Financial Statements for 2016-2017

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, 2017 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 Internal Control.

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 Plan are posted on the departmental website.

The financial statements of OCSEC have not been audited.

Originals signed by:

The Honourable Jean-Pierre Plouffe, CD
Commissioner

J. William Galbraith
Chief Financial Officer

Ottawa, Canada
Date signed: October 4, 2017

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

	2017	2016
Liabilities
Accounts payable and accrued liabilities (note 4)	167,868	144,738
Vacation pay and compensatory leave	28,760	30,976
Total liabilities	196,628	175,714
Financial assets
Due from the Consolidated Revenue Fund	149,020	140,827
Accounts receivable and advances (note 6)	26,681	49,066
Total financial assets	175,701	189,893
Departmental net debt	20,927	(14,179)
Non-financial assets
Prepaid expenses	3,580	3,918
Tangible capital assets (note 7)	620,740	683,435
Total non-financial assets	624,320	687,353
Departmental net financial position	603,393	701,532

Contractual obligations (note 8)

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

Originals signed by:

The Honourable Jean-Pierre Plouffe, CD
Commissioner

J. William Galbraith
Chief Financial Officer

Ottawa, Canada
Date signed: October 4, 2017

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

	2017 Planned Results	2017	2016
Expenses
Review Program	1,806,467	1,427,130	1,569,997
Internal Services	582,494	736,096	679,320
Net cost of operations before government funding	2,388,961	2,163,226	2,249,317
Government funding
Net cash provided by Government		1,954,259	2,044,261
Services provided without charge by other government departments (note 9)		102,635	97,048
Change in due from the Consolidated Revenue Fund		8,193	35,239
Net cost of operations after government funding		98,139	72,769
Departmental net financial position - Beginning of year		701,532	774,301
Departmental net financial position - End of year		603,393	701,532

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)

	2017	2016
Net cost of operations after government funding	98,139	72,769
Change due to tangible capital assets
Acquisition of tangible capital assets	67,363	12,500
Amortization of tangible capital assets	(130,058)	(130,072)
Total change due to tangible capital assets	(62,695)	(117,572)
Change due to prepaid expenses	(338)	(31)
Net increase (decrease) in departmental net debt	35,106	(44,834)
Departmental net debt - Beginning of year	(14,179)	30,655
Departmental net debt - End of year	20,927	(14,179)

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

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

	2017	2016
Operating Activities
Net cost of operations before government funding	2,163,226	2,249,317
Non-cash items:
Services provided without charge by other government  departments (note 9)	(102,635)	(97,048)
Amortization of tangible capital assets	(130,058)	(130,072)
Variations in Statement of Financial Position
(Decrease) increase in accounts receivable and  advances	(22,385)	39,627
(Decrease) in prepaid expenses	(338)	(31)
(Increase) in accounts payable and accrued liabilities	(23,130)	(30,242)
Decrease in vacation pay and compensatory leave	2,216	210
Cash used in operating activities	1,886,896	2,031,761
Capital Investing Activities
Acquisitions of tangible capital assets	67,363	12,500
Cash used in capital investing activities	67,363	12,500
Net cash provided by Government of Canada	1,954,259	2,044,261

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

Notes to the Financial Statements (Unaudited)
for the year ended March 31, 2017

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 2016–17 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 2016–17 Report on Plans and Priorities.

(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 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 

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 (the 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

   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. OCSEC 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

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

	2017            (in dollars)	2016           (in dollars)
Net cost of operations before government funding	2,163,226	2,249,317
Adjustments for items affecting net cost of operations but not affecting authorities
Services provided without charge by other government departments	(102,635)	(97,048)
Amortization of tangible capital assets	(130,058)	(130,072)
Decrease in vacation pay and compensatory leave	2,216	210
Refunds of prior year's expenditure	-	1
Total items affecting net cost of operations but not affecting authorities	(230,477)	(226,909)
Adjustments for items not affecting net cost of operations but affecting authorities
Advances to employees	4,604	-
(Decrease) in prepaid expenses	(338)	(31)
Acquisition of tangible capital assets	67,363	12,500
Total for items not affecting net cost of operations but affecting authorities	71,629	12,469
Current year authorities used	2,004,378	2,034,877

(b) Authorities Provided and Used

Authorities provided	2017 (in dollars)	2016 (in dollars)
Vote 1 – Operating expenditures	2,025,506	1,942,422
Statutory amounts	170,161	177,890
Total authorities provided	2,195,667	2,120,312
Less: lapsed operating	(191,289)	(85,435)
Current year authorities used	2,004,378	2,034,877

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

	2017           (in dollars)	2016         (in dollars)
Accounts payable – Other government departments and agencies	1,733	8,062
Accounts payable – External suppliers	65,428	43,122
Total accounts payable	67,161	51,184
Accrued liabilities	100,707	93,554
Total accounts payable and accrued liabilities	167,868	144,738

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 2016–2017 expense amounts to $118,551 ($122,620 in 2015–2016).  For Group 1 members, the expense represents approximately 1.12 times (1.25 times in 2015–2016) the employee contributions and, for Group 2 members, approximately 1.08 times (1.24 times in 2015–2016) the employee contributions.

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 settlements for immediate cash out were completed. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities. 

The changes in the obligations during the year were as follows:

	2017 (in dollars)	2016 (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:

	2017 (in dollars)	2016 (in dollars)
Receivables from other government departments and agencies	21,777	48,766
Other advances	4,604	-
Petty cash advance	300	300
Total accounts receivable and advances	26,681	49,066

7. Tangible Capital Assets

Capital Asset Class	Cost (in dollars)
	Opening Balance	Acquisitions	Closing Balance
Other equipment including furniture	121,890	67,363	189,253
Informatics hardware	106,705	-	106,705
Leasehold improvements	890,312	-	890,312
Total	1,118,907	67,363	1,186,270

Capital Asset Class	Accumulated Amortization (in dollars)
	Opening Balance	Amortization	Closing Balance
Other equipment including furniture	82,714	23,186	105,900
Informatics hardware	64,165	17,841	82,006
Leasehold improvements	288,593	89,031	377,624
Total	435,472	130,058	565,530

Capital Asset Class	Net Book Value (in dollars)
	2017	2016
Other equipment including furniture	83,353	39,176
Informatics hardware	24,699	42,540
Leasehold improvements	512,688	601,719
Total	620,740	683,435

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 for the rental of office space. Contractual obligations that can be reasonably estimated are summarized as follows:

	2017–18 (in dollars)	Total
Occupancy instruments	299,919	299,919

There are two occupancy instruments governing the rental of office space. Both expire March 31, 2018 and are in the process of being negotiated.

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:

	2017 (in dollars)	2016 (in dollars)
Employer's contribution to the health and dental insurance plans	102,635	97,048

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 Services and Procurement Canada are not included in OCSEC's Statement of Operations and Departmental Net Financial Position.

(b) Other Transactions with Related Parties

	2017 (in dollars)	2016 (in dollars)
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).

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 Services and Procurement 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	Review Program (in dollars)	Internal Services (in dollars)	Total (in dollars)
			2017	2016
Salaries and employee benefits	1,113,780	255,532	1,369,312	1,391,587
Accommodation and other rentals	235,384	83,535	318,919	317,033
Professional and special services	56,087	210,879	266,966	343,430
Amortization of tangible capital assets	-	130,058	130,058	130,072
Office expenses and equipment	-	30,036	30,036	22,013
Transportation and telecommunication	14,563	13,155	27,718	24,920
Communication, printing and publishing	7,316	12,901	20,217	20,262
Net cost of operations before government funding	1,427,130	736,096	2,163,226	2,249,317

12. Subsequent Event - Bill C-59

On June 20, 2017, Bill C-59, An Act respecting national security matters was given first reading. As it presently stands, the Act would abolish the position of the Commissioner of the Communications Security Establishment, provide for the Commissioner to become the Intelligence Commissioner, and transfer the employees of the former Commissioner to the office of the new Commissioner.

13. Restatement of Comparative Information

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