Financial Statements for 2017-2018

Statement of Management Responsibility Including Internal Control Over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2018 and all information contained in these statements rests with the management of the Office of the Communications Security Establishment Commissioner (OCSEC). 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 OCSEC's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in OCSEC's Departmental Results 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 OCSEC; 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.

OCSEC is subject to periodic Core Control Audits performed by the Office of the Comptroller General and uses the results of such audits to comply with the Treasury Board Policy on Financial Management.

A Core Control Audit performed by the Office of the Comptroller General of Canada for fiscal year 2014–15 was completed in July 2016. The Audit Report and the related Management Action (audits) are posted on the departmental web site.

The financial statements of OCSEC have not been audited.

Originals signed by:

The Honourable Jean-Pierre Plouffe, CD
Commissioner

Gérard Normand
Acting/Chief Financial Officer

Ottawa, Canada
Date signed: October 9, 2018

Statement of Financial Position (Unaudited)
As at March 31 (in dollars)

  2018 2017
Liabilities
   Accounts payable and accrued liabilities (note 4) $251,645 $167,868
   Vacation pay and compensatory leave  51,084 28,760
Total liabilities   302,729   196,628
Financial assets
   Due from the Consolidated Revenue Fund 195,439 149,020
   Accounts receivable and advances (note 6)   50,395   26,681
Total financial assets 245,834 175,701
Departmental net debt 56,895 20,927
Non-financial assets
   Prepaid expenses 3,903 3,580
   Tangible capital assets (note 7) 509,507 620,740
Total non-financial assets 513,410 624,320
Departmental net financial position $456,515 $603,393

Contractual obligations (note 8)

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

Statement of Operations and Departmental Net Financial Position (Unaudited)
For the year ended March 31 (in dollars)

  2018 Planned Results 2018 2017
Expenses
   Review Program $1,713,912 $1,476,390 $1,427,130
   Internal Services 583,161 692,861 736,096
Net cost of operations before government funding $2,297,073   2,169,251   2,163,226
Government funding
   Net cash provided by Government     1,876,744 1,954,259
   Services provided without charge by other government  departments (note 9)   99,210 102,635
   Change in due from the Consolidated Revenue Fund   46,419 8,193
Net cost of operations after government funding   146,878 98,139
Departmental net financial position - Beginning of year   603,393 701,532
Departmental net financial position - End of year   $456,515 $603,393

Segmented information (note 10)

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

Statement of Change in departmental Net Debt (Unaudited)
For the year ended March 31 (in dollars)

  2018 2017
Net cost of operations after government funding   $146,878 $98,139
Change due to tangible capital assets
   Acquisition of tangible capital assets 16,430 67,363
   Amortization of tangible capital assets   (127,663) (130,058)
Total change due to tangible capital assets   (111,233)   (62,695)
Change due to prepaid expenses 323 (338)
Net increase in departmental net debt 35,968 35,106
Departmental net debt - Beginning of year 20,927 (14,179)
Departmental net debt - End of year $56,895 $20,927

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

Statement of Cash Flows (Unaudited)
For the Year ended March 31 (in dollars)

  2018 2017
Operating Activities
Net cost of operations before government funding $2,169,251 $2,163,226
Non-cash items:
   Services provided without charge by other government departments (note 9) (99,210) (102,635)
   Amortization of tangible capital assets (127,663) (130,058)
Variations in Statement of Financial Position
   Increase (decrease) in accounts receivable and advances 23,714 (22,385)
   Increase (decrease) in prepaid expenses 323 (338)
   (Increase) in accounts payable and accrued liabilities (83,777) (23,130)
   (Increase) decrease in vacation pay and compensatory leave (22,324) 2,216
Cash used in operating activities 1,860,314 1,886,896
Capital Investing Activities
   Acquisitions of tangible capital assets 16,430 67,363
Cash used in capital investing activities 16,430 67,363
Net cash provided by Government of Canada $1,876,744 $1,954,259

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

Notes to the Financial Statements (Unaudited)
For the year ended March 31, 2018

1. Authority and Objectives

The Office of the Communications Security Establishment Commissioner was created on June 19, 1996. It was established as a separate agency of government in April 2008. The mandate of the Commissioner is set out in the National Defence Act (NDA):

  1. to review the activities of the Communications Security Establishment (CSE) to determine they comply with the law;
  2. to undertake any investigation that the Commissioner deems necessary in response to a written complaint; and
  3. to inform the Minister of National Defence and the Attorney General of Canada of any CSE activity that the Commissioner believes may not be in compliance with the law.

In addition, under the Security of Information Act, the Commissioner is mandated to receive information from persons who are permanently bound to secrecy if they believe it is in the public interest to release special operational information of CSE.

There are two programs that support the Commissioner in carrying out his mandate. The review program entails the reviews and studies performed by OCSEC. The internal services program entails the corporate services in place that support the review 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

Parliamentary authorities – OCSEC is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to OCSEC 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 Operations and Departmental Net Financial Position and in the Statement of 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 "Expenses" and "Revenue" sections of the Statement of Operations and Departmental Net Financial Position are the amounts reported in the Future-oriented Statement of Operations included in the 2017–18 Departmental Plan. Planned results are not presented in the "Government funding and transfers" section of the Statement of Operations and Departmental Net Financial Position and in the Statement of Change in Departmental Net Debt because these amounts were not included in the 2017–18 Departmental Plan.

(b) Net Cash Provided by Government

OCSEC operates within the Consolidated Revenue Fund (CRF) which is administered by the Receiver General for Canada. All cash received by OCSEC is deposited to the CRF and all cash disbursements made by OCSEC 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 and agencies of the Government.

(c) Due from (to) the Consolidated Revenue Fund

Amounts due to or 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 OCSEC is entitled to draw from the CRF without further authorities to discharge its liabilities.

(d) Expenses 

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 another government department for employer contributions to the health and dental insurance plans are recorded as operating expenses at their estimated cost.

(e) Employee Future Benefits

  1. Pension Benefits

    Eligible employees participate in the Public Service Pension Plan, a multi-employer plan administered by the Government of Canada. The OCSEC's contributions to the Plan are charged to expenses in the year incurred and represent its total obligation to the Plan. The OCSEC'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

    The accumulation of severance benefits for voluntary departures ceased for applicable employee groups.

 (f)  Accounts Receivable and Advances

Accounts receivable are initially recorded at cost. When necessary, an allowance for valuation is recorded to reduce the carrying value of accounts receivable to amounts that approximate their net recoverable value.

(g) Non-financial Assets

The costs of acquiring land, buildings, equipment and other capital property are capitalized as tangible capital assets and, except for land, are amortized to expense over the estimated useful lives of the assets, as described in Note 7. All tangible capital assets and leasehold improvements having an initial cost of $3,000 or more are recorded at their acquisition cost. Tangible capital assets do not include immovable assets located on reserves as defined in the Indian Act, works of art, museum collection and Crown land to which no acquisition cost is attributable.

(h) Measurement Uncertainty

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported and disclosed amounts of assets, liabilities and expenses reported in the financial statements and accompanying notes at March 31. The estimates are based on facts and circumstances, historical experience, general economic conditions and reflect the Government's best estimate of the related amount at the end of the reporting period. The most significant items 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 they become known.

3. Parliamentary Authorities

OCSEC receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and Departmental Net Financial Position and the Statement of Financial Position in one year may be funded through Parliamentary authorities in prior, current or future years. Accordingly, OCSEC 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

  (in dollars)
2018 2017
Net cost of operations before government funding $2,169,251 $2,163,226
Adjustments for items affecting net cost of operations but not affecting authorities
Services provided without charge by other government departments (99,210) (102,635)
Amortization of tangible capital assets (127,663) (130,058)
Increase (decrease) in vacation pay and compensatory leave (7,656) 2,216
Refunds of prior year's expenditures 192 -
Total items affecting net cost of operations but not affecting authorities (234,337) (230,477)
Adjustments for items not affecting net cost of operations but affecting authorities
Advances to employees 15,394 4,604
Increase (decrease) in prepaid expenses 323 (338)
Acquisition of tangible capital assets 16,430 67,363
Total for items not affecting net cost of operations but affecting authorities 32,147 71,629
Current year authorities used $1,967,061 $2,004,378

(b) Authorities Provided and Used (in dollars)

Authorities provided 2018 2017
Vote 1 - Operating expenditures $2,059,246 $2,025,506
Statutory amounts 141,826 170,161
Total authorities provided 2,201,072 2,195,667
Less: lapsed operating (234,011) (191,289)
Current year authorities used $1,967,061 $2,004,378

4. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities are measured at cost, the majority of which are due within six months of year-end. The following table presents details of the OCSEC's accounts payable and accrued liabilities

   (in dollars)
2018 2017
Accounts payable – Other government departments and agencies $70,934 $1,733
Accounts payable - External suppliers 63,580 65,428
Total accounts payable 134,514 67,161
Accrued liabilities 117,130 100,707
Total accounts payable and accrued liabilities $251,644 $167,868

5. Employee Future Benefits

(a) Pension benefits

The OCSEC'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, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Quebec Pension Plans benefits and they are indexed to inflation.

Both the employees and the OCSEC 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 2017–2018 expense amounts to $97,549 ($118,551 in 2016-2017). For Group 1 members, the expense represents approximately 1.01 times (1.12 times in 2016–17) the employee contributions and, for Group 2 members, approximately 1.00 times (1.08 times in 2016–17) the employee contributions.

The OCSEC'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

Severance benefits provided to OCSEC's employees were previously based on an employee's eligibility, years of service and salary at termination of employment. However, since 2011 the accumulation of severance benefits for voluntary departures progressively ceased for substantially all employees. Employees subject to these changes were given the option to be paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits upon departure from the public service. By March 31, 2017, all employees had opted for full payment of benefits and there is no liability.

6. Accounts Receivable and Advances

The following table presents details of accounts receivable and advances balances:

  (in dollars)
2018 2017
Receivables from other government departments and agencies $41,741 $21,777
Other advances 8,354 4,604
Petty cash advance 300 300
Total accounts receivable and advances $50,395 $26,681

7. Tangible Capital Assets

Amortization of tangible capital assets is done on a straight-line basis over the estimated over the estimated useful life of the asset as follows:

Asset class Amortization Period
Other equipment including furniture 5 years
Informatics hardware 3 years
Leasehold improvements remaining term of the lease
Capital Asset Class Cost
Opening Balance Acquisitions Closing Balance
Other equipment including furniture $189,253 $16,430 $205,683
Informatics hardware 106,705 - 106,705
Leasehold improvements 890,312 - 890,312
Total $1,186,270 $16,430 $1,202,700
   Accumulated Amortization
Opening Balance Amortization Closing Balance
Other equipment including furniture $105,900 $29,339  $135,239
Informatics hardware 82,006 10,101 92,107
Leasehold improvements 377,624 88,223 465,847
Total $565,530 $127,663 $693,193
  Net Book Value
2018 2017
Other equipment including furniture $70,444 $83,353
Informatics hardware 14,598 24,699
Leasehold improvements 424,465 512,688
Total $509,507 $620,740

8.  Contractual Obligations

The nature of OCSEC's activities can result in some large multi-year contracts and obligations whereby OCSEC will be obligated to make future payments when the goods and services are received. The most significant commitments relate to occupancy instruments signed in June 2018 and running for 10 years for the rental of office space. The obligations related to the upcoming years include the following:

  2018 (in dollars)
2019  $293,943
2020 293,943
2021 293,943
2022 293,943
2023 and subsequent 1,763,658
Total future occupancy payments $2,939,430

9. Related Party Transactions

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

(a) Common Services Provided Without Charge by Other Government Departments

During the year, OCSEC received services without charge from a common service organization related to the employer's contribution to the health and dental insurance plans. These services provided without charge have been recorded in OCSEC's Statement of Operations and Departmental Net Financial Position as follows:

  (in dollars)
2018 2017
Employer's contribution to the health and dental insurance plans $99,210 $102,635

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 cost of these services, such as the payroll and cheque issuance services provided by Public Works and Government Services Canada are not included in OCSEC's Statement of Operations and Departmental Net Financial Position.

(b) Other Transactions with Related Parties

   (in dollars)
2018 2017
Expenses - other government departments and agencies: $633,634 $621,935

Expenses disclosed in (b) exclude common services provided without charge, which are already disclosed in (a). Accounts receivable and accounts payable to other government departments and agencies are already disclosed in Notes 6 and 4 respectively.

10. Segmented Information

Presentation by segment is based on the OCSEC's core responsibility. 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 for the core responsibility, by major object of expense. The segment results for the period are as follows:

  (in dollars)  
Operating expenses Review Program
Internal Services
Total 
2018 2017
Salaries and employee benefits $1,071,811 $272,917 $1,344,728 $1,369,312
Accommodation and other rentals 239,883 81,790 321,673 318,919
Professional and special services 123,750 162,450 286,200 266,966
Amortization of tangible capital assets - 127,663 127,663 130,058
Communication, printing and publishing 27,599 10,557 38,156 20,217
Transportation and telecommunication 13,347 12,441 25,788 27,718
Office expenses and equipment - 25,043 25,043 30,036
Net cost of operations before government funding $1,476,390 $692,861 $2,169,251 $2,163,226

11. Subsequent Events

Bill C-59, An Act respecting national security matters received First Reading in the House of Commons on June 20, 2017. Currently it is undergoing second reading in the Senate. Part 2 of the Act establishes the Intelligence Commissioner Act. Under the provisions of this Act, on the day the legislation comes into force, the office of the Intelligence Commissioner commences operations and the office of the CSE Commissioner ceases operations. Money appropriated for the office of the former Commissioner (Office of the CSE Commissioner) that is unexpended is deemed to be an amount appropriated to the office of the Intelligence Commissioner.

12. Restatement of Comparative Information

Certain comparative figures have been reclassified to conform to the current year's presentation.

Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting for the year ended March 31, 2018

1. Introduction

In support of an effective system of internal control, OCSEC annually assesses the performance of its financial control framework to ensure procurement processes are in accordance with the direction set out by the central agencies payments for goods and services are made only when the goods or services are received or the conditions of contracts or other arrangements have been satisfied; and documentation supports financial decisions taken.

2. Assessment results during fiscal year 2014–2015

A core control audit performed by the Office of the Comptroller General for fiscal year 2014–2015 was completed in July 2016.

3. Assessment plan

The Audit Report and the related Management Action Plan are posted on the departmental web site. The action plan has been implemented. It is used as a guide for the annual assessments.

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