Financial Statements for 2012-2013

Table of Contents

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, 2013 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 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 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 (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 Office; 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 Office will be subject to periodic Core Control Audits performed by the Office of the Comptroller General and will use the results of such audits to comply with the Treasury Board Policy on Internal Control.

In the interim, the Office has undertaken a risk-based assessment of the system of ICFR for the year ended March 31, 2013, in accordance with the Treasury Board Policy on Internal Control, and the results and action plan are summarized in the annex.

The financial statements of the Office have not been audited.

Robert Décary, Q.C.
Commissioner

J. William Galbraith
Chief Financial Officer

Ottawa, Canada
Date: September 18, 2013

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

	2013	2012
Liabilities
Accounts payable and accrued liabilities (note 4)	$163,391	$336,681
Vacation pay and compensatory leave	29,550	26,962
Employee future benefits (note 5)	73,413	116,077
Total liabilities	266,354	479,720
Financial assets
Due from the Consolidated Revenue Fund	135,732	298,725
Accounts receivable and advances (note 6)	66,055	44,962
Total financial assets	201,787	343,687
Departmental net debt	64,567	136,033
Non-financial assets
Total non-financial assets	1,067,068	358,674
Departmental net financial position	$1,002,501	$222,641

Contractual obligations (note 8)

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

Originals signed by:

Robert Décary, Q.C.
Commissioner

J. William Galbraith
Chief Financial Officer

Ottawa, Canada
Date: September 18, 2013

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

	2013 Planned Results (restated)	2013	2012
Expenses
CSEC Review Program	$1,224,351	$1,136,515	$1,223,966
Internal Services	518,493	472,302	422,598
Net cost of operations before government funding	1,742,844	1,608,817	1,646,564
Government funding
Net cash provided by Government	2,097,460	2,480,102	1,751,695
Services provided without charge by other government departments and agencies (note 9)	64,753	71,568	73,860
Change in due from the Consolidated Revenue Fund	3,036	(162,993)	197,514
Net cost of operations after government funding	(422,045)	(779,860)	(376,505)
Departmental net financial position - Beginning of year	521,814	222,641	(153,864)
Departmental net financial position - End of year	$944,219	$1,002,501	$222,641

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)

	2013 Planned Results (restated)	2013	2012
Net cost of operations after government funding	-$422,405	-$779,860	-$376,505
Change due to tangible capital assets
Acquisition of tangible capital assets	535,250	751,350	313,230
Amortization of tangible capital assets	(94,195)	(42,956)	(8,783)
Total change due to tangible capital assets	441,055	708,394	304,447
Net decrease in Departmental net debt	18,650	(71,466)	(72,058)
Departmental net debt - Beginning of year	(70,153)	136,033	208,091
Departmental net debt - End of year	($51,503)	$64,567	$136,033

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

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

	2013	2012
Operating Activities
Net cost of operations before government funding	$1,608,817	$1,646,564
Non-cash items:
Services provided without charge by other government departments (note 9)	(71,568)	(73,860)
Amortization of tangible capital assets	(42,956)	(8,783)
Variations in Statement of Financial Position
Increase in accounts receivable and advances	21,093	27,467
Decrease (increase) in accounts payable and accrued liabilities	173,290	(218,200)
(Increase) decrease in vacation pay and compensatory leave	(2,588)	3,404
Decrease in employee future benefits	42,664	61,873
Cash used in operating activities	1,728,752	1,438,465
Capital Investment Activities
Acquisition of tangible capital assets	751,350	313,230
Cash used by capital investment activities	751,350	313,230
Net Cash Provided by Government of Canada	($2,480,102)	($1,751,695)

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

Notes to the Financial Statements (Unaudited) for the year ended March 31, 2013

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 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 an 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' provision 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 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 - The Department is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Department 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 Statement of Operations and Departmental Net Financial Position are the amounts reported in the future-oriented financial statements included in the 2012-13 Report on Plans and Priorities.  The future-oriented financial statements for 2012-13 have been restated to reflect the cost of assets under construction.  This restatement has resulted in a $9,250 decrease in the net cost of operations before government funding. 

(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 and agencies of the Government. 

(c) Due from 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 Office is entitled to draw from the CRF without further authorities 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 provided without charge by other government departments and agencies 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 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.  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.

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 usinginformation 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; a valuation allowance is recorded for receivables where recovery is considered uncertain.

(g) Tangible Capital Assets

All tangible capital assets having an initial cost of $3,000 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.  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	3 years
Leasehold improvements	remaining term of the lease

Assets under construction are recorded in the applicable capital asset class in the year that they become available for use and are not amortized until they become available for use.

(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 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

The Office 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, 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)

	2013	2012
Net cost of operations before government funding	$1,608,817	$1,646,564
Adjustments for items affecting net cost of operations but not affecting authorities
Services provided without charge	(71,568)	(73,860)
Amortization of tangible capital assets	(42,956)	(8,783)
Decrease in employee future benefits	42,664	61,873
(Increase) decrease in vacation pay	(2,588)	3,404
Total items affecting net cost of operations but not affecting authorities	1,534,369	1,629,198
Adjustments for items not affecting net cost of operations but affecting authorities
Acquisition of tangible capital assets	751,350	313,230
Current year authorities used	$2,285,719	$1,942,428

(b) Authorities Provided and Used (in dollars)

	2013	2012
Authorities provided
Vote 30 - Operating expenditures	$2,260,519	$1,970,519
Transfer from Treasury Board Votes for program expenditures	131,407	243,783
	2,391,926	2,214,302
Statutory amounts	131,161	149,124
	2,523,087	2,363,426
Less: lapsed operating	(237,368)	(420,998)
Current year authorities used	$2,285,719	$1,942,428

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 Office's accounts payable and accrued liabilities (in dollars)

	2013	2012
Accounts payable - Other government departments and agencies	$64,658	$210,949
Accounts payable - external suppliers	56,359	89,428
Total accounts payable	121,017	300,377
Accrued liabilities	42,374	36,304
Total accounts payable and accrued liabilities	$163,391	$336,681

5. 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 expense amounted to $159,204 at March 31, 2013 (2012 was $107,220), which represents approximately 1.7 times (1.8 times in 2011-12) 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

The Office 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.  Information about the severance benefits, measured as at March 31, 2013 is as follows (in dollars):

	2013	2012
Accrued benefit obligation, beginning of the year	$116,077	$177,950
Expense for the year	(42,664)	83,384
Benefits paid during the year	-	(145,257)
Accrued benefit obligation, end of the year	$73,413	$116,077

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 to 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.

6. Accounts Receivable and Advances

The following table presents details of accounts receivable and advances (in dollars)

	2013	2012
Receivables from other government departments and agencies	$65,755	$44,662
Petty cash advance	300	300
Total	$66,055	$44,962

7. Tangible Capital Assets (in dollars)

Capital Asset Class	Cost
	Opening Balance	Acquisitions	Closing Balance
Other equipment including furniture	$90,680	15,605	$106,285
Informatics hardware	56,200	-	56,200
Leasehold improvements	31,053	3,389	$34,442
Assets under construction	194,740	732,356	927,096
Total	$372,673	$751,350	$1,124,023

Capital Asset Class	Accumulated Amortization
	Opening Balance	Amortization	Closing Balance
Other equipment including furniture	$4,991	$22,847	$27,838
Informatics hardware	3,500	11,240	14,740
Leasehold improvements	5,508	8,869	14,377
Assets under construction	-	-	-
Total	$13,999	$42,956	$56,955

Capital Asset Class	Net Book Value
	2013	2012
Other equipment including furniture	$78,447	$85,689
Informatics hardware	41,460	52,700
Leasehold improvements	20,065	25,545
Assets under construction	927,096	194,740
Total	$1,067,068	$358,674

8.  Contractual Obligations

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 goods and services are received.  The most significant commitment relates to an operating lease for its accommodation. Contractual obligations that can be reasonably estimated are summarized as follows:

	2013-14	2014-15	2015-16	Total
Operating leases	$305,109	$299,918	$73,844	$673,680

The occupancy instrument governing the rental of office space expires

June 30, 2015. 

9. Related Party Transactions

The Office is related as a result of common ownership to all government departments, agencies and Crown Corporations.  The Office enters into transactions with these entities in the normal course of business and on normal trade terms.  During the year, the Office 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, the Office 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 the Office's Statement of Operations and Departmental Net Financial Position as follows (in dollars):

	2013	2012
Employer's contribution to the health and dental insurance plans	$71,568	$73,860

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 the Office's Statement of Operations and Departmental Net Financial Position.

(b) Other Transactions with Related Parties (in dollars)

	2013	2012
Expenses - other government departments and agencies:	$1,327,638	$532,342

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

10. Segmented Information

Starting April 1, 2012, "program activity architecture" will be referred to as "program alignment architecture" and "program activities" will be referred to as "programs." 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 programs, by major object of expenses. The segment results for the period are as follows (in dollars):

Operating expenses	Planned Results	Review Program	Internal Services	Total
				2013	2012
Salaries and employee benefits	$918,803	$780,336	$158,723	$939,059	$1,030,648
Professional and special services	526,396	145,616	159,956	305,572	386,905
Accommodation and other rentals	204,496	158,670	59,133	217,803	168,110
Communication, printing and publishing	19,220	50,894	8,237	59,131	11,652
Amortization of tangible capital assets	73,149	-	42,956	42,956	8,783
Office expenses and equipment	21,867	-	28,884	28,884	24,469
Transportation and telecommunication	21,600	999	14,413	15,412	15,997
Net cost of operations before government funding	$1,785,531	$1,136,515	$472,302	$1,608,817	$1,646,564

11. Restatement of Comparative Information

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

1. Introduction        

In support of an effective system of internal control, the Officeannually assesses the performance of its financial controls to ensure:

financial arrangements or contracts are entered into only when sufficient funding is available;

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

payments have been properly authorized. ?

The Officewill leverage the results of the periodic audit of core controls performed by the Office of the Comptroller General. Below is a summary of the results of the assessment conducted during fiscal year 2012-2013.

2. Assessment results during fiscal year 2012-2013

For the most part, controls related to payment of goods and services and payment authority were functioning well and form an adequate basis for the Officesystem of internal control. Some adjustments to reinforce controls over procurement and contracting to ensure continued compliance with the central agency requirements were identified and will be addressed during the current fiscal year.

3. Assessment plan

The Office will continue to monitor the performance of its system of internal control with a focus on the core controls related to financial transactions. In addition, internal services roles and responsibilities as well as the delivery systems for these services are in the process of being realigned.  During the current fiscal year, the control processes impacted as a result of this realignment will be reviewed and adjusted as required.