Health Canada – 2019-20 Departmental Financial Statements

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 2019-20 expense amounts to the following:

Pension benefits

For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2018-19) the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2018-19) 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, 2020, 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

6. Other liabilities

Budget 2007 announced an allocation of $400.0 million to Canada Health Infoway Inc. Budget 2009 announced an additional allocation of $500.0 million to Canada Health Infoway Inc. This authority has been fully disbursed.

Other liabilities include amounts for contingent liabilities of $20.7 million ($70.0 million in 2018-19) and Specified Purpose Accounts: Collaborative research projects $3.5 million ($3.6 million in 2018-19); Miscellaneous federal/provincial projects $1.9 million ($1.7 million in 2018-19); and World Health Organization $0.1 million ($0.1 million in 2018-19).

7. Accounts receivable and advances

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

Accounts receivable and advances

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:

Tangible capital assets

Tangible capital assets (in thousands of dollars)

Adjustments include assets under construction of $25,602 thousand that were transferred to the other categories upon completion of the assets.

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:

Contractual obligations

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 $1,015.0 million ($1,515.0 million in 2018-19) at March 31, 2020.

(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.

he 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 Services Canada, Crown-Indigenous Relations 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

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

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

12. 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:

Segmented information

13. Subsequent events

The outbreak of the Coronavirus disease (“COVID-19”) has resulted in governments enacting emergency measures to combat the spread of the virus. Health Canada has been playing a key role in the government’s response to ensure Canada’s preparedness and response measures related to COVID-19 are in place. The magnitude of the measures required have been substantial and significant new funding has been approved to support the work. The precise nature and impact on the Department's financial position and financial results in future periods are not determinable at this time.

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

2019-20 Fiscal Year

A.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 the department's authority, mandate and core responsibilities can be found in the departmental plan for the 2019-20 fiscal year and the departmental results report for the 2019-20 fiscal year Health Canada's corporate management reporting.

A.2 Departmental system of internal control over financial reporting

A.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 management framework, approved by the Deputy Minister and the Chief Financial Officer, is in place and comprises:

• organizational accountability structures as they relate to internal control management to support sound financial management, including the roles and responsibilities of senior departmental managers for control management in their areas of responsibility;
• 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 on statutory requirements, and policies and procedures for sound financial management and control; and,
• at least semi-annual monitoring of, and regular updates to, internal control management, as well as the provision of related assessment results and action plans to the deputy head and senior departmental management and, as applicable, the Departmental Audit Committee.

The Departmental Audit Committee provides advice to the deputy head on the adequacy and functioning of the department's risk management, control and governance frameworks and processes.

A.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 presented in the following paragraphs.

A.2.2.1 Common Arrangements

• Public Services and Procurement Canada, which administers the payment of salaries and the procurement of goods and services, and provides accommodation services;
• Shared Services Canada, which provides IT infrastructure services;
• Department of Justice Canada, which provides legal services; and,
• Treasury Board of Canada Secretariat, which provides information on public service insurance and centrally administers payment of the employer's share of contributions toward statutory employee benefit plans.

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.

Health Canada relies on, and is relied upon by, other departments and agencies for the processing of certain information or transactions that are recorded in their financial statements, as presented in the following paragraphs.

A.2.2.2 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 with services including the following related to ICFR: human resources (staffing, compensation and classification), financial management (financial operations) and materiel management (procurement and contracting). Under this agreement, the Public Health Agency of Canada also provides Health Canada with internal audit services, which encompass audits related to financial management and controls.
• Health Canada provides the Public Health Agency of Canada, 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.

A.3 Departmental assessment results for the 2019-20 fiscal year

Health Canada has a mature ongoing risk-based monitoring program that has been in place for the last seven years. This ensures that internal controls over financial reporting are maintained, monitored and reviewed, with timely corrective measures taken when issues are identified.

The following table summarizes the status of the ongoing monitoring activities according to the previous fiscal year's rotational plan.

Progress during the 2019-20 fiscal year

The key findings from the current year's assessment activities are summarized in subsection A.3.1.

A.3.1 New or significantly amended key controls

In the current fiscal year, Health Canada implemented new controls to monitor the proper authentication of payroll transactions processed in Phoenix.

A.3.2 Ongoing monitoring program

As part of its rotational ongoing monitoring plan, the department completed its reassessment of the following processes in-line with its 2019-20 ongoing risk-based monitoring plan:  financial statements and year-end reporting; revenue, receivables and receipts; purchasing, payables and payments; transfer payments; payroll; travel; and information technology general controls.

For the most part, the key controls that were tested performed as intended, and management action plans addressing recommendations were developed by process owners as required.

Health Canada has assessed the impact of the COVID-19 pandemic on the department's internal controls over financial reporting. The department has not identified deficiencies in the operation of the department's internal controls over financial reporting as a result of the COVID-19 pandemic that could have a material impact on the department's consolidated financial statements.

The financial year-end close business processes occurred during the COVID-19 pandemic. Key controls were evaluated to address the potential impact on the validity, accuracy and completeness of the department's financial statements. It was determined that all controls remain effective as any potential risks were considered low and have been successfully mitigated.

Health Canada will continue to monitor the impact of the COVID-19 pandemic on its system of internal control over financial reporting and do the following:

• re-evaluate the risk assessments of key control areas, focusing on higher risk processes to determine if the COVID-19 pandemic had an impact on the effectiveness of key controls;
• assess new or amended processes developed in response to the COVID-19 pandemic; and,
• report results to Departmental Audit Committee.

A.4 Departmental action plan for the next fiscal year and subsequent fiscal years

Health Canada's rotational ongoing monitoring plan over the next three fiscal years is shown in the following table. The ongoing monitoring plan is based on:

• an annual validation of high-risk processes and controls; and,
• related adjustments to the ongoing monitoring plan as required.

Rotational ongoing monitoring plan^{A.4 Table 1 Footnote a}

The department is planning to include purchasing, payables and payments in the ongoing monitoring plan for 2020-21 to 2022-23 fiscal years to assess the department's response to the COVID-19 pandemic.

A.5 Common service providers' annual assessment results for the 2019-20 fiscal year

Health Canada, as a common service provider of a SAP financial system platform, human resources (staffing, compensation and classification), financial management (financial operations) and materiel management (procurement and contracting) has completed a risk-based assessment of the internal controls for these services. The results of this assessment is described below.

Status of assessment of common services