Financial Statements for 2018-2019

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, 2019 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 Financial Management.

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 (Audits) are posted on the departmental web site.

The financial statements of OCSEC have not been audited.

The Honourable Jean-Pierre Plouffe, cd
Commissioner

Guylaine A. Dansereau
Chief Financial Officer

Ottawa, Canada
Date signed: September 5, 2019

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

	2019	2018
Liabilities
Accounts payable and accrued liabilities (note 4)	$243,270	$251,645
Vacation pay and compensatory leave	26,352	51,084
Total liabilities	269,622	302,729
Financial assets
Due from the Consolidated Revenue Fund	239,219	195,439
Accounts receivable and advances (note 6)	9,058	50,395
Total financial assets	248,277	245,834
Departmental net debt	21,345	56,895
Non-financial assets
Prepaid expenses	7,151	3,903
Tangible capital assets (note 7)	387,173	509,507
Total non-financial assets	394,324	513,410
Departmental net financial position	$372,979	$456,515

Contractual obligations (note 8)

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

The Honourable Jean-Pierre Plouffe, CD
Commissioner

Guylaine A. Dansereau
Chief Financial Officer

Ottawa, Canada
Date signed: September 5, 2019

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

	2019 Planned Results	2019	2018
Expenses
Review Program	$1,736,795	$1,657,512	$1,476,390
Internal Services	664,270	674,311	692,861
Net cost of operations before government funding	$2,401,065	2,331,823	2,169,251
Government funding
Net cash provided by Government		2,105,105	1,876,744
Services provided without charge by other government departments (note 9)		99,402	99,210
Change in due from the Consolidated Revenue Fund		43,780	46,419
Net cost of operations after government funding		83,536	146,878
Departmental net financial position - Beginning of year		456,515	603,393
Departmental net financial position - End of year		$372,979	$456,515

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)

	2019	2018
Net cost of operations after government funding	$83,536	$146,878
Change due to tangible capital assets
Acquisition of tangible capital assets	-	16,430
Amortization of tangible capital assets	(122,334)	(127,663)
Total change due to tangible capital assets	(122,334)	(111,233)
Change due to prepaid expenses	3,248	323
Net (decrease) increase in departmental net debt	(35,550)	35,968
Departmental net debt - Beginning of year	56,895	20,927
Departmental net debt - End of year	$21,345	$56,895

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

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

	2019	2018
Operating Activities
Net cost of operations before government funding	$2,331,823	$2,169,251
Non-cash items:
Services provided without charge by other government departments (note 9)	(99,402)	(99,210)
Amortization of tangible capital assets	(122,334)	(127,663)
Variations in Statement of Financial Position
(Decrease) increase in accounts receivable and advances	(41,337)	23,714
Increase in prepaid expenses	3,248	323
Decrease (increase) in accounts payable and accrued liabilities	8,375	(83,777)
Decrease (increase) in vacation pay and compensatory leave	24,732	(22,324)
Cash used in operating activities	2,105,105	1,860,314
Capital Investing Activities
Acquisitions of tangible capital assets	-	16,430
Cash used in capital investing activities	-	16,430
Net cash provided by Government of Canada	$2,105,105	$1,876,744

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

Notes to the Financial Statements (Unaudited) for the year ended March 31, 2019

1. Authority and Objectives

The Office of the Communications Security Establishment Commissioner (OCSEC) 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 2018–19 Departmental Plan. 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 2018–19 Departmental Plan.

(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 and agencies 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 

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 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

   The accumulation of severance benefits for voluntary departures ceased for applicable employee groups.

 (f)  Accounts Receivable and Advances

Accounts receivable are initially recorded at cost. When necessary, an allowance for valuation is recorded to reduce the carrying value of accounts receivable to amounts that approximate their net recoverable value.

(g) Non-financial Assets

The costs of acquiring land, buildings, equipment and other capital property are capitalized as tangible capital assets and, except for land, are amortized to expense over the estimated useful lives of the assets, as described in Note 7. All tangible capital assets and leasehold improvements having an initial cost of $3,000 or more are recorded at their acquisition cost. Tangible capital assets do not include immovable assets located on reserves, works of art, museum collections and Crown land to which no acquisition cost is attributable.

(h) Measurement Uncertainty

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported and disclosed amounts of assets, liabilities and expenses reported in the financial statements and accompanying notes at March 31. The estimates are based on facts and circumstances, historical experience, general economic conditions and reflect the Government's best estimate of the related amount at the end of the reporting period. 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

	(in dollars)
	2019	2018
Net cost of operations before government funding	$2,331,823	$2,169,251
Adjustments for items affecting net cost of operations but not affecting authorities
Services provided without charge by other government departments	(99,402)	(99,210)
Amortization of tangible capital assets	(122,334)	(127,663)
Increase (decrease) in vacation pay and compensatory leave	10,061	(7,656)
Refunds of prior year's expenditures	-	192
Total items affecting net cost of operations but not affecting authorities	(211,675)	(234,337)
Adjustments for items not affecting net cost of operations but affecting authorities
Advances to employees	-	15,394
Increase in prepaid expenses	3,248	323
Acquisition of tangible capital assets	-	16,430
Total for items not affecting net cost of operations but affecting authorities	3,248	32,147
Current year authorities used	$2,123,396	$1,967,061

(b) Authorities Provided and Used (in dollars)

Authorities provided	2019	2018
Vote 1 - Operating expenditures	$2,103,870	$2,059,246
Statutory amounts	167,465	141,826
Total authorities provided	2,271,335	2,201,072
Less: lapsed operating	(147,939)	(234,011)
Current year authorities used	$2,123,396	$2,004,378

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

	(in dollars)
	2019	2018
Accounts payable – Other government departments and agencies	$47,473	$70,934
Accounts payable - External suppliers	85,664	63,580
Total accounts payable	133,137	134,514
Accrued liabilities	110,132	117,130
Total accounts payable and accrued liabilities	$243,269	$251,644

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 2018–2019 expense amounts to $117,958 ($97,549 in 2017–2018). For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2017–2018) the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2017–2018) the employee contributions.

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.

(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 employees had opted for full payment of benefits and there is no liability.

6. Accounts Receivable and Advances

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

	(in dollars)
	2019	2018
Receivables from other government departments and agencies	$8,758	$41,741
Other advances	-	8,354
Petty cash advance	300	300
Total accounts receivable and advances	$9,058	$50,395

7. Tangible Capital Assets (in dollars)

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

Capital Asset Class	Cost
	Opening Balance	Acquisitions	Disposals	Closing Balance
Other equipment including furniture	$205,683	-	-	$205,683
Informatics hardware	106,705	-	(36,850)	69,855
Leasehold improvements	890,312	-	-	890,312
Total	$1,202,700	-	($36,850)	$1,165,850

	Accumulated Amortization
	Opening Balance	Amortization	Disposals	Closing Balance
Other equipment including furniture	$135,239	$19,514	-	$154,753
Informatics hardware	92,107	14,598	(36,850)	69,855
Leasehold improvements	465,847	88,222	-	554,069
Total	$693,193	$122,334	($36,850)	$778,677

	Net Book Value
	2019	2018
Other equipment including furniture	$50,930	$70,444
Informatics hardware	-	14,598
Leasehold improvements	336,243	424,465
Total	$387,173	$509,507

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 signed in June 2018 and running for 10 years for the rental of office space. The obligations related to the upcoming years include the following:

	2019 (in dollars)
2020	293,943
2021	293,943
2022	293,943
2023 and subsequent	1,763,658
Total future occupancy payments	$2,645,487

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:

	(in dollars)
	2019	2018
Employer's contribution to the health and dental insurance plans	$99,402	$99,210

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 OCSEC's Statement of Operations and Departmental Net Financial Position.

(b) Other Transactions with Related Parties

	(in dollars)
	2019	2018
Expenses - other government departments and agencies:	$748,720	$633,634

Expenses disclosed in (b) exclude common services provided without charge, which are already disclosed in (a). Accounts receivable and accounts payable to other government departments and agencies are already disclosed in Notes 4 and 6 respectively.

10. Segmented Information

Presentation by segment is based on the OCSEC's core responsibility. 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 core responsibility, by major object of expense. The segment results for the period are as follows:

Operating expenses	(in dollars)
	Review Program	Internal Services	Total
			2019	2018
Salaries and employee benefits	$1,180,209	$264,205	$1,444,414	$1,344,728
Professional and special services	166,712	155,591	322,303	286,200
Accommodation and other rentals	219,741	77,207	296,948	321,673
Amortization of tangible capital assets	-	122,334	122,334	127,663
Transportation and telecommunication	66,248	12,755	79,003	25,788
Communication, printing and publishing	24,602	12,018	36,620	38,156
Office expenses and equipment	-	30,201	30,201	25,043
Net cost of operations before government funding	$1,657,512	$674,311	$2,331,823	$2,169,251

11. Subsequent Events

On June 21, 2019, Bill C-59, An Act respecting national security matters, received Royal Assent. July 11, 2019 was the last day of operations for the Office of the CSE Commissioner. On July 12, 2019, the legislation came into force. Under the Intelligence Commissioner Act, the Commissioner of the Communications Security Establishment became the Intelligence Commissioner; staff occupying a position in the Office of the Communications Security Establishment Commissioner occupied a similar position in the Office of the Intelligence Commissioner, and unexpended monies appropriated to the Office of the CSE Commissioner would be deemed to be an amount appropriated to the Office of the Intelligence Commissioner. 

12. Restatement of Comparative Information

Certain 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 for the year ended March 31, 2019

1. Introduction

In support of an effective system of internal control, OCSEC annually assesses the performance of its financial control framework to ensure procurement processes are in accordance with the direction set out by the central agencies 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 documentation supports financial decisions taken.

2. Assessment results during fiscal year 2014–2015

A core control audit performed by the Office of the Comptroller General for fiscal year 2014–2015 was completed in July 2016.

3. Assessment plan

The Audit Report and the related Management Action Plan are posted on the departmental web site. The action plan has been implemented. It is now used as a guide for the annual assessments.

There is no action plan going forward as the Office of the CSE Commissioner closed on July 11, 2019.