Financial Statements for 2015-2016

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2016 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 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 Internal Control.

A Core Control Audit for fiscal year 2014-15 performed by the Office of the Comptroller General of Canada was just completed. The Audit Report and the related Management Action Plan are posted on the departmental web site.

The financial statements of the Office have not been audited.

Originals signed by:

The Honourable Jean-Pierre Plouffe
Commissioner

J. William Galbraith
Chief Financial Officer

Ottawa, Canada

Date signed:
September 1, 2016

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

  2016 2015
Liabilities
Accounts payable and accrued liabilities (note 4) $144,738 $114,496
Vacation pay and compensatory leave 30,976 31,186
Total liabilities 175,714 145,682
Financial assets
Due from the Consolidated Revenue Fund 140,827 105,588
Accounts receivable and advances (note 6) 49,066 9,439
Total financial assets 189,893 115,027
Departmental net debt (14,179) 30,655
Non-financial assets
Prepaid expenses 3,918 3,949
Tangible capital assets (note 7) 683,435 801,007
Total non-financial assets 687,353 804,956
Departmental net financial position $701,532 $774,301

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)

  2016
Planned Results		 2016 2015
Expenses
Review Program $1,609,942 $1,569,997 $1,459,064
Internal Services 621,760 679,320 726,896
Net cost of operations before government funding $2,231,702 2,249,317 2,185,960
Government funding
Net cash provided by Government   2,044,261 2,004,173
Services provided without charge by other government departments (note 9)   97,048 87,444
Transfer of the transition payments for implementing salary payments in arrears
(note 10)		   - (36,120)
Change in due from the Consolidated Revenue Fund   35,239 (33,149)
Net cost of operations after government funding   72,769 163,612
Departmental net financial position - Beginning of year   774,301 937,913
Departmental net financial position - End of year   $701,532 $774,301

Segmented information (note 11)
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)

  2016 2015
Net cost of operations after government funding $72,769 $163,612
Change due to tangible capital assets
Acquisition of tangible capital assets 12,500 8,700
Adjustment of tangible capital assets - (71,226)
Amortization of tangible capital assets (130,072) (129,056)
Total change due to tangible capital assets (117,572) (191,582)
Change due to prepaid expenses (31) 3,949
Net (decrease) in departmental net debt (44,834) (24,021)
Departmental net debt - Beginning of year 30,655 54,676
Departmental net debt - End of year ($14,179) $30,655

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

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

  2016 2015
Operating Activities
Net cost of operations before government funding $2,249,317 $2,185,960
Non-cash items:
Services provided without charge by other government departments (note 9) (97,048) (87,444)
Amortization of tangible capital assets (130,072) (129,056)
Adjustment of tangible capital assets due to cost recovery - (71,226)
Transition payments for implementing salary payments in arrears (note 10) - 36,120
Variations in Statement of Financial Position
Increase in accounts receivable and advances 39,627 2,918
(Decrease) increase in prepaid expenses (31) 3,949
Decrease (increase) in accounts payable and accrued liabilities (30,242) 29,440
Decrease in vacation pay and compensatory leave 210 24,812
Cash used in operating activities 2,031,761 1,995,473
Capital Investing Activities
Acquisitions of tangible capital assets 12,500 8,700
Cash used in capital investing activities 12,500 8,700
Net cash provided by Government of Canada $2,044,261 $2,004,173

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

Notes to the Financial Statements (Unaudited)
For the year ended March 31, 2016

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 the Office. 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 - 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 "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 2015-16 Report on Plans and Priorities. 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 2015-16 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 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 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 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 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 using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

(f) Accounts Receivable and Advances

Accounts receivable and advances 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 

(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

   

2016
   (in dollars)  

2015
    (in dollars)  
Net cost of operations before government funding $2,249,317 $2,185,960
Adjustments for items affecting net cost of operations but not affecting authorities
Services provided without charge by other government departments (97,048) (87,444)
Amortization of tangible capital assets (130,072) (129,056)
Decrease in vacation pay and compensatory leave 210 24,812
Refunds of prior year's expenditures 1 519
Total items affecting net cost of operations but not affecting authorities 2,022,408 1,994,791
Adjustments for items not affecting net cost of operations but affecting authorities
Transition payments for implementing salary payments in arrears (note 10)   - 36,120
(Decrease) increase prepaid expenses (31) 3,949
Acquisition of tangible capital assets 12,500 8,700
Current year authorities used $2,034,877 $2,043,560

(b) Authorities Provided and Used

Authorities provided 2016
 (in dollars)		 2015
 (in dollars)
Vote 1 - Operating expenditures $1,942,422 $1,949,021
Statutory amounts 177,890 175,372
Total 2,120,312 2,124,393
Less: lapsed operating (85,435) (80,833)
Current year authorities used $2,034,877 $2,043,560

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

  2016
  (in dollars)  		 2015
  (in dollars)  
Accounts payable - Other government departments and agencies $8,062 $  -
Accounts payable - External suppliers 43,122 31,867
Total accounts payable 51,184 31,867
Accrued liabilities 93,554 82,629
Total accounts payable and accrued liabilities $144,738 $114,496

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. 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 2015-2016 expense amounts to $122,620 ($119,884 in 2014-2015). For Group 1 members, the expense represents approximately 1.25 times (1.41 times in 2014-2015) the employee contributions and, for Group 2 members, approximately 1.24 times (1.39 times in 2014-2015) 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. 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.

  2016
 (in dollars)		 2015
 (in dollars)
Accrued benefit obligation, beginning of the year $ - $ -
Expense for the year - -
Benefits paid during the year - -
Accrued benefit obligation, end of the year $ -  $ -

6. Accounts Receivable and Advances

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

  2016
  (in dollars)  		 2015
  (in dollars)  
Receivables from other government departments and agencies $48,766 $9,139
Petty cash advance 300 300
Total accounts receivable and advances $49,066 $9,439

7. Tangible Capital Assets

Capital Asset Class Cost (in dollars)
Opening Balance Acquisitions Closing Balance
Other equipment including furniture $121,890 $ -  $121,890
Informatics hardware 94,205 12,500 106,705
Leasehold improvements 890,312 - 890,312
Total $1,106,407 $12,500 $1,118,907
  Accumulated Amortization
Opening Balance Amortization Closing Balance
Other equipment including furniture $60,514 $22,200 $82,714
Informatics hardware 45,324 18,841 64,165
Leasehold improvements 199,562 89,031 288,593
Total $305,400 $130,072 $435,472
  Net Book Value
2016 2015
Other equipment including furniture $39,176 $61,376
Informatics hardware 42,540 48,881
Leasehold improvements 601,719 690,750
Total $683,435 $801,007

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 commitments relate to occupancy instruments for the rental of office space. Contractual obligations that can be reasonably estimated are summarized as follows:

 

2016-17
 (in dollars) 

2017-18
 (in dollars) 

Total
 (in dollars) 
Occupancy instruments   $299,919 $299,919 $599,838

There are two occupancy instruments governing the rental of office space. One occupancy instrument expired March 31, 2016, and is in the process of being extended until March 31, 2018. The second occupancy instrument expires March 31, 2018. Both occupancy instruments are included in the totals above.

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:

  2016
   (in dollars)  		 2015
   (in dollars)  
Employer's contribution to the health and dental insurance plans  $97,048 $82,335

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

  2016
  (in dollars)		 2015
  (in dollars)
Expenses - other government departments and agencies: $621,935 $423,345

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

10. Transfer of the Transition Payments for implementing salary payments in arrears

The Government of Canada implemented salary payments in arrears in 2014-15. As a result, a one-time payment was issued to employees and will be recovered from them in the future. The transition to salary payments in arrears forms part of the transformation initiative that replaces the pay system and also streamlines and modernizes the pay processes. This change to the pay system had no impact on the expenses of the Department. However, it did result in the use of additional spending authorities by the Department.

Prior to year-end, the transition payments for implementing salary payments in arrears were transferred to a central account administered by Public Works and Government Services Canada, who is responsible for the administration of the Government pay system.

11. Segmented Information

Presentation by segment is based on Office's Program Alignment 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 programs, by major object of expenses. The segment results for the period are as follows:

Operating expenses (in dollars)

Review 
 Program   

Internal 
 Services   

 Total
2016 2015
Salaries and employee benefits $1,183,690 $207,897 $1,391,587 $1,304,395
Professional and special services 144,600 198,830 343,430 350,473
Accommodation and other rentals 231,607 85,426 317,033 325,649
Amortization of tangible capital assets - 130,072 130,072 129,056
Transportation and telecommunication 3,380 21,540 24,920 47,480
Office expenses and equipment - 22,013 22,013 15,977
Communication, printing and publishing 6,720 13,542 20,262 12,930
Net cost of operations before government funding   $1,569,997 $679,320 $2,249,317 $2,185,960

12. Restatement of Comparative Information

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

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