Health Canada Quarterly Financial Report - For the quarter ended June 30, 2019

Table of Contents

• Introduction
• Basis of Presentation
• Highlights of Fiscal Quarter and Fiscal Year-to-Date Results
• Risks and Uncertainties
• Significant Changes in Relation to Operations, Personnel and Programs
• Statement of Authorities (unaudited)
• Departmental Budgetary Expenditures by Standard Object (unaudited)

Introduction

Health Canada is the federal department responsible for helping Canadians maintain and improve their health. In keeping with the Department's commitment to making this country's population among the healthiest in the world as measured by longevity, lifestyle and effective use of the public health care system, its main responsibilities are as a regulator, a service provider, a catalyst for innovation, a funder, and an information provider. A summary of Health Canada's programs may be found in Part II of the Main Estimates. Health Canada administers the Canada Health Act which embodies national principles to ensure a universal and equitable publicly-funded health care system.

This quarterly financial report has been prepared by management as required by section 65.1 of the Financial Administration Act in the form and manner prescribed by the Treasury Board, and should be read in conjunction with the Main Estimates.

This quarterly report has not been subject to an external audit or review.

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the Department's spending authorities granted by Parliament, and those used by the Department consistent with the Main Estimates for the 2019-2020 fiscal year. This quarterly report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

The authority of Parliament is required before money can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts, or through legislation in the form of statutory spending authority for specific purposes.

The Department uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental results reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

Highlights of Fiscal Quarter and Fiscal Year-to-Date Results

This quarterly financial report reflects the results of the current fiscal period in comparison to the authorities provided in the Main Estimates for fiscal year 2019-2020, as well as budget adjustments approved by Treasury Board up to June 30, 2019.

The following graph provides a comparison of net budgetary authorities available for spending and year-to-date expenditures for the first quarter of the current and previous fiscal years.

A. Significant Changes to Authorities

The following table provides a comparison of authorities by vote for the first quarter of the current and previous fiscal years.

Authorities available for spending in fiscal year 2019-2020 were $2,482 million at the end of the first quarter as compared with $2,337 million at the end of the first quarter of 2018-2019, representing an increase of $145 million, or 6%. This increase is primarily attributable to the following:

• $250.0 million increase in funding for Strengthening Canada’s Home and Community Care and Mental Health and Addiction Services Initiative;
• $31.1 million increase in funding for continuing to legalize and strictly regulate Cannabis;
• $25.0 million increase in funding to Canada Health Infoway Inc. for advancing digital health innovation;
• $10.1 million increase in statutory spending authority for disbursements to Canada Health Infoway Inc. which are disbursed in accordance with the organization’s cash flow needs;
• $7.9 million increase in funding to the Canadian Partnership Against Cancer;
• $7.6 million increase in funding for improving accessibility, affordability and appropriate use of prescription drugs and medical devices;
• $6.6 million in funding for modernizing Canada's Tobacco Strategy; and,
• $6.5 million in funding for enhancing Health Canada’s role in providing health expertise in the impact assessment and regulatory system.

These increases in authorities are partially offset by decreases as follows:

• $135.5 million in funding, primarily for contributions related to opioids that were distributed to provinces and territories through the one-time Emergency Treatment Fund in 2018-2019, to increase the availability of treatment services for substance use disorder in their jurisdictions;
• $32.7 million in sunsetting of two-year program integrity funding for maintaining core regulatory operations for therapeutic products. This funding has been renewed for 2019-2020 and will be received through the first Supplementary Estimates process of 2019-2020;  
• $20.0 million in statutory spending authority for disbursements pursuant to section 103 of the Patent Act; and,
• $13.5 million in sunsetting funding for maintaining and upgrading federal infrastructure assets.

The fluctuations in authorities available for spending are most notable in the following standard objects: personnel; professional and special services; repair and maintenance; and transfer payments.

B. Significant Changes in Year-to-Date Expenditures

The following table provides a comparison of spending by vote for the first quarter of the current and previous fiscal years.

At the end of the first quarter of 2019-2020, total budgetary expenditures were $899 million compared with $340 million reported for the same period of 2018-2019, representing an increase of $559 million or 164%.

Year-to-date net operating expenditures have increased by approximately $24 million or 16% when compared to the first quarter of 2018-2019. The significant variances in operating expenditures are as follows:

• $12.7 million increase in personnel expenditures, primarily due to annual salary increments for inflation and step increases, and growth in number of personnel in program areas supporting the legalization of cannabis;
• $12.6 million increase in other subsidies and payments, mainly from the additional one-time ex gratia payments for approved survivors under the recently approved Canadian Thalidomide Survivors Support Program; and,
• $3.7 million increase in revenues, which results in a decrease in net operating expenditures, is mainly the result of a change in timing of cash receipts for licensing applications, which can vary from year to year. There was also a reclassification of drug and medical device establishment licensing fees from rights and privileges revenues to revenues from services of a regulatory nature resulting in a variation between these categories.

There was an increase in Vote 10 – Grants and contributions year-to-date expenditures of $544 million or 368%, resulting from the following offsetting factors:

• $532.7 million increase in payments for Home Care and Mental Health Services;
• $35.1 million increase in the amount and timing of contribution payments made to Canada Health Infoway Inc.; and,
• $27.0 million decrease from the timing of grants to support the Territorial Health Investment Fund.

Statutory year-to-date expenditures have decreased by $9 million or 20% from $45 million in 2018-2019 to $36 million in 2019-2020, which is comprised of the following two offsetting components:

• $20.0 million decrease for a statutory payment made in the prior year pursuant to section 103 of the Patent Act; and,
• $10.1 million increase in statutory payments made to Canada Health Infoway Inc., which are disbursed in accordance with the organization's cash flow needs.

Risks and Uncertainties

Health Canada is dedicated to improving the health and well-being of Canadians, as a trusted regulator and a credible source of information for the public. It operates in a dynamic and complex environment characterized by internal and external drivers of change, which could potentially be disruptive to the Department's ability to achieve its objectives (e.g., new innovative products, technologies, substances, foods and emerging product categories, evolving relationships between various levels of government, unforeseen health crises, scientific and technological change, and cyber security).

Health Canada recognizes that successfully fulfilling its mandate is directly related to the effective management of risk. Sound risk management equips the Department to respond proactively to change and uncertainty by using risk-based information to support effective decision-making, resource allocation, and, ultimately, better results for Canadians. Additionally, it can lead to more effective service delivery, better project management, and an increase in value for money.

As a result, the Department raises awareness and promotes sound risk management practices based on Health Canada's integrated risk management approach, guidance and tools, including the development of a Corporate Risk Profile and monitoring of risk responses, to proactively and systematically recognize, understand, accommodate and capitalize on new challenges and opportunities, with a focus on results. In addition, the Department has appropriate internal control systems in place, proportionate to the risks being managed.

Prudent management within a constrained fiscal environment is required to manage potential impacts on departmental programs and services. Health Canada continues to manage through effective engagement across the Department, a sound governance structure, as well as through the use of longer-term planning. The Department's executive-level committee on Finance, Investment Planning and Transformation recommends overall direction for financial management and control, and ensures alignment of investments with departmental strategies and transformation initiatives. Each branch is required to have a multi-year financial management plan that has been reviewed by this committee to confirm that it has a plan in place to address the financial context.

Program expenditures experience natural fluctuations from year to year depending on a variety of factors beyond program control (e.g. emerging health events and novel drug therapies), thus creating risk. Enhanced monitoring of expenditures is undertaken, including assessment of expenditures against projected spending as well as previous years' trends and available resources to manage these risks. Cost management and planning are also in place and are reported regularly to senior management for decision making.

Significant Changes in Relation to Operations, Personnel and Programs

There have been no significant changes in relation to operations, personnel and programs during this quarter.

Approved by:

Original signed by Pierre Sabourin for
Simon Kennedy
Deputy Minister
Ottawa, Canada
Date: August 29, 2019

Original signed by Randy Larkin
Assistant Deputy Minister and
Chief Financial Officer
Ottawa, Canada
Date: August 9, 2019

Statement of Authorities (unaudited)

Departmental Budgetary Expenditures by Standard Object (unaudited)