Departmental Financial Statements - March 31, 2018

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, 2018, 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, 2018 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.

Original signed by

Ron Parker
President

Original signed by

Denis Bombardier, CPA, CGA
Assistant Deputy Minister and Chief Financial Officer

Ottawa, Canada
September 7, 2018

Statement of Financial Position (unaudited) as at March 31 (in thousands of dollars)
2018 2017
Liabilities
Accounts payable and accrued liabilities (note 4) 564,137 548,939
Vacation pay and compensatory leave 38,665 31,249
Deferred revenue (note 5) 2,336 3,610
Lease obligations for tangible capital assets (note 6) 285,905 56,711
Employee future benefits (note 7) 26,717 24,367
Total liabilities 917,760 664,876
Financial assets
Due from the Consolidated Revenue Fund 348,132 388,690
Accounts receivable and advances (note 8) 267,596 208,185
Total gross financial assets 615,728 596,875
Financial assets held on behalf of Government
Accounts receivable and advances (note 8) (3,857) (2,898)
Total financial assets held on behalf of Government (3,857) (2,898)
Total net financial assets 611,871 593,977
Departmental net debt 305,889 70,899
Non-financial assets
Prepaid expenses 16,570 28,365
Tangible capital assets (note 9) 1,126,726 661,705
Total non-financial assets 1,143,296 690,070
Departmental net financial position 837,407 619,171

Contractual obligations and contractual rights (note 10)

Contingent liabilities and contingent assets (note 11)

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

Original signed by

Ron Parker
President

Original signed by

Denis Bombardier, CPA, CGA
Assistant Deputy Minister and Chief Financial Officer

Ottawa, Canada
September 7, 2018

Statement of Operations and Departmental Net Financial Position (unaudited) for the year ended March 31 (in thousands of dollars)
2018 Planned Results 2018 2017
Expenses (note 14)
Email and Workplace Technology 168,049 178,270 -
Data Centres 646,768 692,154 -
Telecommunications 684,239 838,566 -
Cyber and IT Security 185,408 174,652 -
Program Management 116,551 203,080 -
Brokered Public Cloud Services 1,286 1,345 -
IT Infrastructure Services - - 1,962,559
Internal Services 178,777 194,932 164,378
Total expenses 1,981,078 2,282,999 2,126,937
Revenues
Sale of goods and services 418,641 631,550 563,613
Net gain on the termination of lease obligations for tangible capital assets - 1,037 -
Miscellaneous revenues 448 784 606
Revenues earned on behalf of Government (11,555) (12,323) (10,084)
Total revenues 407,534 621,048 554,135
Net cost of operations before government funding and transfers 1,573,544 1,661,951 1,572,802
Government funding and transfers
Net cash provided by Government of Canada - 1,824,268 1,494,224
Change in due from the Consolidated Revenue Fund - (40,558) 80,286
Services provided without charge by other government departments (note 12) - 96,400 82,101
Transfer of the transition payments for implementing salary payments in arrears - (9) -
Net transfer of salary overpayments from other government departments - 86 49
Transfer of tangible capital assets from other government departments - - 15
Net cost of operations after government funding and transfers - (218,236) (83,873)
Departmental net financial position – Beginning of year - 619,171 535,298
Departmental net financial position – End of year - 837,407 619,171

Segmented information (note 13)

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

Statement of Change in Departmental Net Debt (unaudited) for the year ended March 31 (in thousands of dollars)
2018 2017
Net cost of operations after government funding and transfers (218,236) (83,873)
Change due to tangible capital assets
Acquisitions of tangible capital assets 702,051 275,534
Amortization of tangible capital assets (214,933) (132,135)
Net loss on disposal of tangible capital assets including adjustments 8,873 (1,826)
Loss on disposal of tangible capital assets due to the termination of lease obligations (30,970) -
Transfers from other government departments - 15
Total change due to tangible capital assets 465,021 141,588
Change due to prepaid expenses (11,795) (11,135)
Net increase (decrease) in departmental net debt 234,990 46,580
Departmental net debt – Beginning of year 70,899 24,319
Departmental net debt – End of year 305,889 70,899

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

Statement of Cash Flows (unaudited) for the year ended March 31 (in thousands of dollars)
2018 2017
Operating activities
Net cost of operations before government funding and transfers 1,661,951 1,572,802
Non-cash items
Amortization of tangible capital assets (214,933) (132,135)
Net loss on disposal of tangible capital assets including adjustments 8,873 (1,826)
Net gain on the termination of lease obligations for tangible capital assets 1,037 -
Services provided without charge by other government departments (note 12) (96,400) (82,101)
Transition payments for implementing salary payments in arrears 9 -
Net transfer of salary overpayments from other government departments (86) (49)
Variations in Statement of Financial Position
Increase (decrease) in accounts receivable and advances 58,452 3,322
Increase (decrease) in prepaid expenses (11,795) (11,135)
Decrease (increase) in accounts payable and accrued liabilities (15,198) (178,780)
Decrease (increase) in vacation pay and compensatory leave (7,416) (3,191)
Decrease (increase) in deferred revenue 1,274 (142)
Decrease (increase) in employee future benefits (2,350) 8,238
Cash used in operating activities 1,383,418 1,175,003
Capital investing activities
Acquisitions of tangible capital assets (excluding leased tangible capital assets) 389,834 275,534
Cash used in capital investing activities 389,834 275,534
Financing activities
Payments on lease obligations for tangible capital assets 51,016 43,687
Cash used in financing activities 51,016 43,687
Net cash provided by Government of Canada 1,824,268 1,494,224

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 delivers email, data centre, network and workplace technology device services to departments and agencies in a consolidated and standardized manner to support the delivery of Government of Canada programs and services. With a whole-of-government approach to IT infrastructure services, SSC is generating economies of scale to deliver more efficient, reliable and secure IT infrastructure services. SSC also provides certain optional technology services to other organizations on a cost-recovery basis.

SSC’s Program Alignment Architecture supports the achievement of the following strategic outcome: Modern, reliable, secure, timely and cost-effective IT infrastructure services to support government priorities and program delivery.

SSC’s Program Alignment Architecture has been modified in fiscal year 2017-18 and now includes the following seven programs compared to two programs in fiscal year 2016-17:

  • Email and Workplace Technology: This program supports partner and client organizations with the procurement, configuration, management and protection of email services, including the Government-of-Canada-wide transition to a consolidated email system. It also provides access to software and hardware provisioning and support for program-specific and corporate applications. This includes workstation provisioning and technical support as well as local area network (physical or virtual) functionalities. Some of the services are provided on an optional basis to partner and client organizations.
  • Data Centres: This program provides data centre services that support partner organizations’ delivery of programs and services to Canadians. The program supports the data centre consolidation transformation initiative, which aims to consolidate existing legacy data centres and to move operations to seven modern, secure and reliable centres. It provides full lifecycle management (including the strategy, plan, build, test, deploy, operate, and decommission steps) of data centres for the Government of Canada IT infrastructure. It also includes the end-to-end management of physical complexes; the establishment of computing environments for partner organizations and for SSC’s internal needs across all computing platforms; and the provision of technical support and certification for day-to-day operations, production applications, and database computing environments.
  • Telecommunications: This program delivers data, voice and conferencing services within and across the Government of Canada to partner and client organizations, thereby improving service delivery and enhancing value to Canadians. Data network services include the provision and ongoing support of multi-platform, multi-protocol electronic data and communications networks. Voice communication services include the provision of local and long-distance services, as well as secure voice and other related services. Conferencing services include the provision of a suite of services—including video, web and audio conferencing—to partner and client organizations.
  • Cyber and IT Security: This program preserves the confidentiality, integrity, availability, intended use and value of electronically stored, processed or transmitted information by providing safety measures in accordance with the Policy on Government Security and the Operational Security Standard: Management of Information Technology Security. The services included in this program are provided to Government of Canada departments and agencies.
  • Program Management: This program is comprised of enabling functions that deliver services within SSC that are not considered internal services, as defined by the Treasury Board Secretariat, and that are common to all departments. These functions support business needs that are specific and fundamental to the delivery of the SSC mandate. This includes strategic functions, such as account management; enterprise architecture; and monitoring of progress on the Transformation Plan; as well as related analytics activities. It also includes service management functions.
  • Brokered Public Cloud Services: This program provides public cloud brokering services which support SSC and partner organizations’ delivery of programs and services to Canadians. Services include access to the public cloud service providers’ catalogues across all cloud categories, including Infrastructure-as-a-Service, Platform-as-a-Service and Software-as-a-Service.
  • 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 as follows: 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 2017-18 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 2017-18 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 as 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.

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)
2018 2017
Net cost of operations before government funding and transfers 1,661,951 1,572,802
Adjustments for items affecting net cost of operations but not affecting authorities
Amortization of tangible capital assets (214,933) (132,135)
Net loss on disposal of tangible capital assets including adjustments 8,873 (1,826)
Services provided without charge by other government departments (96,400) (82,101)
Decrease (increase) in vacation pay and compensatory leave (7,416) (3,191)
Decrease (increase) in employee future benefits (2,350) 8,238
Bad debt expense 2 (4)
Refunds and adjustments to previous years’ expenses 14,641 8,146
Respendable revenue 1,383 4,730
Total items affecting net cost of operations but not affecting authorities (296,200) (198,143)
Adjustments for items not affecting net cost of operations but affecting authorities
Acquisitions of tangible capital assets (excluding leased tangible capital assets) 389,834 275,534
Payments on lease obligations for tangible capital assets 51,016 43,687
Transition payments for implementing salary payments in arrears 9 -
Increase (decrease) in accounts receivable for salary overpayments 2,995 2,448
Increase (decrease) in prepaid expenses (11,795) (11,135)
Revenue available for spending - (3,823)
Other 103 -
Total items not affecting net cost of operations but affecting authorities 432,162 306,711
Current year authorities used 1,797,913 1,681,370
b) Authorities provided and used (in thousands of dollars)
2018 2017
Authorities provided
Vote 1 – Operating expenditures 1,398,335 1,377,901
Vote 5 – Capital expenditures 451,311 443,216
Statutory amounts 79,468 74,849
Less
Lapsed: Operating expenditures (48,756) (99,627)
Lapsed: Capital expenditures (82,445) (114,969)
Current year authorities used 1,797,913 1,681,370

4. Accounts payable and accrued liabilities

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

2018 2017
Accounts payable - Other government departments and agencies 54,888 61,198
Accounts payable - External parties 351,377 218,054
Total accounts payable 406,265 279,252
Accrued liabilities 157,872 269,687
Total accounts payable and accrued liabilities 564,137 548,939

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:

2018 2017
Opening balance 3,610 3,468
Amounts received - 3,823
Revenue recognized (1,274) (3,681)
Net closing balance 2,336 3,610

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 $26,997 thousand as at March 31, 2018 ($185,267 thousand and $128,332 thousand respectively as at March 31, 2017). The obligations related to the upcoming years include the following (in thousands of dollars):

2018 2017
2018 - 36,343
2019 56,254 20,677
2020 57,788 -
2021 62,391 -
2022 47,091 -
2023 28,090 -
2024 and subsequent 46,999 -
Total future minimum lease payments 298,613 57,020
Less: imputed interest (0.53% to 1.89%) 12,708 309
Balance of obligations under leased tangible capital assets 285,905 56,711

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 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 2017-18 expense amounts to $52,513 thousand ($50,486 thousand in 2016-17). For Group 1 members, the expense represents approximately 1.01 times (1.12 times in 2016-17) the employees’ contributions and, for Group 2 members, approximately 1.00 times (1.08 times in 2016-17) 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, 2018, 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):

2018 2017
Accrued benefit obligation - Beginning of year 24,367 32,605
Expense (adjustment) for the year 4,519 (6,096)
Benefits paid during the year (2,169) (2,142)
Accrued benefit obligation - End of year 26,717 24,367

8. Accounts receivable and advances

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

2018 2017
Receivables - Other government departments and agencies 253,602 197,601
Receivables – External parties 13,796 10,485
Employee advances 199 106
Subtotal 267,597 208,192
Allowance for doubtful accounts on receivables from external parties (1) (7)
Gross accounts receivable and advances 267,596 208,185
Accounts receivable held on behalf of Government (3,857) (2,898)
Net accounts receivable and advances 263,739 205,287

9. Tangible capital assets

Cost (in thousands of dollars)
Capital asset class Opening balance Acquisitions Adjustments (1) Disposals and write-offs Closing balance
Buildings 3,085 - - - 3,085
Works and infrastructure 1,310 - - - 1,310
Machinery and equipment 53,792 754 - - 54,546
Computer hardware 1,364,907 262,857 98,021 816 1,724,969
Computer software 178,491 3,460 15,813 - 197,764
Vehicles 33 1,293 19 - 1,345
Leasehold improvements 29,470 19,439 - - 48,909
Leased tangible capital assets 185,267 312,217 - 185,267 312,217
Assets under construction 184,499 102,031 (104,795) - 181,735
Total 2,000,854 702,051 9,058 186,083 2,525,880
Accumulated amortization (in thousands of dollars)
Capital asset class Opening balance Amortization Adjustments (1) Disposals and write-offs Closing balance
Buildings 2,357 103 - - 2,460
Works and infrastructure 119 57 - - 176
Machinery and equipment 39,125 3,295 - - 42,420
Computer hardware 1,003,498 133,270 166 816 1,136,118
Computer software 142,979 23,238 - - 166,217
Vehicles 5 5 19 - 29
Leasehold improvements 22,734 2,003 - - 24,737
Leased tangible capital assets 128,332 52,962 - 154,297 26,997
Assets under construction - - - - -
Total 1,339,149 214,933 185 155,113 1,399,154
Net book value (in thousands of dollars)
Capital asset class 2018 2017
Buildings 625 728
Works and infrastructure 1,134 1,191
Machinery and equipment 12,126 14,667
Computer hardware 588,851 361,409
Computer software 31,547 35,512
Vehicles 1,316 28
Leasehold improvements 24,172 6,736
Leased tangible capital assets 285,220 56,935
Assets under construction 181,735 184,499
Total 1,126,726 661,705

(1) Adjustments include assets under construction of $104,795 thousand that were transferred to the other categories upon completion of the assets.

Adjustments also include a net amount of $8,873 thousand related to the capitalization of tangible capital assets that were recorded as expenses in the previous year.

10. 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):

2019 2020 2021 2022 2023 2024 and
subsequent
Total
Acquisition of goods and services 559,740 378,441 249,952 155,929 107,438 125,943 1,577,443
Tangible capital assets - 13,020 - - 13,020 - 26,040
Total 559,740 391,461 249,952 155,929 120,458 125,943 1,603,483
b) Contractual rights
SSC has determined that there are no contractual rights which require disclosure in these financial statements.

11. 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, 2018 (nil at March 31, 2017).
b) Contingent assets
SSC has determined that there are no contingent assets which require disclosure in these financial statements.

12. 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):

2018 2017
Employer’s contribution to the health and dental insurance plans 51,648 46,571
Accommodation 44,752 35,530
Total 96,400 82,101

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)
2018 2017
Expenses – Services provided to SSC by other government departments and agencies 218,521 214,329
Revenues – Services provided by SSC to other government departments and agencies 626,436 558,171

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

13. 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 (in thousands of dollars):

Email and Workplace Technology Data Centres Telecommunications Cyber and IT Security Program Management Brokered Public Cloud Services Internal Services 2018 total 2017 total
Operating expenses
Salaries and employee benefits 36,941 195,859 150,775 73,168 118,590 973 113,865 690,171 608,786
Telecommunications 4,620 315 473,618 129 16,909 - 1,047 496,638 501,260
Rentals 101,744 130,515 2,787 37,264 2,001 30 1,437 275,778 377,229
Professional and special services 10,825 37,330 46,230 34,123 55,207 210 34,274 218,199 187,006
Amortization of tangible capital assets 11,627 151,928 40,892 6,129 115 - 4,242 214,933 132,135
Repairs and maintenance 923 99,349 67,638 13,088 13 - 213 181,224 126,967
Machinery and equipment 9,001 53,226 43,241 5,025 1,066 54 16,528 128,141 130,224
Accommodation 2,394 12,919 9,892 4,744 7,688 63 20,940 58,640 47,730
Transportation 71 2,042 2,821 581 990 11 1,198 7,714 5,315
Utilities, materials and supplies 82 5,553 498 168 352 4 303 6,960 7,437
Interest on capital lease payments - 2,759 - - 79 - - 2,838 508
Information - 2 - 80 1 - 866 949 1,356
Loss on disposal of tangible capital assets - - - - - - - - 10
Other expenses 42 357 174 153 69 - 19 814 974
Total operating expenses 178,270 692,154 838,566 174,652 203,080 1,345 194,932 2,282,999 2,126,937
Revenues
Sale of goods and services 50,615 217,674 297,275 47,761 18,131 93 1 631,550 563,613
Net gain on the termination of lease obligations for tangible capital assets - 1,037 - - - - - 1,037
Miscellaneous revenues 8 46 13 56 - - 661 784 606
Revenues earned on behalf of Government (754) (3,331) (6,722) (686) (125) (43) (662) (12,323) (10,084)
Total revenues 49,869 215,426 290,566 47,131 18,006 50 - 621,048 554,135
Net cost of operations before government funding and transfers 128,401 476,728 548,000 127,521 185,074 1,295 194,932 1,661,951 1,572,802

14. Comparative information

Comparative figures in the Statement of Operations and Departmental Net Financial Position have not been presented under SSC's 2017-18 Program Alignment Architecture (PAA) due to significant changes in program alignment between SSC’s previous and new PAA.

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, 2018

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 2017-18 Departmental Performance Report and the 2018-19 Departmental Plan.

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 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 monitoring of 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 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 (i.e., 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

SSC provides information technology (IT) infrastructure services to customer organizations in the areas of data center services and network services. The scope and responsibilities are addressed in the interdepartmental arrangement between Shared Services Canada and its customer organizations.

SSC works to manage and improve the efficiency, reliability and security of the government’s information technology (IT) infrastructure. This includes the modernization of IT infrastructure inherited from customer organizations, such as the consolidation of data centres into fewer, modern enterprise data centres. To effectively execute its mandate, the Department must also maintain and operate processes and controls in legacy environments, while simultaneously updating aging IT systems.

SSC infrastructure supports the financial applications of customer organizations and hence information produced for departmental financial statements and the Public Accounts of Canada.

This is illustrated in the following diagram based on the COBIT framework developed by ISACA (formerly known as the Information Systems Audit and Control Association):

Figure 1. scoping the IT control assessment (top down)
Graphic illustrating the IT scoping method
Text version – Figure 1

Figure 1 is an illustration of the scoping method used in the assessment of Information Technology Controls. This is based on the COBIT framework developed by ISACA (formerly known as the Information Systems Audit and Control Association).

From the top down approach:

  • Significant accounts are found in the financial statements: Balance Sheet, Income Statement, Cash Flow, Notes, Other Disbursements
  • Business Processes/Classes of Transactions: Process A, Process B, Process C
  • Financial Applications: Application A, Application B, Application C
  • IT Infrastructure Services: Database, Operating System, Network/Physical. This is the area included in the scope of the assessment of Information Technology General Controls for IT Infrastructure Services
  • IT General Controls: Program development, Program changes, Program operations, Access control, Control environment. All point to Financial Applications and IT Infrastructure Services
  • Application Control Objectives/Assertions: Accuracy, Completeness, Authorization, Segregation of duties. All point to Financial Applications

SSC is responsible for a risk-based assessment of its IT general controls (ITGCs) over IT infrastructure services in relation to ICFR (for brevity, referred to as ITGC assessment). Customers are responsible for assessing ITGCs related to their own financial applications.

SSC developed an initial Scoping and Risk Assessment report that influenced the nature, extent and timing of control design, assessment, remediation and monitoring activities. The report is periodically updated to reflect significant changes to infrastructure services provided by SSC, customer financial reporting risk profiles or reporting requirements of customers or SSC.

3. Departmental assessment results during fiscal year 2017-18 (ICFR)

During 2017-18, 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 the 2017- 2018 fiscal year
Element from previous year’s action plan Status
Entity-Level Controls and IT general controls over SIGMA: ongoing monitoring of key critical controls.

Rotational reassessment completed for entity-level controls. No significant remediation required.

Rotational reassessment of ITGC over SIGMA postponed to 2019-20.

Financial close and reporting, operating expenses and accounts payable: design effectiveness testing and remediation of deficiencies.

Design effectiveness completed. No significant remediation required.

Operating effectiveness testing for Financial Close and reporting completed ahead of previous year’s action plan.

Revenue and Accounts Receivable: operating effectiveness testing and remediation of deficiencies. Operating effectiveness testing has started. Testing will be completed in 2018-19.
Capital Assets: Documentation. Documentation and design assessment of the capital assets process is pending the completion of a review of SSC’s capital assets and related internal practices and the implementation of a revised operating model.

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 2017-18, the department completed the design effectiveness testing of its expenses and accounts payable control area as well as its financial close and reporting control areas.

As a result of design effectiveness testing, the Department did not identify any significant deficiency that could lead to material misstatement of its financial statements.

3.2 Operating effectiveness testing of key controls

In 2017-18, the department completed the operating effectiveness testing of its financial close and reporting control area and its Information Technology General Controls (ITGC) over the departmental financial system (SIGMA) control area. The department deferred the completion of the Operating Effectiveness Testing (OET) of Revenue and Accounts Receivable to the subsequent year.

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.

3.3 Ongoing monitoring of key controls

In 2017-18, the department started ongoing monitoring activities of entity level controls.

As a result of the ongoing monitoring performed, the department did not identify any significant deficiency that could lead to material misstatement of its financial statements.

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

Building on progress to date, SSC is positioned to complete a full assessment of its system of internal control over financial reporting in 2018-2019, with the exception of capital assets, as 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 Operational effectiveness testing and remediation Ongoing monitoring rotation1
Entity-level controls Completed Completed 2020-21
ITGC over SIGMA Completed Completed 2019-20
ITGC over Feeder Systems2 2018-19 2018-19 2021-22
Business process controls
Financial close and reporting Completed Completed 2020-21
Operating expenses and accounts payable Completed 2018-19 2020-21
Revenue and accounts receivable Completed 2018-19 2021-22
Capital Assets 2018-19 Future years Future years
Payroll and benefits Completed 2018-19 2020-21

1 The frequency of the ongoing monitoring of key control areas is risk-based and may occur over a multi-year cycle.

2 Feeder Systems include: PeopleSoft and Procure-to-Pay (P2P).

5. Common Service Provider (CSP) Annual Assessment Results for 2017-2018 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 fully modernized environment.

The scope of SSC’s ITGC assessment originally consisted of common controls operating in fully modernized environments, based on the initial 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 2017-2018 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 has been expanded beyond common controls operating in fully modernized environments 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 of 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 Operational effectiveness testing and remediation Ongoing monitoring rotation
Entity level controls Completed 2020-21 Future years
Common controls 2018-19 2020-21 Future years
Customer-specific controls (DFMS3) 2018-19 2019-20 Future years
Customer-specific controls (GC central systems4) 2019-20 2020-21 Future years
Customer-specific controls (material systems5) 2020-21 2021-22 Future years

3 Assessment of ITGCs for IT infrastructure services supporting the Departmental Financial and Materiel Management Systems (DFMS) of certain customers with high financial reporting risk.

4 Assessment of ITGCs for IT infrastructure services supporting Government of Canada (GC) central systems managed by Public Services and Procurement Canada.

5 Assessment of ITGCs for IT infrastructure services supporting material systems specific to a customer.

5.2 Departmental assessment results during fiscal year 2017-2018 (CSP)

As a result of the completion of operating effectiveness testing of customer-specific controls over IT infrastructure services delivered to one customer operating material IT systems in a partially modernized environment, SSC identified a deficiency in the area of logical access management controls related to IT systems and data.

Management has developed and implemented remedial action plans to strengthen logical access management controls to restrict access to systems and data to authorized users.

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