Health Canada – 2019-20 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, 2020, 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, 2020 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.

Original signed by Stephen Lucas
Stephen Lucas  
Deputy Minister
Ottawa, Canada
Date: October 2, 2020

Original signed by Edward de Sousa
Edward de Sousa
Acting Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: October 1, 2020

Statement of Financial Position (Unaudited)

As at March 31

(in thousands of dollars) 2020 2019
Liabilities
Accounts payable and accrued liabilities (note 4) $ 174,272 $ 173,923
Vacation pay and compensatory leave 58,882 45,535
Deferred revenue 10,577 9,474
Employee future benefits (note 5) 33,592 33,232
Other liabilities (note 6) 26,625 85,758
Total gross liabilities 303,948 347,922
Liabilities held on behalf of Government
Deferred revenue (108) (75)
Total liabilities held on behalf of Government (108) (75)
Total net liabilities 303,840 347,847
Financial assets
Due from Consolidated Revenue Fund 156,278 162,495
Accounts receivable and advances (note 7) 67,029 52,705
Total gross financial assets 223,307 215,200
Financial assets held on behalf of Government
Accounts receivable and advances (note 7) (29,780) (26,636)
Total financial assets held on behalf of Government (29,780) (26,636)
Total net financial assets 193,527 188,564
Departmental net debt 110,313 159,283
Non-financial assets
Tangible capital assets (note 8) 140,612 140,022
Total non-financial assets 140,612 140,022
Departmental net financial position $ 30,299 $ (19,261)

Contractual obligations (note 9)
Contingent liabilities and contingent assets (note 10)

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

Original signed by Stephen Lucas
Stephen Lucas  
Deputy Minister
Ottawa, Canada
Date: October 2, 2020

Original signed by Edward de Sousa
Edward de Sousa
Acting Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: October 2, 2020

Statement of Operations and Departmental Net Financial Position (Unaudited)

For the Year Ended March 31

(in thousands of dollars) 2020 Planned Results 2020 2019
Expenses
Health Care Systems $ 1,610,276 $ 1,593,708 $ 1,278,204
Health Protection and Promotion 839,001 909,970 922,497
Internal services 305,550 392,874 396,693
Expenses incurred on behalf of Government (27) (29) (708)
Total expenses 2,754,800 2,896,523 2,596,686
Revenues  
Sales of goods and services      Services of a regulatory nature 70,409 98,144 86,516
     Rights and privileges 71,589 75,249 33,522
     Services of a non-regulatory nature 83,632 112,352 99,381
     Lease and use of public property 58 94 17
Revenues from fines 1,302 678 1,190
Interest 282 329 335
Other 76 826 697
Revenues earned on behalf of Government (16,252) (62,306) (19,814)
Total revenues 211,096 225,366 201,844
Net cost of operations before government funding and transfers 2,543,704 2,671,157 2,394,842
Government funding and transfers 
Net cash provided by Government of Canada  2,593,248 2,274,272
Change in due from Consolidated Revenue Fund  (6,217) 21,091
Services provided without charge by other government departments (note 11) 133,676 105,474
Other transfers of assets and liabilities (to) from other government departments 10 (700)
Net cost of (revenue from) operations after government funding and transfers (49,560) (5,295)
Departmental net financial position - Beginning of year (19,261) (24,556)
Departmental net financial position - End of year   $ 30,299  $ (19,261)

Segmented information (note 12)

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) 2020 2019
Net cost of (revenue from) operations after government funding and transfers $ (49,560) $ (5,295)
Change due to tangible capital assets  
Acquisition of tangible capital assets 21,563 26,803
Amortization of tangible capital assets (20,665) (21,832)
Proceeds from disposal of tangible capital assets (109) (201)
Gain (loss) on disposal of tangible capital assets including adjustments (75) (4,219)
Transfer of tangible capital assets (to) from other government departments (124) (3,131)
Total change due to tangible capital assets 590 (2,580)
Net increase (decrease) in departmental net debt (48,970) (7,875)
Departmental net debt - Beginning of year 159,283 167,158
Departmental net debt - End of year $ 110,313 $ 159,283

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) 2020 2019
Operating activities
Net cost of operations before government funding and transfers $ 2,671,157 $ 2,394,842
Non-cash items: 
Amortization of tangible capital assets (20,665) (21,832)
Gain (loss) on disposal of tangible capital assets including adjustments (75) (4,219)
Services provided without charge by other government departments (note 11) (133,676) (105,474)
Variations in Statement of Financial Position: 
Decrease (increase) in accounts payable and accrued liabilities (349) 11,352
Decrease (increase) in vacation pay and compensatory leave (13,347) (5,931)
Decrease (increase) in deferred revenue (1,070) 1,099
Decrease (increase) in employee future benefits (360) 95
Decrease (increase) in other liabilities 59,133 14,492
Increase (decrease) in accounts receivable and advances 11,180 (34,323)
Transfer of salary overpayments to (from) other government departments (134) (2,431)
Cash used in operating activities 2,571,794 2,247,670
Capital investing activities 
Acquisition of tangible capital assets 21,563 26,803
Proceeds from disposal of tangible capital assets (109) (201)
Cash used in capital investing activities 21,454 26,602
Net cash provided by Government of Canada $ 2,593,248 $ 2,274,272

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

Notes to the Financial Statements (Unaudited)

For the Year Ended March 31, 2020

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:

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:

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 2019-20 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 2019-20 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

(e) Expenses

(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 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:

  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

(in thousands of dollars) 2020 2019
Net cost of operations before government funding and transfers $ 2,671,157 $ 2,394,842
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets (20,665) (21,832)
Gain (loss) on disposal of tangible capital assets 31 (4,072)
Services provided without charge by other government departments (133,676) (105,474)
Decrease (increase) in vacation pay and compensatory leave (13,347) (7,403)
Decrease (increase) in employee future benefits (360) (756)
Refund/adjustment of prior years' expenditures 5,672 3,828
Bad debt expense (66) (1,401)
Increase (decrease) in transfer payment accrual 318 -
Decrease (increase) in workforce adjustment measures - 26
Statutory spending authority equivalent to revenues earned 71,833 63,008
Other 58,464 3,189
Total items affecting net cost of operations but not affecting authorities (31,796) (70,887)
Adjustments for items not affecting net cost of operations but affecting authorities:
Disbursement to Canada Health Infoway Inc. 10,131 14,260
Acquisition of tangible capital assets 21,563 26,803
Increase in salary overpayments to be recovered 4,093 4,104
Issuance of advances to employees 227 571
Proceeds from disposal of Crown assets 14 56
Total items not affecting net cost of operations but affecting authorities 36,028 45,794
Current year authorities used $ 2,675,389 $ 2,369,749

(b) Authorities provided and used

(in thousands of dollars) 2020 2019
Authorities provided: 
Vote 1 - Operating expenditures $ 943,651 $ 809,510
Vote 5 - Capital expenditures 23,199 29,144
Vote 10 - Grants and contributions 1,558,227 1,395,307
Vote 15 – Bringing Innovation to Regulations 5,264 -
Vote 20 - Enhancing the Federal Response to the Opioid Crisis in Canada 3,192 -
Vote 25 - Introducing the Canadian Drug Agency 5,000 -
Vote 35 - Protecting Against Bovine Spongiform Encephalopathy in Canada 160 -
Vote 45 - Terry Fox Research Institute 11,200 -
Vote 50 - Creating a Pan-Canadian Database for Organ Donation and Transplantation 500 -
Statutory amounts 186,375 191,486
Less: 
Authorities available for future years (123) (31)
Lapsed authorities (61,256) (55,667)
Current year authorities used $ 2,675,389 $ 2,369,749

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) 2020 2019
Accounts payable - Other government departments and agencies $ 17,848 $ 10,687
Accounts payable - External parties 40,268 58,670
Total accounts payable 58,116 69,357
Accrued liabilities 116,156 104,566
Total accounts payable and accrued liabilities $ 174,272 $ 173,923

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

(in thousands of dollars) 2020 2019
Expense for the year $ 76,421 $ 68,775

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

(in thousands of dollars) 2020 2019
Accrued benefit obligation - Beginning of year $ 33,232 $ 33,327
Transfer to other government departments - (851)
Subtotal 33,232 32,476
Provision for the year 4,109 3,283
Benefits paid during the year (3,749) (2,527)
Accrued benefit obligation - End of year $ 33,592 $ 33,232

6. Other liabilities

(in thousands of dollars) 2020 2019
Canada Health Infoway Inc. $ - $ 10,117
Other 26,625  75,641
Total other liabilities $ 26,625 $ 85,758

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

(in thousands of dollars) 2020 2019
Accounts receivable - Other government departments and agencies $ 21,400 $ 14,155
Accounts receivable - External parties 20,711 16,890
Employee advances 26,212 23,190
Subtotal 68,323 54,235
Allowance for doubtful accounts on receivables from external parties (1,294) (1,530)
Gross accounts receivable and advances 67,029 52,705
Accounts receivable held on behalf of Government (29,780) (26,636)
Net accounts receivable and advances $ 37,249 $ 26,069

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

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 $ 170 $ - $ - $ - $ 170
Buildings 138,445 94 (2,107) 11,272 147,704
Works and infrastructure 2,067 30 - 258 2,355
Leasehold improvements 26,267 - (77) - 26,190
Machinery and equipment 263,916 10,744 (9,319) 12,904 278,245
Vehicles 5,173 493 (434) (51) 5,181
Assets under construction 26,586 10,202 - (25,676) 11,112
Total $ 462,624 $ 21,563 $ (11,937) $ (1,293) $ 470,957
Accumulated amortization   Opening balance Amortization Disposals and write-offs Transfers and adjustments Closing balance
Buildings $ 103,231 $ 2,597 $ (2,107) $ - $ 103,721
Works and infrastructure 750 87 - - 837
Leasehold improvements 24,954 617 (67) - 25,504
Machinery and equipment 190,597 16,720 (9,267) (1,012) 197,038
Vehicles 3,070 644 (418) (51) 3,245
Total $ 322,602 $ 20,665 $ (11,859) $ (1,063) $ 330,345
Net book value  Net book value 2019 Net change acquisitions and amortization Net change disposals and write-offs Net change transfers and adjustments Net book value 2020
Land $ 170 $ - $ - $ - $ 170
Buildings 35,214 (2,503) - 11,272 43,983
Works and infrastructure 1,317 (57) - 258 1,518
Leasehold improvements 1,313 (617) (10) - 686
Machinery and equipment 73,319 (5,976) (52) 13,916 81,207
Vehicles 2,103 (151) (16) - 1,936
Assets under construction 26,586 10,202 - (25,676) 11,112
Total $ 140,022 $ 898 $ (78) $ (230) $ 140,612

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

(in thousands of dollars) Transfer payments
2020-21 $ 1,714,880
2021-22 1,891,291
2022-23 118,158
2023-24 27,255
2024-25 and subsequent 12,522
Total $ 3,764,106

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

(in thousands of dollars) 2020 2019
Employer's contribution to the health and dental insurance plans $ 69,504 $ 58,339
Accommodation 61,562 44,466
Legal services 2,203 2,340
Worker's compensation  407 329
Total $ 133,676 $ 105,474

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) 2020 2019
Expenses - Other government departments and agencies $ 99,235 $ 105,982
Revenues - Other government departments and agencies 104,313 90,187

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

(in thousands of dollars) Health Care Systems Health Protection and Promotion Internal Services 2020 Total 2019 Total
Expenses
Transfer payments $ 1,544,534 $ 1,018 $ - $ 1,545,552 $ 1,398,012
Salaries and employee benefits 27,023 704,192 229,358 960,573 860,004
Professional and special services 1,137 67,610 73,921 142,668 145,744
Accommodation 1,739 44,977 23,301 70,017 52,857
Other 15,955 24,500 (141) 40,314 3,874
Utilities, materials and supplies 2,092 18,279 15,145 35,516 33,145
Information services 206 17,588 16,228 34,022 31,607
Amortization of tangible capital assets - 12,629 8,036 20,665 21,832
Repair and maintenance 4 3,738 11,446 15,188 19,170
Rentals 699 3,451 8,380 12,530 10,650
Travel and relocation 309 10,310 1,413 12,032 13,036
Communications 10 1,678 5,721 7,409 6,062
Bad debts - - 66 66 1,401
Expenses incurred on behalf of Government - - (29) (29) (708)
Total expenses 1,593,708 909,970 392,845 2,896,523 2,596,686
Revenues
Sales of goods and services Services of a regulatory nature - 92,143 6,001 98,144 86,516
Rights and privileges 8 73,653 1,588 75,249 33,522
Services of a non-regulatory nature - 27,938 84,414 112,352 99,381
Lease and use of public property - 1 93 94 17
Revenues from fines - 678 - 678 1,190
Interest - - 329 329 335
Other (14) 790 50 826 697
Revenues earned on behalf of Government 6 (60,875) (1,437) (62,306) (19,814)
Total revenues - 134,328 91,038 225,366 201,844
Net cost from continuing operations $ 1,593,708 $ 775,642 $ 301,807 $ 2,671,157 $ 2,394,842

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

Key control areas Status
Costing RescheduledA.3 Table 1 Footnote a to the 2020-21 fiscal year.
Financial Statements and Year-End Reporting Completed as planned.
Revenue, Receivables and Receipts Completed as planned.
Purchasing, Payables and Payments Completed as planned.
Transfer Payments Completed as planned.
Payroll Completed as planned.
Travel Completed as planned.
Information Technology General Controls (ITGC) Completed as planned.
A.3 Table 1 Footnote 1

Rescheduled because an internal audit was being conducted in the 2019-20 fiscal year.

A.3 Table 1 Return to footnote a referrer

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 planA.4 Table 1 Footnote a

Key Control Areas 2020-21 fiscal year 2021-22 fiscal year 2022-23 fiscal year
Entity-level controls Yes No No
Information technology general controls Yes Yes Yes
Budgeting and forecasting Yes No No
Investment planning Yes No No
Chief Financial Officer attestations (included in Cabinet Submissions) No Yes No
Costing Yes No Yes
Financial statements and year-end reporting Yes Yes Yes
Revenues, receivables and receipts Yes Yes Yes
Purchasing, payables and payments Yes Yes Yes
Transfer payments Yes Yes Yes
Payroll Yes Yes Yes
Capital assets Yes No Yes
Travel, hospitality, conference and events, and relocation No Yes No
A.7 Table 1 Footnote a

The length of the ongoing monitoring plan is at the discretion of the department and will depend on how often the department conducts its risk-based assessment. For example, a plan could cover a one-, three- or five-year cycle.

A.7 Table 1 Return to footnote a referrer

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

Key control areas Design effectiveness testing and remediation Operational effectiveness testing and remediation Ongoing monitoring rotationA.5 Table 1 Footnote a
SAP information technology general controls Complete Complete 2019-20 fiscal year
Human resources (staffing, compensation and classification) Complete Complete 2019-20 fiscal year
Financial management (financial operations) Complete Complete 2019-20 fiscal year
Materiel management (procurement and contracting) Complete Complete 2019-20 fiscal year
A.7 Table 1 Footnote a

The frequency of the ongoing monitoring of key control areas is risk-based and may occur over a multi-year cycle.

A.7 Table 1 Return to footnote a referrer

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