A Portfolio for Health Innovation – Canadian Institutes of Health Research Annual Report 2013–14

Financial Statement Discussion and Analysis

Disclaimer

The Financial Statement Discussion and Analysis (FSD&A) should be read in conjunction with the Canadian Institutes of Health Research (CIHR) annual audited financial statements and accompanying notes for the year ended March 31, 2014.

The responsibility for the integrity and objectivity of the FSD&A for the year ended March 31, 2014, and all information contained in the financial statements rests with the management of CIHR.

Highlights

1. Statement of Financial Position

Condensed Statement of Financial Position
(in millions of dollars)

As at March 31 % Change 2014 2013
Total liabilities 19.0% $14.4 $12.1
Total financial and non-financial assets -1.6% $12.2 $12.4

2. Statement of Operations and Departmental Net Financial Position

Condensed Statement of Operations and Departmental Net Financial Position
(in millions of dollars)

For the year ended March 31 % Change 2014 2013
Total expenses -0.3% $1,008.9 $1,011.9
Net cost of operations before government funding 0.6% $1,002.0 $995.9

The decrease in total expenses is attributable to the $7.0M (or 0.7%) decrease in Parliamentary authorities provided by the Government of Canada to CIHR in 2013–14 as compared to the prior fiscal year. The slight increase in Net cost of operations before government funding is the result of $9.2M of decreased revenues as compared to the prior fiscal year. Partner funds disbursed by CIHR to health researchers decreased in 2013–14, resulting in less revenue being recognized.

3. Analysis

Risk Analysis

From its inception, CIHR has looked to establish effective partnerships with researchers, other federal departments and agencies, other national governments, non-government organizations, not-for-profit organizations and the private sector to identify and address the health needs of Canadians and invest in health research innovation. Through collaboration with its network of partners, CIHR is able to ensure the better mobilization, translation and diffusion of newly discovered knowledge and research resulting from both the academic and private sectors. As a result, CIHR is making a difference in the lives of Canadians.

In the 2013 Speech from the Throne [ PDF (11 MB) - external link ], the Government of Canada committed to releasing an updated Science, Technology and Innovation Strategy and the continued support of science and innovation. This is an opportunity for CIHR to further support health research innovation. CIHR intends to increase private sector investment in health research in Canada not only to support the training of skilled researchers but also to connect new discoveries and innovations to business and thus bring these innovations to market.

Unfortunately, the current international austerity climate is resulting in a number of stresses on research funding in general, not just on health research funding. Given the international economic climate, and the reduced capacity to access new funds, CIHR must find innovative new ways to invest strategically in priority research areas. Through partnerships with key stakeholders, CIHR has been able to leverage funding to increase its investment impact in health research over the past three years.

CIHR continues to adapt to its ever-changing environment in an effort to ensure that the health research it funds contributes to the health and well-being of Canadians. Given this new context, CIHR is currently updating its five-year strategic plan and will seek to increase the number of partners at all levels in priority research areas and to continue to leverage funds to ensure CIHR is able to deliver on its key commitments.

As part of the renewal of its strategic plan, CIHR developed an integrated performance management system that will inform decision making at CIHR and allow for improved reporting both internally and externally. As part of this process, CIHR has also proactively reviewed its corporate risk profile, and identified, assessed and mitigated any new corporate risks under the terms of the approved corporate risk management framework.

Key Risks
Risk – Alignment and Priority Setting

Given the resources currently available, there is a risk that CIHR will have limited capacity to face the changing environment in health research, thus impacting our ability to invest strategically in priority health areas. If not properly mitigated, this risk could result in loss of credibility from both key external and internal stakeholders and the public at large, leading to possible damage to CIHR’s reputation as well as to increased scrutiny and possible reductions in future funding levels.

Risk Mitigation Strategy

Mitigation measures include:

Risk – Implementation of the Reforms

There is a risk that CIHR will be unable to successfully implement the new internal processes, policies and structures in the time frame required to support the reforms, and there is further risk that the implementation of the technical system will not be in place in the time frame required to fully deliver on the benefits of the reforms. If not properly mitigated, this risk could result in delays, decreases in optimally allocating grant dollars to researchers and/or loss of credibility from both key external and internal stakeholders and the public at large, leading to possible damage to CIHR’s reputation as well as to increased scrutiny and possible reductions in future funding levels.

Risk Mitigation Strategy

CIHR has created a centralized Project Management Office comprising resources from both the program and IM/IT branches. This centralization, coupled with strong governance and change management practices, will provide guidance and structure to the implementation of the reforms.

Risk – Human Resources

There is a risk that CIHR does not have the right skill set to deliver on CIHR's key priorities within the expected time frame, and in the ever-changing health research environment, coupled with the impact the reforms will have on CIHR's current skill set. If not properly mitigated, this risk could result in key vacancies going unfilled; inexperienced staff acting in roles that are beyond their capabilities; a lack of skills and knowledge; employee burnout; job dissatisfaction; a high job vacancy rate; and an inability to deliver on operational plans, develop strategies and fulfil CIHR’s mandate.

Risk Mitigation Strategy

CIHR is developing an HR strategy that will focus among other things on attracting, developing and retaining talent, including a review of its current staffing program, in order to be more strategic in its workforce recruitment and development. CIHR has developed a new competency framework with new and refreshed competencies that reflect current and future organizational needs.

Risk – Institute Model Review

There is a risk associated with the Institute Model Review that CIHR will be unable to make needed program, policy or other changes to adapt to or efficiently meet emerging or evolving needs. If not properly mitigated, this risk could result in loss of credibility from both key external and internal stakeholders and the public at large, leading to possible damage to CIHR’s reputation as well as to increased scrutiny and possible reductions in future funding levels.

Risk Mitigation Strategy

Current mitigation strategies include:

4. Variance Analysis

4.1. Variances between current year actual results and budget

CIHR is financed by the Government of Canada through Parliamentary authorities. In 2013–14, CIHR received $1,001.0M of Parliamentary authorities, a decrease of $7.0M (or 0.7%) as compared to 2012–13. The Government of Canada provided CIHR with reduced Parliamentary authorities in 2013–14, as follows:

Parliamentary Authorities (in millions of dollars) 2013–14
Strategy for Patient-Oriented Research 15.0
Decreased funding for Centres of Excellence for Commercialization and Research (2.2)
Decreased funding for Business-led Networks of Centres of Excellence (3.5)
Net transfers to/from the Public Health Agency of Canada (1.6)
Deficit Reduction Action Plan (15.0)
Reprofiling of Canada Excellence Research Chairs 1.4
Other reductions (1.1)
Total reduction in Parliamentary Authorities $(7.0)
4.2. Variances between current year actual results and prior year actual results

See Note 12 (Segmented Information) of Audited Financial Statements
(in millions of dollars)

For the year ended March 31 % Change 2014 2013
Grants and awards -0.6% $950.8 $956.7
Total operating expenses -1.0% $62.2 $62.8

Grants and awards expenditures decreased by 0.6% (or $5.9M) in 2013–14 primarily due to reduced parliamentary appropriations being apportioned to CIHR. The following graph displays a comparison of year-over-year grants and awards expenditures by program:

Grants and Awards by Program Activity

(in millions of dollars)

Long description: Grants and Awards by Program Activity

Total operating expenses decreased by 1.0% (or $0.6M) primarily due to decreased employee salaries and benefits ($2.2M). The decrease was offset by increases to other expenses ($0.5M) as a result of higher rental and materials and supplies expenses as well as an increase in amortization ($0.5M) resulting primarily from prior year informatics software additions that were fully capitalized in 2013–14.

5. Trend Analysis

5.1. Grants and Awards (G&A)

CIHR Net Cost of Operations and Grants and Awards Expenses

(in millions of dollars)

Long description: CIHR Net Cost of Operations and Grants and Awards Expenses

5.2. Operating Expenses

Operating Expenses

(in million of dollars)

Long description: Operating Expenses

Financial Outlook: 2014–15

On February 13, 2014, Minister of Finance James Flaherty tabled in Parliament the Government budget for fiscal year 2014–15. Given the ongoing uncertainty in the global economic environment, the Government will continue to pursue the objectives of job creation and economic growth that have underpinned the Economic Action Plan since its inception in 2009, while remaining on track for a balanced budget.

To this end, the Government announced in Budget 2014 that it will focus on implementing a number of targeted, affordable measures to drive economic progress and prosperity in Canada, including support for advanced research and innovation to foster a vibrant entrepreneurial culture where new ideas are translated into products and services in the market place. More specifically, Budget 2014 announced a permanent $15M budget increase for CIHR for the expansion of the Strategy for Patient-Oriented Research, the creation of the Canadian Consortium on Neurodegeneration in Aging and other health research priorities.

As such, CIHR expects to remain in good financial position as the Government of Canada returns to fiscal balance over the medium term. CIHR management anticipates that additional funding through permanent increases and transfers will enable CIHR’s total budget to reach $1B before year end and be consistent with the budgetary levels of 2013–14.

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