CIHR@15 – Canadian Institutes of Health Research Annual Report 2014‑15

Financial Statement Discussion and Analysis

Introduction

The following Financial Statement Discussion and Analysis (FSD&A) should be read in conjunction with the Canadian Institutes of Health Research (CIHR) audited financial statements and accompanying notes for the year ended March 31, 2015.

The responsibility for the integrity and objectivity of the FSD&A rests with the management of CIHR. The purpose of the FSD&A is to highlight information and provide explanations to enhance the user’s understanding of CIHR’s financial position and results of operations, while demonstrating CIHR’s accountability for its resources. Additional information on CIHR’s performance is available in the CIHR Departmental Performance Report (DPR), and information on its plans and priorities is available in the CIHR Report on Plans and Priorities (RPP).

Overview

The Canadian Institutes of Health Research was established in June 2000 under the Canadian Institutes of Health Research Act. It is listed in Schedule II to the Financial Administration Act as a departmental corporation. CIHR’s objective is to excel, according to international standards of scientific excellence, in the creation of new knowledge, and its translation into improved health, more effective health services and products, and a strengthened Canadian health care system.

CIHR’s budget is allocated through authorities approved by Parliament. CIHR has separate voted authorities for operating expenditures and for grants. Authorities provided to CIHR by Parliament do not parallel financial reporting according to Canadian public sector accounting standards, since authorities are primarily based on cash accounting principles. Consequently, items recognized in the Statement of Financial Position, the Statement of Operations and Departmental Net Financial Position, the Statement of Change in Departmental Net Debt and the Statement of Cash Flows are not necessarily the same as those provided through authorities from Parliament. Note 3 of the Financial Statements provides statement users with a reconciliation between the two bases of reporting.

Highlights

As evidenced below, CIHR’s financial results in 2014-15 are consistent with those of the preceding fiscal year.

1. Statement of Financial Position

Condensed Statement of Financial Position (in millions of dollars)

As at March 31 % Change 2015 2014
Total liabilities 4.2% $15.0 $14.4
Total financial and non-financial assets 8.2% $13.2 $12.2

The slight increase in total liabilities is a result of increased accrued salaries at year-end, resulting from the implementation of salary payments in arrears by the Government of Canada in 2014-15. Adopting payment in arrears means that employees are paid on a bi-weekly basis for the ten days worked that concluded two weeks prior to payday. Consequently, accrued salaries as at March 31, 2015 increased by approximately $1.25 million as compared to the prior fiscal year.

The increase in total financial and non-financial assets is primarily the result of an increase to financial assets of $0.9 million due to an increase in the Due from the Consolidated Revenue Fund (CRF). This occurred because of the overall increase in liabilities as noted above. The amount due from the CRF represents the net amount of cash that CIHR is entitled to draw from the CRF without further authorities to discharge its liabilities.

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 2015 2014
Total expenses 1.9% $1,027.7 $1,008.9
Net cost of operations before government funding and transfers 1.8% $1,020.1 $1,002.0

The increase to both Total expenses (1.9%) and to Net cost of operations before government funding and transfers (1.8%) are attributable to increased Parliamentary authorities provided to CIHR by the Government of Canada of $17.0 million (1.7%) as compared to the prior fiscal year.

3. Risk Analysis

From its inception, CIHR has endeavored to make a difference in the lives of Canadians by identifying and addressing the health needs of Canadians and investing in health research innovation. This has enabled CIHR to better mobilize, translate and diffuse newly discovered knowledge and research resulting from both the academic and private sectors.

It should be noted that “a revolution is underway in Canada’s health research landscape” (CIHR, 2014), which is providing opportunities in health research while at the same time, allowing CIHR to continue to adapt to its ever-changing environment by ensuring that the health research it funds contributes to the health and well-being of Canadians. Given this new context and as noted earlier, CIHR published a refresh of its 5-year strategic plan, Roadmap II, aimed at three broad strategic directions that fully align to CIHR’s Program Alignment Architecture. Roadmap II also aligns to the Government of Canada’s newly released update of the Science, Technology and Innovation Strategy. This strategy outlines continued support for science and innovation including health research innovation. As part of the renewal of its strategic plan, CIHR developed an integrated performance management regime toolbox that now informs decision making at CIHR and allows for improved reporting both internally and externally.

The current international austerity climate has resulted in a number of stresses on research funding in general. As a result, CIHR is increasing and leveraging private sector investment funding 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 which in turn will increase its investment and impacts in health research. This innovative approach has resulted in the Government of Canada announcing further funding of $13.0 million to the Strategy for Patient-Oriented Research (SPOR), a coalition of federal, provincial and territorial partners dedicated to the integration of research into care, and of $2.0 million per year to support additional research to better understand and address the health challenges posed by anti-microbial resistant infections.

While CIHR identified 9 risks for the 2014-15 fiscal year, only the top 3 risks were initially considered high enough to require regular monitoring and reporting. However, with the completion in August 2014 of CIHR’s Governing Council’s “Institutes Model Review”, this risk rose from a moderate to a high level status. As part of its mandate, the CIHR Act and the recommendations from the 2011 International Review Panel required CIHR to assess the structure, role, policies, financial framework and slate of CIHR Institutes. The top 4 risks are outlined below, including the “Institutes Model Review”, along with the associated actions and mitigation strategies undertaken by CIHR.

Key Risks
Risk 1 – Alignment and Priority Setting

There is a risk that CIHR will lack the funds needed to support the ever-changing environment that currently exists in health research and that CIHR’s current budget allocation will negatively impact its ability to strategically invest in priority health areas.

Risk Mitigation Strategy

CIHR responded to this risk by forming a grants and awards working group that reviewed and recommended strategies to ensure that CIHR will be able to maintain its level of impact within the current budget. CIHR also developed and implemented a multi-year investment planning process which supports sound financial and risk management practices. This new framework enables governance bodies to focus on CIHR’s proposed health research relevance and impact while using business processes that are clear, nimble, transparent, sustainable and flexible. While much was accomplished to mitigate this risk, alignment and priority setting remains a high risk and will be actively managed by CIHR in 2015-16.

Risk 2 – Implementation of Reforms

There is a risk that CIHR will be unable to successfully implement the new internal processes, policies and structures in the timeframe required to support the reforms, and there is a further risk that the implementation of the technical system will not be completed in the timeframe required to fully deliver on the benefits of the reforms.

Risk Mitigation Strategy

CIHR responded to this risk by creating a centralized Project Management Office which included resources from both the program and the IM/IT branches. This centralization, coupled with strong governance and change management practices, provided guidance and structure to the implementation of the reforms. Significant progress has been made through the mitigation strategies related to this risk, and as a result the implementation of the reforms is no longer a high risk that requires regular and active management by CIHR.

Risk 3 – Human Resources

There is a risk that CIHR will not have the right skill set to deliver on CIHR’s key priorities in the ever-changing health research environment, coupled with the impact the reforms will have on CIHR’s current skill set.

Risk Mitigation Strategy

CIHR responded to this risk by developing an HR strategy that addresses its current staffing policies and processes in order to be more strategic in its hiring and placement of staff in key positions. CIHR also developed a new Competency Framework with new and refreshed competencies that reflect current and future organizational needs, developed an HR strategy focused on, amongst other things, attracting, developing and retaining talent, and it developed a new recruitment guide that is in line with the new skills and competencies. Human Resources is now a moderate risk for CIHR as a result of its mitigation strategies and is no longer a high risk for CIHR in 2015-16. but will continue to be monitored.

Risk 4 – Institutes Model Review

There is a risk associated with the Institute Review that CIHR will be unable to make needed program, policy or other changes to adapt to, or efficiently meet emerging or evolving needs.

Risk Mitigation Strategy

CIHR responded to this risk by conducting an extensive consultative planning process that ensured the objectives of the review were clear and the process was as inclusive as possible. Ongoing communications also occurred throughout the review and following the recommendations. In addition, active project management was undertaken by the Institute Review Steering Committee, and a communications strategy and change management plan were developed. Significant progress has been made related to the Institutes Model Review and the risk no longer appears in CIHR’s Corporate Risk Profile for 2015-16. Implementation components have been subsumed. However, components of the Institutes Model Review are now included in both the Change Management and the External Stakeholder Relationship Management risks moving forward.

4. Variance Analysis

4.1. Variances between current year actual results and budget

As noted earlier, CIHR is financed by the Government of Canada through Parliamentary authorities. In 2014-15, CIHR received $1,018.0 million in Parliamentary authorities, an increase of $17.0 million (or 1.7%) as compared to the prior fiscal year. The Government of Canada provided CIHR with increased Parliamentary authorities in 2014-15, as follows:

Parliamentary Authorities (in millions of dollars) 2014–15
Expansion of Strategy for Patient-Oriented Research and creation of the Canadian Consortium on Neurodegeneration in Aging (CCNA) $10.0
Development of an Emerging Health Threats Research Fund 5.0
Net transfers from other government departments 1.2
Prevention of Prescription Drug Abuse initiative 1.0
Canada Excellence Research Chairs 0.6
Other 0.4
Business-Led Networks of Centres of Excellence (1.2)
Total increase in Parliamentary Authorities $17.0

This increase in Parliamentary authorities of $17.0 million (or 1.7%) is the key factor to note when comparing current year and prior year results for CIHR.

4.2. Variances between current year actual results and prior year actual results

See Note 13 (Segmented Information) of Audited Financial Statements (in millions of dollars)

For the year ended March 31 % Change 2015 2014
Grants and awards 1.8% $967.5 $950.8
Total operating expenses 0.0% $62.2 $62.2

Grants and awards expenditures increased by 1.8% (or $16.7 million) in 2014-15 due to increased Parliamentary appropriations being apportioned to CIHR for grants (as outlined in section 4.1). Total operating expenses were consistent with those incurred in the prior fiscal year.

5. Trend Analysis

5.1. Grants and Awards (G&A)

CIHR Net Cost of Operations and G&A Expenses (in millions of dollars)

Long Description: CIHR Net Cost of Operations and G&A Expenses

As evidenced by the above chart, net cost of operations and grants and awards expenses increase or decrease on a yearly basis in relative proportion to changes in the Parliamentary authorities provided to CIHR by the Government of Canada.

5.2. Operating Expenses

Operating Expenses (in millions of dollars)

Long Description: Operating Expenses

Financial Outlook – 2015-16

The Government continues to recognize the importance of fostering a strong and advanced research environment in Canada. The creation of knowledge, application of scientific discoveries and development of highly qualified people bring vast social and economic benefits for Canadians. The Government’s 2015 Economic Action Plan includes several measures aimed at strengthening the research capacity of post-secondary institutions and supporting their interactions with the private sector. Budget 2015 allocated an additional $15 million per year to CIHR (starting in 2016-17), including $13 million toward the expansion of the Strategy for Patient-Oriented Research initiative, to advance health care innovation in partnership with provincial governments, research institutions, and the private and not-for-profit sectors, with a view to increasing the effectiveness and efficiency of the health care system. The balance of $2 million per year will support additional research to better understand and address the health challenges posed by anti-microbial resistant infections.

CIHR’s 2015-16 total budget could also increase once competition results of the Canada First Research Excellence Fund (CFREF) and the Centres of Excellence for Commercialization and Research (CECR) programs are determined. CFREF is a new federal program that will help Canadian post-secondary research institutions leverage their key strengths into world-leading capabilities that will generate benefits for Canadians. The CFREF program is administered by the Social Sciences and Humanities Research Council (SSHRC) on behalf of the three federal granting councils. The Fund will be competitively allocated (based on peer review), with funding allocated to CIHR following each competition should any applications align with CIHR’s health research mandate. Funding for the CECR program is similarly allocated to each of the three granting councils dependent on the recipients’ alignment with the research mandate of each agency. As such, CIHR’s 2015-16. budget may increase as a result of successful health-oriented projects within the competitions.

It is expected that CIHR’s total budget will continue to exceed $1 billion in 2015-16. and be consistent with budgetary levels from 2014-15. CIHR expects to remain in good financial position as the Government of Canada has returned to fiscal balance.

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