans $ 70,403 $ 71,661
Accommodation 49,451 56,069
Legal services 2,631 3,733
Worker's compensation  336 458
Total $ 122,821 $ 131,921

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) Internal services provided without charge to other government departments

During the year, the Department provided services without charge to the Department of Indigenous Services Canada for the provision of internal services in support of the First Nations and Inuit Health Branch in the amount of $11.3 million. This amount has been recorded as an expense in the Department's Statement of Operations and Departmental Net Financial Position.

(c) Other transactions with related parties

Other transactions with related parties
(in thousands of dollars) 2018 2017
Expenses - Other government departments and agencies $ 109,951 $ 97,751
Revenues - Other government departments and agencies  74,564  70,766

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

13. Transfers to other government departments

(a) Effective November 30, 2017, the Department transferred the control and supervision of that portion of the federal public administration in the Department of Health known as the First Nations and Inuit Health Branch to the Department of Indigenous Services Canada in accordance with Order-in-Council P.C. 2017-1465, including the stewardship responsibility for the assets and liabilities related to the program. Accordingly, the Department transferred the following assets and liabilities related to the First Nations and Inuit Health Branch to the Department of Indigenous Services Canada on November 30, 2017:

Transfers to other government departments
(in thousands of dollars) 2018
Assets:
Due from Consolidated Revenue Fund $ 18,786
Accounts receivable and advances 5,001
Tangible capital assets (net book value) (note 9) 7,570
Total assets transferred 31,357
Liabilities:
Accounts payable and accrued liabilities 17,596
Vacation pay and compensatory leave 8,609
Employee future benefits 9,892
Other liabilities 3,209
Total liabilities transferred 39,306
Adjustment to the departmental net financial position $ (7,949)

In addition, the 2017 comparative figures have been reclassified on the Statement of Operations and Departmental Net Financial Position to present the revenues and expenses of the transferred operations.

During the transition period, the Department continued to administer the transferred activities on behalf of the Department of Indigenous Services Canada. The administered revenues and expenses amounted to $8.0 million and to $1,209.1 million respectively, for the year. These revenues and expenses are not recorded in these financial statements.

(b) Pursuant to paragraph 2(a) of the Public Service Rearrangement and Transfer of Duties Act and in accordance with Order-in-Council P.C. 2018-0381, the control and supervision of the First Nations and Inuit Health Internal Services Unit, including the stewardship responsibility for the assets and liabilities related to the unit, were transferred to the Department of Indigenous Services Canada, effective April 1, 2018. The estimated net cost of operations for this unit is $33.9 million for 2017-18, and has been recorded as part of the net cost from continuing operations in these financial statements.

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)
Expenses 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 Internal services 2018 Total 2017 Total
Salaries and employee benefits $ 45,121 $ 558,940 $ 240,447 $ 844,508 $ 721,339
Transfer payments 351,235 22,799 - 374,034 334,152
Professional and special services 15,139 39,308 78,345 132,792 128,339
Accommodation 2,249 27,686 20,855 50,790 52,405
Utilities, materials and supplies 1,028 14,001 18,266 33,295 27,107
Other 14,367 10,738 (13) 25,092 62,153
Amortization of tangible capital assets 115 9,750 10,776 20,641 20,723
Repair and maintenance 66 2,953 15,999 19,018 14,961
Information services 336 8,814 7,690 16,840 12,781
Rentals 196 3,529 7,890 11,615 9,253
Travel and relocation 863 6,558 1,369 8,790 7,955
Communications 63 1,325 3,591 4,979 3,486
Bad debts - - 1,562 1,562 (715)
Expenses incurred on behalf of Government - - (939) (939) 323

Total expenses

430,778 706,401 405,838 1,543,017 1,394,262
Revenues 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 Internal services 2018 Total 2017 Total
Sales of goods and services          
  Services of a regulatory nature - 54,349 3,965 58,314 56,183
  Rights and privileges 4 54,120 3,644 57,768 53,113
  Services of a non-regulatory nature 16,196 8,278 59,962 84,436 79,954
  Lease and use of public property - 1 20 21 86
Revenues from fines - 1,491 - 1,491 986
Interest - - 340 340 211
Other 258 137 1,183 1,578 1,736
Revenues earned on behalf of Government (221) (17,947) (1,482) (19,650) (16,131)
Total revenues 16,237 100,429 67,632 184,298 176,138
Net cost from continuing operations $ 414,541 $ 605,972 $ 338,206 $ 1,358,719 $ 1,218,124

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, 2018

1. Introduction

This document provides summary information on the measures taken by Health Canada 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 2017-18 Departmental Results Report and the 2017-18 Departmental Plan.

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, 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 three 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, key financial controls may be subjected to audit by the Office of Audit and Evaluation who conducts audits in accordance with the risk-based audit plan.
  • Departmental Audit Committee: The DAC endorses the efforts of the department in maintaining an effective ICFR.

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 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.

Readers of this annex may refer to the annexes of the above-noted departments for a greater understanding of the systems of internal control over financial reporting related to these specific services.

Specific Arrangements

  • Agriculture and Agri-Food Canada provides platform access to its human resources management system of record (PeopleSoft).
  • Crown-Indigenous Relations and Northern Affairs Canada 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, 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 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 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, Indigenous Services Canada, Crown-Indigenous Relations and Northern Affairs 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 2017-18

Health Canada has a mature ongoing risk-based monitoring program that has been in place for the last five years. This ensures 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.

Effective November 30, 2017, Health Canada transferred the control and supervision of the First Nations and Inuit Health Branch (FNIHB) to the Department of Indigenous Services Canada in accordance with Order-in-Council P.C. 2017-1465, including the stewardship responsibility for the assets and liabilities related to the program. Health Canada continued the ICFR monitoring for FNIHB until March 31, 2018.

Health Canada continues to work with Public Services and Procurement Canada and the Treasury Board Secretariat to identify and strengthen controls in pay administration. Since the implementation of the Phoenix pay system, Public Services and Procurement Canada has encountered challenges in processing pay transactions. Health Canada has enhanced its existing controls to ensure reliability of financial reporting. To ensure effectiveness of these enhanced controls, additional tests have been conducted.

Ongoing risk-based monitoring plan: Health Canada completed its assessment of the following processes in line with its 2017-18 ongoing risk-based monitoring plan: Financial Statements and Year End Reporting; Revenue, Receivables and Receipts; Purchasing, Payables and Payments; Grants and Contributions; Payroll; Non-Insured Health Benefits – Contract for Operations and Maintenance (O&M) under Express Scripts Canada (ESC); Non-Insured Health Benefits provided to First Nations and Inuit communities and individuals outside ESC Contract; Information Technology General Controls; Entity Level Controls; and Budget Management.

Key controls tested as part of Health Canada's ongoing risk-based monitoring plan in 2017-18 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:

  • Enhancing the monitoring of the online employee departure application;
  • Improving the review of periodic user access;
  • Strengthening the monitoring of pay transactions; and
  • Improving the management of receivables.

4. Departmental action plan

4.1 Progress during fiscal year 2017-18

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 2017-18
Key Control Areas Status
Completed as Planned
Entity Level Controls Yes
Budget Yes
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 – O&M controls outside ESC Contract Yes
Information Technology General Controls (ITGC) 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 - Process Fiscal Year 2018-19 Fiscal Year 2019-20 Fiscal Year 2020-21
Entity Level Controls (ELC)
Entity Level Controls     Test
Financial Management Processes
Planning, Budgeting and Forecasting     Test
Investment Planning and Project Management Test    
Cabinet Document Submissions Test    
Costing and External Charging   Test  
Financial Management Governance/Performance Test    
Financial Reporting Processes
Financial Statement, Year-End and Reporting Test Test Test
Revenue/Receivables/Receipts Test Test Test
Purchasing/Payables/Payments   Test  
Grants and Contributions Test Test Test
Payroll Test Test Test
Capital Assets Test   Test
Travel/Hospitality/Conference/Events/Relocation   Test  
Information Technology General Controls (ITGC)
ITGC Test Test Test
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