2012-13 Departmental Financial Statements

Table of Contents

• Statement of Management Responsibility Including Internal Control Over Financial Reporting
• Statement of Financial Position (Unaudited)
• Statement of Operations and Departmental Net Financial Position (Unaudited)
• Statement of Change in Departmental Net Debt (Unaudited)
• Statement of Cash Flows (Unaudited)
• Notes to the Financial Statements (Unaudited)
  
• Health Canada's Annex to the Statement of Management Responsibility Including Internal Control Over Financial Reporting
  1. Introduction
  2. Departmental system of internal control over financial reporting
     • 2.1 Key positions, roles and responsibilities
     • 2.2 Key measures taken by Health Canada
     • 2.3 Service arrangements relevant to financial statements
  3. Departmental assessment result during fiscal year 2012-2013
     • 3.1 Design effectiveness testing of key controls
     • 3.2 Operating effectiveness testing of key controls
  4.  Departmental Action Plan
     • 4.1 Progress during fiscal year 2012-2013
     • 4.2 Status and action plan for the next fiscal year and subsequent years

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, 2013, 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'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 Department's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in Health Canada's Departmental Performance 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 Department; 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, 2013 was completed in accordance with the Treasury Board Policy on Internal Control and the results and action plans are summarized in the annex.

The effectiveness and adequacy of the Department's system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of the Department'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.

Management is supported by the Departmental Audit Committee, which ensures that the Deputy Minister has independent and objective advice, guidance and assurance as to the adequacy of risk management, control and accountability processes.  The Departmental Audit Committee is chaired by a member external to the Government and includes the Deputy Minister, the Associate Deputy Minister, and three other external members.

The financial statements of Health Canada have not been audited.

George Da Pont
Deputy Minister
Ottawa, Canada
Date: August 23, 2013

Jamie Tibbetts
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: August 18, 2013

Contractual obligations (note 9)
Contingent liabilities (note 10)

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

George Da Pont
Deputy Minister
Ottawa, Canada
Date: August 23, 2013

Jamie Tibbetts
Assistant Deputy Minister and Chief Financial Officer
Ottawa, Canada
Date: August 18, 2013

Segmented information (note 13)

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

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

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

Notes to the Financial Statements (Unaudited)

For the Year Ended March 31, 2013

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 strategic outcomes and related program activities:

Strategic Outcome 1:  A health system responsive to the needs of Canadians

Canadians expect their governments to provide a health system that meets their needs and that delivers results effectively and efficiently. In addition to ensuring that it meets specific federal responsibilities, such as health services for federal employees and during international events held in Canada, Health Canada works with provincial and territorial governments as well as health organizations and other stakeholder groups to address the health objectives of Canadians. Research and policy analysis, support and funding to test innovations in health service delivery and monitoring of provincial and territorial application of the Canada Health Act all lead to continuing improvement in Canada's health system.

Program Activities:

• Canadian health system
• Specialized health services
• Official language minority community development

Strategic Outcome 2: Canadians are informed of and protected from health risks associated with food, products, substances and environments, and are informed of the benefits of healthy eating

This Strategic Outcome seeks to ensure that the food that Canadians eat and products they use are as safe as possible and that threats to health are addressed effectively. It helps increase Canadians' understanding of factors that influence everyone's health such as environmental conditions and nutrition. It helps to limit the use and abuse of tobacco and illicit drugs.

Program Activities:

• Health products
• Food safety and nutrition
• Environmental risks to health
• Consumer product safety
• Substance use and abuse
• Radiation protection
• Pesticide safety

Strategic Outcome 3:  First Nations and Inuit communities and individuals receive health services and benefits that are responsive to their needs so as to improve their health status

This Strategic Outcome seeks to ensure that First Nations and Inuit living on reserve or in Inuit communities have access to health services as well as a limited range of medically necessary health-related goods and services not provided through private insurance plans, provincial/ territorial health or social programs or other publicly funded programs. It seeks to reduce the gap in health outcomes between First Nations and Inuit and the Canadian population in general.

Program Activities:

• First Nations and Inuit primary health care
• Supplementary health benefits for First Nations and Inuit
• Health infrastructure support for First Nations and Inuit

Internal services

Health Canada has a range of internal services. Some, such as financial, administrative, real property, security, human resources, information management and Information Technology, provide the basic infrastructure that enables the Department to function while ensuring compliance to new and existing central agency policies.  Other internal services in Health Canada address departmental and Health Portfolio needs such as general communications and policy activities, as well as managing relations with Parliamentarians, the Cabinet system and other government departments and levels of government. An additional set of internal service roles centre on critical departmental and government-wide responsibilities, such as ensuring the best value for Canadians through planning, accountability and tracking performance and results.

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 Department of Health 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 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 Statement of Operations and Departmental Net Financial Position are the amounts reported in the future-oriented financial statements included in the 2012-13 Report on Plans and Priorities.

The future-oriented financial statements for 2012-13 have been restated to reflect the revenue and expenses net of non-respendable amounts. This restatement resulted in an $18.3 million increase in net costs of operations before government funding and transfers. In addition, the future-oriented financial statements have also been reclassified to conform to the current year presentation.

(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.  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 Department 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 Department's liabilities.  While the Department Head (DH) is expected to maintain accounting control, he or 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 the 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 contribution to 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, a multi-employer 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: 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 receivables where recovery is considered uncertain.

(h) Contingent liabilities

Contingent liabilities are potential liabilities which 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) Environmental liabilities

Environmental liabilities reflect the estimated costs related to the management and remediation of environmentally contaminated sites. Based on management's best estimates, a liability is accrued and an expense recorded when the contamination occurs or when the Department becomes aware of the contamination and is obligated, or is likely to be obligated to incur such costs. If the likelihood of the Department's obligation to incur these costs is not determinable, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes to the financial statements.

(j) 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.  Health Canada 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:

(k) 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, environmental liabilities, the liability for employee future benefits, the 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

Health Canada 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.  These differences are reconciled in the following tables:

(a) Reconciliation of net cost of operations to current year authorities used:

(b) Authorities provided and used:

4. Accounts payable and accrued liabilities

The following table presents details of Health Canada's accounts payable and accrued liabilities:

In Canada's Economic Action Plan 2012, the Government announced savings measures to be implemented by departments over the next three fiscal years starting in 2012-13.  As a result, the Department has recorded at March 31, 2013 an obligation for termination benefits for an amount of $12.4 million ($65.1 million in 2011-12) as part of accrued liabilities to reflect the estimated workforce adjustment costs.

5. Employee future benefits

(a) Pension benefits
The Department's employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government.  Pension benefits accrue up to a maximum period of 35 years at a rate of 2% 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 Department contribute to the cost of the Plan.  The 2012-13 expense represents approximately 1.7 times (1.8 times in 2011-12) the contributions by employees which amount to:

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.

(b) Severance benefits

The Department provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment.  These severance benefits are not pre-funded.  Benefits will be paid from future authorities.

As part of collective agreement negotiations with certain employee groups, and changes to conditions of employment for executives and certain non-represented employees, the accumulation of severance benefits under the employee severance pay program ceased for these employees commencing in 2012.  Employees subject to these changes have been given the option to be immediately paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits on termination from the public service.  These changes have been reflected in the calculation of the outstanding severance benefit obligation.

Information about the severance benefits, measured as at March 31, is as follows:

6. Other liabilities

Budget 2007 announced an allocation of $400.0 million to Canada Health Infoway Inc.   Of this authority $321.1 million has been disbursed to date, $27.5 million in 2012-13, ($30.5 million in 2011-12).  Budget 2009 announced an additional allocation of $500.0 million to Canada Health Infoway Inc.  Of this 2009 authority $212.8 million has been disbursed to date, $95.7 million in 2012-13, ($58.7 million in 2011-12).  The disbursed amounts include interest deemed to have been paid to Canada Health Infoway Inc.

The remaining other liabilities include amounts for contingent liabilities of $33.0 million ($33.0 million in 2011-12) and Specified Purpose Accounts: Collaborative research projects $2.6 million ($3.1 million in 2011-12); miscellaneous federal/provincial projects $1.7 million ($1.8 million in 2011-12); and World Health Organization $0.1 million ($0.1 million in 2011-12).

7. Accounts receivable and advances

Health Canada records receivables from three main sources. As of March 31, amounts due under each of these categories are as follows:

8. Tangible capital assets

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.

Effective June 30, 2012, Health Canada transferred assets with a net book value of $966,131 to the Public Health Agency of Canada.  This transfer is included in the transfers and adjustments column (note 12 (a)).

9. Contractual obligations

The nature of Health Canada's activities can result in multi-year contracts and obligations whereby the Department will be obligated to make some 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:

10. Contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are grouped into two categories as follows:

(a) Contaminated sites

Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where the Department is obligated or likely to be obligated to incur such costs.  Health Canada has identified sites where such action is possible and for which a liability has been recorded.

Health Canada's ongoing efforts to assess contaminated sites may result in additional environmental liabilities related to newly identified sites, or changes in the assessments or intended use of existing sites.  These liabilities will be accrued by the Department in the year in which they become likely and are reasonably estimable.

(b) Claims and litigation

Claims have been made against the Department 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 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 $40 thousand in 2012-13 ($200 thousand in 2011-12).

11. Related party transactions

The Department is related as a result of common ownership to all government departments, agencies, and Crown Corporations.  The Department enters into transactions with these entities in the normal course of business and on normal trade terms.  Also, during the year, the Department received common services which were obtained without charge from other government departments as disclosed in part (a).

(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 in the Department's Statement of Operations and Departmental Net Financial Position as follows:

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 Works and Government Services Canada, are not included in the Department's Statement of Operations and Departmental Net Financial Position.

(b) Other transactions with related parties:

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

12. Transfers from/to other government departments

a) Effective June 30, 2012, the Department transferred the responsibility for the control and supervision of portions of the federal public administration in the Department of Health known as the Audit and Accountability Bureau, the Departmental Performance Measurement and Evaluation Directorate, the International Affairs Directorate and the Emergency Preparedness and Response Unit to the Public Health Agency of Canada in accordance with  Order in Council P.C. 2012-0965 and Order in council P.C. 2012-0950, including the stewardship responsibility for the assets and liabilities related to the programs. Accordingly, the Department transferred the following assets and liabilities related to the control and supervision of the Audit and Accountability Bureau, the Departmental Performance Measurement and Evaluation Directorate, the International Affairs Directorate and the Emergency Preparedness and Response Unit on June 30, 2012:

b) Effective June 30, 2012, the Department  was transferred the responsibility for the control and supervision of portions of the federal public administration the Public Health Agency of Canada known as the Communications Directorate, the Human Resources Directorate, the Information Management and Information Technology Directorate, the Facilities and Safety Division, the Integrated Security Services Division, the Access to Information and Privacy Office, the Financial Policy, Systems and Operations Division, and the Assets and Material Management Division in accordance with  Order in Council P.C. 2012-0965, including the stewardship responsibility for the assets and liabilities related to the programs. Accordingly, the Department was transferred the following assets and liabilities related to the control and supervision of the Communications Directorate, the Human Resources Directorate, the Information Management and Information Technology Directorate, the Facilities and Safety Division, the Integrated Security Services Division, the Access to Information and Privacy Office, the Financial Policy, Systems and Operations Division and the Assets and Material Management Division on June 30, 2012:

c) Effective September 30, 2012, the Department was transferred assets and liabilities from Assisted Human Reproduction Canada in accordance with Order in Council P.C. 2012-1136. Accordingly, the Department was transferred the following assets and liabilities on September 30, 2012:

13. Segmented information

14. Adjustments to Prior Year's Results

During the preparation of the current year's financial statements there was a reinterpretation of the application of Treasury Board Accounting Standards as they relate to the following accounts: Due from Consolidated Revenue Fund; Accounts receivable and advances held on behalf of Government and Expenses incurred on behalf of Government. Consequently, the comparative financial statements presented for the year ended March 31, 2012 have been restated. The effect of the adjustment is presented in the table below.

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

Assessment of Internal Controls over Financial Reporting and the Action Plan for the fiscal year ending March 31, 2013

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 and assessment results and related action plans.

Detailed information on HC's authority, mandate and program activities can be found in the Departmental Performance Report and the Report on Plans and Priorities.

2. Departmental system of internal control over financial reporting

HC recognizes the importance of setting the tone from the top to help ensure that staff at all levels understand their role in maintaining effective systems of ICFR and are well equipped to exercise these responsibilities effectively. The department's focus is to ensure that risks are properly managed through a responsive and risk-based control environment which enables continuous improvement and innovation.

Key components of entity level controls in departments aim at ensuring solid governance and effective risk management at the corporate level, as well as the maintenance of other entity level controls to provide effective supportto staff by raising awareness and providing appropriate knowledge, skills, and tools.

2.1 Key positions, roles and responsibilities

Deputy Minister - As the Accounting Officer and the lead member of the governance structure for HC, the Deputy Minister assumes overall responsibility and leadership for the stewardship, management and oversight of departmental resources, including the measures taken to maintain an effective system of internal control.

Assistant Deputy Minister and Chief Financial Officer (ADM-CFO) - The Assistant Deputy Minister and Chief Financial Officer reports directly to the Deputy Minister. The ADM-CFO is the focal point of accountability and provides leadership for the coordination, coherence and focus on the design and maintenance of an effective and integrated system of ICFR. This includes accounting, financial reporting, performance measurement and evaluation, procurement and assets management. The ADM-CFO is the chair of the Executive Committee on Planning and Accountability, which is one of three Assistant Deputy Minister-chaired sub-committees.

Assistant Deputy Ministers (ADM) - As senior departmental managers in charge of program delivery and reporting to the Deputy Minister, the ADMs are responsible for providing assistance with governance along with the management and oversight of the resources falling within their mandate, including financial management and reporting.

Chief Audit Executive (CAE) - The Chief Audit Executive reports directly to the Deputy Minister, independent from line management. The CAE provides assurance through periodic internal audits focused on risk management, control, and governance processes which are necessary components in maintaining an effective system of ICFR.

Departmental Audit Committee (DAC) - The Departmental Audit Committee was established in 2008 and is comprised of the Deputy Minister and four members external to the Government. In 2012-2013, the DAC met four times, to provide advice on governance, risk management and control.  One of the recurring agenda items at the quarterly meeting was the update on the progress to support the Departmental Internal Controls over its Financial Statements Reporting (ICFR).

Partnership Executive Committees (PEC) - The Partnership Executive Committee (PEC) works in parallel with the Executive Committees of both Health Canada and the Public Health Agency of Canada.  Executive Committees are responsible for horizontal decision-making, direction setting and oversight of substantive and corporate responsibilities in their respective organization, with PEC responsible for direction setting and oversight of items pertaining to shared services.

PEC is chaired by both Deputy Heads; membership includes internal services and program area ADMs from both organizations. PEC is supported by several working committees which are designed provide leadership and direction on specific areas of focus. The following committees support PEC:

1. PEC-Internal Services (PEC-IS) is the forum for the discussion of policies, procedures and issues related to internal services.  Areas of focus include: Access to Information and Privacy, communications, human resources, information management, information technology, occupational health and safety, real property and security;
2. PEC Financial Operations Co-management Table discusses items such as accounting operations and procurement as it pertains to the shared services partnership.   Health Canada and the Public Health Agency of Canada each retain their executive finance committee structure. At Health Canada. it is called the Executive Committee-Planning and Accountability Committee (EC-PAC);
3. The International Affairs Working Committee is a forum for identifying and addressing operational, program and policy issues related to international affairs in Health Canada and the Public Health Agency of Canada.   This committee provides a forum for horizontal policy issue management, including the development of a framework for international priorities of HC and PHAC and will report to PEC as required; and,
4. The Emergency Preparedness Working Committee oversees the coordination and integration of joint emergency management activities for HC/PHAC and coordinates the application of the Health Portfolio Strategic Emergency Management Plan.  This committee identifies priorities and provides direction in the area of emergency management, including the development of emergency management policies, plans, training and exercises of common interest

2.2  Key measures taken by Health Canada

The control environment is an important factor for ICFR.  The Department's control environment incorporates a series of measures to equip its staff to manage risks through raising awareness, providing appropriate knowledge and tools as well as developing skills.  Key measures taken include:

• The Ethics and Internal Ombudsman Services committed to helping employees, work teams and the Department address conflicts, workplace concerns and ethical issues holistically;
• A new Health Canada Values and Ethics Code built on the Public Sector Code and the Treasury Board Policy on Conflict of Interest and Post Employment, to guide public servants at Health Canada in all activities related to their professional duties. This new Code came into effect  in April 2012 and includes information specific to Health Canada to reflect its distinctive culture;
• A dedicated division on internal control reporting through the Deputy Chief Financial Officer to the ADM-CFO;
• Annual performance agreements which clearly set out the financial management and reporting responsibilities of its staff;
• Formal training programs and communication documents in core areas of financial management;
• Departmental policies tailored to HC's control environment;
• Documentation of main business processes and related key risk and controls to support the management and oversight of its system of ICFR; and,
• Annual review of financial signing authority cards and update of the delegated authorities matrix as required;

In addition, HC annually updates its Corporate Risk Profile which falls under the responsibility of EC-PAC. This report outlines the key risks that need to be managed over the upcoming fiscal year in order to achieve the Department's mandate and strategic objectives.  This also contributes to the departmental priority setting exercise and integrated operational planning process.

2.3   Service arrangements relevant to financial statements

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

Common Arrangements

• Public Works and Government Services Canada (PWGSC) centrally administers the payments of salaries and the procurement of goods and services, as per HC's Delegation of Authority, as well as the Travel Expenses Management Tool (TEMT);
• Treasury Board Secretariat provides the departments with information that is used to calculate various accruals and allowances, such as the accrued severance liability;
• The Department of Justice provides legal services to HC;
• Shared Services Canada provides IT infrastructure services to other federal departments and agencies in the areas of data centre and network services; and
• Agriculture and Agri-Food Canada provides platform access to its human resources management system of record (PeopleSoft).

Specific Arrangements:

• An external service provider, pursuant to a contract with the Government of Canada, administers the Health Information and Claims Processing System for pharmacy, dental care, medical supplies and equipment benefits on behalf of the First Nations and Inuit Health Branch program. The external service provider has the authority and responsibility to ensure that claims paid on behalf of HC for services provided to First Nations and Inuit clients are made in accordance with the Terms and Conditions set out by the First Nations and Inuit Health Branch program.  Included in the contract requirements is the condition that an independent annual assurance report on the operating effectiveness of controls be provided at the end of each reporting period in accordance with the standards of the Canadian Institute of Chartered Accountants (CICA).

3. Departmental assessment result during fiscal year 2012-2013

3.1 Design effectiveness testing of key controls

Design effectiveness is not static.  Therefore as policies, systems and procedures are amended, the design effectiveness of the key controls is reassessed and modified accordingly. This ensures compliance and that key controls are still appropriately aligned with the risks they aim to mitigate.

In 2012-2013, the focus was on completing the remaining operating effectiveness testing to complete the first full assessment.

3.2 Operating effectiveness testing of key controls

During 2012-2013, the Department completed all the remaining operating effectiveness testing of key controls as planned with a particular focus on entity level controls, Information Technology General Controls and the following business processes: financial statements, payroll, Transfer Payments, Interdepartmental Settlements, Travel and Hospitality, and Non-Insured Medical Transportation.

As a result of the operating effectiveness testing, the Department identified a number of areas requiring enhancement in order to strengthen controls. Action plans were developed for which work is still ongoing mainly in the following areas:

A schedule for testing remediation was developed as per remediation implementation target dates and progress being monitored weekly and reported to DAC on a quarterly basis.

In addition, the Portfolio Audit and Accountability Bureau (PAAB) completed its second annual audit of Key Financial Controls and concluded that in general, Health Canada's internal controls over financial reporting are operating effectively to mitigate the risk of material misstatement.

4. Departmental Action Plan

4.1 Progress during fiscal year 2012-2013

During 2012-2013, the Department has continued to make significant progress in assessing and improving its key controls.

Procure to Pay Initiative

During the year, the Department has successfully implemented the Procure to Pay initiative (P2P). P2P provides an end to end solution for the electronic approvals of procurement transactions and invoices. This automation initiative is part of the Department's on-going business process improvements mandate to increase departmental efficiencies. This initiative standardized business processes, improved accuracy and timeliness of information and strengthened internal controls over financial practices by implementing electronic work flows and approvals. Furthermore, the Department has merged Health Canada's and PHAC's procurement and accounting operations and is completing the consolidation of its fourteen accounting sites across Canada into two national accounting operations hubs

Areas identified in fiscal year 2011-2012

Below is a summary of the main progress made by the Department based on the plans identified in the previous fiscal year's annex:

Completion of Operating Effectiveness testing

As stated in section 3.2 above, the Department completed all the remaining operating effectiveness testing of key controls.  As a result, a number of areas requiring enhancement were identified, action plans for remediation were developed, and implementation work is ongoing.

4.2 Status and action plan for the next fiscal year and subsequent years

Given the extent of progress accomplished over the previous fiscal years and the fact that some required corrective actions are still under way in a number of areas, the Department's action plan for 2013-2014 includes the following:

1. Follow-up and testing of remediation on the controls requiring enhancement as a result of prior years' operating effectiveness testing;
2. Fully implement an ongoing risk-based monitoring strategy to ensure internal controls over financial reporting are maintained, monitored and reviewed, with timely corrective measures taken when issues are identified.  The Department's rotational on-going monitoring plan over the next three years, based on the current validation of the processes and controls risks, is shown in the table below; and,
3. Re-assessment of controls affected by significant changes in processes such as the P2P initiative and upcoming Grants and Contributions change management.