Public Health Agency of Canada - Financial Statements for the year ended March 31, 2017

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, 2017, and all information contained in these statements rests with the management of the Public Health Agency of Canada (the Agency). These financial statements have been prepared by management using the Government'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 Agency's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the Agency'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 Agency 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, 2017 was completed in accordance with the Treasury Board Policy on Internal Control and the results and action plan are summarized in the annex.

The effectiveness and adequacy of the Agency's system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of the Agency's operations, and by the Departmental Audit Committee, which oversees management's responsibilities for maintaining adequate control systems and the quality of financial reporting.

The financial statements of the Agency have not been audited.

Dr. Siddika Mithani
President
Ottawa, Canada
Date:

Carlo Beaudoin
Chief Financial Officer
Ottawa, Canada
Date:

Statement of Financial Position (Unaudited)

As at March 31 (in thousands of dollars)

	2017	2016
Liabilities
Accounts payable and accrued liabilities (note 4)	$ 69,935	$ 56,539
Vacation pay and compensatory leave	11,089	10,629
Deferred revenue	4	2
Employee future benefits (note 5)	9,882	12,811
Other liabilities	4,877	5,040
Total net liabilities	95,787	85,021
Financial assets
Due from Consolidated Revenue Fund	68,519	56,993
Accounts receivable and advances (note 6)	11,630	4,874
Total gross financial assets	80,149	61,867
Financial assets held on behalf of Government
Accounts receivable and advances (note 6)	(5,243)	(528)
Total financial assets held on behalf of Government	(5,243)	(528)
Total net financial assets	74,906	61,339
Agency net debt	20,881	23,682
Non-financial assets
Tangible capital assets (note 7)	106,108	115,396
Total non-financial assets	106,108	115,396
Agency net financial position	$ 85,227	$ 91,714

• Contractual obligations (note 8)
• Contingent liabilities (note 9)

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

Dr. Siddika Mithani
President
Ottawa, Canada
Date: August 30, 2017

Carlo Beaudoin
Chief Financial Officer
Ottawa, Canada
Date: August 28, 2017

Statement of Operations and Agency Net Financial Position (Unaudited)

For the Year Ended March 31 (in thousands of dollars)

	2017 Planned Results	2017	2016
Expenses
Public health infrastructure	$ 136,896	$ 125,331	$ 129,783
Health promotion and disease prevention	311,884	293,013	305,050
Health security	71,047	71,073	70,288
Internal services	100,837	93,698	92,827
Expenses incurred on behalf of government	(197)	(47)	760
Total expenses	620,467	583,068	598,708
Revenues
Sales of goods and services
Rights and privileges	52	23	2,497
Services of a non-regulatory nature	14,060	14,323	13,688
Lease and use of public property	13	58	27
Interest	7	12	5
Other	62	78	154
Revenues earned on behalf of Government	(211)	(242)	(2,648)
Total revenues	13,983	14,252	13,723
Net cost of operations before government funding and transfers	$ 606,484	568,816	584,985
Government funding and transfers
Net cash provided by Government of Canada	n/a	526,730	551,364
Change in due from Consolidated Revenue Fund	n/a	11,526	5,442
Services provided without charge by other government departments (note 10)	n/a	24,073	23,561
Transfer of the transition payments for implementing salary payments in arrears (note 11)	n/a	n/a	(83)
Transfer of tangible capital assets from/to other government departments	n/a	n/a	1
Net cost (revenue) from operations after government funding and transfers	n/a	6,487	4,700
Agency net financial position - Beginning of year	n/a	91,714	96,414
Agency net financial position - End of year	n/a	$ 85,227	$ 91,714
n/a not applicable

Segmented information (note 11)

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

Statement of Change in Agency Net Debt (Unaudited)

For the Year Ended March 31 (in thousands of dollars)

	2017	2016
Net cost (revenue) from operations after government funding and transfers	$ 6,487	$ 4,700
Change due to tangible capital assets
Acquisition of tangible capital assets	5,956	7,658
Amortization of tangible capital assets	(14,836)	(13,119)
Proceeds from disposal of tangible capital assets	(22)	(193)
Gain (loss) on disposal of tangible capital assets including adjustments	(386)	163
Non-cash changes in tangible capital assets	n/a	(16)
Transfer of tangible capital assets from/to other government departments	n/a	1
Total change due to tangible capital assets	(9,288)	(5,506)
Net decrease in Agency net debt	(2,801)	(806)
Agency net debt - Beginning of year	23,682	24,488
Agency net debt - End of year	$ 20,881	$ 23,682

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)

	2017	2016
Operating activities
Net cost of operations before government funding and transfers	$ 568,816	$ 584,985
Non-cash items
Amortization of tangible capital assets	(14,836)	(13,119)
Gain (loss) on disposal of tangible capital assets including adjustments	(386)	163
Non-cash changes in tangible capital assets	n/a	(16)
Services provided without charge by other government departments (note 10)	(24,073)	(23,561)
Transition payments for implementing salary payments in arrears (note 11)	n/a	83
Variations in Statement of Financial Position
Decrease (increase) in accounts payable and accrued liabilities	(13,396)	(9,168)
Decrease (increase) in vacation pay and compensatory leave	(460)	80
Decrease (increase) in deferred revenue	(2)	1
Decrease (increase) in employee future benefits	2,929	779
Decrease (increase) in other liabilities	163	2,614
Increase (decrease) in accounts receivable and advances	2,041	1,058
Cash used in operating activities	520,796	543,899
Capital investing activities
Acquisitions of tangible capital assets	5,956	7,658
Proceeds from disposal of tangible capital assets	(22)	(193)
Cash used in capital investing activities	5,934	7,465
Net cash provided by Government of Canada	$ 526,730	$ 551,364

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

Notes to the Financial Statements (Unaudited) For the Year Ended March 31, 2017

1. Authority and objectives

The Public Health Agency of Canada (the Agency) was created by Orders In Council on September 24, 2004. The Public Health Agency of Canada Act, assented to December 12, 2006, provides a statutory foundation for the Agency.

The Agency has the responsibility to:

• Contribute to the prevention of disease and injury, and to the promotion of health;
• Enhance surveillance information and expand the knowledge of disease and injury in Canada;
• Provide federal leadership and accountability in managing national public health events;
• Strengthen intergovernmental collaboration on public health and facilitate national approaches to public health policy and planning; and
• Serve as a central point for sharing Canada's public health expertise with international partners, and to translate international knowledge and approaches to inform and support Canada's public health priorities and programs—for example, by participating in international working groups to develop new public health tools to protect, mitigate and respond to emerging public health threats.

The Agency has a sole strategic outcome: Protecting Canadians and empowering them to improve their health. The Agency delivers on its strategic outcome through its key programs described below.

The Public Health Infrastructure Program strengthens Canada's public health, workforce capability, information exchange, and federal, provincial and territorial networks, and scientific capacity. These infrastructure elements are necessary for effective public health practice and decision-making in Canada. The program works with federal, provincial and territorial stakeholders in planning for and building strategic and targeted investments in public health infrastructure, including public health research, training, tools, best practices, standards, and mechanisms to facilitate information exchange and coordinated action. Public health laboratories provide leadership in research, technical innovation, reference laboratory services, surveillance, outbreak response capacity and national laboratory coordination to inform public health policy and practice. Through these capacity-building mechanisms and scientific expertise, the Government of Canada facilitates effective coordination and timely public health interventions which are essential to having an integrated and evidence-based national public health system based on excellence in science. Key stakeholders include local, regional, provincial, national and international, public health organizations, practitioners and policy makers, researchers and academics, professional associations and non-governmental organizations.

The Health Promotion and Disease Prevention Program aims to improve the overall health of the population—with additional focus on those that are most vulnerable—by promoting healthy development among children, adults and seniors, reducing health inequalities, and preventing and mitigating the impact of chronic disease and injury, as well as infectious diseases. Working in collaboration with provinces, territories, and stakeholders, the Program develops and implements federal aspects of frameworks and strategies (e.g., Curbing Childhood Obesity: A Federal, Provincial and Territorial Framework for Action to Promote Healthy Weights, national approaches to addressing immunization, HIV/AIDS) geared toward promoting health and preventing disease. The Program carries out primary public health functions of health promotion, surveillance, science and research on diseases and associated risk and protective factors to inform evidenced-based frameworks, strategies, and interventions.

The Health Security Program takes an all hazards approach to the health security of Canada's population, which provides the Government of Canada with the ability to prevent, prepare for, and respond to public health events/emergencies. This program seeks to bolster the resiliency of the populations and communities, thereby enhancing the ability to cope and respond. To accomplish this, its main methods of intervention include actions taken through collaborations with key jurisdictions and international collaborators. These actions are carried out by fulfilling Canada's obligations under the International Health Regulations and through the administration and enforcement of pertinent legislation and regulations.

Internal services are groups of related activities and resources that are administered to support the needs of programs and other corporate obligations of an organization. Internal services include only those activities and resources that apply across an organization, and not those provided to a specific program. The groups of activities 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 Government'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 Agency is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Agency 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 Agency 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 Agency Net Financial Position are the amounts reported in the Future-oriented Statement of Operations included in the 2016-17 Report on Plans and Priorities. Planned results are not presented in the "Government funding and transfers" section of the Statement of Operations and Agency Net Financial Position and in the Statement of Change in Agency Net Debt because these amounts were not included in the 2016-17 Report on Plans and Priorities.

(b) Net cash provided by Government

The Agency operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the Agency is deposited to the CRF, and all cash disbursements made by the Agency 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 Agency 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. These revenues are recognized in the period in which the related expenses are incurred.
• Funds that have been received are recorded as deferred revenue, provided the Agency has an obligation to other parties for the provision of goods, services or the use of assets in the future.
• Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
• Revenues that are non-respendable are not available to discharge the Agency's liabilities. While the Deputy Head is expected to maintain accounting control, she 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 in reduction of the entity's gross revenues.

(e) Expenses

Expenses are recorded on an accrual basis:

• Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established for the transfer payment program. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to transfer payment expense and as a receivable.
• 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 estimated cost.

(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 Agency's contributions to the Plan are charged to expenses in the year incurred and represent the total Agency's obligation to the Plan. The Agency'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: Employees entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services necessary to earn them are rendered. The obligation relating to the benefits earned by employees 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 stated at the lower of cost and net recoverable value. A valuation allowance is recorded for accounts receivable where recovery is considered uncertain.

(h) Contingent liabilities

Contingent liabilities are potential liabilities that may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. 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.

(i) Tangible capital assets

All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. The Agency does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections.

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
Machinery and equipment	Machinery and equipment	8-12 years
Machinery and equipment	Computer equipment	3-5 years
Machinery and equipment	Computer software	3 years
Machinery and equipment	Other equipment	5-12 years
Vehicles	Motor vehicles	4-7 years
Vehicles	Other vehicles	10 years
Assets under construction	Other construction or work in progress	Assets under construction are recorded in the applicable capital asset class in the year that they become available for use and are not amortized until they become available for use.

(j) Measurement uncertainty

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. 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.

3. Parliamentary authorities

The Agency receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Financial Position and the Statement of Operations and Agency Net Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the Agency 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)

	2017	2016
Net cost of operations before government funding and transfers	$ 568,816	$ 584,985
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets	(14,836)	(13,119)
Gain (loss) on disposal of tangible capital assets	(386)	163
Services provided without charge by other government departments	(24,073)	(23,561)
Decrease (increase) in vacation pay and compensatory leave	(460)	80
Decrease (increase) in employee future benefits	2,929	779
Refund/adjustment of previous year's expenditures	4,038	2,625
Bad debt expense	(61)	948
Decrease (increase) in Workforce adjustment measures	n/a	210
Statutory spending authority equivalent to revenues earned	13,596	12,959
Other	1,146	(748)
Total items affecting net cost of operations but not affecting authorities	(18,107)	(19,664)
Adjustments for items not affecting net cost of operations but affecting authorities:
Acquisitions of tangible capital assets	5,956	7,658
Proceeds from disposal of Crown assets	41	18
Salary overpayments	2,398	n/a
Issuance of accountable advances	113	n/a
Transition payments for implementing salary payments in arrears (note 11)	n/a	83
Total items not affecting net cost of operations but affecting authorities	8,508	7,759
Current year authorities used	$ 559,217	$ 573,080

(b) Authorities provided and used:

(in thousands of dollars)

	2017	2016
Authorities provided:
Vote 1 - Operating expenditures	$ 353,128	$ 337,162
Vote 5 - Capital expenditures	6,504	8,449
Vote 10 - Grants and contributions	195,199	207,250
Statutory amounts	38,210	41,098
Less:
Authorities available for future years	(41)	(8)
Lapsed authorities	(33,783)	(20,871)
Current year authorities used	$ 559,217	$ 573,080

4. Accounts payable and accrued liabilities

The following table presents details of the Agency's accounts payable and accrued liabilities:

Accounts payable and accrued liabilities (in thousands of dollars)

	2017	2016
Accounts payable - Other government departments and agencies	2,891	$ 2,740
Accounts payable - External parties	22,212	24,191
Total accounts payable	25,103	26,931
Accrued liabilities	44,832	29,608
Total accounts payable and accrued liabilities	69,935	$ 56,539

5. Employee future benefits

(a) Pension benefits

The Agency'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 Agency 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 contributions 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 2016-17 expense amounts to the following:

Pension benefits (in thousands of dollars)

	2017	2016
Expense for the year	$ 18,733	$ 19,730

For Group 1 members, the expense represents approximately 1.12 times (1.25 times in 2015-16) the employee contributions and, for Group 2 members, approximately 1.08 times (1.24 times in 2015-16) the employee contributions.

The Agency'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 Agency'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, 2017, 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)

	2017	2016
Accrued benefit obligation - Beginning of year	$ 12,811	$ 13,590
Provision for the year	(2,373)	(8)
Benefits paid during the year	(556)	(771)
Accrued benefit obligation - End of year	$ 9,882	$ 12,811

6. Accounts receivable and advances

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

Accounts receivable and advances (in thousands of dollars)

	2017	2016
Accounts receivable - Other government departments and agencies	$ 6,197	$3,915
Accounts receivable - External parties	1,632	1,353
Employee advances	3,821	8
Subtotal	11,650	5,276
Allowance for doubtful accounts on receivables from external parties	(20)	(402)
Gross accounts receivable and advances	11,630	4,874
Accounts receivable held on behalf of Government	(5,243)	(528)
Net accounts receivable and advances	$ 6,387	$ 4,346

7. Tangible capital assets

Capital assets (in thousands of dollars)

	Opening Balance	Acquisitions	Disposals/ write-downs	Transfers and adjustments	Closing Balance
Land	$ 604	n/a	n/a	n/a	$ 604
Buildings	132,907	$ 58	n/a	$ 246	133,211
Works and infrastructure	965	n/a	n/a	201	1,166
Machinery and equipment	109,410	4,193	$ (3,650)	197	110,150
Vehicles	3,000	164	(53)	(20)	3,091
Assets under construction	1,820	1,541	(8)	(644)	2,709
Total	$ 248,706	$ 5,956	$ (3,711)	$(20)	$ 250,931

Accumulated amortization (in thousands of dollars)

	Opening Balance	Amortization	Disposals/ write-downs	Transfers and adjustments	Closing Balance
Buildings	$ 61,993	$ 5,317	n/a	n/a	$ 67,310
Works and infrastructure	330	38	n/a	n/a	368
Machinery and equipment	68,774	9,224	$ (3,251)	n/a	74,747
Vehicles	2,213	257	(52)	$ (20)	2,398
Total	$ 133,310	$ 14,836	$ (3,303)	$ (20)	$ 144,823

Tangible capital assets net book value (in thousands of dollars)

	Net Book Value 2016	Net Book Value 2017
Land	$ 604	$ 604
Buildings	70,914	65,901
Works and infrastructure	635	798
Machinery and equipment	40,636	35,403
Vehicles	787	693
Assets under construction	1,820	2,709
Total	$ 115,396	$ 106,108

Transfers from assets under construction represent assets that were put into use in the year and have been transferred to the other capital asset classes as applicable.

8. Contractual obligations

The nature of the Agency's activities can result in some multi-year contracts and obligations whereby the Agency 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
2017-18	$ 128,649	$ 25,017	$ 153,666
2018-19	128,684	14,928	143,612
2019-20	121,770	9,800	131,570
2020-21	6,633	n/a	6,633
2021-22 and thereafter	600	n/a	600
Total	$ 386,336	$ 49,745	$ 436,081

9. 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 Agency in the normal course of operations. These claims include items with pleading amounts and others for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. The Agency 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.

10. Related party transactions

The Agency is related as a result of common ownership to all government departments, agencies, and Crown corporations. The Agency enters into transactions with these entities in the normal course of business and on normal trade terms. In addition, the Agency has agreements with Agriculture and Agri-Food Canada, Health Canada, and Indigenous and Northern Affairs Canada related to the provision of various finance and administrative services. During the year, the Agency received common services which were obtained without charge from other government departments as disclosed below.

(a) Common Services provided without charge by other government departments:

During the year, the Agency 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 in the Agency's Statement of Operations and Agency Net Financial Position as follows:

Common Services provided without charge by other government departments (in thousands of dollars)

	2017	2016
Employer's contribution to the health and dental insurance plans	$ 16,967	$ 16,271
Accommodation	7,106	7,111
Legal services	n/a	179
Total	$ 24,073	$ 23,561

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 Agency's Statement of Operations and Agency 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 Agency's Statement of Operations and Agency Net Financial Position.

(b) Other transactions with related parties:

Other transactions with related parties (in thousands of dollars)

	2017	2016
Accounts payable - Other government departments and agencies	$ 2,891	$ 2,740
Accounts receivable - Other government departments and agencies	6,197	3,915
Expenses - Other government departments and agencies	63,699	67,615
Revenues - Other government departments and agencies	$ 13,666	13,006

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 Agency's program alignment architecture. 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)

	Public health infrastructure	Health promotion and disease prevention	Health security	Internal Services	2017 Total	2016
Expenses
Salaries and employee benefits	$ 71,335	$ 85,460	$ 32,522	$ 32,986	$ 222,303	$ 230,741
Transfer payments	8,676	178,318	n/a	n/a	186,994	200,470
Professional and special services	5,877	17,729	12,894	47,197	83,697	87,750
Utilities, materials and supplies	15,560	1,125	18,318	212	35,215	26,503
Information services	1,737	3,999	1,799	11,033	18,568	17,364
Amortization of tangible capital assets	12,241	35	2,545	15	14,836	13,119
Accommodation	4,555	2,735	1,051	1,037	9,378	10,363
Travel and relocation	2,019	2,500	1,097	814	6,430	7,111
Repair and maintenance	2,055	31	127	5	2,218	3,230
Rentals	518	835	244	144	1,741	1,557
Communications	268	233	405	331	1,237	751
Other	490	13	71	(137)	437	(63)
Bad debts	n/a	n/a	n/a	61	61	(948)
Expenses incurred on behalf of government	n/a	n/a	n/a	(47)	(47)	760
Total expenses	125,331	293,013	71,073	93,651	583,068	598,708
Revenues
Sales of goods and services
Rights and privileges	23	n/a	n/a	n/a	23	2,497
Services of a non-regulatory nature	60	10	2,615	11,638	14,323	13,688
Lease and use of public property	26	16	15	1	58	27
Interest	n/a	n/a	n/a	12	12	5
Other	17	2	45	14	78	154
Revenues earned on behalf of Government	(109)	(16)	(104)	(13)	(242)	(2,648)
Total revenues	17	12	2,571	11,652	14,252	13,723
Net cost of operations before government funding and transfers	$ 125,314	$ 293,001	$ 68,502	$ 81,999	$ 568,816	$ 584,985

Public Health Agency of Canada's Annex to the Statement of Management Responsibility Including Internal Control Over Financial Reporting, Assessment of Internal Controls Over Financial Reporting and Action Plan for The Fiscal Year Ended March 31, 2017

1. Introduction

This document provides summary information on the measures taken by the Public Health Agency of Canada (or "PHAC") 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 PHAC's authority, mandate and program activities can be found in the 2016-17 Departmental Result Report and the 2016-17 Report on Plans and Priorities.

2. Departmental system of internal control over financial reporting

2.1 Internal control management

PHAC 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 reporting framework, approved by the President and the Chief Financial Officer, is in place and includes:

• Organizational Accountability Structures: Establish the means by which the leading authorities at PHAC, i.e. President, Chief Public Health Officer, Chief Financial Officer, Chief Audit Executive, the external Departmental Audit Committee, Assistant Deputy Ministers and Governance Committees, ensure proper accountability, stewardship and transparency in the conduct of financial management, risk and internal control, and stewardship over resources.
• Values and Ethics: PHAC 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: Ensure that all PHAC employees are informed and trained on statutory requirements, policies and procedures for sound financial management and controls.
• Monitoring, Regular Updates and Assessments: Ensure that internal controls are monitored through ongoing assessments and updated as required. Results of such assessments are reported to the President PHAC's Senior Management, and the Departmental Audit Committee (DAC) with action plans to remediate any deficiencies. DAC meets three times annually and provides advice to the President on the adequacy and functioning of PHAC's risk management, control and governance frameworks and processes. In addition, key financial controls may be subjected to audit by the Office of Audit and Evaluation who conducts audits in accordance with the risk-based audit plan. The most recent audit of key financial controls was completed for 2015-16.

2.2 Service arrangements relevant to financial statements

PHAC relies on other organizations for the processing of certain transactions that are recorded in its financial statements as follows:

Common Arrangements

• Public Services and Procurement Canada (PSPC) centrally administers the payments of salaries with the newly implemented Phoenix system, the procurement of goods and services, in accordance with the Treasury Board Contracting Policy, and provides accommodation services.
• The Treasury Board of Canada Secretariat provides PHAC with information used to calculate various accruals and allowances, such as the accrued severance liability.
• The Department of Justice provides legal services to PHAC.

Specific Arrangements

• Through a Shared Services Partnership Agreement, Health Canada provides the Public Health Agency of Canada (PHAC) services including the following related to ICFR: human resources (pay and benefits), financial management (financial operations) and materiel management (procurement and contracting). Assurance on the shared controls of these services is provided by Health Canada to PHAC through this Annex. Under this agreement, PHAC also provides HC with internal audit services which encompass audits related to financial management and controls.
• Shared Services Canada provides information technology (IT) infrastructure services in the areas of data centre and network services to Health Canada. The scope and responsibilities are addressed in the interdepartmental arrangement between Shared Services Canada and Health Canada. These services are also provided to PHAC and addressed in an arrangement between Health Canada and PHAC.
• Health Canada provides PHAC with a financial system platform (SAP) to capture and report all financial transactions. Health Canada also provides PHAC with results of the assessment of key controls in the SAP system and whether they are properly managed in accordance with the associated Treasury Board policies including the Policy on Internal Control, the Policy on the Stewardship of Financial Management Systems and the Policy on Financial Resource Management, Information and Reporting.
• Agriculture and Agri-Food Canada provides platform access to its human resources management system of record (PeopleSoft) to PHAC which is addressed in an arrangement between PHAC and Agriculture and Agri-Food Canada.
• Indigenous and Northern Affairs Canada (INAC) provides host services to PHAC on their Grant and Contribution Information Management System (GCIMS) which is addressed in an arrangement between PHAC and INAC

3. PHAC's assessment results during fiscal year2016-17

PHAC implemented an ongoing risk-based monitoring program over several key control areas in conjunction with Health Canada through the Shared Services Partnership Agreement to ensure that internal controls over financial reporting are maintained, monitored and reviewed, with timely corrective measures taken when issues are identified.

New or significantly amended key controls: Reassessments of key controls affected by new or significantly amended processes identified in its ongoing risk-based monitoring plan.

In 2014-15, PHAC initiated the phased-in implementation of GCIMS, hosted by INAC, for the management and reporting of transfer payments. More functionalities and modules were implemented throughout 2015-16 and 2016-17. For 2017-18, system enhancements are expected to continue with the adoption of new modules. Working collaboratively with INAC, PHAC has updated the design and continues to monitor operating effectiveness of its key controls to support the progress of business process standardization.

PHAC in conjunction with Health Canada continues to work with Public Services and Procurement Canada and the Treasury Board Secretariat to identify and implement strengthened controls in payroll processing (post Phoenix).

3.1 Ongoing risk-based monitoring of key controls

In 2016-17, ongoing monitoring was completed as planned for the following processes relevant to PHAC: Financial Statements, Year End and Reporting; Revenues, Receivables and Receipts; Grants and Contributions; Payroll; Capital Assets and Information Technology General Controls.

Key controls tested as part of the ongoing risk-based monitoring plan in 2016-17 were found to be operating effectively with no significant deficiencies identified. However, opportunities for improvement in the following areas were identified and are being addressed:

• Continued enhancements to the online employee departure application;
• Continued improvements of the control effectiveness for the Grants and Contributions process;
• Consistency in follow up on delinquent accounts receivable;
• Payroll controls need strengthening in the area of FAA Section 34 authorization; and
• Disaster Recovery Plans for critical systems have not been tested.

4. Departmental action plan

4.1 Progress during fiscal year 2016-17

During 2016-2017, PHAC continued to conduct its ongoing risk-based monitoring according to the previous fiscal year's rotational plan as shown in the following table.

Progress of Ongoing Risk-Based Monitoring Testing for 2016-17

Key Control Areas	Status Completed as Planned
Financial Statements, Year End and Reporting	Yes
Revenue, Receivables and Receipts	Yes
Grants and Contributions	Yes
Payroll	Yes
Capital Assets	Yes
Information Technology General Controls (ITGC)	Yes

4.2 Action plan for the next fiscal year and subsequent years

PHAC's rotational ongoing risk-based monitoring plan over the next three years, based on an annual validation of the high-risk processes and controls and related adjustments to the ongoing monitoring plan as required, is shown in the following table.

Rotational Ongoing Risk-Based Monitoring Plan

Key Control Areas	Fiscal year 2017-18	Fiscal year 2018-19	Fiscal year 2019-20
Entity Level Controls	No	Yes	No
Budget	No	Yes	No
Financial Statements, Year End and Reporting	Yes	Yes	Yes
Revenue, Receivables and Receipts	Yes	Yes	Yes
Purchasing, Payables and Payments	Yes	No	Yes
Grants and Contributions	Yes	Yes	Yes
Payroll	Yes	Yes	Yes
Capital Assets	No	Yes	No
Information Technology General Controls (ITGC)	Yes	Yes	Yes