Administrative costs charged to the Canada Pension Plan account, financial report for the fiscal year ended on March 31, 2016

Administrative costs charged to the Canada Pension Plan account, financial report for the fiscal year ended on
March 31, 2016 (PDF, 191KB)

October 11, 2016—Audit and Evaluation Committee

Independent auditor's report

To the Deputy Minister, Public Services and Procurement Canada

We have audited the accompanying financial report on Administrative costs charged to the Canada Pension Plan account by Public Services and Procurement Canada and accompanying notes for the year ended March 31, 2016 (the "financial report"). The financial report has been prepared by management based on the financial reporting provisions in Part C of the Memorandum of Understanding between Employment and Social Development Canada and the Canada Pension Plan and Public Services and Procurement Canada in effect from April 1, 2015 to March 31, 2020.

Management's responsibility for the financial report

Management is responsible for the preparation of the financial report in accordance with the Memorandum of Understanding, and for such internal control as management determines is necessary to enable the preparation of a financial report that is free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial report on the Administrative Costs Charged to the Canada Pension Plan Account for the year ended March 31, 2016, is prepared, in all material respects, in accordance with the financial reporting provisions in Part C of the Memorandum of Understanding.

Basis of accounting and restriction on use

Without modifying our opinion, we draw attention to the fact that the financial report has been prepared in accordance with the provisions of the above noted Memorandum of Understanding. The financial report has been prepared to assist Public Works and Government Services Canada to meet the requirements of the Memorandum of Understanding. As a result, the financial report may not be suitable for another purpose. Our report is intended solely for Public Services and Procurement Canada and Employment and Social Development Canada and should not be used by parties other than Public Services and Procurement Canada and Employment and Social Development Canada.

Other matter

The financial report for the year ended March 31, 2015 was audited by another auditor who expressed an unmodified opinion on the financial report on September 25, 2015.

Signed by Deloitte LLP
(Limited Liability Partnership)
Chartered Professional Accountants
Licensed Public Accountants
August 19, 2016

Public Services and Procurement Canada

Financial report on administrative costs charged to the Canada Pension Plan account
for the year ended March 31

Administrative costs—Fiscal years (rounded to the nearest hundred dollars)
2016 2015 Variance %
Direct costs N/A N/A N/A N/A
Postage (note 2) 2,450,100 3,605,400 (1,155,300) (32)
Cheques and envelopes (note 3) 115,200 211,400 (96,200) (46)
Banking fees (note 4) 1,768,500 1,830,600 (62,100) (3)
Information technology (note 5) 686,500 821,900 (135,400) (17)
Managed secure file transfer (note 6) 70,300 76,600 (6,300) (8)
Direct Deposit Initiative (note 7) 50,800 202,700 (151,900) (75)
Reconciliation (note 8) 599,100 889,100 (290,000) (33)
Government services (note 9) 270,400 164,200 106,200 65
Courier services (note 10) 43,600 70,600 (27,000) (38)
Pay services (note 11) 217,300 228,900 (11,600) (5)
Total direct costs 6,271,800 8,101,400 (1,829,600) (23)
Corporate support costs (note 12) 90,000 91,200 (1,200) (1)
Total administrative costs 6,361.800 8,192,600 (1,830,800) (22)
Amount invoiced to the Canada Pension Plan (CPP) account (6,297,200) (8,225,900) N/A N/A
Outstanding amount to be invoiced (reimbursed) to the CPP account 64,600 (33,300) N/A N/A

Approved by
Brigitte Fortin
Assistant Deputy Minister
Accounting, Banking and Compensation Branch
Public Services and Procurement Canada

Approved by
Marty Muldoon, CPA, CMA, MBA
Chief Financial Officer
Public Services and Procurement Canada

Financial report on administrative costs charged to the Canada Pension Plan account

Notes to the financial report on administrative costs for the year ended March 31.

1. Introduction

A Memorandum of Understanding (MOU) between Employment and Social Development Canada (ESDC), the Canada Pension Plan (CPP) and Public Services and Procurement Canada (PSPC) was signed in February 2016 and supersedes all prior agreements. The MOU defines the provision of reciprocal services between PSPC and ESDC in terms of level of services, recoverable costs and reporting requirements. The MOU is in effect from April 1, 2015 to March 31, 2020.

2. Postage

Postage decreased by $1,155,300 or 32% compared to previous year. Domestic cheque volume decreased from 4,340,444 to 2,674,251 cheques and foreign cheque volume decreased from 536,701 to 502,737 cheques. This reduction in volume is attributed mostly to the Direct Deposit Initiative (DDI) as cheque payments are converted into direct deposits. This decrease in volume resulted in savings of $1,212,400. These savings were partially offset by an increase in the average domestic postage rate from $0.71 to $0.72 and in the average foreign postage rate from $1.00 to $1.02, which amounts to $57,100.

Table summary

This table consists of a list of postage costs charged by Public Services and Procurement Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2016 and the previous fiscal year ended March 31, 2015 (for comparison) that are presented in the financial report.

Postage costs—Fiscal years (rounded to the nearest hundred dollars)
2016 2015 2014 %
Domestic postage 1,937,300 3,070,200 (1,132,900) (37)
Foreign postage 512,800 535,200 (22,400) (4)
Total postage 2,450,100 3,605,400 (1,155,300) (32)

3. Cheques and envelopes

Cheques and envelopes decreased by $96,200 or 46% compared to previous year. This reduction is mainly due to a lower number of domestic and foreign cheques issued during the year, resulting in a decrease of $69,100. Savings of $20,800 is also due to a decrease in the rate for cheques given that a standard cheque size was adopted at the end of last fiscal year. Shipping costs of cheques and envelopes also decreased by $6,300 due to the lower volume of cheques required.

Table summary

This table consists of a list of cheques and envelopes costs charged by Public Services and Procurement Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2016 and the previous fiscal year ended March 31, 2015 (for comparison) that are presented in the financial report.

Cheques and envelopes costs—Fiscal years (rounded to the nearest hundred dollars)
2016 2015 2014 %
Domestic 91,200 176,500 (85,300) (48)
Foreign 17,100 21,700 (4,600) (21)
Shipping 6,900 13,200 (6,300) (48)
Total cheque and envelopes 115,200 211,400 (96,200) (46)

4. Banking fees

Banking fees decreased by $62,100 or 3% compared to previous year. This reduction is mainly due to a decrease in the number of cheques issued during the year, which resulted in savings of $190,000. This also resulted in a decrease in the unit cost for cheques (post payment fees), which generated savings of $7,800. This reduction was offset by an increase of $79,500 due to the increase of direct deposit transactions. Furthermore, as direct deposits continue to increase, so do the post payment fees associated with them, increasing the expenses by an additional $55,100. Foreign banking fees also increased slightly by $1,100.

Table summary

This table consists of a list of banking fees charged by Public Services and Procurement Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2016 and the previous fiscal year ended March 31, 2015 (for comparison) that are presented in the financial report.

Banking fees—Fiscal years (rounded to the nearest hundred dollars)
2016 2015 Variance %
Domestic direct deposit 1,466,200 1,331,600 134,600 10
Domestic cheques 297,200 495,000 (197,800) (40)
Foreign banking fees 5,100 4,000 1,100 28
Total banking fees 1,768,500 1,830,600 (62,100) (3)

5. Information technology

Information technology (IT) decreased by $135,400 or 17% compared to previous year. Disaster recovery costs decreased by $3,300 due to the reduction of the applied rate. Disaster recovery is a fixed-cost expense shared by multiple programs. In fiscal year 2016, the CPP's portion of the expense decreased versus other programs benefiting from the same shared service.

Printing services decreased by $132,100 overall. Of this amount, $90,600 was due to the fact that PSPC's print centre printed fewer cheques in the current year. The remaining $41,500 was due to a decrease in the unit cost for cheques given that a standard cheque size was adopted at the end of last fiscal year.

Table summary

This table consists of a list of information technology costs charged by Public Services and Procurement Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2016 and the previous fiscal year ended March 31, 2015 (for comparison) that are presented in the financial report.

Information technology costs—Fiscal years (rounded to the nearest hundred dollars)
2016 2015 Variance %
Disaster recovery 533,200 536,500 (3,300) (1)
Printing services 153,300 285,400 (132,100) (46)
Total Information technology 686,500 821,900 (135,400) (17)

6. Managed secure file transfer

The managed secure file transfer (MSFT) protocol provides a secure data transfer service for electronic information up to the protected B level. The MSFT service is provided and supported by PSPC and Shared Services Canada (SSC).

MSFT expenses decreased by $6,300 or 8% compared to previous year. This reduction is mainly due to a decrease in the unit cost per payment, which generated savings of $8,600. However, this reduction was offset by an increase of $2,300 associated with the increase in payment transactions made for the CPP.

Table summary

This table consists of a list of managed secure file transfer costs charged by Public Services and Procurement Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2016 and the previous fiscal year ended March 31, 2015 (for comparison) that are presented in the financial report.

Managed secure file transfer costs – Fiscal years (rounded to the nearest hundred dollars)
2016 2015 Variance %
Domestic payments 68,600 74,800 (6,200) (8)
Foreign payments 1,700 1,800 (100) (6)
Total managed secure file transfer 70,300 76,600 (6,300) (8)

7. Direct deposit initiative

The Direct Deposit Initiative (DDI) was introduced following the federal government's announcement that paper cheques will be phased out in favour of direct deposit. To facilitate the transition from cheques to electronic deposits, PSPC has invested in communication, system development, information sharing and general operating expenses.

Costs related to the DDI decreased by $151,900 or 75% compared to previous year. As DDI progresses, the cost of conversion declines, resulting in savings in DDI program activities of $74,100. In addition, the number of payments made by cheques has declined, with savings of $77,800.

8. Reconciliation

Reconciliation costs represent service costs for payment redemptions that were directly attributable to CPP payments. PSPC's Cheque Redemption Control Directorate provided payment reconciliation and redemption services for CPP payments (both cheques and direct deposits).

Reconciliation costs decreased by $290,000 or 33% compared to the previous year. The decrease is mainly due to a reduction in the number of domestic cheques requiring reconciliation (2,675,251 versus 4,340,444 cheques last year). In addition there was a reduction in the unit cost for direct deposit reconciliations ($0.0034 versus $0.0050 last year).

Table summary

This table consists of a list of reconciliation costs charged by Public Services and Procurement Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2016 and the previous fiscal year ended March 31, 2015 (for comparison) that are presented in the financial report.

Reconciliation costs—Fiscal years (rounded to the nearest hundred dollars)
2016 2015 Variance %
Salaries 431,600 584,500 (152,900) (26)
Operating and capital expenditures 167,500 304,600 (137,100) (45)
Total reconciliation 559,100 889,100 (290,000) (33)

9. Government services

Government services costs are costs associated with the workforce needed to administer the CPP account, excluding salaries. These services include the cost to cover the Employee Benefit Plan, accommodation of the workforce and the employees' Health Care Insurance Plan.

Government services costs increased by $106,200 or 65% compared to previous year. The increase is due to a new agreement between ESDC and PSPC to recover all fees incurred to cover government services. This year, for the first time, the accommodation premium and the Health Care Insurance Plan were recovered, accounting for $140,700 of the increase. Employee Benefit Plan expenses decreased by $34,500 due to the overall decrease in salary expenses.

Table summary

This table consists of a list of government services costs charged by Public Services and Procurement Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2016 and the previous fiscal year ended March 31, 2015 (for comparison) that are presented in the financial report.

Government services costs—Fiscal years (rounded to the nearest hundred dollars)
2016 2015 Variance %
Employee Benefit Plan (20%)
*Treasury Board rates
129,700 164,200 (34,500) (21)
Accommodation (13%)
*Treasury Board rates
84,300 0 84,300 100
Health Care Insurance Plan (8.7%)
*Treasury Board rates
56,400 0 56,400 100
Total government services 270,400 164,200 106,200 65

10. Courier services

Courier services are used once CPP cheques have been cashed. These cheques need to be transported from the financial institution where they were cashed to the cheque redemption center for reconciliation.

Courier costs decreased by $27,000 or 38% compared to previous year. This decrease is due to a reduction in the number of cheques issued on behalf of the CPP.

11. Pay services

Pay services costs are the costs incurred by PSPC in providing pay-related services to employees who administer the CPP within ESDC/Service Canada. Pay services costs are calculated by multiplying the number of pay accounts within ESDC/Service Canada (one pay account per employee) by the average cost per pay account.

Pay services costs decreased by $11,600, or 5% compared to previous year. This is because the average cost per pay account decreased in the fiscal year 2016, while the portion of accounts directly related to the CPP remained relatively stable.

12. Corporate support

Corporate support costs represent the indirect cost of internal services provided by corporate branches, such as finance, human resources, and the cost of preparing this audited financial report.

Corporate support costs decreased by $1,200 or 1% compared to previous year. The slight decrease is due to the decrease in internal services required to administer the CPP account.

Table summary

This table consists of a list of corporate support costs charged by Public Services and Procurement Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2016 and the previous fiscal year ended March 31, 2015 (for comparison) that are presented in the financial report.

Corporate support costs—Fiscal years (rounded to the nearest hundred dollars)
2016 2015 Variance %
Internal services support 51,600 52,800 (1,200) (2)
Preparation of the financial report  38,400 38,400 (0) (0)
Total corporate support 90,000 91,200 (1,200) (1)
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