Patented Medicine Prices Review Board: Statement of Management Responsibility – Financial Statements

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2014, and all information contained in these statements rests with the management of Patented Medicine Prices Review Board (PMPRB). 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 PMPRB's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the PMPRB'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 PMPRB and through conducting an annual risk-based assessment of the effectiveness of the system of ICFR.

The system of ICFR is designed to mitigate risks to a reasonable level based on an ongoing process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.

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

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

The financial statements of the PMPRB have not been audited.

Mary Catherine Lindberg
Chairperson
Ottawa, Canada
Date: August 18, 2014

Douglas Clark
Executive Director and Chief Financial Officer
Ottawa, Canada
Date: August 14, 2014


PATENTED MEDICINE PRICES REVIEW BOARD
Statement of Financial Position (Unaudited)
As at March 31
(in dollars) 2014 2013
Liabilities
Accounts payable and accrued liabilities (note 4) $ 571,104 $ 3,339,945
Vacation pay and compensatory leave 252,828 260,168
Employee future benefits (note 5) 288,183 429,810
Total gross liabilities 1,112,115 4,029,923
Liabilities held on behalf of Government
Accrued liabilities (note 4) (2,801,285)
Total liabilities held on behalf of Government (2,801,285)
Total net liabilities 1,112,115
1,228,638
Financial assets
Due from Consolidated Revenue Fund 382,559 353,345
Accounts receivable and advances (note 6) 189,045 172,546
Total net financial assets 571,604 525,891
Departmental net debt 540,511 702,747
Non-financial assets

Tangible capital assets (note 7) 73,343 65,950
Total non-financial assets 73,343 65,950
Departmental net financial position $ (467,168) $ (636,797)

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

Mary Catherine Lindberg
Chairperson
Ottawa, Canada
Date: August 18, 2014

Douglas Clark
Executive Director and Chief Financial Officer
Ottawa, Canada
Date: August 14, 2014

PATENTED MEDICINE PRICES REVIEW BOARD
Statement of Operations and Departmental Net Financial Position (Unaudited)
For the Year Ended March 31
(in dollars) 2015
Planned Results
2015 2014
Expenses
Patented Medicine Price Regulation Program $ 7,434,642 $ 4,062,604 $ 4,192,859
Pharmaceutical Trends Programs 1,496,368 1,272,004 740,999
Internal services 3,152,044 3,414,398 3,404,988
Total expenses 12,083,054 8,749,006 8,338,846
Revenues
Voluntary compliance undertakings 10,605,109 19,670,485
Other 223
Revenues earned on behalf of Government (10,605,119) (19,670,485)
Total revenues 213
Net cost of operations before government funding and transfers 12,083,054 8,748,793 8,338,846
Government funding and transfers
Net cash provided by Government of Canada 10,908,932 7,711,986 8,100,835
Change in due from Consolidated Revenue Fund 11,881 29,214 (107,496)
Services provided without charge by other government departments (note 8) 1,225,237 1,177,222 1,213,821
Net cost of operations after government funding and transfers (62,996) (169,629) (868,314)
Board net financial position – Beginning of year (988,801) (636,797) (1,505,111)
Board net financial position – End of year $ (925,805) $ (467,168) $ (636,797)

Segmented information (note 9)

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

PATENTED MEDICINE PRICES REVIEW BOARD
Statement of Change in Departmental Net Debt (Unaudited)
For the Year Ended March 31
(in dollars) 2014
Planned Results
2014 2013
Net cost of operations after government funding and transfers $ (62,996) $ (169,629) $ (868,314)
Change due to tangible capital assets  

Acquisition of tangible capital assets 20,583 65,950
Amortization of tangible capital assets (13,190)
Total change due to tangible capital assets 7,393 65,950
Net increase (decrease) in Departmental net debt (62,996) (162,236) (802,364)
Departmental net debt – Beginning of year 988,801 702,747 1,505,111
Departmental net debt – End of year $ 925,805 $ 540,511 $ 702,747

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

PATENTED MEDICINE PRICES REVIEW BOARD
Statement of Cash Flows (Unaudited)
For the Year Ended March 31
(in dollars) 2014 2013
Operating activities
Net cost of operations before government funding and transfers $ 8,748,793 $ 8,338,846
Non-cash items:
Amortization of tangible capital assets (13,190)
Services provided without charge by other government departments (note 8) (1,177,222) (1,213,821)
Variations in Statement of Financial Position:
Decrease (increase) in accounts payable and accrued liabilities (32,444) 404,244
Decrease in vacation pay and compensatory leave 7,340 1,294
Decrease in employee future benefits 141,627 486,034
Increase in accounts receivable and advances 16,499 18,288
Cash used in operating activities 7,691,403 8,034,885
Capital investing activities

Acquisitions of tangible capital assets 20,583 65,950
Cash used in capital investing activities 20,583 65,950
Net cash provided by Government of Canada $ 7,711,986 $ 8,100,835

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

Patented Medicine Prices Review Board
Notes to the Financial Statements (Unaudited)
For the Year Ended March 31, 2013

1. Authority and objectives

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

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

Strategic Outcome: Canadians are protected from excessive prices for patented medicines sold in Canada and stakeholders are informed on pharmaceutical trends.

Patented Medicine Price Regulation Program

The PMPRB is an independent quasi-judicial body that is responsible for ensuring that the prices that patentees charge for patented medicines sold in Canada are not excessive based on the price review factors in the Act. To make this determination the Board must consider each of the following factors: prices at which the medicine and other medicines in the same therapeutic class have been sold in Canada and in the seven comparator countries listed in the Patented Medicines Regulations (Regulations); changes in the Consumer Price Index (CPI); and in accordance with the Act, such other factors as may be specified in any regulations made for the purposes of the price review. Under the Act, and as per the Regulations, patentees are required to file price and sales information for each patented medicine sold in Canada, for the duration of the patent(s). Board Staff reviews the introductory and ongoing information filed by patentees, for all patented medicines sold in Canada. When it finds that the price of a patented medicine appears to be excessive, Board Staff will conduct an investigation into the price. An investigation could result in: its closure where it is concluded that the price was non-excessive; a Voluntary Compliance Undertaking (VCU) by the patentee to reduce the price and offset excess revenues obtained as a result of excessive prices through a payment and/or a price reduction of another patented drug product; or a public hearing to determine if the price is excessive, including any remedial order determined by the Board. In the event that the Board Hearing Panel finds, after a public hearing, that a price is or was excessive, it may order the patentee to reduce the price and take measures to offset any excess revenues. This program, by reviewing the prices charged by patentees for patented medicines sold in Canada, protects Canadians and the health care system from excessive prices.

Pharmaceutical Trends Program

The PMPRB reports annually to Parliament through the Minister of Health on its price review activities, the prices of patented medicines and price trends for all drugs, and R&D expenditures as reported by pharmaceutical patentees. In supporting this requirement, the Pharmaceutical Trends Program provides complete and accurate information on trends in manufacturers' prices of patented medicines sold in Canada and on patentees' research-and-development expenditures to interested stakeholders including: industry (i.e., brand-name, biotech, generic); federal, provincial and territorial (F/P/T) governments; consumer and patient advocacy groups; third party payers; and others. This information also provides assurance to Canadians that the prices of patented medicines are not excessive. In addition, as a result of the establishment of the National Prescription Drug Utilization Information System (NPDUIS) by F/P/T ministers of health, the Minister of Health requested that the PMPRB conduct analysis of price, utilization and cost trends for prescription drugs so that Canada's health system has comprehensive, accurate information on how prescriptions drugs are being used and on the sources of cost increases. The PMPRB publishes specific NPDUIS reports based on the research and reporting priorities identified by the NPDUIS Steering Committee.

Internal Services

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. These groups 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; Acquisition Services; and Travel and Other Administrative Services. Internal Services include only those activities and resources that apply across an organization and not to those provided specifically to a program.

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 PMPRB is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the PMPRB do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Financial Position and the Statement of Operations and Departmental Net Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. The planned results amounts in the Statement of Operations and Departmental Net Financial Position and Statement of Change in Departmental Net Debt are the amounts reported in the future-oriented financial statements included in the 2013-14 Report on Plans and Priorities.

(b) Net cash provided by Government

The PMPRB operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the PMPRB is deposited to the CRF and all cash disbursements made by the PMPRB are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments of the Government.

(c) Amounts due from the Consolidated Revenue Fund

Amounts due from the CRF are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that the PMPRB is entitled to draw from the CRF without further authorities to discharge its liabilities.

(d) Revenues

  • Revenues from regulatory fees are recognized in the accounts based on the services provided in the year;
  • 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 PMPRB's liabilities. While the Chairperson 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 the accrual basis:

  • 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 and legal services 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 multiemployer pension plan administered by the Government. The PMPRB's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The PMPRB's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.
  2. Severance benefits: 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. They are mainly comprised of amounts to be recovered from other government departments and the recovery is considered certain. As a result, no provision has been recorded as an offset against these amounts.

(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 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 having an initial cost of $10,000 or more are recorded at their acquisition cost. The PMPRB 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:

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

(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 item where estimates are used are the liability for employee future benefits and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management’s estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year that they become known.

3. Parliamentary authorities

The PMPRB receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Financial Position and the Statement of Operations and Departmental Net Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the PMPRB has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables:

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

Reconciliation of net cost of operations to current year authorities used
(in dollars) 2014 2013
Net cost of operations before government funding and transfers $ 8,748,793 $ 8,338,846
Adjustments for items affecting net cost of operations but not affecting authorities
Amortization of tangible capital assets (13,190)
Services provided without charge by other government departments (1,177,222) (1,213,821)
Decrease in vacation pay and compensatory leave 7,340 1,294
Decrease in employee future benefits 141,627 486,034
Refund/adjustment of previous year's expenditures 11,138 26,500
Workforce adjustment measures 352,000
Total items affecting net cost of operations but not affecting authorities 7,718,486 7,990,853
Adjustments for items not affecting net cost of operations but affecting authorities
Refund of previous year revenue 2,801,285
Acquisition of tangible capital assets 20,583 65,950
Proceeds from disposal of Crown assets 213
Total items not affecting net cost of operations but affecting authorities 2,822,081 65,950
Current year authorities used $ 10,540,567 $ 8,056,803

(b) Authorities provided and used:

Authorities provided and used
(in dollars) 2014 2013
Authorities provided:
Vote 40 – Program expenditures $ 10,501,868 $ –
Vote 45 – Program expenditures 11,667,975
Statutory amounts 3,733,491 911,028
Less:
Lapsed authorities (3,694,792) (4,522,200)
Current year authorities used $ 10,540,567 $ 8,056,803

4. Accounts payable and accrued liabilities

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

Accounts payable and accrued liabilities
(in dollars) 2014 2013
Accounts payable – External parties $ 271,338 $ 320,832
Accounts payable – Other government departments and agencies 37,266 17,705
Total accounts payable 308,604 338,537
Accrued liabilities 262,500 3,001,408
Gross accounts payable and accrued liabilities 571,104 3,339,945
Accrued liabilities held on behalf of government (2,801,285)
Total accounts payable and accrued liabilities $ 571,104 $ 538,660

The PMPRB has recorded an accrued liability of $ nil in 2013-14 ($2,801,285 in 2012-13) for an allowance for claims and litigation.

5. Employee future benefits

(a) Pension benefits

The PMPRB's employees participate in the public service pension plan (“the Plan”), which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2% per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plans benefits and they are indexed to inflation.

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

The 2013-14 expense amount to the following:

Pension expense
(in dollars) 2014 2013
Expense for the year $ 605,626 $ 650,474

For Group 1 members, the expense represents approximately 1.6 times (1.7 times in 2012-2013) the employee contributions and, for Group 2 members, approximately 1.5 times (1.6 times in 2012-2013) the employee contributions.

The PMPRB's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

(b) Severance benefits

The PMPRB 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:

Accrued benefit obligation
(in dollars) 2014 2013
Accrued benefit obligation – Beginning of year $ 429,810 $ 915,844
Provision for the year 112,513 (252,458)
Benefits paid during the year (254,140) (233,576)
Accrued benefit obligation – End of year $ 288,183 $ 429,810

6. Accounts receivable and advances

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

Accounts receivable and advances
(in dollars) 2014 2013
Accounts receivable – other government departments and agencies $ 188,545 $ 172,046
Employee advances 500 500
Total accounts receivable and advances $ 189,045 $ 172,546

7. Tangible capital assets

Capital Assets
(in dollars) Opening Balance Acquisitions Disposals/Write-downs Closing Balance
Computer equipment $ 157,192 $ 20,583 $ (91,242) $ 86,533
Total $ 157,192 $ 20,583 $ (91,242) $ 86,533
Accumulated Amortization
(in dollars) Opening Balance Current Year Amortization Disposals/Write-downs Closing Balance
Computer equipment $ 91,242 $ 13,190 $ (91,242) $ 13,190
Total $ 91,242 $ 13,190 $ (91,242) $ 13,190
Tangible Capital Assets
Net Book Value
(in dollars) Net Book Value 2013 Net Book Value 2014
Computer equipment $ 65,950 $ 86,533
Total $ 65,950 $ 73,343

8. Related party transactions

The PMPRB is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The PMPRB enters into transactions with these entities in the normal course of business and on normal trade terms. Also, during the year, the PMPRB received 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 PMPRB received services without charge from certain common service organizations, related to accommodation, legal services and the employer's contribution to the health and dental insurance plans. These services provided without charge have been recorded in the PMPRB's Statement of Operations and Departmental Net Financial Position as follows:

Common services provided without charge by other government departments
(in dollars) 2014 2013
Accommodation $ 735,730 $ 733,339
Employer's contribution to the health and dental insurance plans 440,853 479,538
Legal services 639 944
Total $ 1,177,222 $ 1,213,821

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

(b) Other transactions with related parties:

Other transactions with related parties
(in dollars) 2014 2013
Accounts payable – other government departments and agencies $ 37,266 $ 17,705
Accounts receivable – other government departments and agencies 188,545 172,046
Expenses – other government departments and agencies 127,426 90,100

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

9. Segmented information

Presentation by segment is based on PMPRB'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 dollars) Patented Medicine Price Regulation Program Pharmaceutical Trends Program Internal Services 2014 Total 2013 Total
Expenses
Salaries and employee benefits $ 3,157,258 $ 821,280 $ 2,493,529 $ 6,472,067 $ 6,194,152
Professional and special services 298,019 90,839 366,665 755,523 856,326
Accommodation 343,961 95,618 296,151 735,730 733,339
Information services 13,372 246,736 7,498 267,606 47,767
Utilities, materials and supplies 141,927 1,0186 2,475 205,420 214,939
Other 70,637 3,124 6,056 79,817 2,065
Travel and relocation 22,000 12,732 43,155 77,887 99,396
Communications 12,709 158 50,550 63,417 58,859
Rentals 2,721 499 59,943 63,163 116,420
Repair and maintenance 15,186 15,186 15,583
Amortization of tangible capital assets 13,190 13,190
Total expenses 4,062,604 1,272,004 3,414,398 8,749,006 8,338,846
Revenues
Voluntary compliance undertakings 10,605,109 10,605,109 19,670,485
Other 223 223
Revenues earned on behalf of Government (10,605,119) (10,605,119) (19,670,485)
Total revenues 213 213
Net cost of operations before government funding and transfers $ 4,062,604 $ 1,272,004 $ 3,414,185 $ 8,748,793 $ 8,338,846
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