Departmental Financial Statements

Statement of Management Responsibility Including Internal Control Over Financial Reporting

Contractual obligations (note 10)
Contingent liabilities (note 11)

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

Segmented information (note 14)

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

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

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

Shared Services Canada (SSC) is a federal department created on August 4, 2011, to fundamentally transform how the Government of Canada manages its information technology (IT) infrastructure. SSC reports to Parliament through the Minister of Public Works and Government Services and is responsible for delivering mandated email, data centre and network services to its partner departments in a consolidated and standardized manner to support the delivery of Government of Canada programs and services. SSC also provides certain optional technology-related services to government organizations on a cost-recovery basis. With a whole-of-government approach to IT, SSC is creating economies of scale to deliver more efficient, reliable and secure IT infrastructure services to Government of Canada departments. SSC’s mandate was reinforced on June 29, 2012, with the passage of the Shared Services Canada Act by Parliament.

On April 3, 2013, SSC was given the mandate to provide services related to the acquisition and provision of hardware and software for workplace technology devices. This government-wide, standardized, centralized approach to supplying and supporting workplace technology devices will reduce costs and strengthen the security of government systems.

SSC’s Program Alignment Architecture supports the achievement of the following strategic outcome: Mandated services are delivered in a consolidated and standardized manner to support the delivery of Government of Canada programs and services for Canadians.

SSC’s Program Alignment Architecture includes the following programs:

• Efficient and effective information technology infrastructure services are delivered across Government of Canada (Efficient and effective IT infrastructure services): Enterprise-wide consolidation in the areas of email, data centres and telecommunications improves the overall efficiency, reliability and security of IT infrastructure.
  
• Internal services: Internal services are groups of activities and resources that support the programs and other corporate obligations of an organization. Internal services include only those activities and resources that apply across an organization and not those provided to a specific program. These activity groups include: management and oversight services; communications services; legal services; human resources management services; financial management services; information management services; IT services; real property services; materiel services; acquisition services; and travel and other administrative services.

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:

1. Parliamentary authorities
                                                                         
   SSC is financed by the Government of Canada through parliamentary authorities. Financial reporting of authorities provided to SSC 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 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 Statement of Operations included in the 2013-14 Report on Plans and Priorities.
   
2. Net cash provided by Government of Canada
   
   SSC operates within the Consolidated Revenue Fund, which is administered by the Receiver General for Canada. All cash received by SSC is deposited to the Consolidated Revenue Fund, and all cash disbursements made by SSC are paid from the Consolidated Revenue Fund. The net cash provided by government is the difference between all cash receipts and all cash disbursements, including transactions between departments of the government.
   
3. Amounts due from or to the Consolidated Revenue Fund
   
   Amounts due from or to the Consolidated Revenue Fund are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the Consolidated Revenue Fund. Amounts due from the Consolidated Revenue Fund represent the net amount of cash that SSC is entitled to draw from the Consolidated Revenue Fund without further authorities to discharge its liabilities.
   
4. Revenues
   
   Revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
   
   Funds that have been received in advance are recorded as deferred revenue, provided SSC has an obligation to other parties for the provision of goods, services or the use of assets in the future.
   
   Revenues that are non-respendable are not available to discharge SSC’s liabilities. While the President is expected to maintain accounting control, she has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of SSC’s gross revenues.
   
5. 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 for employer contributions to the health and dental insurance plans, accommodation and legal services are recorded as operating expenses at their estimated cost.
   
6. Employee future benefits
   
   
   • Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the government. SSC’s contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. SSC’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.
     
   • 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.
7. Accounts receivable
   
   Accounts receivable are stated at the lower of cost and net recoverable value. A valuation allowance is recorded for accounts receivable where recovery is considered uncertain.
   
8. Tangible capital assets
   
   All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. SSC does not hold, and therefore does not capitalize the following capital assets: intangibles; works of art and historical treasures that have cultural, aesthetic or historical value; assets located on Indian reserves; and museum collections.
   
   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
   Buildings	From 20 to 40 years
   Works and infrastructure	From 20 to 40 years
   Machinery and equipment	From 5 to 15 years
   Computer hardware	From 3 to 10 years
   Computer software	From 3 to 10 years
   Vehicles	From 6 to 8 years
   Leasehold improvements	Lesser of the remaining term of the lease or useful life of the improvement
   Leased tangible capital assets	According to the useful life of the asset if a bargain purchase option exists or over the 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.

9. Contingent liabilities
   
   Contingent liabilities are potential liabilities that may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or if an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.
   
10. 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

SSC receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, SSC 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:

4. Accounts payable and accrued liabilities

The following table presents details of SSC’s accounts payable and accrued liabilities:

5. Deferred revenue

Deferred revenue represents the balance at year-end of unearned revenues stemming from amounts received prior to services being performed. Revenue is recognized in the period in which the service is performed. Details of the transactions related to this account are as follows:

6. Lease obligations for tangible capital assets

SSC has entered into agreements to lease certain computer hardware under capital leases with a cost of $73 million and accumulated amortization of $42 million as at March 31, 2014 ($81 million and $27 million respectively as at March 31, 2013). The obligations related to the upcoming years include the following:

7. Employee future benefits

a) Pension benefits

SSC’s employees participate in the Public Service Pension Plan (the “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/Québec Pension Plan benefits and they are indexed to inflation.

Both the employees and SSC 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 amounts to $64 million ($54 million in 2012-2013). For Group 1 members, the expense represents approximately 1.6 times (1.7 times in 2012-2013) the employees’ contributions and, for Group 2 members, approximately 1.5 times (1.6 times in 2012-2013) the employees’ contributions.

SSC’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

SSC 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 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.

Information about the severance benefits, measured as at March 31, is as follows:

8. Accounts receivable and advances

The following table presents details of SSC’s accounts receivable and advances:

9. Tangible capital assets

(in thousands of dollars)

Adjustments include assets under construction of $21.0 million that were transferred to the other categories upon completion of the assets.

On April 3, 2013, SSC was transferred computer software with a net book value of $3.6 million from several other government departments (see note 13 for further detail on the transfer). This transfer is included in the adjustment columns. Also, during the year, SSC received machinery and equipment, computer hardware, computer software and assets under construction from many other government departments with a net book value of $3.2 million. These transfers are also included in the adjustment columns.

10. Contractual obligations

The nature of SSC’s activities can result in some large multi-year contracts and obligations whereby SSC will be obligated to make future payments when the services/goods are received. Significant contractual obligations ($10 million or more) that can be reasonably estimated are summarized as follows:

11. Contingent liabilities

In the normal course of its operations, SSC may become involved in various legal actions. Some of these legal actions may result in actual liabilities when one or more future events occur. No contingent liabilities are recognized in SSC’s financial statements for the fiscal year ended March 31, 2014.

12. Related party transactions

As a result of common ownership, SSC is related to all government departments, agencies, and Crown corporations. SSC enters into transactions with these entities in the normal course of business and on normal trade terms. During the year, SSC received common services which were obtained without charge from other government departments and provided common services without charge to other government departments as disclosed below.

(a) Common services provided without charge by other government departments

During the year, SSC received services without charge from certain common service organizations, related to accommodation, legal services and the employer’s contribution to the health and dental insurance plans. These services provided without charge have been recorded in SSC’s Statement of Operations and Departmental Net Financial Position as follows:

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 costs of these services, such as the payroll and cheque issuance services provided by Public Works and Government Services Canada, are not included in SSC’s Statement of Operations and Departmental Net Financial Position.

(b) Common services provided without charge to other government departments

During the year, SSC provided services without charge to other government departments, related to the provision of IT infrastructure services.

(c) Other transactions with related parties

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

13. Transfers from other government departments

On April 3, 2013, pursuant to Order-in-Council 2013-0368, several other government departments transferred to SSC the responsibility for the acquisition and provision of hardware and software, including security software, for workplace technology devices, as well as the stewardship responsibility for the assets and liabilities related to the program. Accordingly, SSC received the following assets related to the acquisition and provision of software, including security software, for workplace technology devices from several other government departments:

14. Segmented information

Presentation by segment is based on SSC’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 and revenues generated for the programs, by major object of expenses and by major type of revenues. The segment results for the period are as follows:

15. 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

Assessment of Internal Controls over
Financial Reporting and the Action Plan for
the fiscal year ending March 31, 2014

1. Introduction

This document provides summary information on the measures taken by Shared Services Canada (SSC) to maintain an effective system of internal control over financial reporting, including information on internal control management, assessment results and related action plans. Fiscal year 2013-2014 was the second year SSC received its own budget and operated as a stand­-alone department since creation on August 4, 2011. This is the second year SSC has produced the Annex to the Statement of Management Responsibility including Internal Control over Financial Reporting.

Detailed information on the department's authority, mandate and program activities can be found in the2013-2014 Departmental Performance Report and the 2014-2015 Report on Plans and Priorities.

2. Departmental system of internal control over financial reporting

2.1 Internal control management

SSC has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control.  A draft Departmental Internal Control Management Framework has been developed and includes:

• Organizational accountability structures as they relate to internal control management to support sound financial management, including roles and responsibilities of senior managers in their areas of responsibility for control management;
• Values and ethics;
• Ongoing communication and training on statutory requirements, and policies and procedures for sound financial management and control; and  
• At least semi-annual monitoring of and regular updates on internal control management, as well as the provision of related assessment results and action plans to the President and departmental senior management and, as applicable, the Departmental Audit and Evaluation Committee.

The Departmental Audit and Evaluation Committee provides advice to the President on the adequacy and functioning of the department's risk management, control and governance frameworks and processes.

The Departmental Internal Control Management Framework is in the process of being finalized and approved.

2.2 Service arrangements relevant to financial statements

2.2.1 Reliance by SSC on other federal government organizations

SSC relies on other organizations for the processing of certain transactions that are recorded in its financial statements as follows:

Common Arrangements:

• Public Works and Government Services Canada (PWGSC) centrally administers the payments of salaries and the procurement of goods and services, as per the delegation of authority of other government organizations;
• The Treasury Board of Canada Secretariat provides SSC with information used to calculate various accruals and allowances, such as the accrued severance liability; and
• The Department of Justice provides legal services to SSC.

Specific Arrangements:

• PWGSC provides SSC with a SAP financial system platform to capture and report all financial transactions; and
• Agriculture and Agri-Food Canada (AAFC) provides SSC with a PeopleSoft platform to process transactions related to human resources.

2.2.2 SSC services upon which partner organizations rely

SSC provides information technology (IT) infrastructure services to partner organizations in the areas of data centre and network services.

3. Departmental assessment results during fiscal year 2013-2014

The fiscal 2013-2014 represented SSC’s second full year as a stand-alone department. The department has taken measures to be compliant with the Treasury Board Policy on Internal Control by developing a four-year phased approach for implementation. A multi-year plan for the assessment of Internal Control over Financial Reporting will continue to be developed to carry out design and operating effectiveness testing for key control areas. An on-going monitoring program will be implemented following remediation action resulting from the design and operating effectiveness testing.

Another priority for SSC is to conduct an assessment of Information Technology General Controls (ITGC) for the IT Infrastructure Services supporting partner organizations as well as SSC, in relation to Internal Control over Financial Reporting (ICFR). This will include the development an ITGC Framework for IT Infrastructure Services, which will identify and describe key relevant controls. During 2013-2014, the department devoted significant time and effort on this priority, which included the following:

• The development of a high-level approach, which was approved by senior management and presented to the Departmental Audit and Evaluation Committee;
• The establishment of a Director General-level working group, which is chaired by a Senior Executive and meets bi-weekly;
• The development of a draft framework based on the IT Control Objectives for Sarbanes-Oxley (COBIT for SOX);
• Procurement activities for a multi-year contract award for professional services; and
• Engagement activities to inform partner organization and other stakeholders.

The departmental action plan for the assessment of ICFR for SSC was adjusted by deferring certain activities in order to implement the priority for the assessment of ITGCs for IT Infrastructure Services. 

3.1 Design effectiveness testing of key controls

For the assessment of ICFR, the Department continued scoping and risk assessment to confirm key control areas and more fully establish its multi-year plan. Key control areas include:

• Entity Level Controls;
• ITGCs for SSC's financial system SIGMA (hosted by PWGSC) and relevant feeder systems, such as PeopleSoft (hosted by AAFC); and
• Business Process Controls, such as Financial Close and Reporting, Capital Assets, Payroll, Procure to Payment, and Revenue.

SSC also developed a draft Internal Control Management Framework which encompasses the assessment of ICFR as well as the assessment of ITGCs for IT Infrastructure Services.

Once documentation is sufficiently complete, the department will commence the design effectiveness testing in each of these areas. 

3.2 Operating effectiveness testing of key controls

In accordance with the multi-year departmental action plan, the testing is scheduled to commence in 2016-2017 for key areas.

3.3 Ongoing monitoring of key controls

In accordance with the multi-year departmental action plan, the monitoring program is scheduled to commence in 2017-2018 for key areas.

4. Departmental action plan

4.1 Progress during fiscal year 2013-2014

During 2013-2014, SSC continued to make significant progress in assessing and improving its key controls. The following table summarizes the department's progress based on the plans identified in the previous fiscal year's annex.

Progress During Fiscal Year 2013-2014

4.2 Status and action plan for the next fiscal year and subsequent years

Building on progress to date, SSC is positioned to complete the assessment of its system of ICFR within the estimated timelines targeted for 2017-2018. At that time, the Department will be applying its rotational ongoing monitoring plan to reassess control performance on a risk basis across all control areas. The status and action plan for the completion of the identified key control areas for the next fiscal year and for subsequent years are shown in the following table.
A key element in the table is the commitment to complete the scoping and risk assessment in 2014-2015. Based on the work done to date, the following controls will be assessed.

• Entity Level Controls;
• ITGCs for SSC’s financial system SIGMA (hosted by PWGSC) and relevant feeder systems, such as PeopleSoft (hosted by AAFC); and
• Business Process Controls, such as Financial Close and Reporting, Capital Assets, Payroll, Procure to Payment, and Revenue.

For these controls, a more detailed assessment plan will be developed and presented in SSC’s 2014-2015 Annex to the Statement of Management Responsibility including Internal Control over Financial Reporting

Status and Action Plan for the Next Fiscal Year and Subsequent Years

4.3 Specific actions for 2014-2015

 SSC plans to undertake the following:

• Finalize and approve the ICMF;
• Complete procurement activities and implement a contract for professional services;
• Further develop the capacity and expertise of the internal controls team that is coordinating and implementing assessment activities;
• Complete the scoping and risk assessment of key control areas related to Entity Level Controls, IT General Controls, and Business Process Controls;
• Based upon the results of the risk assessment and scoping, develop a more detailed assessment plan with the assistance of professional services; and 
• Start the documentation of key processes and controls in accordance with the detailed assessment plan.

To access the Portable Document Format (PDF) version you must have a PDF reader installed. If you do not already have such a reader, there are numerous PDF readers available for free download or for purchase on the Internet:

• Adobe Reader
• Foxit Reader
• Xpdf
• eXPert PDFReader