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.

Original signed by Sarah Paquet for

Paul Glover
President

Original signed by

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

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.

Original signed by Sarah Paquet for

Paul Glover
President

Original signed by

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

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:

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 -
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):

Email and Workplace Technology Data Centres Telecommunications Cyber and IT Security Customer Relationships and Service Management Internal Services 2019 Total 2018 Total
Operating expenses
Salaries and employee benefits 35,031 204,207 155,006 80,169 147,500 127,901 749,814 690,171
Telecommunications 4,641 5,573 513,098 28 8,497 2,169 534,006 496,638
Rentals 102,554 218,813 6,143 39,955 6,053 2,062 375,580 275,778
Amortization of tangible capital assets 9,699 189,148 67,028 8,960 304 3,370 278,509 214,933
Professional and special services 10,247 35,228 60,723 29,190 56,901 47,658 239,947 218,199
Repairs and maintenance 1,760 85,003 58,823 21,831 40 922 168,379 181,224
Machinery and equipment 733 64,587 69,092 5,424 802 11,898 152,536 128,141
Accommodation 1,954 11,536 8,767 4,471 8,229 23,188 58,145 58,640
Transportation 329 1,741 2,483 456 1,152 1,493 7,654 7,714
Utilities, materials and supplies 89 5,594 529 471 467 469 7,619 6,960
Interest on capital lease payments - 4,181 - - - - 4,181 2,838
Information - 26 461 29 9 790 1,315 949
Loss on disposal of tangible capital assets - 31 320 - - - 351 -
Other expenses 32 419 345 78 63 28 965 814
Total operating expenses 167,069 826,087 942,818 191,062 230,017 221,948 2,579,001 2,282,999
Revenues
Sale of goods and services 57,928 204,007 355,115 55,521 21,479 1 694,051 631,550
Miscellaneous revenues 12 123 8 189 3 1 336 784
Net gain on the termination of lease obligations for tangible capital assets - - - - - - - 1,037
Revenues earned on behalf of Government (1,832) (2,233) (6,714) (902) (618) (2) (12,301) (12,323)
Total revenues 56,108 201,897 348,409 54,808 20,864 - 682,086 621,048
Net cost of operations before government funding and transfers 110,961 624,190 594,409 136,254 209,153 221,948 1,896,915 1,661,951

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:

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

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
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.

Figure 1
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:

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.

Report a problem or mistake on this page
Please select all that apply:

Thank you for your help!

You will not receive a reply. For enquiries, contact us.

Date modified: