Departmental Financial Statements - March 31, 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 Shared Services Canada. These financial statements have been prepared by management using the Government of Canada’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 Shared Services Canada’s financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in Shared Services Canada’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 Shared Services Canada 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.

A risk-based assessment of the system of ICFR for the year ended March 31, 2019 was completed in accordance with the Treasury Board Policy on Financial Management and the results and action plans are summarized in the annex.

The annex also provides information on the status of the risk-based assessment of the controls over common services provided by the department that have a bearing on a recipient’s departmental financial statements.

The effectiveness and adequacy of Shared Services Canada’s system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of Shared Services Canada’s operations, and by the Departmental Audit Committee, which provides objective advice and recommendations to the President regarding the sufficiency, quality and results of assurance on the adequacy and functioning of the department’s risk management, control and governance frameworks and processes. The Committee also provides advice on the financial statements to the President of Shared Services Canada.

The financial statements of Shared Services Canada have not been audited.

Ottawa, Canada
September 3, 2019

Shared Services Canada statement of financial position (unaudited) as at March 31 (in thousands of dollars)

	2019	2018
Liabilities
Accounts payable and accrued liabilities (note 4)	619,255	564,137
Vacation pay and compensatory leave	45,685	38,665
Deferred revenue (note 5)	1,062	2,336
Lease obligations for tangible capital assets (note 6)	233,831	285,905
Obligation under public private partnership (note 7)	136,842	-
Employee future benefits (note 8)	28,726	26,717
Total liabilities	1,065,401	917,760
Financial assets
Due from the Consolidated Revenue Fund	420,738	348,132
Accounts receivable and advances (note 9)	257,705	267,596
Total gross financial assets	678,443	615,728
Financial assets held on behalf of Government
Accounts receivable and advances (note 9)	(3,526)	(3,857)
Total financial assets held on behalf of Government	(3,526)	(3,857)
Total net financial assets	674,917	611,871
Departmental net debt	390,484	305,889
Non-financial assets
Prepaid expenses	9,100	16,570
Tangible capital assets (note 10)	1,261,350	1,126,726
Total non-financial assets	1,270,450	1,143,296
Departmental net financial position	879,966	837,407

Contractual obligations and contractual rights (note 11)

Contingent liabilities and contingent assets (note 12)

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

Ottawa, Canada
September 3, 2019

Shared Services Canada statement of operations and departmental net financial position (unaudited) for the year ended March 31 (in thousands of dollars)

	2019 – planned results	2019	2018
Expenses
Email and Workplace Technology	132,548	167,069	178,270
Data Centres	629,098	826,087	693,499
Telecommunications	733,171	942,818	838,566
Cyber and IT Security	148,680	191,062	174,652
Customer Relationships and Service Management	167,830	230,017	203,080
Internal Services	175,105	221,948	194,932
Total expenses	1,986,432	2,579,001	2,282,999
Revenues
Sale of goods and services	454,915	694,051	631,550
Miscellaneous revenues	677	336	784
Net gain on the termination of lease obligations for tangible capital assets	-	-	1,037
Revenues earned on behalf of Government	(11,556)	(12,301)	(12,323)
Total revenues	444,036	682,086	621,048
Net cost of operations before government funding and transfers	1,542,396	1,896,915	1,661,951
Government funding and transfers
Net cash provided by Government of Canada	-	1,774,301	1,824,268
Change in due from the Consolidated Revenue Fund	-	72,606	(40,558)
Services provided without charge by other government departments (note 13)	-	93,829	96,400
Transfer of the transition payments for implementing salary payments in arrears	-	-	(9)
Net transfer of salary overpayments from other government departments	-	173	86
Transfer of tangible capital assets from other government departments	-	52	-
Transfer of assets to other government departments (note 14)	-	(1,487)	-
Net cost of operations after government funding and transfers	-	(42,559)	(218,236)
Departmental net financial position – Beginning of year	-	837,407	619,171
Departmental net financial position – End of year	-	879,966	837,407

Segmented information (note 15)

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

Shared Services Canada statement of change in departmental net debt (unaudited) for the year ended March 31 (in thousands of dollars)

	2019	2018
Net cost of operations after government funding and transfers	(42,559)	(218,236)
Change due to tangible capital assets
Acquisitions of tangible capital assets	413,704	702,051
Amortization of tangible capital assets	(278,509)	(214,933)
Net loss on disposal of tangible capital assets including adjustments	(360)	8,873
Loss on disposal of tangible capital assets due to the termination of lease obligations	-	(30,970)
Transfers from other government departments	52	-
Transfers to other government departments	(263)	-
Total change due to tangible capital assets	134,624	465,021
Change due to prepaid expenses	(7,470)	(11,795)
Net increase (decrease) in departmental net debt	84,595	234,990
Departmental net debt – Beginning of year	305,889	70,899
Departmental net debt – End of year	390,484	305,889

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

Shared Services Canada statement of cash flows (unaudited) for the year ended march 31 (in thousands of dollars)

	2019	2018
Operating activities
Net cost of operations before government funding and transfers	1,896,915	1,661,951
Non-cash items:
Amortization of tangible capital assets	(278,509)	(214,933)
Net loss on disposal of tangible capital assets including adjustments	(360)	8,873
Net gain on the termination of lease obligations for tangible capital assets	-	1,037
Services provided without charge by other government departments (note 13)	(93,829)	(96,400)
Transition payments for implementing salary payments in arrears	-	9
Net transfer of salary overpayments from other government departments	(173)	(86)
Variations in statement of financial position:
Increase (decrease) in accounts receivable and advances	(9,560)	58,452
Increase (decrease) in prepaid expenses	(7,470)	(11,795)
Decrease (increase) in accounts payable and accrued liabilities	(55,118)	(15,198)
Decrease (increase) in vacation pay and compensatory leave	(7,020)	(7,416)
Decrease (increase) in deferred revenue	1,274	1,274
Decrease (increase) in employee future benefits	(2,009)	(2,350)
Transfer of prepaid expenses to other government departments (note 14)	1,224	-
Cash used in operating activities	1,445,365	1,383,418
Capital investing activities
Acquisitions of tangible capital assets (excluding leased tangible capital assets and asset under construction related to public private partnership)	276,862	389,834
Cash used in capital investing activities	276,862	389,834
Financing activities
Payments on lease obligations for tangible capital assets	52,074	51,016
Cash used in financing activities	52,074	51,016
Net cash provided by Government of Canada	1,774,301	1,824,268

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

1. Authority and objectives

Shared Services Canada (SSC) was created on August 4, 2011 to transform how the Government of Canada manages its information technology (IT) infrastructure. SSC operates under the legislation set out in the Shared Services Canada Act and reports to Parliament through the Minister of Public Services and Procurement Canada. SSC provides services related to email, data centre, networks and end-user IT to government organizations. SSC also coordinates government-wide responses to cyber security events, including IT incident response and recovery, and supports decision making with respect to incident mitigation. SSC can procure whatever is required to provide shared IT infrastructure services to departments.

In 2018-19, the Departmental Results Framework came into effect and replaced the Program Alignment Architecture as per the Treasury Board Policy on Results. SSC’s Departmental Results Framework is structured by the following five core responsibilities and internal services:

• Email and Workplace Technology: SSC procures, manages and protects email services for its customer organizations. SSC also acquires and provides hardware and software for workplace devices.
• Data Centres: SSC provides modern, secure and reliable data centre services to customer organizations for the remote storing, processing and distribution of data, including cloud storage and computing services.
• Telecommunications: SSC delivers data, voice and video communication services within and across the Government of Canada. SSC also provides the Government of Canada’s contact centre IT infrastructure, cellular and toll free services.
• Cyber and IT Security: SSC works with other Government of Canada departments to provide secure IT infrastructure services to ensure the confidentiality, integrity and availability of electronic information stored, processed and transmitted by the Government of Canada. SSC also coordinates the response to cyber and IT security incidents on behalf of Government of Canada departments and agencies.
• Customer Relationships and Service Management: SSC provides customer relationship and service management functions to ensure customers are supported and engaged and their IT services are well managed throughout their lifecycle.
• Internal Services: Internal services are those groups of related activities and resources that the federal government considers to be services in support of programs and/or required to meet corporate obligations of an organization. Internal services refers to the activities and resources of the 10 distinct service categories that support program delivery in the organization, regardless of the internal services delivery model in a department. The 10 service categories are management and oversight services, communications services, legal services, human resources management services, financial management services, information management services, information technology services, real property services, materiel services, and acquisition services.

2. Summary of significant accounting policies

These financial statements are 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

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 a reconciliation between the bases of reporting.

The planned results amounts in the “Expenses” and “Revenues” 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 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.

c) 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.

d) Revenues

Revenues are recognized in the period the event giving rise to the revenues occurred.

Deferred revenue consists of amounts received in advance of the delivery of goods and rendering of services that will be recognized as revenue in a subsequent fiscal year as it is earned.

Revenues that are non-respendable are not available to discharge SSC’s liabilities. While the President of SSC is expected to maintain accounting control, he 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 as a reduction of SSC’s gross revenues.

e) 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 other government departments for accommodation and employer contributions to the health and dental insurance plans are recorded as operating expenses at their carrying value.

f) Employee future benefits

1. 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.
2. Severance benefits: The accumulation of severance benefits for voluntary departures ceased for applicable employee groups. The remaining obligation for employees who did not withdraw benefits is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the government as a whole.

g) 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.

h) Tangible capital assets

The cost 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 below. All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. Tangible capital assets do not include immovable assets located on reserves as defined in the Indian Act, works of art, museum collection and Crown land to which no acquisition cost is attributable; and intangible assets.

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 asset class in the year they become available for use and are not amortized until they become available for use.

i) Contingent liabilities

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

j) Contingent assets

Contingent assets are possible assets which may become actual assets when one or more future events occur or fail to occur. If the future event is likely to occur or fail to occur, the contingent asset is disclosed in the notes to the financial statements.

k) 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, revenues 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 contingent liabilities, 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.

l) Related party transactions

Related party transactions, other than inter-entity transactions, are recorded at the exchange amount.

Inter-entity transactions are transactions between commonly controlled entities. Inter-entity transactions, other than restructuring transactions, are recorded on a gross basis and are measured at the carrying amount, except for the following:

1. services provided on a recovery basis are recognized as revenues and expenses on a gross basis and measured at the exchange amount
2. certain services received on a without charge basis are recorded for departmental financial statement purposes at the carrying amount

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:

a) Reconciliation of net cost of operations to current year authorities used (in thousands of dollars)

	2019	2018
Net cost of operations before government funding and transfers	1,896,915	1,661,951
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets	(278,509)	(214,933)
Net loss on disposal of tangible capital assets including adjustments	(360)	8,873
Services provided without charge by other government departments	(93,829)	(96,400)
Decrease (increase) in vacation pay and compensatory leave	(7,020)	(7,416)
Decrease (increase) in employee future benefits	(2,009)	(2,350)
Bad debt expense	(2)	2
Refunds and adjustments to previous years’ expenses	9,089	14,641
Respendable revenue	(1,213)	1,383
Other	4	-
Total items affecting net cost of operations but not affecting authorities	(373,849)	(296,200)
Adjustments for items not affecting net cost of operations but affecting authorities:
Acquisitions of tangible capital assets (excluding leased tangible capital assets and asset under construction related to public private partnership)	276,862	389,834
Payments on lease obligations for tangible capital assets	52,074	51,016
Transition payments for implementing salary payments in arrears	-	9
Increase (decrease) in accounts receivable for salary overpayments	3,277	2,995
Increase (decrease) in prepaid expenses	(7,470)	(11,795)
Other	-	103
Total items not affecting net cost of operations but affecting authorities	324,743	432,162
Current year authorities used	1,847,809	1,797,913

b) Authorities provided and used (in thousands of dollars)

	2019	2018
Authorities provided:
Vote 1 – Operating expenditures	1,644,414	1,398,335
Vote 5 – Capital expenditures	319,784	451,311
Statutory amounts	91,208	79,468
Less:
Lapsed: Operating expenditures	(149,626)	(48,756)
Lapsed: Capital expenditures	(57,971)	(82,445)
Current year authorities used	1,847,809	1,797,913

4. Accounts payable and accrued liabilities

The following table presents details of SSC’s accounts payable and accrued liabilities (in thousands of dollars):

	2019	2018
Accounts payable - Other government departments and agencies	39,841	54,888
Accounts payable - External parties	396,406	351,377
Total accounts payable	436,247	406,265
Accrued liabilities	183,008	157,872
Total accounts payable and accrued liabilities	619,255	564,137

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 (in thousands of dollars):

	2019	2018
Opening balance	2,336	3,610
Amounts received	-	-
Revenue recognized	(1,274)	(1,274)
Net closing balance	1,062	2,336

6. Lease obligations for tangible capital assets

SSC has entered into agreements to lease certain computer hardware under capital leases with a cost of $312,217 thousand and accumulated amortization of $81,770 thousand as at March 31, 2019 ($312,217 thousand and $26,997 thousand respectively as at March 31, 2018). The obligations related to the upcoming years include the following (in thousands of dollars):

	2019	2018
2019	-	56,254
2020	57,788	57,788
2021	62,391	62,391
2022	47,091	47,091
2023	28,090	28,090
2024	26,857	26,857
2025 and subsequent	20,142	20,142
Total future minimum lease payments	242,359	298,613
Less: imputed interest (1.44% to 1.89%)	8,528	12,708
Balance of obligations under leased tangible capital assets	233,831	285,905

7. Obligation under public private partnership

SSC has entered into a public private partnership agreement for the construction of the Enterprise Data Centre Borden. Construction of the building is planned to be completed in September 2019. The obligation related to the upcoming years include the following (in thousands of dollars):

	2019	2018
2020	3,933	-
2021	7,867	-
2022	7,867	-
2023	7,867	-
2024	7,867	-
2025 and subsequent	145,893	-
Total future minimum lease payments	181,294	-
Less: imputed interest (2.56%)	44,452	-
Balance of obligation under public private partnership	136,842	-

8. 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 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 2018-19 expense amounts to $61,723 thousand ($52,513 thousand in 2017-18). For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2017-18) the employees’ contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2017-18) the employees’ contributions.

SSC’s responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the Consolidated Financial Statements of the Government of Canada, as the Plan’s sponsor.

b) Severance benefits

Severance benefits provided to SSC’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, 2019, substantially 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 (in thousands of dollars):

	2019	2018
Accrued benefit obligation - Beginning of year	26,717	24,367
Expense (adjustment) for the year	5,838	4,519
Benefits paid during the year	(3,829)	(2,169)
Accrued benefit obligation - End of year	28,726	26,717

9. Accounts receivable and advances

The following table presents details of SSC’s accounts receivable and advances (in thousands of dollars):

	2019	2018
Receivables - Other government departments and agencies	240,528	253,602
Receivables – External parties	17,074	13,796
Employee advances	107	199
Subtotal	257,709	267,597
Allowance for doubtful accounts on receivables from external parties	(4)	(1)
Gross accounts receivable and advances	257,705	267,596
Accounts receivable held on behalf of Government	(3,526)	(3,857)
Net accounts receivable and advances	254,179	263,739

10. Tangible capital assets

Cost (in thousands of dollars)

Capital asset class	Opening balance	Acquisitions	Adjustments Footnote 1	Disposals and write-offs	Closing balance
Buildings	3,085	-	-	-	3,085
Works and infrastructure	1,310	-	-	-	1,310
Machinery and equipment	54,546	540	-	39	55,047
Computer hardware	1,724,969	195,125	8,603	2,494	1,926,203
Computer software	197,764	7,619	(4,183)	-	201,200
Vehicles	1,345	913	259	-	2,517
Leasehold improvements	48,909	-	-	-	48,909
Leased tangible capital assets	312,217	-	-	-	312,217
Assets under construction	181,735	209,507	(4,959)	-	386,283
Total	2,525,880	413,704	(280)	2,533	2,936,771

Accumulated amortization (in thousands of dollars)

Capital asset class	Opening balance	Amortization	Adjustments Footnote 1	Disposals and write-offs	Closing balance
Buildings	2,460	103	-	-	2,563
Works and infrastructure	176	52	-	-	228
Machinery and equipment	42,420	3,079	-	39	45,460
Computer hardware	1,136,118	194,827	3,143	2,143	1,331,945
Computer software	166,217	22,219	(3,410)	-	185,026
Vehicles	29	241	207	-	477
Leasehold improvements	24,737	3,215	-	-	27,952
Leased tangible capital assets	26,997	54,773	-	-	81,770
Assets under construction	-	-	-	-	-
Total	1,399,154	278,509	(60)	2,182	1,675,421

Net book value (in thousands of dollars)

Capital asset class	2019	2018
Buildings	522	625
Works and infrastructure	1,082	1,134
Machinery and equipment	9,587	12,126
Computer hardware	594,258	588,851
Computer software	16,174	31,547
Vehicles	2,040	1,316
Leasehold improvements	20,957	24,172
Leased tangible capital assets	230,447	285,220
Assets under construction	386,283	181,735
Total	1,261,350	1,126,726

Effective October 1, 2018, SSC transferred computer hardware with a net book value of $263 thousand to the Communications Security Establishment. This transfer is included in the adjustment columns (refer to note 14 for further detail on the transfer).

Also, during the year, SSC received computer hardware and vehicles from other government departments with a net book value of $52 thousand. These transfers are included in the adjustment columns.

Adjustments also include a net amount of $9 thousand in adjustments of previous year expenses.

11. Contractual obligations and contractual rights

a) Contractual obligations

The nature of SSC’s activities may 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 (in thousands of dollars):

	2020	2021	2022	2023	2024	2025 and subsequent	Total
Acquisition of goods and services	701,575	369,022	280,194	230,008	194,058	299,231	2,074,088
Tangible capital assets	13,020	-	-	13,020	-	-	26,040
Total	714,595	369,022	280,194	243,028	194,058	299,231	2,100,128

b) Contractual rights

SSC has determined that there are no contractual rights which require disclosure in these financial statements.

12. Contingent liabilities and contingent assets

a) Contingent liabilities

Claims have been made against SSC in the normal course of operations. Where it is likely that there will be a future payment and a reasonable estimate of the loss can be made, an allowance for claims and litigations is recorded. No allowance has been recorded in SSC’s financial statements. Claims and litigations for which the outcome is not determinable and a reasonable estimate can be made by management are nil at March 31, 2019 (nil at March 31, 2018). At March 31, 2019, SSC has one claim for which the outcome is not determinable and the amount is not estimable.

b) Contingent assets

SSC has determined that there are no contingent assets which require disclosure in these financial statements.

13. Related party transactions

SSC is related as a result of common ownership to all government departments, agencies, and Crown corporations. Related parties also include individuals who are members of key management personnel or close family members of those individuals, and entities controlled by, or under shared control of, a member of key management personnel or a close family member of that individual.

SSC enters into transactions with these entities in the normal course of business and on normal trade terms.

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 and the employer’s contribution to the health and dental insurance plans. These services provided without charge have been recorded at the carrying value in SSC’s Statement of Operations and Departmental Net Financial Position as follows (in thousands of dollars):

	2019	2018
Employer’s contribution to the health and dental insurance plans	51,999	51,648
Accommodation	41,830	44,752
Total	93,829	96,400

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 Services and Procurement 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. These services are not recognized as revenues in the Statement of Operations and Departmental Net Financial Position.

c) Other transactions with other government departments and agencies (in thousands of dollars)

	2019	2018
Expenses – Services provided to SSC by other government departments and agencies	228,398	218,521
Revenues – Services provided by SSC to other government departments and agencies	689,840	626,436

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

14. Transfer to other government departments

Effective October 1, 2018, SSC transferred responsibility for the control and supervision of the Security Operations Center to the Communications Security Establishment in accordance with Order in Council (P.C. 2018-1061), including the stewardship responsibility for the assets and liabilities related to the program. Accordingly, SSC transferred the following assets from the Security Operations Center to the Communications Security Establishment on October 1, 2018 (in thousands of dollars):

Assets	Amount
Prepaid expenses	1,224
Tangible capital assets (net book value) (note 10)	263
Total assets transferred	1,487
Adjustment to the departmental net financial position	1,487

During the transition period, SSC continued to administer the transferred activities on behalf of the Communications Security Establishment. The administered expenses amounted to $4,100 thousand for the year. These expenses are not recorded in these financial statements.

15. Segmented information

Presentation by segment is based on SSC’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 and revenues generated for the main core responsibilities, by major object of expenses and by major type of revenues. The segment results for the period are as follows (in thousands of dollars):

16. 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

Assessment of Internal Controls over Financial Reporting and the Action Plan for the fiscal year ended March 31, 2019

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 (ICFR), including information on internal control management, assessment results and related action plans.

Detailed information on the department’s authority, mandate and program activities can be found in the 2018-19 Departmental Results Report (DRR) and the 2019-20 Departmental Plan.

2. Departmental system of internal control over financial reporting

2.1 Internal control management

SSC has an established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. A departmental internal control management framework, approved by the President, is in place 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
• an internal attestation process in support of certification by the President and Chief Financial Officer, whereby, senior departmental executives who report to the President attest that they have maintained an effective system of internal control over financial reporting in their area of responsibility
• Values and ethics
• ongoing communication and training on statutory requirements, and policies and procedures for sound financial management and control
• regular review of internal control over financial reporting, 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 Committee

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

2.2 Service arrangements relevant to financial statements

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

Common Service Arrangements

• Public Services and Procurement Canada (PSPC) centrally administers the payments of salaries and the procurement of goods and services in accordance with the SSC’s Delegation of Authority and provides accommodation services
• the Treasury Board of Canada Secretariat provides services related to public sector insurance for employees of SSC and centrally administers payment of the employer’s share of contributions toward statutory employee benefit plans (that is, the Public Service Pension Plan, Employment Insurance Plan, Canada Pension Plan, Quebec Pension Plan and Public Service Supplementary Death Benefit Plan) on behalf of SSC
• the Department of Justice provides legal services to SSC

Readers of this Annex may refer to the Annexes of the above-noted organizations for a greater understanding of the systems of ICFR related to these specific services.

SSC relies on other external service providers and/or departments for the processing of certain transactions or information that are recorded in its financial statements, as follows:

Specific Arrangements

• PSPC provides SSC with a SAP financial platform to capture and report all financial transactions
• Agriculture and Agri-Food Canada provides SSC with a PeopleSoft platform to process transactions related to human resources

2.3 Common Services Provided by SSC

The Government of Canada created SSC in 2011 to transform how the government manages its information technology infrastructure. SSC has brought together people, IT resources and assets from 43 federal departments and agencies to improve the efficiency, reliability and security of the government’s IT infrastructure.

SSC provides a broad range of IT infrastructure services to customers in order to fulfill its core responsibilities, however, not all infrastructure services are relevant to financial reporting. While most services are critical to customers’ operations, the IT infrastructure services and controls that are relevant to financial reporting primarily include data centre services and network services.

The following diagram provides a summary view of the infrastructure layers that are in scope for the ITGC assessment.

Long description – Figure 1

Figure 1 is an illustration of an integrated information technology system and the infrastructure layers that are in scope for the ITGC assessment. An integrated IT system includes the following components:

• Customer operations (people, process, technology)
• Customer financial applications
• Database and middleware software
• Computing and storage hardware and operating system software
• Network hardware and software
• Physical data centre facility

As a common service provider, SSC is responsible for the assessment of IT General Controls for IT Infrastructure Services provided to customers. Customers are responsible for the assessment of application level controls and general IT controls that support their financial applications. IT General Controls consist of control objectives and activities across four process areas including Operations, Security, Implementation and Maintenance and Managing Outsourced Service Providers.

* Responsibility over certain infrastructure elements is shared between SSC and its customers in accordance with customer agreements. For instance, for Platform Services (database and middleware services), depending on the customer, some components are fully managed and maintained by SSC while others are only partially managed and maintained by SSC.

Workload migration strategy will see SSC customers migrate applications and data, over time, from legacy IT system environments into modern enterprise data centres and consume optimized applications, infrastructure and services. In the interim, SSC continues to provide IT infrastructure services to customer organizations that operate IT systems in legacy, partially modernized or fully modernized environments.

There are shared internal control responsibilities under the Treasury Board Policy on Financial Management. As a common service provider, SSC is responsible for the assessment of IT general controls for IT infrastructure services provided to customers. Customers are responsible for the assessment of application level controls and general IT controls that support their financial applications.

3. Departmental assessment results during fiscal year 2018-19 (ICFR)

During 2018-19, SSC continued to make 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 the 2018-19 fiscal year

Element from previous year’s action plan	Status
IT general controls over feeder systems: design effectiveness testing, operating effectiveness testing and remediation of deficiencies.	Testing of the IT general controls for the feeder systems has been rescheduled to start after the completion of the assessment of the business processes.
Operating expenses and accounts payable: operating effectiveness testing and remediation of deficiencies.	Operating effectiveness testing of expenses and accounts payable process substantially completed. Assessment of invoice processing for telecommunication expenses is pending the implementation of a redesign of this sub-process.
Revenue and Accounts Receivable: operating effectiveness testing and remediation of deficiencies.	Operating effectiveness testing has started and will be completed in 2019-20.
Capital assets: design effectiveness testing and remediation of deficiencies.	Design assessment testing has been postponed pending the result of the Enterprise Asset management initiative which is ongoing.
Payroll and benefits: operating effectiveness testing and remediation of deficiencies.	Operating effectiveness testing is substantially advanced. Completion of the testing of the payroll process is pending the remediation of deficiencies.

Results regarding design and operating effectiveness testing, ongoing monitoring, and remediation activities of key control areas are detailed below.

3.1 Design effectiveness testing of key controls

In 2018-19, the department postponed the completion of the design effectiveness testing of its capital asset control areas. The department is conducting an Enterprise Asset management initiative to review the processes for tracking capital assets through its lifecycle and improve the accuracy of SSC’s capital asset information. The testing of the processes to account for capital asset will be performed once the implementation of the redesigned process is completed which is planned for 2020-21.

The testing of the ITGC’s over the feeder systems was also postponed pending the completion of the testing of all business process controls.

3.2 Operating effectiveness testing of key controls

In 2018-19, the department completed the operating effectiveness testing of the expenses and accounts payable control, which includes the testing of travel expenses, the maintenance and use of acquisition cards, and the maintenance of delegation of authorities. The department also advanced the operating effectiveness testing of its payroll process control area. The Operating Effectiveness Testing (OET) of Revenue and Accounts Receivable was started and will be completed in 2019-20.

As a result of the operating effectiveness testing, the Department did not identify any significant deficiency that could lead to material misstatement of its financial statements for the areas tested. However, areas of improvement have been identified and action plan are being implemented to:

• strengthen the performance of account verification and certification over payroll
• strengthen the effectiveness of account verification over telecommunication services expenses
• improve the retention and filing of supporting documentation and audit trail in corporate repository

3.3 Ongoing monitoring of key controls

In 2018-19, the department performed no ongoing monitoring activities.

4. Departmental status and action plan for the next fiscal year and subsequent years (ICFR)

Building on progress to date, SSC is positioned to advance the full assessment of its system of internal control over financial reporting in 2019-20, with the exception of ITGC over feeder systems and capital assets. The ITGC over feeder systems assessment will begin once all the business process assessments are complete. For capital assets, the completion of the assessment depends on the progress on the asset baseline project which will be undertaken over the next two years. 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 control areas for the next fiscal year and for subsequent years are shown in the following table.

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

Key control areas	Design effectiveness testing and remediation	Operating effectiveness testing and remediation	Ongoing monitoring rotation
Entity-level controls	Completed	Completed	2020-21
ITGC over SIGMA	Completed	Completed	2019-20
ITGC over Feeder SystemsFootnote 1	Future years	Future years	2021-22
Business Process Controls
Financial close and reporting	Completed	Completed	2020-21
Operating expenses and accounts payable	Completed	Substantially Completed Future years for Telecom invoice processing	2020-21
Revenue and accounts receivable	Completed	2019-20	2021-22
Capital Assets	2020-21	Future Years	Future Years
Payroll and benefits	Completed	2019-20	2020-21

5. Common Service Provider (CSP) annual assessment results for 2018-19 and action plan for future years

SSC provides IT infrastructure services that are delivered to customer organizations that operate IT systems in legacy, partially modernized or fully modernized environments. An IT system includes hardware (such as computing, storage and network infrastructure), support software (such as operating systems, virtualization tools and utilities), application software, database management software, application data and business processes, policies and procedures.

A legacy environment refers to an older system inherited from a customer that continues to remain vital to the organization. A partially modernized environment refers to a system that contains a mix of older and updated components. A fully modernized environment refers to a system that contains primarily updated components that are housed in modern, enterprise data centres.

IT general controls are classified as being either customer-specific controls applicable to one customer operating in a legacy or partially modernized environment, or common controls applicable to any customer operating in a partially or fully modernized environment.

The scope of SSC’s ITGC assessment originally consisted of common controls operating in fully modernized environments, based on a Scoping and Risk Assessment report that reflected early plans and timelines for the modernization and consolidation of IT infrastructure.

The Scoping and Risk Assessment report was updated in fiscal year 2017-18 to reflect changes in SSC’s modernization strategies and timelines, customer workload migration plans and other factors. As a result, the scope of the ITGC assessment was expanded beyond common controls to include customer-specific controls operating in legacy and partially modernized environments.

5.1 Departmental status and action plan for the next fiscal year and subsequent years (CSP)

SSC, as a CSP of IT infrastructure services, has implemented a multi-year, risk-based assessment plan for the IT general controls related to these services. The results of this assessment and future plans are detailed below.

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

Key control areas	Design effectiveness testing and remediation	Operating effectiveness testing and remediation	Ongoing monitoring rotation
Entity level controls	Completed	2021-22	Future Years
Common controls	2020-21	2021-22	Future Years
Customer-specific controls (DFMSFootnote 2)	2019-20	2021-22	Future Years
Customer-specific controls (GC central systemsFootnote 3)	Future Years	Future Years	Future Years
Customer-specific controls (material systemsFootnote 4)	Future Years	Future Years	Future Years

5.2 Departmental assessment results during fiscal year 2018-19 (CSP)

Assessment of customer-specific controls (material system)

During 2017-18, SSC completed operating effectiveness testing of certain customer-specific controls over IT infrastructure services supporting a material system of one customer. A deficiency in the area of logical access management controls related to IT systems and data was identified.

During 2018-19, management developed and implemented remedial action plans to strengthen logical access management controls to restrict access to systems and data to authorized users.

Assessment of customer-specific controls (DFMS)

During 2018-19, SSC initiated design effectiveness testing of certain customer-specific controls over IT infrastructure services supporting the DFMS of six customers. A deficiency in the area of logical access management controls related to IT systems and data was identified.

Management action plans in process

In addition to the development of action plans to address specific control observations, management also has various enterprise initiatives currently underway to automate and strengthen logical access management controls. These initiatives include the implementation of an administrative access control service to manage privileged user access, implementation of a new configuration management database system to manage IT assets, data and relationships, and the promulgation of the IT security policy covering logical access management designed for fully modernized environments to all environments.