Financial Statements for 2013-2014

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, 2014 and all information contained in these statements rests with the management of the Office of the Communications Security Establishment Commissioner (the 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, 2014, 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.

Originals signed by;

The Honourable Jean-Pierre Plouffe, C.D.
Commissioner

J. William Galbraith
Chief Financial Officer

Ottawa, Canada
Date: August 6, 2014

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

	2014	2013
Liabilities
Accounts payable and accrued liabilities (note 4)	$143,936	$163,391
Vacation pay and compensatory leave	55,998	29,550
Employee future benefits (note 5)	-	73,413
Total liabilities	199,934	266,354
Financial assets
Due from the Consolidated Revenue Fund	138,737	135,732
Accounts receivable and advances (note 6)	6,521	66,055
Total financial assets	145,258	201,787
Departmental net debt	54,676	64,567
Non-financial assets
Tangible capital assets (note 7)	992,589	1,067,068
Total non-financial assets	992,589	1,067,068
Departmental net financial position	$937,913	$1,002,501

Contractual obligations (note 8)

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

Originals signed by;

The Honourable Jean-Pierre Plouffe, C.D.
Commissioner

J. William Galbraith
Chief Financial Officer

Ottawa, Canada
Date: August 6, 2014

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

	2014 Planned Results	2014	2013
Expenses
CSEC Review Program	$1,800,000	$1,336,458	$1,136,515
Internal Services	572,388	730,751	472,302
Net cost of operations before government funding	2,372,388	2,067,209	1,608,817
Government funding
Net cash provided by Government	2,111,984	1,917,281	2,480,102
Services provided without charge by other government departments and agencies (note 9)	65,464	82,335	71,568
Change in due from the Consolidated Revenue Fund	9,231	3,005	(162,993)
Net cost of operations after government funding	185,711	64,588	(779,860)
Departmental net financial position - Beginning of year	1,265,568	1,002,501	(222,641)
Departmental net financial position - End of year	$1,079,857	$937,913	$1,002,501

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)

	2014 Planned Results	2014	2013
Net cost of operations after government funding	$185,711	$64,588	($779,860)
Change due to tangible capital assets
Acquisition of tangible capital assets	8,000	44,910	751,350
Amortization of tangible capital assets	(145,706)	(119,389)	(42,956)
Total change due to tangible capital assets	(137,706)	(74,479)	708,394
Net increase (decrease) in departmental net debt	48,005	(9,891	(71,466)
Departmental net debt - Beginning of year	(191,598)	64,567	136,033
Departmental net debt - End of year	($143,593)	$54,676	$64,567

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

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

	2014	2013
Operating Activities
Net cost of operations before government funding	$2,067,209	$1,608,817
Non-cash items:
Services provided without charge by other government departments (note 9)	(82,335)	(71,568)
Amortization of tangible capital assets	(119,389)	(42,956)
Variations in Statement of Financial Position
Increase (decrease) in accounts receivable and advances	(59,534)	21,093
Decrease (increase) in accounts payable and accrued liabilities	19,455	173,290
(Increase) decrease in vacation pay and compensatory leave	(26,448)	(2,588)
Decrease in employee future benefits	73,413	42,664
Cash used in operating activities	1,872,371	1,728,752
Capital Investing Activities
Acquisitions of tangible capital assets	44,910	751,350
Cash used in capital investing activities	44,910	751,350
Net cash provided by Government of Canada	$1,917,281	$2,480,102

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

Notes to the Financial Statements (Unaudited) for the year ended March 31, 2014

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 duties of the Commissioner are set out under subsections 273.63(2) and (3) and 273.65(8) of the National Defence Act (NDA):

NDA 273.63(2)

1. to review the activities of the Establishment [CSEC] to ensure that they are in compliance with the law;
2. in response to a complaint, to undertake any investigation that the Commissioner considers necessary; 
3. to inform the Minister of National Defence and the Attorney General of Canada of any activity of the Establishment that the Commissioner believes may not be in compliance with the law;

Additionally, under Section 15 of the Security of Information Act, the Commissioner is mandated to receive information from persons who are permanently bound to secrecy and who seek to defend the release of classified information about Communications Security Establishment Canada on the grounds that it is in the public interest.

There are two programs that support the Commissioner in the discharge of his mandate. The CSEC 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 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 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 2013-14 Report on Plans and Priorities.

(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)

	2014	2013
Net cost of operations before government funding	$2,067,209	$1,608,817
Adjustments for items affecting net cost of operations but not affecting authorities
Services provided without charge	(82,335)	(71,568)
Amortization of tangible capital assets	(119,389)	(42,956)
Decrease in employee future benefits	73,413	42,664
Decrease in accounts receivable not charged to authorities	(14,240)	-
(Increase) decrease in vacation pay and compensatory leave	(26,448)	(2,588)
Total items affecting net cost of operations but not affecting authorities	1,898,210	1,534,369
Adjustments for items not affecting net cost of operations but affecting authorities
Acquisition of tangible capital assets	44,910	751,350
Current year authorities used	$1,943,120	$2,285,719

(b) Authorities Provided and Used (in dollars)

	2014	2013
Authorities provided
Vote 30 - Operating expenditures	$2,099,714	$2,391,926
Statutory amounts	167,680	131,161
Sub-total	2,267,394	2,523,087
Less: lapsed operating	(324,274)	(237,368)
Current year authorities used	$1,943,120	$2,285,719

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

	2014 (in dollars)	2013 (in dollars)
Accounts payable - Other government departments and agencies	$55,948	$64,658
Accounts payable - External suppliers	43,162	56,359
Total accounts payable	99,110	121,017
Accrued liabilities	44,826	42,374
Total accounts payable and accrued liabilities	$143,936	$163,391

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

The 2013-2014 expense amounted to $117,896 at March 31, 2014 (2013 was $159,204). For Group 1 members, the expense represents approximately 1.6 times (1.7 times for 2012-2013) the employee contributions and for Group 2 members approximately 1.5 times (1.6 times for 2012-2013) the employee contributions.

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, 2014 is as follows (in dollars):

	2014	2013
Accrued benefit obligation, beginning of the year	$73,413	$116,077
Expense for the year	(14,871)	(42,664)
Benefits paid during the year	(58,542)	-
Accrued benefit obligation, end of the year	$ -	$73,413

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)

	2014	2013
Receivables from other government departments and agencies	$6,221	$65,755
Petty cash advance	300	300
Total	$6,521	$66,055

7. Tangible Capital Assets (in dollars)

Capital Asset Class	Cost
	Opening Balance	Acquisitions	Adjustments[1]	Closing Balance
Other equipment including furniture	$106,285	15,605	$ -	$121,890
Informatics hardware	56,200	29,305	-	85,505
Leasehold improvements	34,442	-	927,096	$961,538
Assets under construction	927,096	-	(927,096)	-
Total	$1,124,023	$44,910	$ -	$1,168,933

Capital Asset Class	Accumulated Amortization
	Opening Balance	Amortization	Closing Balance
Other equipment including furniture	$27,838	$10,476	$38,314
Informatics hardware	14,740	12,759	27,499
Leasehold improvements	14,377	96,154	110,531
Assets under construction	-	-	-
Total	$56,955	$119,389	$176,344

Capital Asset Class	Net Book Value
	2014	2013
Other equipment including furniture	$83,576	$78,447
Informatics hardware	58,006	41,460
Leasehold improvements	851,007	20,065
Assets under construction	-	927,096
Total	$992,589	$1,067,068

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:

	2015	2016	Total
Operating leases	$299,918	$73,844	$373,762

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):

	2014	2013
Employer's contribution to the health and dental insurance plans	$82,335	$71,568

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)

	2014	2013
Expenses - other government departments and agencies:	$485,307	$1,327,638

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):

	CSEC Review Program	Internal Services	Total
			2014	2013
Operating expenses
Salaries and employee benefits	$979,648	$228,089	$1,207,737	$939,059
Professional and special services	126,983	225,198	352,181	305,572
Accommodation and other rentals	224,621	104,271	328,892	217,803
Amortization of tangible capital assets	-	119,389	119,389	42,956
Office expenses and equipment	-	29,638	29,638	28,884
Transportation and telecommunication	5,206	11,126	16,332	15,412
Communication, printing and publishing	-	13,040	13,040	59,131
Net cost of operations before government funding	$1,336,458	$730,751	$2,067,209	$1,608,817

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 Office annually 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 2013-2014.

2. Assessment results during fiscal year 2013-2014

Controls related to the determination of fund availability, the receipt of goods and services and the exercise of payment authority were functioning well and form an adequate basis for the Officesystem of internal control. Greater use can be made of procurement tools and the buyandsell website available through PWGSC.

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.

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