Quarterly Financial Report – For the quarter ended June 30, 2013

1.0 Introduction

This Quarterly Financial Report should be read in conjunction with the Main Estimates, as well as Canada’s Economic Action Plan 2012 (Budget 2012). It has been prepared by management as required by section 65.1 of the Financial Administration Act and in the form and manner prescribed by the Treasury Board Accounting Standard 1.3. It has not been subject to an external audit or review.

1.1 Authority, Mandate and Programs

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 43 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 1, 2013, through an Order in Council, SSC was given the mandate to provide services related to the acquisition and provision of hardware and software, for Workplace Technology Devices (WTD) formerly known as End User Devices (EUD). This government-wide, standardized, centralized approach to supplying and supporting WTD will reduce costs and strengthen the security of government systems. It will also address some of the issues outlined in the Auditor General’s 2010 Report on Aging IT, which highlighted the risk of using outdated technology. As first step towards this objective, as of April 1, 2013, SSC has assumed responsibility for procurement of WTD software and hardware for a broad range of Government of Canada organizations. Throughout the fiscal year, progress on the transition of this function will be updated and reported in the Quarterly Financial Report.

In addition to WTD, SSC was also directed to invest $20 million of its existing funding to enhance the Government's telepresence capacity to assist with travel costs reductions. This initiative was announced in the Budget 2013 – Economic Action Plan.

SSC’s Program Alignment Architecture (PAA), as approved by the Treasury Board of Canada, 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.

The current PAA is an interim structure that will be reviewed and expanded upon in 2013-14 in keeping with SSC’s evolution and deepening organizational maturity.

Further details on SSC’s authority, mandate, responsibilities and programs may be found in the 2013-14 Main Estimates and 2013-14 Report on Plans and Priorities .

1.2 Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities presents the Department's spending authorities granted by Parliament and those used by the Department consistent with the Main Estimates for the 2013-14 fiscal year. This quarterly report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

The authority of Parliament is required before moneys can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts or through legislation in the form of statutory spending authority for specific purposes.

As part of the Parliamentary business of supply, the Main Estimates must be tabled in Parliament on or before March 1 preceding the new fiscal year. Budget 2012 was tabled in Parliament on March 29, after the tabling of the Main Estimates on February 28, 2012. As a result the measures announced in the Budget 2012 could not be reflected in the 2012-13 Main Estimates .

In fiscal year 2012-13, frozen allotments were established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In 2013-14, the changes to departmental authorities were reflected in the 2013-14 Main Estimates tabled in Parliament.

The Department uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental performance reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

1.3 Shared Services Canada Financial Structure

SSC has a financial structure composed mainly of voted budgetary authorities that include Vote 15 - Operating Expenditures and Vote Netted Revenues and Vote 20 – Capital Expenditures, while the statutory authorities comprise the Contributions to employee benefit plans.

Over 89% of the Department’s budget is devoted to support its IT consolidation and standardization goals while ensuring that current and future IT infrastructure services offered to the Government of Canada are maintained in an environment of operational excellence.

Total revenues for 2013-14 are forecasted at $317.1 million, which consist of respendable revenue for IT infrastructure services provided by SSC to its partnering organizations and other Government of Canada departments and agencies on a cost recoverable basis.

2.0 Highlights of Fiscal Quarter and Fiscal Year-to-Date (YTD) Results

The numbers presented in the report are in accordance with the Government-Wide Chart of Accounts for Canada for 2013-14 and the Treasury Board Accounting Standard (TBAS) 1.3.

The following graph provides a comparison of the net budgetary authorities available for spending and year to date expenditures for the quarter ended June 30, 2013 and June 30, 2012 for the Department’s combined Vote 15 – Operating Expenditures, Vote 20 – Capital Expenditures and Statutory Authorities.

2.1 Significant Changes to Authorities

For the period ending June 30, 2013, the authorities provided to the Department in the 2013-14 Main Estimates include the saving measures identified in Budget 2012. They do not incorporate the initiatives and saving measures of Budget 2013 . Authorities available for spending in fiscal year 2013-14 are $1,398.1 million at the end of the first quarter as compared with $1,506.5 million at the end of the first quarter of 2012-13, representing a decrease of $108.4 million, or 7.2%. This net decrease is a combination of a decrease of $207.3 million in Vote 15 - Operating Expenditures (includes a decrease in Vote Netted Revenues of $47.5 million), an increase of $100.5 million in Vote 20 – Capital Expenditures and a decrease in Budgetary Statutory Authorities of $1.6 million

Comparison of Net Budgetary Authorities and Year to Date Expenditures for the Quarters Ended June 30 of Fiscal Years 2012-13 and 2013-14

Vote 15 - Operating Expenditures (includes Vote Netted Revenues) and Vote 20 – Capital Expenditures

The Department’s Vote 15 decreased by $254.8 million or 15% which is mainly due to:

• A decrease of $101.1 million as a result of the saving measures of Budget 2012
• A decrease of $100 million related to a transfer from Vote 15 - Operating Expenditures to Vote 20 – Capital Expenditures, in order to implement TBS’s definition of a capital expenditure
• A decrease of $6.2 million for various sunsetting projects (Cyber Authentication and Cyber Security Strategy) and net adjustments with the partnering organizations as a result of the creation of SSC
• A decrease of $47.5 million mainly due to the transfer of appropriation from partnering organizations in order to replace the revenues and also due to products and services no longer being offered by SSC

Vote 20 – Capital Expenditures

The Department’s Vote 20 increased by $100.5 million or 128.5% mainly due to:

• An increase of $100.0 million related to a transfer from Vote 15 - Operating Expenditures to Vote 20 – Capital Expenditures, in order to implement TBS’s definition of a capital expenditure
• An increase of $4.0 million for net adjustments with the partnering organizations as a result of the creation of SSC
• A decrease of $3.5 million relating to the sunsetting funding for Data Center Sustainability Project for which funding is ending in 2013-14

Budgetary Statutory Authorities

he decrease of $1.6 million in 2013-14 is related to the contributions to the Employee Benefit Plans (EBP) associated with the change in the Department’s budgetary requirements for salary. This does not represent an appreciable change compared to 2012-13.

2.2 Explanations of Significant Variances from Previous Year Expenditures

Compared to the previous year, the total expenditures in the first quarter, ending June 30, 2013, have increased by $91.4 million, from $168.2 million to $259.6 million as per the Table below. This represents an increase of 54.3% against expenditures recorded for the same period in 2012-13. The overall underlying reason for the increase of expenditures is due to the fact that SSC is now in its second year of operation, with standardized financial procedures and processes as where in the first quarter of 2012-13, the Department was still in the process of establishing its financial processes.

Comparison of Authorities Available for Spending for the Year as at June 30 of Fiscal Years 2012-13 and 2013-14

The increase in spending is a combination of an increase of $96.3 million in Vote 15 – Operating Expenditures, an increase of $6.4 million in Vote 20 – Capital Expenditures as well as a minor decrease in Budgetary Statutory Authorities of $0.4 million.

For the most part, this difference is explained by an increase in personnel expenditures, including EBP, by $70.0 million from $101.7 million in the first quarter of 2012-13 to $171.7 million as of June 30, 2013. This increase of 68.8% is mainly attributed to the timing of the transfer of salary expenditures.

Informatics rentals expenditures also increased by $12.0 million from $24.3 million in the first quarter of 2012-13 to $36.3 million as of June 30, 2013. This increase of 49.4% is mainly attributed to contract payments being issued on time (before June 30) versus being paid in July in 2012-13.

The collected Vote Netted Revenues of $10.9 million represent an increase of 100.0% compared to the first quarter of 2012-13 since the billing processes had not been established yet as of June 30, 2012.

3.0 Risks and Uncertainty

In SSC’s first full year of operation, the focus was to put in place the management processes, procedures and controls required for a start-up federal department. As SSC enters its second year, the Department will continue to build into their work the necessary internal management rigour in order to mitigate risk and achieve success.

SSC management incorporates the consideration of risks and opportunities in decision-making at all levels. One of the key components of the management rigour is the development and application of project management methodologies and tools to deliver the partner and transformation projects that are at the core of SSC’s mandate. In fiscal year, 2013-14, SSC intends to increase its project management maturity level, as measured by the Government of Canada’s Organizational Project Management Capacity Assessment process, and engage in targeted capacity enrichment.

As part of SSC’s participation in the Management, Resources and Results Structure (MRSS) amendment cycle in 2013-14, SSC is developing a revised PAA and a corresponding Performance Measurement Framework (PMF) to ensure that it is delivering on the mandate of the Government of Canada.

There was also significant progress made in building SSC’S internal audit and evaluation capacity in 2012-13, and SSC will continue to build on this work in 2013-14 as the risk-based internal audit and evaluation plan is implemented. In 2013-14, significant consultation and outreach will shape SSC’s evaluation plan.

Finally, an internal Management Accountability Framework (MAF) self-assessment was conducted to understand the state of internal management rigour, control and oversight, and to identify opportunities to strengthen management practices. As a result of the assessment, SSC developed management action plans and will implement them during 2013-14 to help prepare for participation in a future MAF cycle.

4.0 Significant changes in relation to Operations, Personnel and Programs

A new organization was established to assist the Operations Branch, which represents approximately 80% of SSC’s total budget, in implementing standardized business management processes. The Operations Branch is moving from vertical structures to horizontal organizations that reflect SSC’s business lines of Data Centres, Networks and IT Service Management and Security.

5.0 Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012 that are being implemented in order to refocus government and programs; make it easier for Canadians and business to deal with their government; and modernize and reduce the back office.

Like all departments and agencies, SSC supported the government in its efforts to introduce measures to return to a balanced budget by 2014-15. The Department’s mandate was specifically designed to find efficiencies and deliver “value for money”. SSC will achieve Budget 2012 savings of $150.0 million by fiscal year 2014-15 through increased efficiencies, better pricing and reductions in duplication as operations across 43 organizations are consolidated and standardized. In the first year of implementation, SSC achieved savings of $74.7 million by consolidating telecommunications service contracts, leveraging buying power and introducing a very lean internal services model.

In 2013-14, SSC will build on this foundation to further consolidate and improve IT service delivery and make significant progress on its mandated transformation initiatives. Savings will increase to $104.5 million in 2013-14 and will result in ongoing savings of $150.0 million by 2014-15.

There is a variance of $104.5 million is SSC’s authorities between fiscal year 2012-13 and 2013-14 related to Budget 2012.

There are no financial risks or uncertainties related to these savings.

Approval by Senior Officials:

6.0 Statement of Authorities (unaudited)

^*Includes authorities available for use and granted by Parliament at quarter-end.

^**Total available for use does not reflect measures announced in Budget 2012.

Notes:

• Totals may not add and may not agree with details provided elsewhere due to rounding.
  
• The decrease of authority in Vote 15 – Operating Expenditures is mainly due to the savings measures of Budget 2012 which were included in the Main Estimates of 2013-14 and to the transfer of $100 million to the Vote 20 – Capital Expenditures in order to implement TBS’s definition of a capital expenditure.
  
• The increase in expenditures between the first quarter of 2013-14 and 2012-13 is the outcome of being in its second year of operation, with standardized financial procedures and processes as where these were only starting to be implemented in the first quarter of 2012-13.

7.0 Departmental Budgetary Expenditures by Standard Object (unaudited)

^* Includes authorities available for use and granted by Parliament at quarter-end.

^** Planned expenditures do not reflect measures announced in Budget 2012.

Notes:

• Totals may not add and may not agree with details provided elsewhere due to rounding.
  
• The personnel (salary) expenditures have increase by 68.8% compared to the first quarter of 2012-13 due to the timing of the transfer of salary expenditures between the partner organizations in 2012-13.
  
• The increase in Rentals (Informatics) is mostly attributed to contract payments being issued before June 30, 2013 versus being paid in July for 2012-13.
  
• The Vote Netted Revenues have increased a 100% compared to the first quarter of 2012-13 since the billing processes and procedures had not been established yet as of June 30, 2012-13.