Optional Services Revolving Fund

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Statement of management responsibility

We have prepared the accompanying financial statements of the Optional Services Revolving Fund as required by and in accordance with the Treasury Board Policy on Special Revenue Spending Authorities. These financial statements were prepared by the management of the Fund in accordance with the significant accounting policies set out in note 2 of the financial statements, on a basis consistent with that of the preceding year.

Responsibility for the integrity and objectivity of these financial statements rests with the management of the Fund. Information included in these financial statements is based on management's best estimates and judgment with due consideration given to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts which provides a centralized record of the Fund's financial transactions. Financial information submitted to the Public Accounts of Canada and included in the Departmental Performance Report is consistent with these financial statements.

Management develops and disseminates financial management and accounting policies and issues specific directives which maintain standards of accounting and financial management. Management maintains systems of financial management and internal control which give due consideration to costs, benefits and risks. They are designed to provide reasonable assurance that transactions are properly authorized, are executed in accordance with prescribed regulations, and are properly recorded to maintain accountability of Government funds and safeguard the assets under the Fund's administration. Financial management and internal control systems are augmented by the maintenance of internal audit programs. Management also seeks to assure the objectivity and integrity of data in its financial statements by the careful selection, training and development of qualified staff, by organizational arrangements that provide appropriate divisions of responsibility, and by communication programs aimed at ensuring that its regulations, policies, standards and managerial authorities are understood throughout the organization.

Management has presented the financial statements to the external auditor who audited them and has provided an independent auditor's report opinion, which is appended to these financial statements.

Approved by:

Michel D'Amour
A/Chief Financial Officer
for Marty Muldoon, CPA, CMA, MBA
Chief Financial Officer
Public Services and Procurement Canada

Arianne Reza
Assistant Deputy Minister
Procurement Branch
Public Services and Procurement Canada

May 30, 2017
Gatineau, Canada

Statement of authority provided (used) (unaudited) for the year ended March 31

(in thousands of dollars)

  2017 2016
EstimatesLink to footnote 1 Actual EstimatesLink to footnote 1 Actual
Net results 1,429 344
Items not requiring use of funds 50 50
Operating source of funds 50 1,429 50 344
Items requiring use of funds
Transition payments for implementing salary payments in arrears (negative 1)
Net other assets and liabilities (negative 50) 7,717 (negative 50) (negative 1,449)
Authority provided (used) 9,146 (negative 1,106)

Reconciliation of unused authority (unaudited) as at March 31

(in thousands of dollars)

  2017 2016
Debit balance in the accumulated net charge against the Fund's authority 17,502 16,165
Payables charged against the appropriation at year-end (negative 15,197) (negative 23,255)
Receivables credited to the appropriation at year-end 887 1,158
Other items (negative 1,503) (negative 1,525)
Net authority provided (used), end of year 1,689 (negative 7,457)
Authority limit (Note 1) 35,000 35,000
Unused authority carried forward 36,689 27,543

Independent auditor's report

To the Deputy Minister, Public Services and Procurement Canada

We have audited the accompanying financial statements of the Optional Services Revolving Fund (the "Fund"), which comprise the statement of financial position as at March 31, 2017, and the statements of operations and net liabilities and of cash flow for the year then ended, and a summary of significant accounting policies and other explanatory information. The financial statements have been prepared by management of the Fund based on the financial reporting provisions of section 6.4 of the Treasury Board of Canada's Policy on Special Revenue Spending Authorities.

Management's responsibility for the financial statements

Management is responsible for the preparation of these financial statements in accordance with the financial reporting provisions of section 6.4 of the Treasury Board of Canada's Policy on Special Revenue Spending Authorities, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these financial statements 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 statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, 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 statements 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 statements.

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 statements of the Fund for the year ended March 31, 2017 are prepared, in all material respects, in accordance with section 6.4 of the Treasury Board of Canada's Policy on Special Revenue Spending Authorities.

Basis of accounting and restrictions on use

Without modifying our opinion, we draw attention to note 2 to the financial statements, which describe the basis of accounting. The financial statements have been prepared to assist the Fund to meet the financial reporting requirements of section 6.4 of the Treasury Board of Canada's Policy on Special Revenue Spending Authorities. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for the Fund and the Treasury Board of Canada and should not be used by parties other than the Fund and the Treasury Board of Canada.

Deloitte LLP
Chartered Professional Accountants,
Licensed Public Accountants

May 30, 2017
Ottawa, Canada

Statement of financial position as at March 31

(in thousands of dollars)

  2017 2016
Assets
Financial assets
Accounts receivable (Note 3) 6,338 14,267
Sales tax refundable advances 101 134
Total 6,439 14,401
Liabilities
Current liabilities
Accounts payable and accrued liabilities (Note 4) 15,197 23,260
Vacation pay and compensatory leave 86 49
Subtotal 15,283 23,309
Long-term liabilities
Employee severance benefits (Note 5) 38 66
Total 15,321 23,375
Net liabilities (Note 6) (negative 8,882) (negative 8,974)
Total 6,439 14,401

Statement of operations and net liabilities for the year ended March 31

(in thousands of dollars)

  2017 2016
Revenues
Vaccines and drugs 136,221 142,786
Travel and relocation related services 12,091 11,323
Communication procurement services 3,780 1,953
Subtotal 152,092 156,062
Cost of sales (negative 145,918) (negative 151,593)
Gross profit 6,174 4,469
Operating expenses
Salaries and employee benefits 2,429 1,553
Professional and special services 1,555 1,835
Corporate and administrative services 472 546
Occupancy costs 185 114
Other expenses 106 70
Employee severance benefits (Note 5) (negative 2) 7
Total operating expenses 4,745 4,125
Net results 1,429 344
Net liabilities, beginning of year (negative 8,974) (negative 6,390)
Transfer of the transition payments for implementing salary payments in arrears (negative 1)
Net financial resources provided and change in the accumulated net charge against the Fund's authority, during the year (Note 6) (negative 1,337) (negative 2,927)
Net liabilities, end of year (Note 6) (negative 8,882) (negative 8,974)

Statement of cash flows for the year ended March 31

(in thousands of dollars)

  2017 2016
Operating activities
Net results 1,429 344
Variations in statement of financial position
Decrease (increase) in accounts receivable 7,929 (negative 1,689)
Decrease (increase) in sales tax refundable advances 33 (negative 115)
Increase (decrease) in accounts payable and accrued liabilities (negative 8,063) 4,402
Increase (decrease) in vacation pay and compensatory leave 37 (negative 7)
Increase (decrease) in employee severance benefits (negative 28) (negative 7)
Subtotal (negative 92) 2,584
Transition payments for implementing salary payments in arrears (negative 1)
Net financial resources provided and change in the accumulated net charge against the Fund's authority, during the year (Note 6) 1,337 2,927
Accumulated net charge against the Fund's authority account, beginning of year 16,165 13,238
Accumulated net charge against the Fund's authority account, end of year 17,502 16,165

Notes to the financial statements for the year ended March 31, 2017

1. Authority and purpose

The Optional Services Revolving Fund (the "Fund") provides specialized services to federal departments, agencies and provincial and territorial governments. The Fund procures vaccines and drugs, provides travel and relocation related services, as well as communication procurement services. The Fund was established under Appropriation Act No. 4, 1991–1992 which was repealed in 1996 and replaced by section 5.5 of the Revolving Funds Act.

The Fund has a continuing non-lapsing authority from Parliament to make payments out of the Consolidated Revenue Fund for the purposes of working capital, capital acquisitions and the temporary financing of accumulated operating deficits, the total of which is not to exceed $35,000,000 at any time.

The Fund received authorization from Treasury Board to access its unused authority for a total amount of up to $10,000,000 to temporarily fund transitory cash elements at year end.

2. Significant accounting policies

These financial statements have been prepared in accordance with the significant accounting policies set out below to comply with the requirement of the Treasury Board of Canada Policy on Special Revenue Spending Authorities and the reporting requirements for revolving funds described by the Receiver General for Canada. The basis of accounting used in these financial statements differs from Canadian public sector accounting standards because:

The significant accounting policies are as follows:

(a) Revenue recognition

Vaccine and drug revenues are recognized using a blended rate established by fixed price contracts and based on the proportion of total goods delivered at year end. Any losses on the fixed price contracts are recognized during the period in which they are identified.

Travel and relocation related services revenue consists of rebates, commissions, and fees and is recognized when services are incurred.

Revenue earned on communication procurement services is recognized using the completed contract method.

(b) Accounts receivable

Accounts receivable are stated at amounts expected to be ultimately realized. An allowance is made on receivables where recovery is considered uncertain.

(c) Expense recognition

All expenses are recorded on an accrual basis.

Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.

(d) Employee future benefits

  1. Pension benefits

    Eligible employees of the Fund participate in the Public Service Pension Plan (the "Plan"), a multiemployer pension plan administered by the Government of Canada. The Fund's contributions to the Plan are charged to expenses in the year incurred and represent the total Fund obligation to the Plan. The Fund'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

    Eligible employees of the Fund are entitled to severance benefits under labour contracts or conditions of employment. These benefits are earned as services necessary to earn them are rendered. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

(e) Sick leave

Employees are permitted to accumulate unused sick leave. However, such leave entitlements may only be used in the event of an illness. As per current government practice, unused sick leave upon employee termination is not payable to the employee. Accordingly, no liability has been accrued in these financial statements. Payments of sick leave benefits are included in current operations as incurred.

(f) Measurement uncertainty

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses reported in the financial statements. At the time of preparation of these financial statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are the liability for vacation pay and compensatory leave and the liability for employee severance benefits. Actual results could significantly differ from those estimates. Management's estimates are reviewed periodically, and as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3. Accounts receivable

(in thousands of dollars)

  2017 2016
Outside parties 5,451 13,109
Other government departments and agencies 887 1,158
Net accounts receivable 6,338 14,267

4. Accounts payable and accrued liabilities

(in thousands of dollars)

  2017 2016
Outside parties 15,128 23,223
Other government departments and agencies 69 32
Subtotal 15,197 23,255
Accrued liabilities 5
Total accounts payable and accrued liabilities 15,197 23,260

5. Employee severance benefits

The Fund provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment. These severance benefits are not pre-funded. Benefits will be paid by future authorities.

Commencing in 2012, as part of collective agreement negotiations with certain employee groups, and changes to conditions of employment for executives and certain non-represented employees, the accumulation of severance benefits under the employee severance pay program ceased for these employees. Employees subject to these changes have been given the option to be immediately paid the full or partial value of benefits earned to date or to collect the full or remaining value of benefits on termination from the public service. These changes have been reflected in the calculation of the outstanding severance benefit obligation.

Information about the severance benefits, measured as at March 31, is as follows:

(in thousands of dollars)

  2017 2016
Employee severance benefit obligation, beginning of year 66 73
Expense for the year (negative 2) 7
Benefits paid during the year (negative 26) (negative 14)
Employee severance benefit obligation, end of year 38 66

6. Net liabilities

The accumulated surplus is the accumulation of each fiscal year's surplus net of deficits since the inception of the Fund.

The accumulated net charge against the Fund's authority (ANCAFA) represents the cumulative receipts and disbursements over the life of the Fund.

(in thousands of dollars)

  2017 2016
Accumulated surplus, beginning of year 7,191 6,848
Net results 1,429 344
Transfer of the transition payments for implementing salary payments in arrears (negative 1)
Accumulated surplus, end of year 8,620 7,191
Accumulated net charge against the Fund's authority, beginning of year (negative 16,165) (negative 13,238)
Net financial resources provided and change in the accumulated net charge against the Fund's authority during the year (negative 1,337) (negative 2,927)
Accumulated net charge against the Fund's authority, end of year (negative 17,502) (negative 16,165)
Net liabilities, end of year (negative 8,882) (negative 8,974)

7. Contractual obligations

The nature of the Fund's activities can result in some large multi-year contracts and obligations whereby the Fund will be obligated to make future payments when the services/goods are received. Estimated future payments are as follows:

(in thousands of dollars)

Year ending March 31
2018 785
2019 702
2020 498
2021
2022 and thereafter
Total contractual obligations 1,985

8. Related party transactions

Through common ownership, the Fund is related to all Government of Canada departments, agencies, and Crown corporations. The Fund enters into transactions with these entities in the normal course of business and on normal trade terms.

9. Comparative figures

Comparative figures have been reclassified to conform to the current year's presentation.

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