Health Canada – 2018-2019 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, 2019, 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, 2019 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.
Stephen Lucas
Deputy Minister
Ottawa, Canada
Date: September 11, 2019
Randy Larkin
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: September 10, 2019
| (in thousands of dollars) | 2019 | 2018 |
|---|---|---|
| Liabilities | ||
| Accounts payable and accrued liabilities (note 4) | $ 173,923 | $ 185,275 |
| Vacation pay and compensatory leave | 45,535 | 39,604 |
| Deferred revenue | 9,474 | 10,507 |
| Employee future benefits (note 5) | 33,232 | 33,327 |
| Other liabilities (note 6) | 85,758 | 100,250 |
| Total gross liabilities | 347,922 | 368,963 |
| Liabilities held on behalf of Government | ||
| Deferred revenue | (75) | (9) |
| Total liabilities held on behalf of Government | (75) | (9) |
| Total net liabilities | 347,847 | 368,954 |
| Financial assets | ||
| Due from Consolidated Revenue Fund | 162,495 | 141,404 |
| Accounts receivable and advances (note 7) | 52,705 | 83,284 |
| Total gross financial assets | 215,200 | 224,688 |
| Financial assets held on behalf of Government | ||
| Accounts receivable and advances (note 7) | (26,636) | (22,892) |
| Total financial assets held on behalf of Government | (26,636) | (22,892) |
| Total net financial assets | 188,564 | 201,796 |
| Departmental net debt | 159,283 | 167,158 |
| Non-financial assets | ||
| Tangible capital assets (note 8) | 140,022 | 142,602 |
| Total non-financial assets | 140,022 | 142,602 |
| Departmental net financial position | $ (19,261) | $ (24,556) |
Contractual obligations (note 9) The accompanying notes form an integral part of these financial statements. |
||
Stephen Lucas
Deputy Minister
Ottawa, Canada
Date: September 11, 2019
Randy Larkin
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: September 10, 2019
| (in thousands of dollars) | 2019 Planned Results | 2019 | 2018 Restated (note 12) |
|---|---|---|---|
| Expenses | |||
| Health Care Systems | $ 1,268,868 | $ 1,278,204 | $ 393,527 |
| Health Protection and Promotion | 843,830 | 922,497 | 743,599 |
| Internal Services | 308,068 | 396,693 | 371,432 |
| Expenses incurred on behalf of Government | (52) | (708) | (939) |
| Total expenses | 2,420,714 | 2,596,686 | 1,507,619 |
| Revenues | |||
| Sales of goods and services | |||
| Services of a regulatory nature | 65,115 | 61,508 | 58,314 |
| Rights and privileges | 73,381 | 58,530 | 57,768 |
| Services of a non-regulatory nature | 82,747 | 99,381 | 83,438 |
| Lease and use of public property | 123 | 17 | 21 |
| Revenues from fines | 1,437 | 1,190 | 1,491 |
| Interest | 296 | 335 | 340 |
| Other | 77 | 697 | 1,578 |
| Revenues earned on behalf of Government | (14,651) | (19,814) | (19,650) |
| Total revenues | 208,525 | 201,844 | 183,300 |
| Net cost from continuing operations | 2,212,189 | 2,394,842 | 1,324,319 |
| Transferred operations (note 12) | |||
| Expenses | - | - | 2,277,959 |
| Revenues | - | - | 83,561 |
| Total cost of transferred operations | - | - | 2,194,398 |
| Net cost of operations before government funding and transfers | 2,212,189 | 2,394,842 | 3,518,717 |
| Government funding and transfers | |||
| Net cash provided by Government of Canada | N/A | 2,274,272 | 3,546,121 |
| Change in due from Consolidated Revenue Fund | N/A | 21,091 | (131,848) |
| Services provided without charge by other government departments (note 11) | N/A | 105,474 | 122,821 |
| Transfer of the transition payments for implementing salary payments in arrears | N/A | - | (14) |
| Other transfers of assets and liabilities (to) from other government departments | N/A | 70 | (13) |
| Transfer of assets and liabilities to the Department of Indigenous Services Canada (note 12) | N/A | (770) | 7,949 |
| Net cost of (revenue from) operations after government funding and transfers | N/A | (5,295) | (26,299) |
| Departmental net financial position - Beginning of year | N/A | (24,556) | (50,855) |
| Departmental net financial position - End of year | N/A | $ (19,261) | $ (24,556) |
| Segmented information (note 13)
The accompanying notes form an integral part of these financial statements. |
|||
| (in thousands of dollars) | 2019 | 2018 |
|---|---|---|
| Net cost of (revenue from) operations after government funding and transfers | $ (5,295) | $ (26,299) |
| Change due to tangible capital assets | ||
| Acquisition of tangible capital assets | 26,803 | 31,396 |
| Amortization of tangible capital assets | (21,832) | (22,138) |
| Proceeds from disposal of tangible capital assets | (201) | (210) |
| Gain (loss) on disposal of tangible capital assets including adjustments | (4,219) | 92 |
| Transfer of tangible capital assets (to) from other government departments | 1 | (25) |
| Transfer of tangible capital assets to Department of Indigenous Services Canada (note 12) | (3,132) | (7,570) |
| Total change due to tangible capital assets | (2,580) | 1,545 |
| Net increase (decrease) in departmental net debt | (7,875) | (24,754) |
| Departmental net debt - Beginning of year | 167,158 | 191,912 |
| Departmental net debt - End of year | $ 159,283 | $ 167,158 |
| The accompanying notes form an integral part of these financial statements. | ||
| (in thousands of dollars) | 2019 | 2018 |
|---|---|---|
| Operating activities | ||
| Net cost of operations before government funding and transfers | $ 2,394,842 | $ 3,518,717 |
| Non-cash items: | ||
| Amortization of tangible capital assets | (21,832) | (22,138) |
| Gain (loss) on disposal of tangible capital assets including adjustments | (4,219) | 92 |
| Services provided without charge by other government departments (note 11) | (105,474) | (122,821) |
| Transition payments for implementing salary payments in arrears | - | 14 |
| Variations in Statement of Financial Position: | ||
| Decrease (increase) in accounts payable and accrued liabilities | 11,352 | 102,624 |
| Decrease (increase) in vacation pay and compensatory leave | (5,931) | 2,453 |
| Decrease (increase) in deferred revenue | 1,099 | (2,695) |
| Decrease (increase) in employee future benefits | 95 | 7,638 |
| Decrease (increase) in other liabilities | 14,492 | 18,269 |
| Increase (decrease) in accounts receivable and advances | (34,323) | 28,313 |
| Transfer of salary overpayments to (from) other government departments | (69) | (12) |
| Transfer of financial assets and liabilities to Department of Indigenous Services Canada (note 12) | (2,362) | (15,519) |
| Cash used in operating activities | 2,247,670 | 3,514,935 |
| Capital investing activities | ||
| Acquisition of tangible capital assets | 26,803 | 31,396 |
| Proceeds from disposal of tangible capital assets | (201) | (210) |
| Cash used in capital investing activities | 26,602 | 31,186 |
| Net cash provided by Government of Canada | $ 2,274,272 | $ 3,546,121 |
| The accompanying notes form an integral part of these financial statements. | ||
Notes to the Financial Statements (unaudited)
For the Year Ended March 31, 2019
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 core responsibilities and related programs:
Core Responsibility 1 - Health Care Systems
Health Canada provides national leadership to foster sustainable health care systems that ensure access for Canadians to appropriate and effective health care. The overall objective of Health Canada's policies and programs under this core responsibility is to strengthen the publicly-funded health care systems and ensure that it adapts to new challenges.
Expected Results:
- Canada has modern and sustainable health care systems
- Canadians have access to appropriate and effective health services
Core Responsibility 2 - Health Protection and Promotion
Health Canada works with domestic and international partners to assess, manage and communicate the health and safety risks and benefits associated with health and consumer products, food, chemicals, pesticides, environmental factors, tobacco and controlled substances.
Expected Results:
- Canadians have access to safe, effective and quality health products
- Canadians are protected from unsafe consumer and commercial products and substances
- Canadians make healthy choices
Internal Services
Internal Services are those groups of related activities and resources that the federal government considers to be services in support of programs and/or required to meet corporate obligations of an organization. Internal Services refers to the activities and resources of the ten distinct service categories that support Program delivery in the organization, regardless of the Internal Services delivery model in a department. The ten service categories 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 2018-19 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 2018-19 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
- 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.
- 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 8. 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) 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.
- (l) 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:
- Services provided on a recovery basis are recognized as revenues and expenses on a gross basis and measured at the exchange amount.
- 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:
| (in thousands of dollars) | 2019 | 2018 |
|---|---|---|
| Net cost of operations before government funding and transfers | $ 2,394,842 | $ 3,518,717 |
| Adjustments for items affecting net cost of operations but not affecting authorities: | ||
| Amortization of tangible capital assets | (21,832) | (22,138) |
| Gain (loss) on disposal of tangible capital assets | (4,072) | 193 |
| Services provided without charge by other government departments | (105,474) | (122,821) |
| Decrease (increase) in vacation pay and compensatory leave | (7,403) | (6,155) |
| Decrease (increase) in employee future benefits | (756) | (2,255) |
| Refund/adjustment of prior years' expenditures | 3,828 | 19,538 |
| Bad debt expense | (1,401) | (1,562) |
| Increase (decrease) in transfer payment accrual | - | (12,619) |
| Decrease (increase) in workforce adjustment measures | 26 | (10) |
| Statutory spending authority equivalent to revenues earned | 63,008 | 57,330 |
| Other | 3,189 | (3,156) |
| Total items affecting net cost of operations but not affecting authorities | (70,887) | (93,655) |
| Adjustments for items not affecting net cost of operations but affecting authorities: | ||
| Disbursement to Canada Health Infoway Inc. | 14,260 | 25,848 |
| Acquisition of tangible capital assets | 26,803 | 31,396 |
| Increase in salary overpayments to be recovered | 4,104 | 8,103 |
| Issuance of advances to employees | 571 | 586 |
| Transition payments for implementing salary payments in arrears | - | 14 |
| Proceeds from disposal of Crown assets | 56 | 44 |
| Total items not affecting net cost of operations but affecting authorities | 45,794 | 65,991 |
| Current year authorities used | $ 2,369,749 | $ 3,491,053 |
| (in thousands of dollars) | 2019 | 2018 |
|---|---|---|
| Authorities provided: | ||
| Vote 1 - Operating expenditures | $ 809,510 | $ 1,676,824 |
| Vote 5 - Capital expenditures | 29,144 | 42,012 |
| Vote 10 - Grants and contributions | 1,395,307 | 1,789,471 |
| Statutory amounts | 191,486 | 217,327 |
| Less: | ||
| Authorities available for future years | (31) | (254) |
| Lapsed authorities | (55,667) | (234,327) |
| Current year authorities used | $ 2,369,749 | $ 3,491,053 |
4. Accounts payable and accrued liabilities
The following table presents details of the Department's accounts payable and accrued liabilities:
| (in thousands of dollars) | 2019 | 2018 |
|---|---|---|
| Accounts payable - Other government departments and agencies | $ 10,687 | $ 22,021 |
| Accounts payable - External parties | 58,670 | 30,509 |
| Total accounts payable | 69,357 | 52,530 |
| Accrued liabilities | 104,566 | 132,745 |
| Total accounts payable and accrued liabilities | $ 173,923 | $ 185,275 |
5. Employee future benefits
(a) Pension benefits
The Department's employees participate in the Public Service Pension Plan (the "Plan"), which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plan benefits and they are indexed to inflation.
Both the employees and the Department contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to Economic Action Plan 2012, employee contributors have been divided into two groups – Group 1 relates to existing plan members as of December 31, 2012 and Group 2 relates to members joining the Plan as of January 1, 2013. Each group has a distinct contribution rate.
The 2018-19 expense amounts to the following:
| (in thousands of dollars) | 2019 | 2018 |
|---|---|---|
| Expense for the year | $ 68,775 | $ 73,988 |
For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2017-18) the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2017-18) 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, 2019, 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:
| (in thousands of dollars) | 2019 | 2018 |
|---|---|---|
| Accrued benefit obligation - Beginning of year | $ 33,327 | $ 40,965 |
| Transfer to Department of Indigenous Services Canada (note 12) | (851) | (9,892) |
| Subtotal | 32,476 | 31,073 |
| Provision for the year | 3,283 | 3,754 |
| Benefits paid during the year | (2,527) | (1,500) |
| Accrued benefit obligation - End of year | $ 33,232 | $ 33,327 |
6. Other liabilities
| (in thousands of dollars) | 2019 | 2018 |
|---|---|---|
| Canada Health Infoway Inc. | $ 10,117 | $ 24,469 |
| Other | 75,641 | 75,781 |
| Total other liabilities | $ 85,758 | $ 100,250 |
Budget 2007 announced an allocation of $400.0 million to Canada Health Infoway Inc. This authority has been fully disbursed. Budget 2009 announced an additional allocation of $500.0 million to Canada Health Infoway Inc. Of this 2009 authority $489.9 million has been disbursed to date, $14.4 million in 2018-19 ($18.2 million in 2017-18). 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 ($70.0 million in 2017-18) and Specified Purpose Accounts: Collaborative research projects $3.6 million ($3.1 million in 2017-18); Miscellaneous federal/provincial projects $1.7 million ($1.4 million in 2017-18); and World Health Organization $0.1 million ($0.1 million in 2017-18).
7. Accounts receivable and advances
The following table presents details of the Department's accounts receivable and advances balances:
| (in thousands of dollars) | 2019 | 2018 |
|---|---|---|
| Accounts receivable - Other government departments and agencies | $ 14,155 | $ 46,052 |
| Accounts receivable - External parties | 16,890 | 20,476 |
| Employee advances | 23,190 | 19,309 |
| Subtotal | 54,235 | 85,837 |
| Allowance for doubtful accounts on receivables from external parties | (1,530) | (2,553) |
| Gross accounts receivable and advances | 52,705 | 83,284 |
| Accounts receivable held on behalf of Government | (26,636) | (22,892) |
| Net accounts receivable and advances | $ 26,069 | $ 60,392 |
8. 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:
| 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 | $ - | $ - | $ (1,005) | $ 170 |
| Buildings | 161,547 | 774 | (44) | (23,832) | 138,445 |
| Works and infrastructure | 2,067 | - | - | - | 2,067 |
| Leasehold improvements | 26,475 | - | - | (208) | 26,267 |
| Machinery and equipment | 257,459 | 11,153 | (5,889) | 1,193 | 263,916 |
| Vehicles | 5,128 | 876 | (607) | (224) | 5,173 |
| Assets under construction | 23,966 | 14,000 | (4,187) | (7,193) | 26,586 |
| Total | $ 477,817 | $ 26,803 | $ (10,727) | $ (31,269) | $ 462,624 |
| Accumulated amortization | Opening balance | Amortization | Disposals and write-offs | Transfers and adjustments | Closing balance |
|---|---|---|---|---|---|
| Buildings | $ 123,116 | $ 2,609 | $ (29) | $ (22,465) | $ 103,231 |
| Works and infrastructure | 667 | 83 | - | - | 750 |
| Leasehold improvements | 24,477 | 672 | - | (195) | 24,954 |
| Machinery and equipment | 183,624 | 17,918 | (5,818) | (5,127) | 190,597 |
| Vehicles | 3,331 | 550 | (607) | (204) | 3,070 |
| Total | $ 335,215 | $ 21,832 | $ (6,454) | $ (27,991) | $ 322,602 |
| Net book value | Net book value 2018 | Net change acquisitions and amortization | Net change disposals and write-offs | Net change transfers and adjustments | Net book value 2019 |
|---|---|---|---|---|---|
| Land | $ 1,175 | $ - | $ - | $ (1,005) | $ 170 |
| Buildings | 38,431 | (1,835) | (15) | (1,367) | 35,214 |
| Works and infrastructure | 1,400 | (83) | - | - | 1,317 |
| Leasehold improvements | 1,998 | (672) | - | (13) | 1,313 |
| Machinery and equipment | 73,835 | (6,765) | (71) | 6,320 | 73,319 |
| Vehicles | 1,797 | 326 | - | (20) | 2,103 |
| Assets under construction | 23,966 | 14,000 | (4,187) | (7,193) | 26,586 |
| Total | $ 142,602 | $ 4,971 | $ (4,273) | $ (3,278) | $ 140,022 |
Adjustments include assets under construction of $6,893 thousand that were transferred to the other categories upon completion of the assets.
Effective April 3, 2018, the Department transferred tangible capital assets with a net book value of $3,132 thousand to the Department of Indigenous Services Canada. This transfer is included in the adjustment columns (refer to note 12 for further detail on the transfer).
9. 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:
| (in thousands of dollars) | Transfer payments |
|---|---|
| 2019-2020 | $ 1,489,000 |
| 2020-2021 | 1,613,920 |
| 2021-2022 | 1,813,775 |
| 2022-2023 | 74,630 |
| 2023-2024 and subsequent | 443 |
| Total | $ 4,991,768 |
10. 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 ($1,515.0 million in 2017-18) at March 31, 2019.
- (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.
11. 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:
| (in thousands of dollars) | 2019 | 2018 |
|---|---|---|
| Employer's contribution to the health and dental insurance plans | $ 58,339 | $ 70,403 |
| Accommodation | 44,466 | 49,451 |
| Legal services | 2,340 | 2,631 |
| Worker's compensation | 329 | 336 |
| Total | $ 105,474 | $ 122,821 |
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
| (in thousands of dollars) | 2019 | 2018 |
|---|---|---|
| Expenses - Other government departments and agencies | $ 105,982 | $ 109,951 |
| Revenues - Other government departments and agencies | 90,187 | 74,564 |
Expenses and revenues disclosed in (b) exclude common services provided without charge, which are already disclosed in (a).
12. Transfers to other government departments
(a) Transfer to Department of Indigenous Services Canada
Effective November 30, 2017, 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 was transferred to the Department of Indigenous Services Canada in accordance with Order-in-Council P.C. 2017-1465.
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.
Further, on April 3, 2018, a Memorandum of Understanding was signed between the Department of Indigenous Services Canada and the Department of Health to transfer the real property assets associated with the responsibilities transferred by Orders-in-Council P.C. 2017-1465 and P.C. 2018-0381. Accordingly, the Department transferred the following assets and liabilities related to the First Nations and Inuit Health Internal Services Unit to the Department of Indigenous Services Canada in April, 2018:
| (in thousands of dollars) | 2019 | 2018 |
|---|---|---|
| Assets: | ||
| Due from Consolidated Revenue Fund | $ 272 | $ 18,786 |
| Accounts receivable and advances | - | 5,001 |
| Tangible capital assets (net book value) (note 8) | 3,132 | 7,570 |
| Total assets transferred | 3,404 | 31,357 |
| Liabilities: | ||
| Accounts payable and accrued liabilities | 272 | 17,596 |
| Vacation pay and compensatory leave | 1,472 | 8,609 |
| Employee future benefits | 851 | 9,892 |
| Other liabilities | 39 | 3,209 |
| Total liabilities transferred | 2,634 | 39,306 |
| Adjustment to the departmental net financial position | $ 770 | $ (7,949) |
(b) Adjustment to prior year's results
The 2017-18 comparative figures have been restated to reflect the reclassification of the revenues and expenses of the First Nations and Inuit Health Internal Services Unit to transferred operations. The effect of the adjustment is presented in the table below.
| (in thousands of dollars) | 2018 As previously stated |
Effect of change | 2018 Restated |
|---|---|---|---|
| Statement of Operations and Departmental Net Financial Position | |||
| Total expenses | $ 1,543,017 | $ (35,398) | $ 1,507,619 |
| Total revenues | 184,298 | (998) | 183,300 |
| Net cost of operations from continuing operations | 1,358,719 | (34,400) | 1,324,319 |
| Total cost of transferred operations | 2,159,998 | 34,400 | 2,194,398 |
| Segmented information (note 13) | |||
| Total expenses | $ 1,543,017 | $ (35,398) | $ 1,507,619 |
| Total revenues | 184,298 | (998) | 183,300 |
| Net cost of operations from continuing operations | 1,358,719 | (34,400) | 1,324,319 |
13. Segmented information
Presentation by segment is based on the Department's departmental results framework. 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:
| (in thousands of dollars) | Health Care Systems | Health Protection and Promotion | Internal Services | 2019 Total | 2018 Total Restated (note 12) |
|---|---|---|---|---|---|
| Expenses | |||||
| Transfer payments | $ 1,247,742 | $ 150,270 | $ - | $ 1,398,012 | $ 374,034 |
| Salaries and employee benefits | 25,316 | 617,584 | 217,104 | 860,004 | 816,672 |
| Professional and special services | 2,398 | 63,528 | 79,818 | 145,744 | 125,375 |
| Accommodation | 1,308 | 31,925 | 19,624 | 52,857 | 50,790 |
| Utilities, materials and supplies | 125 | 18,454 | 14,566 | 33,145 | 33,295 |
| Information services | 169 | 9,391 | 22,047 | 31,607 | 16,840 |
| Amortization of tangible capital assets | - | 12,353 | 9,479 | 21,832 | 20,505 |
| Repair and maintenance | 17 | 4,028 | 15,125 | 19,170 | 19,018 |
| Travel and relocation | 708 | 10,389 | 1,939 | 13,036 | 8,790 |
| Rentals | 112 | 3,110 | 7,428 | 10,650 | 11,615 |
| Communications | 14 | 1,587 | 4,461 | 6,062 | 4,979 |
| Other | 295 | (122) | 3,701 | 3,874 | 25,083 |
| Bad debts | - | - | 1,401 | 1,401 | 1,562 |
| Expenses incurred on behalf of Government | - | - | (708) | (708) | (939) |
| Total expenses | 1,278,204 | 922,497 | 395,985 | 2,596,686 | 1,507,619 |
| Revenues | |||||
| Sales of goods and services | |||||
| Services of a regulatory nature | - | 57,894 | 3,614 | 61,508 | 58,314 |
| Rights and privileges | 20 | 55,164 | 3,346 | 58,530 | 57,768 |
| Services of a non-regulatory nature | - | 26,743 | 72,638 | 99,381 | 83,438 |
| Lease and use of public property | - | - | 17 | 17 | 21 |
| Revenues from fines | - | 1,190 | - | 1,190 | 1,491 |
| Interest | - | - | 335 | 335 | 340 |
| Other | 110 | 498 | 89 | 697 | 1,578 |
| Revenues earned on behalf of Government | (129) | (18,536) | (1,149) | (19,814) | (19,650) |
| Total revenues | 1 | 122,953 | 78,890 | 201,844 | 183,300 |
| Net cost from continuing operations | $ 1,278,203 | $ 799,544 | $ 317,095 | $ 2,394,842 | $ 1,324,319 |
14. Comparative information
Certain comparative figures have been reclassified to conform to the current year's presentation.
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, 2019
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 2018-19 Departmental Results Report and the 2018-19 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 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 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).
- 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 (staffing and classification), 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 2018-19
Health Canada has a mature ongoing risk-based monitoring program and it has been in place for the last six 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.
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 implemented a pre and post quality assurance regime related to the payment of salary transactions.
Ongoing risk-based monitoring plan: Health Canada completed its assessment of the following processes in line with its 2018-19 ongoing risk-based monitoring plan: Financial Statements and Year End Reporting; Revenue, Receivables and Receipts; Capital Assets; Grants and Contributions; Payroll and Information Technology General Controls.
The Office of Audit of Evaluation (OAE) has completed a departmental wide fraud risk assessment (FRA). This FRA consisted of consultations with HC management and employees to develop fraud risk scenarios and identification of existing internal controls to mitigate these risks. The assessment identified control deficiencies and process owners has developed an action plan for remediation.
Key controls tested as part of Health Canada's ongoing risk-based monitoring plan in 2018-19 were found to be operating effectively with no significant deficiencies identified.
4. Departmental action plan
4.1 Progress during fiscal year 2018-19
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.
| Key Control Areas | Status Completed as Planned |
|---|---|
| Investment Planning and Project Management | Yes |
| Cabinet Document Submissions (including Chief Financial Officer Attestation) | Yes |
| Financial Management Governance/Performance (*) | Yes |
| Financial Statements and Year-End Reporting | Yes |
| Revenue, Receivables and Receipts | Yes |
| Capital Assets | Yes |
| Grants and Contributions | Yes |
| Payroll | Yes |
| Information Technology General Controls (ITGC) | Yes |
| * Financial Management Governance/Performance will be integrated into other control areas in future years. | |
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.
| Key Control Areas - Process | Fiscal Year 2019-20 |
Fiscal Year 2020-21 |
Fiscal Year 2021-22 |
|---|---|---|---|
| Entity Level Controls (ELC) | |||
| Entity Level Controls | N/A | Test | N/A |
| Financial Management Processes | |||
| Planning, Budgeting and Forecasting | N/A | Test | N/A |
| Investment Planning and Project Management | N/A | N/A | Test |
| Cabinet Document Submissions including CFO Attestation | N/A | N/A | Test |
| Costing and External Charging | Test | N/A | N/A |
| Financial Reporting Processes | |||
| Financial Statements and Year End Reporting | Test | Test | Test |
| Revenue/Receivables/Receipts | Test | Test | Test |
| Purchasing/Payables/Payments | Test | N/A | Test |
| Grants and Contributions | Test | Test | Test |
| Payroll | Test | Test | Test |
| Capital Assets | N/A | Test | N/A |
| Travel/Hospitality/Conference/Events/Relocation | Test | N/A | Test |
| Information Technology General Controls (ITGC) | |||
| ITGC | Test | Test | Test |
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