Financial Statements for 2010-2011

Statement of Management Responsibility

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2011 and all information contained in these statements rests with the management of the Office of the Communications Security Establishment Commissioner (Office).  These financial statements have been prepared by management in accordance with Treasury Board accounting policies which are based on 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 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 Office's financial transactions.  Financial information submitted in the preparation of the Public Accounts of Canada, and included in the Office'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 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 by 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 Office.

The financial statements of the Office have not been audited.

Original signed by:

Honourable Robert Décary, Q.C.
Commissioner

J. William Galbraith
Chief Financial Officer

Ottawa, Canada
Date: September 13, 2011

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

	2011	2010 Restated (note 11)
Assets
Financial Assets
Due from the Consolidated Revenue Fund	$101,211	$102,689
Accounts receivable and advances (note 4)	17,495	1,885
Total financial assets	118,706	104,574
Non-financial Assets
Tangible capital assets (note 5)	54,227	16,132
Total non-financial assets	54,227	16,132
Total	$172,933	$120,706
Liabilities and Equity of Canada
Liabilities
Accounts payable and accrued liabilities (note 6)	$118,481	$104,576
Vacation pay and compensatory leave	30,366	87,027
Employee future benefits (note 7)	177,950	191,005
Total liabilities	326,797	382,608
Equity of Canada	(153,864)	(261,902)
Total	$172,933	$120,706

Contractual obligations (note 8)

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

Original signed by:

Honourable Robert Décary, Q.C.
Commissioner

J. William Galbraith
Chief Financial Officer

Ottawa, Canada
Date: September 13, 2011

Statement of Operations (Unaudited) for the Year Ended March 31 (in dollars)

Expenses	2011	2010
Review program	$1,128,895	$1,127,068
Internal services	433,720	515,736
Total expenses	1,562,615	1,642,804
Net Cost of Operations	$1,562,615	$1,642,804

Segmented information (note 11)

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

Statement of Equity of Canada (Unaudited) for the Year Ended March 31 (in dollars)

	2011	2010 Restated (note 11)
Equity of Canada, beginning of year	($261,902)	($215,011)
Net cost of operations	(1,562,615)	(1,642,804)
Net cash provided by government	1,607,662	1,532,576
Change in due from the Consolidated Revenue Fund	(1,478)	(1,416)
Services received without charge by other government departments (note 9)	64,469	64,753
Equity of Canada, end of year	($153,864)	($261,902)

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

Statement of Cash Flows (Unaudited) for the year ended March 31 (in dollars)

	2011	2010
Operating Activities
Net cost of operations	$1,562,615	$1,642,804
Non-cash items:
Services provided without charge by other government departments (note 9)	(64,469)	(64,753)
Amortization of tangible capital assets	(2,373)	(2,843)
Variations in Statement of Financial Position
Increase (decrease) in accounts receivable and advances	15,610	(785)
Decrease (increase) in liabilities	(13,905)	266,504
Decrease (increase) in vacation pay	56,661	-
Decrease (increase) in employee future benefits	13,055	-
Cash used by operating activities	1,567,194	1,840,927
Capital investment activities
Acquisitions of tangible capital assets	40,468	-
Cash used by capital investment activities	40,468	-
Net cash provided by Government of Canada	($1,607,662)	($1,840,927)

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

Notes to the Financial Statements (Unaudited) for the year ended March 31, 2011

1. Authority and Objectives

The Office of the Communications Security Establishment Officer (Office) was created on June 19, 1996.  It was established as a separate agency of government in April 2008.  The mandate of the Communications Security Establishment Commissioner is threefold:

1. to review the activities of the Communications Security Establishment Canada (CSEC) for compliance with the law and to advise the Minister of National Defence and the Attorney General of Canada of any CSEC activity that the Commissioner believes may not be in compliance with the law;
2. to receive complaints about the lawfulness of CSEC activities; and
3. to carry out specific duties under the 'public interest defence' provisions of the Security of Information Act.

There are two programs that support the Commissioner in the discharge of his mandate.  The review program entails the reviews and studies performed by the Office and the reports on these reviews and studies that are forwarded by the Commissioner to the Minister of National Defence.  The internal services program entails the corporate services in place that support the review program.

2. Summary of Significant Accounting Policies

The financial statements have been prepared in accordance with the Treasury Board accounting policies stated below, which are based on Canadian generally accepted accounting principles for the public sector.  The presentation and results using the stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles. 

Significant accounting policies are as follows:

(a) Parliamentary authorities

The Office is financed by the Government of Canada through Parliamentary authorities.  Financial reporting of authorities provided to the Office 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 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.

(b) Net Cash Provided by Government

The Office operates within the Consolidated Revenue Fund (CRF) which is administered by the Receiver General for Canada.  All cash received by the Office is deposited to the CRF and all cash disbursements made by the Office 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) 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 Office is entitled to draw from the CRF without further appropriations to discharge its liabilities.

(d) 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 received without charge from other government departments and agencies (employer's contribution to the health and dental plan) are recorded as operating expenses at their estimated cost.

(e) Employee Future Benefits

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

ii. 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.

(f) Accounts receivable

Accounts receivable are stated at the lower of cost and net recoverable value.

(g) Tangible Capital Assets

All tangible capital assets and leasehold improvements having an initial cost of $5,000 or more are recorded at their acquisition cost.  The Office 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	Amortization Period
Other equipment including furniture	5 years
Informatics hardware	5 years
Leasehold improvements	remaining term of the lease

(h) 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 items where estimates are used are the liability for employee severance 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

The Office receives its funding through annual Parliamentary authorities.  Items recognized in the Statement of Operations and the Statement of Financial Position in one year may be funded through Parliamentary authorities in prior, current or future years.  Accordingly, the Office 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) 

	2011	2010
Net cost of operations	$1,562,615	$1,642,804
Adjustments for items affecting net cost of operations but not affecting authorities
Services provided without charge	(64,469)	(64,753)
Amortization of tangible capital assets	(2,373)	(2,843)
Change in employee severance benefits	13,055	(31,182)
Change in vacation pay	56,661	(11,450)
Other	3	-
Total	1,565,492	1,532,576
Adjustments for items not affecting net cost of operations but affecting authorities
Acquisition of tangible capital assets	40,468	-
Current year authorities used	$1,605,960	$1,532,576

(b) Authorities Provided and Used (in dollars) 

	2011	2010
Vote 25 - Operating expenditures	$1,970,519	$1,364,519
Transfer from Treasury Board Votes for program expenditures	151,170	759,457
Total	2,121,689	2,123,976
Statutory amounts	132,482	142,885
Total	2,254,171	2,266,861
Less: Lapsed - Operating	(648,211)	(734,285)
Current year authorities used	$1,605,960	$1,532,576

4. Accounts Receivable from other Federal Government Departments and Agencies (in dollars)

The following table presents details of accounts receivable and advances

	2011	2010
Receivables from other Federal Government departments and agencies	$17,495	$1,885
Total	$17,495	$1,885

5. Tangible Capital Assets (in dollars)

Capital Asset Class	Cost
	Opening Balance	Acquisitions	Disposals and write-offs	Closing Balance
Other equipment including furniture	$10,890	-	-	$10,890
Informatics hardware	-	17,500	-	17,500
Leasehold improvements	8,085	22,968	-	31,053
Total	$ 18,975	$  40,468	-	$ 59,443

Capital Asset Class	Accumulated Amortization
	Opening Balance	Amortization	Disposals and write-offs	Closing Balance
Other equipment including furniture	$ 1,271	$ 1,542	-	$ 2,813
Informatics hardware	-	-	-	-
Leasehold improvements	1,572	831	-	2,403
Total	$ 2,843	$  2,373	-	$ 5,216

Capital Asset Class	Net Book Value
	2011	2010
Other equipment including furniture	$  8,077	$ 9,619
Informatics hardware	17,500	-
Leasehold improvements	28,650	6,513
Total	$54,227	$16,132

6. Accounts Payable and Accrued Liabilities (in dollars)

The following table presents details of accounts payable and accrued liabilities

	2011	2010
Accounts payable to other Federal Government departments and agencies	$2,975	$17,259
Accounts payable to external suppliers	89,813	87,317
Total	92,788	104,576
Accrued liabilities	25,693	-
Total	$118,481	$104,576

7. Employee Future Benefits

a) Pension benefits

The Office'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 Office contribute to the cost of the Plan.  The 2010-11 expense amounts to $93,002 (2009-10 - $103,163), which represents approximately 1.9 times (1.9 times in 2009-10) the contributions by employees.

The Office'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 (in dollars)

The Office 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 authorities.  Information about the severance benefits, measured as at March 31, is as follows.

	2011	2010
Accrued benefit obligation, beginning of the year	$191,005	$159,823
Expense for the year	69,889	94,077
Benefits paid during the year	(82,944)	62,895)
Accrued benefit obligation, end of the year	$177,950	$191,005

8.  Contractual Obligations (in dollars)

The nature of the Office's activities can result in some large multi-year contracts and obligations whereby the Office will be obligated to make future payments when the services/goods are received. A significant contractual obligation for occupancy costs that can be reasonably estimated is summarized as follows:

Fiscal Period	Amount
2011-12 (including parking and storage)	$155,715
2012-13 (including storage)	150,524
2013-14 (including storage)	150,524
2014-15 (including storage)	150,524
2015-16 (expires June 30, 2015)	12,165
Total	$619,452

9. Related party transactions

The Office is related as a result of common ownership to all Government of Canada departments, agencies and Crown Corporations.  The Office enters into transactions with these entities in the normal course of business and on normal trade terms.  In addition, the Office has agreements with Public Works and Government Services for the provision of human resource services and with National Defence for the provision of informatics services.  Also, during the year, the Office received 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 (in dollars)

These services without charge have been recognized in the Office's Statement of Operations as follows.

	2011	2010
Employer's contribution to the health and dental plans provided by Treasury Board	$64,469	$64,753
Total	$64,469	$64,753

The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic delivery of its 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 the Office's Statement of Operations.

b) Other Transactions with Related Parties (in dollars)

Expenses - other government departments and agencies	2011	2010
Accommodation	$156,080	$147,926
Employee Benefits	132,481	142,844
Professional Services	94,256	73,736
Office expenses and equipment	1,584	-
Telephone and telecommunications	1,140	143
Repairs	1,065	146
Printing and publishing	197	488
Total	$386,803	$365,283

10. Adoption of new accounting policies (in dollars)

During the year, the Office adopted the revised Treasury Board accounting policy TBAS 1.2: Department and Agency Financial Statements which is effective for the 2010-11 fiscal year.  The major change in accounting policies of the Office required by the adoption of the revised TBAS 1.2 is the recording of amounts due from/to the Consolidated Revenue Fund as an asset/liability on the Statement of Financial Position.

The adoption of the new Treasury Board accounting policies have been accounted for retroactively with the following impact on the comparatives for 2009-10:

Statement of Financial Position	2010		2010
	As previously stated	Effect of Changes	Restated
Assets	$18,017	$102,689	$120,706
Equity of Canada	$(364,591)	$102,689	$(261,902)

11. Segmented Information (in dollars)

Presentation by segment is based on the Office's program activity 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 for the main program activities by major object of expenses.  Comparative information has been reclassified to conform to the current year's presentation.  The segment results for the period are as follows:

Operating expenses	Review Program	Internal Services	Total
			2011	2010
Salaries and employee benefits	$736,357	$149,333	$885,690	$1,037,716
Professional and special services	259,579	175,108	434,687	378,465
Accommodation	117,060	39,020	156,080	147,926
Printing and publishing	14,725	6,400	21,125	19,319
Office expenses and equipment	-	19,844	19,844	4,575
Rentals	-	14,628	14,628	9,142
Utilities, materials and supplies	-	13,945	13,945	6,467
Telephone and telecommunications	-	9,094	9,094	7,513
Travel	1,174	1,716	2,890	27,873
Amortization	-	2,373	2,373	2,843
Repair and maintenance	-	1,249	1,249	458
Postage and courier services	-	1,010	1,010	507
Total program expenses	$1,128,895	$433,720	$1,562,615	$1,642,804