Health Canada – 2020-2021 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, 2021, 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, 2021 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 1, 2021

Edward de Sousa
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: August 31, 2021

Statement of Financial Position (Unaudited)

As at March 31

(in thousands of dollars)	2021	2020
Liabilities
Accounts payable and accrued liabilities (note 4)	$ 245,641	$ 174,272
Vacation pay and compensatory leave	84,811	58,882
Deferred revenue	14,330	10,577
Employee future benefits (note 5)	33,433	33,592
Other liabilities	26,143	26,625
Total gross liabilities	404,358	303,948
Liabilities held on behalf of Government
Deferred revenue	(80)	(108)
Total liabilities held on behalf of Government	(80)	(108)
Total net liabilities	404,278	303,840
Financial assets
Due from Consolidated Revenue Fund	198,589	156,278
Accounts receivable and advances (note 6)	115,920	67,029
Total gross financial assets	314,509	223,307
Financial assets held on behalf of Government
Accounts receivable and advances (note 6)	(40,554)	(29,780)
Total financial assets held on behalf of Government	(40,554)	(29,780)
Total net financial assets	273,955	193,527
Departmental net debt	130,323	110,313
Non-financial assets
Tangible capital assets (note 7)	142,591	140,612
Total non-financial assets	142,591	140,612
Departmental net financial position	$ 12,268	$ 30,299
Contractual obligations (note 8) Contingent liabilities and contingent assets (note 9) The accompanying notes form an integral part of these financial statements.

Stephen Lucas
Deputy Minister
Ottawa, Canada
Date: September 1, 2021

Edward de Sousa
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: August 31, 2021

Statement of Operations and Departmental Net Financial Position (Unaudited)

For the Year Ended March 31

(in thousands of dollars)		2021 Planned Results	2021	2020
Expenses
Health Care Systems		$ 1,779,375	$ 1,984,894	$ 1,593,708
Health Protection and Promotion		894,235	938,397	909,970
Internal Services		367,705	527,726	392,874
Expenses incurred on behalf of Government		(369)	(178)	(29)
Total expenses		3,040,946	3,450,839	2,896,523
Revenues
Sales of goods and services	Services of a regulatory nature	72,405	120,067	98,144
	Rights and privileges	72,647	86,945	75,249
	Services of a non-regulatory nature	141,275	167,541	112,352
	Lease and use of public property	26	47	94
Revenues from fines		1,302	614	678
Interest		323	251	329
Other		79	945	826
Revenues earned on behalf of Government		(16,715)	(70,561)	(62,306)
Total revenues		271,342	305,849	225,366
Net cost of operations before government funding and transfers		2,769,604	3,144,990	2,671,157
Government funding and transfers
Net cash provided by Government of Canada			2,940,805	2,593,248
Change in due from Consolidated Revenue Fund			42,311	(6,217)
Services provided without charge by other government departments (note 10)			139,019	133,676
Transfer of the transition payments for implementing salary payments in arrears			(4)	-
Other transfers of assets and liabilities (to) from other government departments			4,828	10
Net cost of (revenue from) operations after government funding and transfers			18,031	(49,560)
Departmental net financial position - Beginning of year			30,299	(19,261)
Departmental net financial position - End of year			$ 12,268	$ 30,299
Segmented information (note 11) 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)	2021	2020
Net cost of (revenue from) operations after government funding and transfers	$ 18,031	$ (49,560)
Change due to tangible capital assets
Acquisition of tangible capital assets	19,087	21,563
Amortization of tangible capital assets	(21,613)	(20,665)
Proceeds from disposal of tangible capital assets	(70)	(109)
Gain (loss) on disposal of tangible capital assets including adjustments	35	(75)
Transfer of tangible capital assets (to) from other government departments	4,540	(124)
Total change due to tangible capital assets	1,979	590
Net increase (decrease) in departmental net debt	20,010	(48,970)
Departmental net debt - Beginning of year	110,313	159,283
Departmental net debt - End of year	$ 130,323	$ 110,313
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)		2021	2020
Operating activities
Net cost of operations before government funding and transfers		$ 3,144,990	$ 2,671,157
Non-cash items:	Amortization of tangible capital assets	(21,613)	(20,665)
	Gain (loss) on disposal of tangible capital assets including adjustments	35	(75)
	Services provided without charge by other government departments (note 10)	(139,019)	(133,676)
Variations in Statement of Financial Position:	Decrease (increase) in accounts payable and accrued liabilities	(71,369)	(349)
	Decrease (increase) in vacation pay and compensatory leave	(25,929)	(13,347)
	Decrease (increase) in deferred revenue	(3,781)	(1,070)
	Decrease (increase) in employee future benefits	159	(360)
	Decrease (increase) in other liabilities	482	59,133
	Increase (decrease) in accounts receivable and advances	38,117	11,180
Transition payments for implementing salary payments in arrears		4	-
Transfer of financial assets and liabilities to other government departments		(288)	(134)
Cash used in operating activities		2,921,788	2,571,794
Capital investing activities
Acquisition of tangible capital assets		19,087	21,563
Proceeds from disposal of tangible capital assets		(70)	(109)
Cash used in capital investing activities		19,017	21,454
Net cash provided by Government of Canada		$ 2,940,805	$ 2,593,248
The accompanying notes form an integral part of these financial statements.

Notes to the Financial Statements (Unaudited)

For the Year Ended March 31, 2021

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 vaping products, cannabis 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 Management Services; Materiel Management Services; and Acquisition Management 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 2020-21 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 2020-21 Departmental Plan.

(b) Net cash provided by Government

The Department operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the Department is deposited to the CRF, and all cash disbursements made by the Department are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements, including transactions between departments of the Government.

(c) Amounts due from the Consolidated Revenue Fund

Amounts due from the CRF are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that the Department is entitled to draw from the CRF without further authorities to discharge its liabilities.

(d) Revenues

• Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
• Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. Revenues are then recognized in the period in which the related expenses are incurred.
• Deferred revenue consists of amounts received in advance of the delivery of goods and rendering of services that will be recognized as revenue in a subsequent fiscal year as it is earned.
• Other revenues are recognized in the period the event giving rise to the revenues occurred.
• Revenues that are non-respendable are not available to discharge the Department's liabilities. While the Deputy Head is expected to maintain accounting control, he has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented as a reduction of the entity's gross revenues.

(e) Expenses

• Transfer payments are recorded as an expense in the year the transfer is authorized and all eligibility criteria have been met by the recipient.
• Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
• Services provided without charge by other government departments for accommodation, employer contributions to the health and dental insurance plans, legal services and workers' compensation are recorded as operating expenses at their carrying value.

(f) Employee future benefits

1. Pension benefits: Eligible employees participate in the Public Service Pension Plan (the "Plan"), a multiemployer pension plan administered by the Government. The Department's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The Department's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.
2. Severance benefits: The accumulation of severance benefits for voluntary departures ceased for applicable employee groups. The remaining obligation for employees who did not withdraw benefits is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

(g) Accounts receivable

Accounts receivable are initially recorded at cost and where necessary, are discounted to reflect their concessionary terms. When necessary, an allowance for valuation is recorded to reduce the carrying value of accounts receivable to amounts that approximate their net recoverable value.

(h) Non-financial assets

The costs of acquiring land, buildings, equipment and other capital property are capitalized as tangible capital assets and, except for land, are amortized to expense over the estimated useful lives of the assets, as described in note 7. 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, 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)	2021	2020
Net cost of operations before government funding and transfers	$ 3,144,990	$ 2,671,157
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets	(21,613)	(20,665)
Gain (loss) on disposal of tangible capital assets	70	31
Services provided without charge by other government departments	(139,019)	(133,676)
Decrease (increase) in vacation pay and compensatory leave	(25,929)	(13,347)
Decrease (increase) in employee future benefits	159	(360)
Refund/adjustment of prior years' expenditures	9,337	5,672
Bad debt expense	(510)	(66)
Increase (decrease) in transfer payment accrual	(174)	318
Statutory spending authority equivalent to revenues earned	130,829	71,833
Other	(5,098)	58,464
Total items affecting net cost of operations but not affecting authorities	(51,948)	(31,796)
Adjustments for items not affecting net cost of operations but affecting authorities:
Disbursement to Canada Health Infoway Inc.	-	10,131
Acquisition of tangible capital assets	19,087	21,563
Increase in salary overpayments to be recovered	4,387	4,093
Issuance of advances to employees	121	227
Transition payments for implementing salary payments in arrears	4	-
Proceeds from disposal of Crown assets	12	14
Total items not affecting net cost of operations but affecting authorities	23,611	36,028
Current year authorities used	$ 3,116,653	$ 2,675,389

(b) Authorities provided and used

(in thousands of dollars)	2021	2020
Authorities provided:
Vote 1 - Operating expenditures	$ 1,316,671	$ 943,651
Vote 5 - Capital expenditures	21,307	23,199
Vote 10 - Grants and contributions	2,101,445	1,558,227
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
Public Health Events of National Concern Payments Act	50,574	-
Other statutory amounts	245,329	186,375
Less:
Authorities available for future years	(82)	(123)
Lapsed authorities	(618,591)	(61,256)
Current year authorities used	$ 3,116,653	$ 2,675,389

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)	2021	2020
Accounts payable - Other government departments and agencies	$ 25,322	$ 17,848
Accounts payable - External parties	86,495	40,268
Total accounts payable	111,817	58,116
Accrued liabilities	133,824	116,156
Total accounts payable and accrued liabilities	$ 245,641	$ 174,272

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 2020-21 expense amounts to the following:

Pension benefits

(in thousands of dollars)	2021	2020
Expense for the year	$ 83,624	$ 76,421

For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2019-20) the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2019-20) 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, 2021, 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)	2021	2020
Accrued benefit obligation - Beginning of year	$ 33,592	$ 33,232
Provision for the year	2,313	4,109
Benefits paid during the year	(2,472)	(3,749)
Accrued benefit obligation - End of year	$ 33,433	$ 33,592

6. 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)	2021	2020
Accounts receivable - Other government departments and agencies	$ 52,262	$ 21,400
Accounts receivable - External parties	37,410	20,711
Employee advances	27,842	26,212
Subtotal	117,514	68,323
Allowance for doubtful accounts on receivables from external parties	(1,594)	(1,294)
Gross accounts receivable and advances	115,920	67,029
Accounts receivable held on behalf of Government	(40,554)	(29,780)
Net accounts receivable and advances	$ 75,366	$ 37,249

7. 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:

Estimated useful life

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	147,704	-	-	5,846	153,550
Works and infrastructure	2,355	-	-	-	2,355
Leasehold improvements	26,190	-	-	-	26,190
Machinery and equipment	278,245	13,169	(1,800)	6,140	295,754
Vehicles	5,181	383	(233)	(30)	5,301
Assets under construction	11,112	5,535	-	(7,197)	9,450
Total	$ 470,957	$ 19,087	$ (2,033)	$ 4,759	$ 492,770

Accumulated amortization	Opening balance	Amortization	Disposals and write-offs	Transfers and adjustments	Closing balance
Buildings	$ 103,721	$ 2,889	$ -	$ (2)	$ 106,608
Works and infrastructure	837	94	-	-	931
Leasehold improvements	25,504	39	-	-	25,543
Machinery and equipment	197,038	17,919	(1,800)	271	213,428
Vehicles	3,245	672	(233)	(15)	3,669
Total	$ 330,345	$ 21,613	$ (2,033)	$ 254	$ 350,179

Net book value	Net book value 2020	Net change acquisitions and amortization	Net change disposals and write-offs	Net change transfers and adjustments	Net book value 2021
Land	$ 170	$ -	$ -	$ -	$ 170
Buildings	43,983	(2,889)	-	5,848	46,942
Works and infrastructure	1,518	(94)	-	-	1,424
Leasehold improvements	686	(39)	-	-	647
Machinery and equipment	81,207	(4,750)	-	5,869	82,326
Vehicles	1,936	(289)	-	(15)	1,632
Assets under construction	11,112	5,535	-	(7,197)	9,450
Total	$ 140,612	$ (2,526)	$ -	$ 4,505	$ 142,591

Adjustments include assets under construction of $11,709 thousand that were transferred to the other categories upon completion of the assets.

8. 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	Operating contracts	Total
2021-22	$ 2,001,748	$ 22,724	$ 2,024,472
2022-23	223,263	3,556	226,819
2023-24	121,905	3,556	125,461
2024-25	88,264	3,556	91,820
2025-26 and subsequent	34,699	3,556	38,255
Total	$ 2,469,879	$ 36,948	$ 2,506,827

9. 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 ($1,015.0 million in 2019-20) at March 31, 2021.

(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.

10. 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 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)	2021	2020
Employer's contribution to the health and dental insurance plans	$ 74,555	$ 69,504
Accommodation	61,423	61,562
Legal services	2,470	2,203
Worker's compensation	571	407
Total	$ 139,019	$ 133,676

The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, such as the payroll and cheque issuance services provided by Public Services and Procurement Canada and audit services provided by the Office of the Auditor General are not included in the Department's Statement of Operations and Departmental Net Financial Position. The costs of information technology infrastructure services provided by Shared Services Canada, following the transfer of responsibilities in November 2011 and April 2013, are also not included in the Department's Statement of Operations and Departmental Net Financial Position.

(b) Other transactions with related parties

Other transactions with related parties

(in thousands of dollars)	2021	2020
Expenses - Other government departments and agencies	$ 101,095	$ 99,235
Revenues - Other government departments and agencies	159,414	104,313

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

11. 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	2021 Total	2020 Total
Expenses
Transfer payments		$ 1,881,408	$ 1,974	$ -	$ 1,883,382	$ 1,545,552
Salaries and employee benefits		32,766	775,687	273,705	1,082,158	960,573
Professional and special services		68,670	58,226	106,792	233,688	142,668
Information services		208	10,227	74,540	84,975	34,022
Accommodation		1,842	43,962	24,278	70,082	70,017
Utilities, materials and supplies		238	23,592	18,165	41,995	35,516
Amortization of tangible capital assets		-	14,569	7,044	21,613	20,665
Repair and maintenance		1	4,148	10,359	14,508	15,188
Rentals		104	3,586	9,475	13,165	12,530
Communications		46	1,992	2,818	4,856	7,409
Travel and relocation		10	515	129	654	12,032
Bad debts		-	-	510	510	66
Other		(399)	(81)	(89)	(569)	40,314
Expenses incurred on behalf of Government		-	-	(178)	(178)	(29)
Total expenses		1,984,894	938,397	527,548	3,450,839	2,896,523
Revenues
Sales of goods and services	Services of a regulatory nature	-	110,862	9,205	120,067	98,144
	Rights and privileges	-	84,759	2,186	86,945	75,249
	Services of a non-regulatory nature	-	30,623	136,918	167,541	112,352
	Lease and use of public property	-	(1)	48	47	94
Revenues from fines		-	614	-	614	678
Interest		-	-	251	251	329
Other		192	705	48	945	826
Revenues earned on behalf of Government		(192)	(69,730)	(639)	(70,561)	(62,306)
Total revenues		-	157,832	148,017	305,849	225,366
Net cost from continuing operations		$ 1,984,894	$ 780,565	$ 379,531	$ 3,144,990	$ 2,671,157

Health Canada's Annex to the Statement of Management Responsibility Including Internal Control Over Financial Reporting

2020-21 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 2020-21 fiscal year and the departmental results report for the 2020-21 fiscal year (Health Canada's corporate management reporting, https://www.canada.ca/en/health-canada/corporate/transparency/corporate-management-reporting.html).

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 Minister and senior departmental management and, as applicable, the Departmental Audit Committee.

The Departmental Audit Committee provides advice to the Deputy Minister 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 follows:

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 its financial statements, as follows:

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 SAP financial system platform to capture and report all financial transactions.

A.3 Departmental assessment results for the 2020-21 fiscal year

Health Canada has a mature ongoing risk-based monitoring program that has been in place for the last eight 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 2020-21 fiscal year

Previous fiscal year's rotational ongoing monitoring plan for the current fiscal year	Status
Entity-level controls	Completed as planned.
Budgeting and forecasting	Completed as planned.
Financial statements and year-end reporting	Completed as planned.
Revenues, receivables and receipts	Completed as planned.
Purchasing, payables and payments	Completed as planned.
Transfer payments	Completed as planned.
Payroll	Completed as planned.
Capital assets	Completed as planned.
Information technology general controls	Completed as planned.

In the 2020-21 fiscal year, in addition to the progress made in ongoing monitoring, the department tested the design effectiveness of investment planning, project management and cost estimating business processes. Health Canada plans to continue this assessment work on an annual basis in order to reach the ongoing monitoring stage by the end of the 2023-24 fiscal year.

The key findings from the current year's assessment activities are summarized in subsections A.3.1 and A.3.2.

A.3.1 New or significantly amended key controls

In the current fiscal year, there were no new or significantly amended key controls in existing processes that required a reassessment.

A.3.2 Ongoing monitoring program

As part of its rotational ongoing monitoring plan, the department completed its reassessment of the following business processes in-line with the 2020-21 departmental ongoing risk-based monitoring plan: entity-level controls; budgeting and forecasting; financial statements and year-end reporting; revenues, receivables and receipts; purchasing, payables and payments; transfer payments; payroll; capital assets; 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 assessed the impact of the COVID-19 pandemic on the department's internal controls over financial reporting. Key controls were evaluated to address the potential impact on the accuracy, completeness, validity, valuation and presentation of the department's financial statements. 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.

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 the 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 3 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.

As a result of the annual validation of high-risk processes and controls during the 2020-21 fiscal year, it was determined that the transfer payment business process would be assessed once every two years instead of annually.

Rotational ongoing monitoring plan^{Table 20 Footnote *}

Key Control Areas	2021-22 fiscal year	2022-23 fiscal year	2023-24 fiscal year
Entity-level controls	No	No	Yes
Budgeting and forecasting	No	No	Yes
Investment planning	Yes	Yes	Yes
Project management	Yes	Yes	Yes
Chief Financial Officer attestations (included in Cabinet Submissions)	Yes	No	No
Cost estimating	Yes	Yes	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	No	Yes	No
Payroll	Yes	Yes	Yes
Capital assets	No	Yes	No
Travel, hospitality, conference and events, and relocation	Yes	No	Yes
Information technology general controls	Yes	Yes	Yes

A.5 Common service providers' annual assessment results for the 2020-21 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 are described below:

Status of assessment of common services

Key control areas	Design effectiveness testing and remediation	Operational effectiveness testing and remediation	Ongoing monitoring rotationTable 21 Footnote *
SAP information technology general controls	Complete	Complete	2020-21 fiscal year
Human resources (staffing, compensation and classification)	Complete	Complete	2020-21 fiscal year
Financial management (financial operations)	Complete	Complete	2020-21 fiscal year
Materiel management (procurement and contracting)	Complete	Complete	2020-21 fiscal year