Annual Report 2006-2007

[ Table of Contents ]

Providing Stewardship and Accountability
Institutes of Excellence
The Power of Volunteers
Financial Statement Discussion and Analysis
Auditor's Report and Financial Statement

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Providing Stewardship and Accountability

CIHR reports to Parliament through the Minister of Health. Its Governing Council is chaired by CIHR's President and comprises 20 Canadians who have been appointed by Order-in-Council to renewable three-year terms. Council members represent a wide range of backgrounds and disciplines, reflecting CIHR's broad mandate and vision.

CIHR's Governing Council, 2006-07

Dr. Alan Bernstein
(Chair)
President
Canadian Institutes of Health Research

Dr. James Brien
Professor of Pharmacology and Toxicology
Director of Research
Faculty of Health Sciences
Queen's University

Dr. Michel Bureau
Professor
Faculty of Medicine
University of Sherbrooke
Director General
Ministère de la Santé et des Services sociaux du Québec

Dr. Harvey Chochinov
Canada Research Chair in Palliative Care
Professor of Psychiatry
University of Manitoba and CancerCare Manitoba

Dr. Nancy Edwards
(Vice-Chair)
Professor
School of Nursing
Department of Epidemiology and Community Medicine
Director
Community Health Research Unit
University of Ottawa

Dr. Brett Finlay
Professor
Michael Smith Laboratories
Department of Biochemistry and Molecular Biology
University of British Columbia

Dr. Victor Ling (until September 2006)
(Associate Vice-Chair)
Vice President
BC Cancer Agency

Dr. Patrick John McGrath
Professor of Psychology, Pediatrics and Psychiatry
Dalhousie University

Dr. Louise Nadeau (until June 2006)
(Vice-Chair)
Professor
Department of Psychology
University of Montreal

Dr. Rodney Ouellette
Director
Molecular Pathology Laboratory
CEO & Scientific Director
Beauséjour Medical Research Institute
Head of Research
Dr. Georges-L. Dumont Regional Hospital

Dr. Arthur Porter
Director General and CEO
McGill University Health Centre

Dr. Ray Rajotte
Professor of Surgery and Medicine
Director, Surgical-Medical Research Institute
Director, Islet Transplantation Group
University of Alberta

Dr. Carol Richards
Director
Centre for Interdisciplinary
Research in Rehabilitation and Social Integration
Laval University

Mr. Morris Rosenberg (ex officio)
Deputy Minister
Health Canada

Dr. Janet Rossant
Chief of Research
Hospital for Sick Children

Mr. Joseph Rotman (until June 2006)
Chairman and CEO
Roy L. Capital Corporation

Dr. Jean Rouleau
Dean of Medicine
University of Montreal

Dr. Robert Sheldon
Professor and Associate Dean of Clinical Research
Faculty of Medicine, University of Calgary
Vice-President, Research
Calgary Health Region

Mr. Arnold Steinberg
(Deputy Vice-Chair)
Principal, Retail and Investment Banking
Cleman Ludmer Steinberg, Inc.

Dr. Bill Thomlinson
Executive Director
Canadian Light Source Inc.
University of Saskatchewan

Dr. Cornelia Wieman
Co-Director
Indigenous Health Research
Development Program
Assistant Professor
Department of Public Health Sciences
Faculty of Medicine
University of Toronto

Institutes of Excellence

CIHR is composed of 13 innovative Institutes. These Institutes bring together all partners in the research process - those who fund research, those who carry it out and those who use its results - to share ideas and focus on what Canadians need: good health and the means to prevent and fight diseases when they happen.

Each Institute is headed by a Scientific Director who is a leader in his or her field. Scientific Directors receive guidance from their Institute Advisory Boards, made up of volunteers from all areas of the health research community.

The following are CIHR's 13 Institutes and their Scientific Directors:

CIHR's Institute of Aboriginal Peoples' Health
Dr. Jeff Reading
University of Victoria

CIHR's Institute of Aging
Dr. Anne Martin-Matthews
University of British Columbia

CIHR's Institute of Cancer Research
Dr. Philip Branton
McGill University

CIHR's Institute of Circulatory and Respiratory Health
Dr. Peter Liu
University Health Network
University of Toronto

CIHR's Institute of Gender and Health
Dr. Miriam Stewart
University of Alberta

CIHR's Institute of Genetics
Dr. Roderick McInnes
Hospital for Sick Children
University of Toronto

CIHR's Institute of Health Services and Policy Research
Dr. Morris Barer
(until August 31, 2006)
University of British Columbia

Dr. Colleen M. Flood
(as of September 1, 2006)
University of Toronto

CIHR's Institute of Human Development, Child and Youth Health
Dr. Michael Kramer
Montreal Children's Hospital
McGill University

CIHR's Institute of Infection and Immunity
Dr. Bhagirath Singh
University of Western Ontario

CIHR's Institute of Musculoskeletal Health and Arthritis
Dr. Cyril Frank
(until December 31, 2006)
University of Calgary

Dr. Jane Aubin
(as of January 1, 2007)
University of Toronto

CIHR's Institute of Neurosciences, Mental Health and Addiction
Dr. Rémi Quirion
Douglas Hospital Research Centre
McGill University

CIHR's Institute of Nutrition, Metabolism and Diabetes
Dr. Diane Finegood
Simon Fraser University

CIHR's Institute of Population and Public Health
Dr. John Frank
University of Toronto

The Power of Volunteers

Volunteers are the backbone of CIHR's reputation for excellence. They help to set research priorities and strategic directions, ensure that CIHR funding is allocated only to the very best research proposals and provide accountability to the people of Canada - the source of CIHR funding - and to the research community.

Each year, more than 2,200 expert reviewers volunteer their time to one of CIHR's peer review committees, assessing the strengths and weaknesses of each of the many thousands of funding applications CIHR receives. Their work is supplemented by that of thousands of external reviewers who submit written reports for consideration by peer review committees. CIHR's peer review system ensures that CIHR's funding process is fair and open, that taxpayers' money is spent wisely and that only the best and the brightest researchers are funded.

CIHR recognizes the dedication of its volunteers and thanks them for their continuing commitment to improving the lives of Canadians. A full listing of all CIHR volunteers can be found in The Power of Volunteers 2006-2007.

Financial Statement Discussion and Analysis

Financial Highlights:

• The total CIHR budget for 2006-07, as appropriated by Parliament, reached $863.5 million, an increase of $50.4 million (or 6.2%) over 2005-06.

• The total net cost of operations reached $847.2 million, an increase of 5.7% as compared to 2005-06.

• The number of CIHR-funded Grants and Awards climbed to approximately 9,000 for a total investment of $810.2 million in the period (an increase of 5.4% over 2005-06).

• CIHR's operating expenses totaled $49.5 million, an increase of 4.4% over 2005-06. Operating expenses were comprised of $31.7 million in salary and employee benefits (64%) and $17.8 million in non-salary expenses (36%). Operating expenses continue to comprise less than the target maximum value of 6% of total CIHR expenditures.

• CIHR did not spend all available and planned funding in 2006-07. A surplus of $16.5 million arose in the Grants and Awards budget, almost entirely from delays in establishing new Canada Research Chairs. A surplus of $3.7 million occurred in the Operating budget, mainly the result of difficulties in staffing new and vacant positions.

• Revenues ($10.6 million), Total Assets ($21.4 million), Total Liabilities ($22.1 million) and the acquisition and amortization of tangible capital assets ($1.4 million and $1.5 million respectively) all remain relatively modest and generally consistent with the previous fiscal year.

Analysis:

CIHR's growth is almost entirely dependent on increases to its appropriations approved by Parliament. The 6.2% increase to the 2006-07 CIHR budget resulted in commensurate increases to its net costs of operations which in turn is dominated by Grants and Award expenditures. Grants and Award expenses in 2006-07 totaled $810.2 million, an increase of $41.4 million or 5.4% as compared to 2005-06.

The following table indicates how 2006-07 Grants and Awards expenses were allocated by program area. Priority is given to funding health research and researchers through open competitions, strategic initiatives and knowledge translation. CIHR also participates with other federal agencies in a number of programs, including the Canada Research Chairs and Networks of Centres of Excellence.

As the graphic indicates, CIHR invests the largest share of its budget on research grants and personnel support awards in "open" competitions, enabling individual researchers, or groups of investigators, to pursue their own research priorities. Applications for assistance undergo rigorous peer review by committees of experts in the field. This process helps ensure that only those proposals that meet internationally accepted standards of excellence are funded.

Strategic Initiatives comprise the second largest area of investment and it targets high priority research areas identified by CIHR's Institutes after broad consultations with stakeholders and partners. These strategic initiatives address emerging health threats and other important health issues of concerns to Canadians such as obesity, cancer, vulnerable populations such as youths and Aboriginals or measures to improve the effectiveness of the health-care system itself.

Knowledge Translation (KT) is a critical and growing part of CIHR's mandate focused on the synthesis, exchange and ethically sound application of knowledge to accelerate the capture of the benefits of research for Canadians through improved health, more effective services and products and a strengthened health-care system.

2006-07 Grants and Awards Expenses¹
$810.2 million

Note 1: Figures do not include Refunds of previous years' expenses. Figures may vary due to rounding.

As noted earlier, the key business driver for CIHR is being provided Parliamentary Appropriations by the Federal Government. The table below summarizes the Parliamentary Appropriations received by CIHR in fiscal year 2006-07:

Summary of Parliamentary Appropriations

(in millions of dollars)

		2006-07 Main Estimates	2006-07 Supplementary Estimates	2006-07 Total Appropriations
Vote 15 -	Operating Expenses (including Salaries & Employee Benefits)	45.9	-	45.9
	2006 Operating Budget Carryforward	-	1.9	1.9
	2006 Federal Budget Increase	-	0.7	0.7
	Funding for Fabry's Disease	-	0.3	0.3
	Pandemic Preparedness Funding	-	0.3	0.3
	Procurement Savings	-	(0.3)	(0.3)
	Other Adjustments	-	(0.5)	(0.5)
	Transfer to CIHR Vote 20	-	(1.0)	(1.0)
	Total Vote 15 - Operating Expenditures	45.9	1.4	47.3
Vote 20 -	Grants & Awards	786.8	-	786.8
	2006 Federal Budget Increase	-	16.3	16.3
	Funding for Fabry's Disease	-	10.6	10.6
	Pandemic Preparedness Funding	-	2.2	2.2
	Transfer from CIHR Vote 15	-	1.0	1.0
	Net Transfer of Funds to Other Departments	-	(0.7)	(0.7)
	Total Vote 20 - Grants & Awards	786.8	29.4	816.2
Total 2006-07 CIHR Parliamentary Operations		832.7	30.8	863.5
Total 2006-07 Authorities Spent				843.3
Total Lapsed Appropriations for 2006-07				20.2

Note: The total CIHR budget for 2006-07, as appropriated by Parliament, increased by $50.4 million over 2005-06 to $863.5 million. CIHR received an additional $30.8 million in Parliamentary Appropriations for 2006-07 through the Supplementary Estimates (see above). CIHR received an additional $19.6 million for 2006-07 through the Annual Reference Level Update (reflected in the Main Estimates column in the table above), including additional funding for programs such as the Canada Research Chairs ($15 million), HIV/AIDS research ($2.4 million) and Canada Graduate Scholarships ($2.0 million).

CIHR lapsed Parliamentary Appropriations in 2006-07 as follows:

(in millions of dollars)

	Vote	Lapsed Appropriations
15	Operating Expenses	3.7
20	Grants	16.5
	Total Lapsed Parliamentary Appropriations	20.2

• The variance in Operating Expenses resulted primarily from staffing delays and higher than average employee turnover. Please note that CIHR is able to carry forward up to 5% of its operating budget from one period in to the next fiscal year. This means that $2.1 million of the $3.7 million lapse in the operating budget will be carried forward and thus increase the 2007-08 fiscal year operating budget.

• The lapsed funds for 2006-07 for Vote 20 (Grants) resulted almost entirely from the Canada Research Chairs Program being under spent by $16.4 million. This variance resulted directly from difficulties encountered by the Universities in filling the Chairs. CIHR Management has determined that no financial impact will result in future fiscal years from this lapse.

Risks and Uncertainties:

Managing Multi-Year Commitments within an Annual Appropriation Funding Model

• Research is a long-term endeavour and researchers require certainty that the funding provided by government will be available for the duration of the study. As a result, most of CIHR's grants and awards extend over a 3 to 5 year period which also implies that the majority of CIHR's budget in any given year must be set aside to meet the financial obligations created by approvals made in previous years.

• CIHR is required to manage research funding prudently and to carefully consider the multi-year implications of its decisions to ensure that acceptable amounts of funding are available in all years to support approvals of new grants and awards.

• CIHR has introduced the concept of the "steady state" for the Open Competition Operating Grants to avoid the boom-bust cycle whereby the number of new grants awarded and the attendant success rate of applicants fluctuate dramatically from one competition to another. Management also varies the mix of program instruments (i.e. one year grants versus multi-year grants) as a risk management tool.

Rising Demand for Research Funding

• CIHR is confronted with increased application pressure from the health research community caused in part by a robust and growing community of practitioners, CIHR's broadened mandate to serve all health research disciplines and by the significant investments in health-related infrastructure being made by federal and provincial governments and other funders.

• Notwithstanding the more than doubling of CIHR's budget since inception, success rates in major competitions have fallen at a time when the number of applications that are assessed by peer review committees as deserving funding has tripled over that same time frame.

• Going forward, it will be very important for CIHR to rigorously prioritize its activities and to seek additional funding to ensure that Canada does not lose many of its outstanding investigators and fully reap the contribution they can make to improving the health of Canadians, increasing the effectiveness of health services and products and strengthening the Canadian health-care system.

• The 2007 Federal Budget included an additional $37 million of base funding and an additional annual funding for the Canada Graduate Scholarships program. This funding will: help stabilize the Open competition grants; allow for additional investments in Knowledge Translation; and advance greater tri-agency collaboration as identified by the government's new Science and Technology strategy.

Variance Analysis:

Change in Key Financial Indicators:

As evidenced by the table below, CIHR expenses and other key financial indicators have increased in relative proportion to the increased Parliamentary Appropriations received by CIHR in 2006-07.
(in millions of dollars)

	2006-07	2005-06	Increase	% Increase
Parliamentary Appropriations	863.5	813.1	50.4	6.2 %
Net Cost of Operations	847.2	801.8	45.4	5.7 %
Grants & Awards Expenses	810.2	768.8	41.4	5.4 %
Operations and Administration Expenses	49.5	47.4	2.1	4.4 %
Salaries and Employee Benefits	31.7	29.6	2.1	7.1 %

• In 2006-07, the ratio of operations and administration expenses to total expenses was 5.8%, which was unchanged from 2005-06.

Change in Expenditures by Strategic Outcome:
(in millions of dollars)

Strategic Outcome	2006-07	2005-06	Increase	% Increase
Health Research	511.0	475.6	35.4	7.4 %
Health Researchers in Innovative Environments	284.3	275.2	9.1	3.3 %
Transforming Health Research into Action	62.5	61.7	0.8	1.3 %
Total Expenses	857.8	812.5	45.3	5.6 %

• Expenses increased significantly in 2006-07 as compared to 2005-06 due to increased Parliamentary Appropriations and due to increased expenses allocated to the Health Research Strategic Outcome.

• This increase to the Health Research Strategic Outcome resulted from CIHR Management allocating a significant portion of the 2006 Federal Budget increase to the Open Competition Operating Grants and from the additional funding received in 2006-07 for Fabry's disease research and pandemic preparedness research.

Trend Analysis:

CIHR Parliamentary Appropriations:
(in millions of dollars)

• CIHR Parliamentary Appropriations have risen steadily over the past five fiscal years, from $651.2 million in 2002-03 to $863.5 million in 2006-07.

• CIHR Parliamentary Appropriations have increased by $212.3 million or 33% since 2002-03, an average yearly increase of 7.3%.

CIHR Net Cost of Operations:
(in millions of dollars)

• CIHR Net Cost of Operations has increased steadily over the past five fiscal years, from $621.6 million in 2002-03 to $847.2 million in 2006-07.

• CIHR Parliamentary Appropriations have increased by $225.6 million or 36% since 2002-03, an average yearly increase of 8.1%.

CIHR Grants and Awards Expenses:
(in millions of dollars)

• CIHR Grants and Awards expenses have increased steadily over the past five fiscal years, from $590.8 million in 2002-03 to $810.2 million in 2006-07.

• CIHR Grants and Awards expenses have increased by $219.4 million or 37% since 2002-03, an average yearly increase of 8.2%.

CIHR Operations and Administration Expenses:
(in millions of dollars)

• CIHR Operations and Administration Expenses have increased significantly over the past five fiscal years, from $36.4 million in 2002-03 to $49.5 million in 2006-07.

• CIHR Operations and Administration Expenses have increased by $13.1 million or 36% since 2002-03.

• In 2006-07, salaries and employee benefits made up 64.0% of total Operations and Administration Expenses, compared to 53.9% in 2002-03.

• As shown in the chart above, the proportion of the operating budget allocated to salaries and employee benefits has increased each year over the past five fiscal years. CIHR Management will continue to monitor this trend closely in future fiscal years.

Auditor's Report and Financial Statements

Canadian Institutes of Health Research
Management Responsibility for Financial Statements

Responsibility for the integrity and objectivity of the accompanying financial statements of the Canadian Institutes of Health Research (CIHR) for the year ended March 31, 2007 and all information contained in these statements rests with CIHR's management. These financial statements have been prepared by management in accordance with Treasury Board accounting policies and year-end instructions issued by the Office of the Comptroller General, which are consistent with Canadian generally accepted accounting principles for the public sector.

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 judgement and gives due consideration to materiality. To fulfil its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of CIHR's financial transactions. Financial information submitted to the Public Accounts of Canada and included in CIHR's Departmental Performance Report is consistent with these financial statements.

Management maintains a system of financial management and internal control designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are in accordance with the Financial Administration Act, are executed in accordance with prescribed regulations, within Parliamentary authorities, and are properly recorded to maintain accountability of Government funds. Management also seeks to ensure the objectivity and integrity of data in its financial statements by careful selection, training and development of qualified staff, by organizational arrangements that provide appropriate divisions of responsibility and by communications programs aimed at ensuring that regulations, policies, standards and managerial authorities are understood throughout the organization.

The Standing Committee on Performance Measurement, Evaluation and Audit, appointed by the Governing Council of CIHR, has reviewed these statements with management and the auditors, and has reported to the Governing Council. The Governing Council has approved the financial statements.

The financial statements of CIHR have been audited by the Auditor General of Canada, the independent auditor for the Government of Canada.

Approved by:

James Roberge, CMA Chief Financial Officer

Dr. Alan Bernstein, O.C., FRSC President

June 1, 2007

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Auditor's Report

To the Canadian Institutes of Health Research and the Minister of Health

I have audited the statement of financial position of the Canadian Institutes of Health Research (CIHR) as at March 31, 2007 and the statements of operations, equity and cash flow for the year then ended. These financial statements are the responsibility of CIHR's management. My responsibility is to express an opinion on these financial statements based on my audit.

I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In my opinion, these financial statements present fairly, in all material respects, the financial position of CIHR as at March 31, 2007 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

Nancy Y. Cheng, FCA
Assistant Auditor General
for the Auditor General of Canada

Ottawa, Canada
June 1, 2007

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Statement of Operations
For the Year Ended March 31

(in thousands of dollars)

		2007	2006
Expenses (Note 4)
	Health research	511,042	475,620
	Health researchers in innovative environments	284,348	275,206
	Transforming health research into action	62,421	61,674
Total Expenses		857,811	812,500
Revenues (Note 5)
	Health research	6,319	6,264
	Health researchers in innovative environments	3,516	3,624
	Transforming health research into action	772	812
Total Revenues		10,607	10,700
Net Cost of Operations		847,204	801,800

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

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Statement of Financial Position
As at March 31

(in thousands of dollars)

			2007	2006
Assets Financial Assets
	Due from the Consolidated Revenue Fund		15,751	18,640
	Accounts receivable:
		Other Federal Government departments	678	367
		External parties	395	353
	Advances		196	191
Total financial assets			17,020	19,551
Non-financial assets
	Prepaid expenses		445	542
	Tangible capital assets (Note 6)		3,904	4,049
Total non-financial assets			4,349	4,591
Total Assets			21,369	24,142
Liabilities
	Accounts payable and accrued liabilities
		Other Federal Government departments	444	381
		External parties	2,577	3,913
	Vacation pay and compensatory leave		1,110	910
	Deferred revenue (Note 7)		12,730	14,346
	Employee severance benefits (Note 8)		5,248	4,633
Total Liabilities			22,109	24,183
Equity of Canada			(740)	(41)
Total Liabilities and Equity of Canada			21,369	24,142
Contingent liabilities (Note 9)
Contractual obligations (Note 10)
The accompanying notes are an integral part of these financial statements.

Approved by Governing Council: Dr. Alan Bernstein, O.C., FRSC Chair

Approved by Management: James Roberge, CMA Chief Financial Officer

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Statement of Equity
For the year ended March 31

(in thousands of dollars)

		2007	2006
Equity of Canada, Beginning of Year		(41)	273
	Net cost of operations	(847,204)	(801,800)
	Net cash provided by Government	844,170	790,458
	Change in due from the Consolidated Revenue Fund	(2,889)	6,223
	Services provided without charge by other Government departments (Note 11)	5,224	4,805
Equity of Canada, End of Year		(740)	(41)

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

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Statement of Cash Flow
For the Year Ended March 31

(in thousands of dollars)

			2007	2006
Operating Activities
	Net cost of operations		847,204	801,800
	Non-cash items:
		Amortization of tangible capital assets	(1,498)	(1,376)
		Services provided without charge by other Government departments	(5,224)	(4,805)
		Gain on disposal of capital assets	4	-
			(6,718)	(6,181)
	Variations in Statement of Financial Position:
		Increase (decrease) in accounts receivable and advances	358	(124)
		(Decrease) increase in prepaid expenses	(97)	342
		Decrease (increase) in liabilities	2,074	(6,856)
			2,335	(6,638)
Cash Used by Operating Activities			842,821	788,981
Capital Investment Activities
	Acquisitions of tangible capital assets		1,358	1,477
	Proceeds on disposal of capital assets		(9)	-
Cash Used by Capital Investment Activities			1,349	1,477
Financing Activities
	Net Cash Provided by Government of Canada		844,170	790,458

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

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Notes to the Financial Statements
For the Year Ended March 31, 2007

1. Authority and Objectives

The Canadian Institutes of Health Research (CIHR) was established in June 2000 under the Canadian Institutes of Health Research Act, replacing the former Medical Research Council of Canada. 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 achieves these objectives through three strategic outcomes. The first strategic outcome is outstanding research, achieved by funding excellent and ethical health research across all disciplines that are relevant to health. The second strategic outcome is outstanding researchers in innovative environments, achieved by providing funding to develop and sustain health researchers in vibrant, innovative and stable research environments. The third strategic outcome is transforming health research into action, achieved by CIHR's knowledge translation activities and funding aimed to accelerate the transformation of research results into health benefits for Canadians and an improved health care system as well as helping to move new research breakthroughs toward potential commercial applications.

CIHR is led by a President who is the Chairperson of a Governing Council of not more than nineteen other members appointed by the Governor in Council. The Governing Council sets overall strategic direction, goals and policies and oversees programming, resource allocation, ethics, finances, planning and accountability.

CIHR has thirteen Institutes that focus on identifying the research needs and priorities for specific health areas, or for specific populations, then developing strategic initiatives to address those needs. Each Institute is led by a Scientific Director who is guided by an Institute Advisory Board, which strives to include representation of the public, researcher communities, research funders, health professionals, health policy specialists and other users of research results.

CIHR's grants, awards, and operating expenditures are funded by budgetary lapsing authorities. Employee benefits are funded by statutory authorities.

2. Significant Accounting Policies

These financial statements have been prepared in accordance with Treasury Board accounting policies and year-end instructions issued by the Office of the Comptroller General, which are consistent with Canadian generally accepted accounting principles for the public sector. The most significant accounting policies are as follows:

(a) Parliamentary appropriations - CIHR is financed by the Government of Canada through Parliamentary appropriations. Appropriations provided to CIHR do not parallel financial reporting according to generally accepted accounting principles since appropriations are primarily based on cash flow requirements. Consequently, items recognized in the statement of operations and the statement of financial position are not necessarily the same as those provided through appropriations from Parliament. Note 3 provides a high-level reconciliation between the bases of reporting.

(b) Net cash provided by government - CIHR operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by CIHR is deposited to the CRF and all cash disbursements made by CIHR 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 Federal Government.

(c) Due from the Consolidated Revenue Fund represents the amount of cash that CIHR is entitled to draw from the Consolidated Revenue Fund without further appropriations, in order to discharge its liabilities.

(d) Revenues

• Funds received from external parties for specified purposes are recorded upon receipt as deferred revenues. These revenues are recognized in the period in which the related expenses are incurred.

• Other revenues are accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenues.

(e) Expenses - Expenses are recorded on the accrual basis:

• Grants and awards are recognized when the entitlement has been established, the recipient has met the eligibility criteria, and program authority exists.

• Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment.

• Services provided without charge by other government departments are recorded as operating expenses at their estimated cost.

(f) Refunds of previous years' expenses - These amounts include the return of grants and awards funds to CIHR in the current fiscal year for expenses incurred in previous fiscal years due to cancellations; refunds of previous years' expenses related to goods or services; and adjustments of previous years' accounts payable. These refunds and adjustments are recorded as expenses in the financial statements but are recorded as revenue on an appropriation basis and therefore are excluded when determining current year appropriations used.

(g) Employee future benefits

1. Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer plan administered by the Government of Canada. CIHR's contributions to the Plan are charged to expenses in the year incurred and represent the total obligation of CIHR to the Plan. Current legislation does not require CIHR to make contributions for any actuarial deficiencies of the Plan.

2. Severance benefits: Employees are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. 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.

(h) Accounts receivable - These are stated at amounts expected to be ultimately realized. A provision for doubtful accounts is made for any amounts where recovery is considered uncertain.

(i) 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 is 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.

(j) Tangible capital assets - All tangible capital assets having an individual initial cost of $5,000 or more are recorded at their acquisition cost. Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the capital asset as follows:

Asset class	Amortization period
Informatics hardware	3-5 years
Informatics software	3 years
Office equipment	10 years
Motor vehicles	5 years

Amounts included in work-in-progress are uncompleted capital projects which are transferred to informatics software upon completion, and are then amortized according to CIHR's policy.

(k) Measurement uncertainty - The preparation of these financial statements in accordance with Treasury Board accounting policies and year-end instructions issued by the Office of the Comptroller General, which are consistent with Canadian generally accepted accounting principles for the public sector, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, the liability for vacation pay and compensatory leave, employee severance benefits and the useful life of tangible capital assets. Actual results could differ significantly 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 Appropriations

CIHR receives most of its funding through annual parliamentary appropriations. Items recognized in the statement of operations and the statement of financial position in one year may be funded through parliamentary appropriations in prior, current or future years. Accordingly, CIHR 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 appropriations used

			2007	2006
(in thousands of dollars)
Net cost of operations			847,204	801,800
Adjustments for items affecting net cost of operations but not affecting appropriations:
	Add (Less):
		Services provided without charge	(5,224)	(4,805)
		Gain on disposal of capital assets	4	-
		Refunds of previous years' expenses	2,432	4,132
		Employee severance benefits	(615)	(807)
		Amortization of tangible capital assets	(1,498)	(1,376)
		Vacation pay and compensatory leave	(200)	174
		Other adjustments	(94)	(61)
			(5,195)	(2,743)
Adjustments for items not affecting net cost of operations but affecting appropriations
	Add (Less):
		Acquisitions of tangible capital assets	1,358	1,477
		Prepaid expenses	(97)	342
Current year appropriations used			843,270	800,876

(b) Appropriations provided and used

	2007	2006
(in thousands of dollars)
Parliamentary appropriations provided:
Vote 15 - Operating expenditures	43,021	39,902
Less:
Lapsed appropriation	(3,657)	(1,393)
	39,364	38,509
Vote 20 - Grants	816,183	768,980
Less:
Lapsed appropriation	(16,536)	(10,832)
	799,647	758,148
Statutory contributions to employee benefit plans	4,259	4,219
Current year appropriations used	843,270	800,876

(c) Reconciliation of net cash provided by Government to Parliamentary appropriations used

		2007	2006
(in thousands of dollars)
Net cash provided by Government		844,170	790,458
Refunds of previous years' expenses		2,432	4,132
Cash proceeds on disposal of capital assets		9	-
Change in net position in the Consolidated Revenue Fund
	Variation in accounts receivable and advances	(358)	124
	Variation in accounts payable and accrued liabilities	(1,273)	976
	Variation in deferred revenue	(1,616)	5,247
	Other adjustments	(94)	(61)
		(3,341)	6,286
Current year appropriations used		843,270	800,876

4. Expenses

		2007	2006
(in thousands of dollars)
Grants and awards
	Open competitions	487,917	478,109
	Strategic initiatives	195,762	171,878
	Institute support grants	13,000	13,000
	Knowledge translation	3,864	5,458
	Canada research chairs	82,205	72,900
	Networks of centres of excellence	27,500	27,500
Total grants and awards		810,248	768,845
Less: Refunds of previous years' grants and awards		(1,972)	(3,777)
		808,276	765,068
Operations and administration
	Salaries and employee benefits	31,683	29,594
	Professional and special services	4,845	6,184
	Travel	3,425	3,957
	Accommodation	3,314	2,865
	Furniture, equipment and software	1,998	1,185
	Amortization of tangible capital assets	1,498	1,376
	Communication	1,450	1,308
	Other	1,322	963
Total operations and administration		49,535	47,432
Total expenses		857,811	812,500

5. Revenues

The following are the revenues recognized for the year:

	2007	2006
(in thousands of dollars)
Donations for health research	9,362	9,499
Cost sharing agreements with other Government departments	1,240	1,198
Gain on disposal of capital assets	4	-
Endowments for health research	1	2
Other	-	1
Total revenues	10,607	10,700

6. Tangible Capital Assets

(in thousands of dollars)

Cost					Accumulated amortization
Capital asset class	Opening balance	Acquisitions	Transfers, disposals and write-offs	Closing balance	Opening balance	Acquisitions	Transfers, disposals and write-offs	Closing balance	2007 Net Book Value	2006 Net Book Value
Informatics hardware Informatics software Office equipment Vehicles Work-in-progress	1,817 6,574 345 23 14	111 1,206 - 32 9	- - - (23) -	1,928 7,780 345 32 23	1,270 3,347 89 18 -	276 1,184 34 4 -	- - - (18) -	1,546 4,531 123 4 -	382 3,249 222 28 23	547 3,227 256 5 14
Total	8,773	1,358	(23)	10,108	4,724	1,498	(18)	6,204	3,904	4,049

Amortization expense (in thousands) for the year ended March 31, 2007 is $1,498 (2006 - $1,376).

7. Deferred Revenue

Monies received as donations from various organizations and individuals for health research as well as interest on endowments are recorded as deferred revenue until such time that they are disbursed in accordance with agreements between the contributor and CIHR or in accordance with the terms of the endowments.

The transactions relating to these accounts are as follows:

			2007	2006
(in thousands of dollars)
Donations for health research
Balance, beginning of the year			14,344	9,097
	Add:
		Donations received	7,191	14,449
		Interest earned	553	297
	Less:
		Grants expensed	9,362	9,499
Balance, end of the year			12,726	14,344
Interest on endowments for health research
Balance, beginning of the year			2	2
	Add:
		Interest earned	3	2
	Less:
		Miscellaneous expenses	1	2
Balance, end of the year			4	2
Total deferred revenue			12,730	14,346

8. Employee Benefits

Employees of CIHR are entitled to specific benefits on or after termination or retirement, as provided for under various collective agreements or conditions of employment.

(a) Pension benefits - CIHR's employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, multiplied by the average of the best five consecutive years of earnings. The benefits are integrated with the Canada/Quebec Pension Plans benefits and they are indexed to inflation. Both the employees and CIHR contribute to the cost of the Plan. CIHR'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.

The 2006-07 expense represents approximately 2.3 times (2.6 in 2005-06) the contributions by employees.

CIHR's and employees' contributions to the Public Service Pension Plan for the year were as follows:

	2007	2006
(in thousands of dollars)
CIHR's contributions	3,139	3,121
Employees' contributions	1,378	1,203

(b) Severance benefits - CIHR provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future appropriations. Information about the severance benefits, measured as at March 31, is as follows:

	2007	2006
(in thousands of dollars)
Accrued benefit obligation, beginning of year	4,633	3,826
Expense for the year	898	1,024
Benefits paid during the year	(283)	(217)
Accrued benefit obligation, end of year	5,248	4,633

9. Contingent Liabilities

A legal suit for employment equity was initiated by the Public Service Alliance of Canada against Her Majesty the Queen naming certain separate employer organizations of the Government of Canada, including the Canadian Institutes of Health Research (CIHR), as defendants. The amount of this claim, as it relates to CIHR, is estimated to be $747,000. In management's opinion, the outcome of this litigation is not presently determinable and no estimated liability has been accrued or expense recorded in the financial statements.

10. Contractual Obligations

CIHR is committed to disburse grants and awards in future years subject to the appropriation of funds by Parliament. In addition, the nature of CIHR's operating activities result in some multi-year contracts whereby CIHR will be committed to make some future payments when the goods or services are rendered. Future year contractual obligations are as follows.

(in thousands of dollars)	2008	2009	2010	2011	2012 and thereafter	Total
Grants and awards Operating	730,371 1,989	520,055 167	324,947 75	192,438 -	94,468 -	1,862,279 2,231
Total	732,360	520,222	325,022	192,438	94,468	1,864,510

11. Related Party Transactions

CIHR is related in terms of common ownership to all Government of Canada departments, agencies, and Crown Corporations. CIHR enters into transactions with these entities in the normal course of business and on normal trade terms.

During the year, CIHR received services which were obtained without charge from other Government departments as presented in part (a):

(a) Services provided without charge

	2007	2006
(in thousands of dollars)
Accommodation provided by Public Works and Government Services Canada	3,314	2,865
Employer's contribution to the health and dental insurance plans provided by Treasury Board Secretariat	1,772	1,864
Audit services provided by the Office of the Auditor General of Canada	138	76
Total services provided without charge by other Government departments	5,224	4,805

(b) Administration of programs on behalf of other government departments
CIHR administers funds received from other federal departments and agencies to issue grants, awards and related payments on their behalf. During the year, CIHR administered $1,239,838 ($1,198,175 in 2006) in funds for grants and awards. These amounts are reflected in CIHR's Statement of Operations as both revenues and expenses.

(c) Administration of CIHR funds by other government departments
Other federal departments and agencies administer funds on behalf of CIHR to issue grants, awards and related payments. During the year, other federal departments and agencies administered $87,331,623 ($76,965,301 in 2006) in funds for grants and awards. These amounts are reflected in CIHR's Statement of Operations as expenses.

12. Financial Instruments

The fair values of financial assets and liabilities approximate the carrying amounts of these instruments due to the short period to maturity.