2018-19 Departmental Financial Statements

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Statement of Management Responsibility Including Internal Control Over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2019, and all information contained in these statements rests with the management of the Patented Medicine Prices Review Board (PMPRB). 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 the PMPRB's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the PMPRB'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 the PMPRB 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.

The PMPRB is subject to periodic Core Control Audits performed by the Office of the Comptroller General and uses the results of such audits to comply with the Treasury Board Policy on Financial Management.

A Core Control Audit was performed in 2011-12 by the Office of the Comptroller General of Canada (OCG). The Audit Report and related Management Action Plan are posted on the PMPRB's web site.

The financial statements of the PMPRB have not been audited.

Dr. Mitchell Levine
Chairperson
Ottawa, Canada
Date: August 21, 2019

Matthew Kellison
Acting, Executive Director and Chief Financial Officer
Ottawa, Canada
Date: August 21, 2019

Statement of Financial Position (Unaudited)

As at March 31

(in dollars) 2019 2018
Liabilities
Accounts payable and accrued liabilities (note 4) $ 1,448,179 $ 1,307,889
Vacation pay and compensatory leave 280,461 457,239
Employee future benefits (note 5) 337,103 322,331
Total net liabilities 2,065,743 2,087,459
Financial assets
Due from Consolidated Revenue Fund 1,166,667 976,738
Accounts receivable and advances (note 6) 452,297 469,190
Total gross financial assets  1,618,964 1,445,928
Financial assets held on behalf of Government
Accounts receivable and advances (note 6) (170,785)  (138,039)
Total financial assets held on behalf of Government (170,785)  (138,039)
Total net financial assets  1,448,179 1,307,889
Departmental net debt 617,564 779,570
Non-financial assets
Tangible capital assets (note 7) 209,562 120,272
Total non-financial assets 209,562 120,272
Departmental net financial position  $ (408,002)  $ (659,298)

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

Dr. Mitchell Levine
Chairperson
Ottawa, Canada
Date: August 21, 2019

Matthew Kellison
Acting, Executive Director and Chief Financial Officer
Ottawa, Canada
Date: August 21, 2019

Statement of Operations and Departmental Net Financial Position (Unaudited)

For the Year Ended March 31

(in dollars) 2019 Planned Results 2019 2018
Expenses
Regulate Patented Medicine Prices $12,111,355 $8,101,807 $ 8,120,718
Internal Services 3,995,773 3,059,936 3,054,327
Total expenses 16,107,128 11,161,743 11,175,045
Revenues
Voluntary compliance undertakings - 6,996,128 32,943,963
Other - 5,589 4,701
Revenues earned on behalf of Government - (6,996,188) (32,947,978)
Total revenues - 5,529 686
Net cost of operations before government funding and transfers 16,107,128 11,156,214 11,174,359
Government funding and transfers
Net cash provided by Government of Canada 10,035,101 10,286,460
Change in due from Consolidated Revenue Fund 189,929 (563,733)
Services provided without charge by other government departments (note 8) 1,182,480 1,263,748
Net cost of (revenue from) operations after government funding and transfers (251,296) 187,884
Departmental net financial position - Beginning of year (659,298) (471,414)
Departmental net financial position - End of year $(408,002) $ (659,298)

Segmented information (note 9)

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 dollars) 2019 2018
Net cost of (revenue from) operations after government funding and transfers $ (251,296) $ 187,884
Change due to tangible capital assets
Acquisition of tangible capital assets 133,763 74,924
Amortization of tangible capital assets (44,473) (55,547)
Total change due to tangible capital assets 89,290 19,377
Net (decrease) increase in departmental net debt (162,006) 207,261
Departmental net debt - Beginning of year 779,570 572,309
Departmental net debt - End of year $617,564 $ 779,570

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

Statement of Cash Flows (Unaudited)

For the Year Ended March 31

(in dollars) 2019 2018
Operating activities
Net cost of operations before government funding and transfers  $11,156,214  $ 11,174,359
Non-cash items:
Amortization of tangible capital assets (44,473)  (55,547)
Services provided without charge by other government departments (note 8) (1,182,480) (1,263,748)
Variations in Statement of Financial Position:
Decrease (increase) in accounts payable and accrued liabilities  (140,290) 414,785
Decrease (increase) in vacation pay and compensatory leave 176,778 (239,850)
Decrease (increase) in employee future benefits (14,772) 32,589
Increase (decrease) in accounts receivable and advances  (49,639) 148,948
Cash used in operating activities 9,901,338  10,211,536
Capital investing activities
Acquisitions of tangible capital assets 133,763 74,924
Cash used in capital investing activities 133,763 74,924
Net cash provided by Government of Canada  $10,035,101  $ 10,286,460

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

Notes to the Financial Statements (Unaudited)

For the Year Ended March 31, 2019

1. Authority and objectives

The Patented Medicine Prices Review Board (PMPRB) is an independent quasi-judicial body established by Parliament in 1987 under the Patent Act.

Although the PMPRB is part of the Health Portfolio, it carries out its mandate at arm's length from the Minister of Health. It also operates independently of other bodies such as Health Canada, which approves drugs for safety and efficacy, and public drug plans, which approve the listing of drugs on their respective formularies for reimbursement purposes.

Core responsibility: Regulate Patented Medicine Prices
The PMPRB regulates the prices of patented medicines by setting non-excessive price ceilings and taking enforcement action before the Board in the event of non-compliance.

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 10 distinct service categories that support Program delivery in the organization, regardless of the Internal Services delivery model in a department. The 10 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 have been prepared using the PMPRB'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 PMPRB is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the PMPRB 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 the Statement of Operations and Departmental Net Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. The planned results amounts in the “Expenses” and “Revenues” sections of the Statement of Operations and Departmental Net Financial Position are the amounts reported in the Future-Oriented Statement of Operations included in the 2018-19 Departmental Plan. Planned results are not presented in the “Government funding and transfers” section of the Statement of Operations and Departmental Net Financial Position and in the Statement of Change in Departmental Net Debt because these amounts were not included in the 2018-19 Departmental Plan.

(b) Net cash provided by Government

The PMPRB operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the PMPRB is deposited to the CRF, and all cash disbursements made by the PMPRB 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 PMPRB 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 PMPRB's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The PMPRB'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 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 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 PMPRB 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 PMPRB 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 dollars) 2019 2018
Net cost of operations before government funding and transfers $ 11,156,214 $ 11,174,359
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets (44,473) (55,547)
Services provided without charge by other government departments (1,182,480) (1,263,748)
Decrease (increase) in vacation pay and compensatory leave 176,778 (239,850)
Decrease (increase) in employee future benefits (14,772) 32,589
Refund/adjustment of prior years' expenditures 36,836 11,527
Other (24,676) (12,332)
Total items affecting net cost of operations but not affecting authorities (1,052,787) (1,527,361)
Adjustments for items not affecting net cost of operations but affecting authorities:
Acquisition of tangible capital assets 133,763 74,924
Proceeds from disposal of Crown assets 1,634 472
Increase in salary overpayments to be recovered 47,179 16,800
Issuance of advances to employees 12,332 -
Total items not affecting net cost of operations but affecting authorities 194,908 92,196
Current year authorities used  $ 10,298,335  $ 9,739,194

(b) Authorities provided and used

(in dollars) 2019 2018
Authorities provided:
Vote 1 - Program expenditures $ 14,222,086 $ 10,588,712
Statutory amounts 923,200 846,837
Less:
Lapsed authorities (4,846,951) (1,696,355)
Current year authorities used $ 10,298,335 $ 9,739,194

4. Accounts payable and accrued liabilities

The following table presents details of the PMPRB’s accounts payable and accrued liabilities:

Accounts payable and accrued liabilities

(in dollars) 2019 2018
Accounts payable - Other government departments and agencies $ 86,543 $ 116,319
Accounts payable - External parties 388,860 378,873
Total accounts payable 475,403 495,192
Accrued liabilities 972,776 812,697
Total accounts payable and accrued liabilities $ 1,448,179 $ 1,307,889

5. Employee future benefits

(a) Pension benefits
The PMPRB'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 Plans benefits and they are indexed to inflation.

Both the employees and the PMPRB contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to Economic Action Plan 2012, employee contributors have been divided into two groups – Group 1 relates to existing plan members as of December 31, 2012 and Group 2 relates to members joining the Plan as of January 1, 2013. Each group has a distinct contribution rate.

The 2018-19 expense amounts to the following:

Pension expense

(in dollars) 2019 2018
Expense for the year $ 642,700 $ 576,375

For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2017-18) the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2017-18) the employee contributions.

The PMPRB'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.

(b) Severance benefits
Severance benefits provided to the PMPRB's employees were previously based on an employee’s eligibility, years of service and salary at termination of employment. However, since 2011 the accumulation of severance benefits for voluntary departures progressively ceased for substantially all employees. Employees subject to these changes were given the option to be paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits upon departure from the public service. By March 31, 2019, substantially all settlements for immediate cash out were completed. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities.

The changes in the obligations during the year were as follows:

Accrued benefit obligation

(in dollars) 2019 2018
Accrued benefit obligation - Beginning of year $ 322,331 $ 354,920
Expense for the year 14,772 (14,980)
Benefits paid during the year - (17,609)
Accrued benefit obligation - End of year $ 337,103 $ 322,331

6. Accounts receivable and advances

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

(in dollars) 2019 2018
Accounts receivable - Other government departments and agencies $ 281,012 $ 330,651
Employee advances 171,285 138,539
Gross accounts receivable and advances 452,297 469,190
Accounts receivable held on behalf of Government (170,785) (138,039)
Net accounts receivable and advances $ 281,512 $ 331,151

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:

Tangible capital assets

Asset Class Sub-asset Class Amortization Period
Machinery and equipment Computer equipment 3-5 years
Computer software 3 years

Tangible capital assets (in dollars)

Cost Opening Balance Acquisitions Disposals/ Write-offs Closing Balance
Machinery and equipment $ 309,864 $ 133,763 $ - $ 443,627
Total $ 309,864 $ 133,763 $ - $ 443,627
Accumulated Amortization Opening Balance Amortization Disposals/
Write-offs
Closing Balance
Machinery and equipment $ 189,592 $ 44,473 $ - $ 234,065
Total $ 189,592 $ 44,473 $ - $ 234,065
Net Book
Value
Net Book
Value 2018
    Net Book
Value 2019
Machinery and equipment $ 120,272     $ 209,562
Total $ 120,272     $ 209,562

8. Related party transactions

The PMPRB 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 PMPRB enters into transactions with these entities in the normal course of business and on normal trade terms.

(a) Common services provided without charge by other government departments
During the year, the PMPRB received services without charge from certain common service organizations, related to accommodation and the employer's contribution to the health and dental insurance plans. These services provided without charge have been recorded at the carrying value in the PMPRB's Statement of Operations and Departmental Net Financial Position as follows:

Common services provided without charge by other government departments

(in dollars) 2019 2018
Accommodation $ 632,281 $ 676,034
Employer's contribution to the health and dental insurance plans 550,199 587,714
Total $ 1,182,480 $ 1,263,748

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 PMPRB's Statement of Operations and Departmental Net Financial Position.

(b) Other transactions with related parties

(in dollars) 2019 2018
Expenses - Other government departments and agencies $ 604,195 $ 396,296

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

9. Segmented information

Presentation by segment is based on the PMPRB'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 dollars) Regulate Patented Medicine Prices Internal Services 2019 Total 2018 Total
Expenses
Salaries and employee benefits $5,868,789 $2,078,308 $7,947,097 $ 8,031,587
Professional and special services 932,202 312,850 1,245,052 1,497,802
Information services 664,724 28,483 693,207 425,669
Accommodation 463,076 169,206 632,282 676,034
Utilities, materials and supplies 2,060 251,999 254,059 211,364
Travel and relocation 161,739 18,164 179,903 113,801
Rentals 3,503 103,894 107,397 96,961
Amortization of tangible capital assets - 44,473 44,473 55,547
Communications - 34,936 34,936 34,780
Other 5,714 8,100 13,814 15,821
Repair and maintenance - 9,523 9,523 15,679
Total expenses 8,101,807 3,059,936 11,161,743 11,175,045
Revenues
Voluntary compliance undertakings - 6,996,128 6,996,128 32,943,963
Other 3,895 1,694 5,589 4,701
Revenues earned on behalf of Government - (6,996,188) (6,996,188) (32,947,978)
Total revenues 3,895 1,634 5,529 686
Net cost of operations before government funding and transfers $8,097,912 $3,058,302 $11,156,214 $ 11,174,359

10. Comparative Information

Certain comparative figures have been reclassified to conform to the current year’s presentation.

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