Administrative costs charged to the Canada Pension Plan Account, financial report for fiscal year ended on March 31, 2017

Administrative costs charged to the Canada Pension Plan Account, financial report for fiscal year
ended on March 31, 2017 (PDF, 184KB)

October 11, 2017—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, 2017 (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, 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, 2017, 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 Services and Procurement 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.

Signed by Deloitte LLP
(Limited Liability Partnership)
Chartered Professional Accountants
Licensed Public Accountants

September 27, 2017

Public Services and Procurement Canada

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

The following table consists of a list of administrative costs charged by Public Works and Government Services Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2017 and the previous fiscal year ended March 31, 2016 (for comparison) up to the outstanding amounts to be invoiced or be reimbursed to the CPP Account.

Administrative costs—Fiscal years (that is, the period between April 1, 20XX and March 31, 201X +1)
(Rounded to the nearest hundred dollars)
  2017 2016 Variance %
Direct costs n/a n/a n/a n/a
Postage 1,941,700 2,450,100 (508,400) (21)
Cheques and envelopes 91,300 115,200 (23,900) (21)
Banking fees 2,004,200 1,768,500 235,700 13
Information technology 660,800 686,500 (25,700) (4)
Managed secure file transfer 75,400 70,300 5,100 7
Direct Deposit Initiative 58,500 50,800 7,700 15
Reconciliation 590,400 599,100 (8,700) (2)
Government services 274,300 270,400 3,900 1
Courier services 40,100 43,600 (3,500) (8)
Pay services 220,200 217,300 2,900 1
Total direct costs 5,956,900 6,271,800 (314,900) (5)
Corporate support costs 75,000 90,000 (15,000) (17)
Total administrative costs 6,031,900 6,361.800 (329,900) (5)
Amount invoiced to the Canada Pension Plan (CPP) account (5,922,700) (6,297,200) n/a n/a
Outstanding amount to be invoiced (reimbursed) to the CPP account 109,200 64,600 n/a n/a

Approved by
Alex Lakroni
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 Works and Government Services Canada (PWGSC) was signed in February 2016. The MOU defines the provision of reciprocal services between PWGSC, which operates as Public Services and Procurement Canada (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 $508,400 or 21% compared with the previous year. Domestic cheque volume decreased from 2,674,251 to 2,038,899 cheques and foreign cheque volume decreased from 502,737 to 402,204 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 $562,800. These savings were partially offset by an increase in the average domestic postage rate from $0.72 to $0.74 and in the average foreign postage rate from $1.02 to $1.05, which amounts to $54,400.

The following table consists of a list of postage costs charged by Public Works and Government Services Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2017 and the previous fiscal year ended March 31, 2016 (for comparison) that are presented in the financial report.

Postage costs—Fiscal years
(Rounded to the nearest hundred dollars)
  2017 2016 Variance %
Domestic postage 1,518,300 1,937,300 (419,000) (22)
Foreign postage 423,400 512,800 (89,400) (17)
Total postage 1,941,700 2,450,100 (508,400) (21)

3. Cheques and envelopes

Cheques and envelopes decreased by $23,900 or 21% compared with the 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 $25,100. In addition, shipping costs of cheques and envelopes decreased by $1,300 due to the lower volume of cheques required. These reductions were offset by an increase of $2,500 due to the increase of the unit cost per cheque.

The following table consists of a list of cheques and envelopes costs charged by Public Works and Government Services Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2017 and the previous fiscal year ended March 31, 2016 (for comparison) that are presented in the financial report.

Cheques and envelopes costs—Fiscal years
(Rounded to the nearest hundred dollars)
  2017 2016 Variance %
Domestic 71,600 91,200 (19,600) (22)
Foreign 14,100 17,100 (3,000) (18)
Shipping 5,600 6,900 (1,300) (19)
Total cheques and envelopes 91,300 115,200 (23,900) (21)

4. Banking fees

Banking fees include charges incurred in the support of customer and non-customer encashment and those fees resulting from fraudulent endorsement. The charge is based on two banking fee rates, one for cheques ($0.11483 each) and one for direct deposits ($0.02745 each). These rates are applied against the volume of CPP direct deposits and cheques issued.

Banking fees increased by $235,700 or 13% compared with the previous year. This variance is mainly due to an increase in the number of direct deposit transactions and the associated unit cost, which resulted in increases of $67,300 and $230,300 respectively, for a total of $297,600. This increase was offset by savings in the cheque issuance program; as the number of cheques issued decreased, a savings of $70,600 was generated and offset by a $7,500 due to an increase in the unit cost of cheques. Foreign banking fees also increased slightly by $1,200.

The following table consists of a list of banking fees charged by Public Works and Government Services Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2017 and the previous fiscal year ended March 31, 2016 (for comparison) that are presented in the financial report.

Banking fees—Fiscal years
(Rounded to the nearest hundred dollars)
  2017 2016 Variance %
Domestic direct deposits 1,763,800 1,466,200 297,600 20
Domestic cheques 234,100 297,200 (63,100) (21)
Foreign banking fees 6,300 5,100 1,200 24
Total banking fees 2,004,200 1,768,500 235,700 13

5. Information technology

Information technology (IT) decreased by $25,700 or 4% compared with the previous year. Disaster recovery costs decreased by $8,200 due to the reduction of the applied rate. Disaster recovery is a fixed-cost expense shared by multiple programs.

Printing services decreased by $17,500 overall, mainly due to the fact that PSPC's print centre printed fewer cheques in current year.

The following table consists of a list of information technology costs charged by Public Works and Government Services Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2017 and the previous fiscal year ended March 31, 2016 (for comparison) that are presented in the financial report.

Information technology costs—Fiscal years
(Rounded to the nearest hundred dollars)
  2017 2016 Variance %
Disaster recovery 525,000 533,200 (8,200) (2)
Printing services 135,800 153,300 (17,500) (11)
Total Information technology 660,800 686,500 (25,700) (4)

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 increased by $5,100 or 7% compared with the previous year. This variance is composed of a $2,800 increase related to the unit cost per payment and a $2,300 increase associated with the increase in payment transactions made for the CPP.

The following table consists of a list of managed secure file transfer costs charged by Public Works and Government Services Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2017 and the previous fiscal year ended March 31, 2016 (for comparison) that are presented in the financial report.

Managed secure file transfer costs—Fiscal years
(Rounded to the nearest hundred dollars)
  2017 2016 Variance %
Domestic payments 73,600 68,600 5,000 7
Foreign payments 1,800 1,700 100 6
Total managed secure file transfer 75,400 70,300 5,100 7

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 increased by $7,700 or 15% compared with the previous year. The increase is mainly due to further efforts to reduce paper cheques in favour of direct deposit ($19,700). However, this increase was offset by a decline in the volume of issued cheques, which resulted in savings of $12,000.

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 $8,700 or 2% compared with the previous year. The decrease is mainly due to a reduction in the number of domestic cheques requiring reconciliation (2,038,899 versus 2,674,251 cheques last year). However, this reduction was offset by an increase in the unit cost for cheque reconciliations ($0.1833 versus $0.1465 last year).

The following table consists of a list of reconciliation costs charged by Public Works and Government Services Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2017 and the previous fiscal year ended March 31, 2016 (for comparison) that are presented in the financial report.

Reconciliation costs—Fiscal years
(Rounded to the nearest hundred dollars)
  2017 2016 Variance %
Salaries 436,400 431,600 4,800 1
Operating and maintenance costs 154,000 167,500 (13,500) (8)
Total reconciliation 590,400 559,100 (8,700) (2)

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' Public Service Insurance Plan (PSI).

The Government Services costs of this year are aligned with the cost of the previous year, with a slight increase from 8.7% to 9.3% to the rate applied to PSI.

The following table consists of a list of government services costs charged by Public Works and Government Services Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2017 and the previous fiscal year ended March 31, 2016 (for comparison) that are presented in the financial report.

Government services costs—Fiscal years
(Rounded to the nearest hundred dollars)
  2017 2016 Variance %
Employee Benefit Plan (20%)Footnote * 129,700 129,700 0 0
Accommodation (13%)Footnote * 84,300 84,300 0 0
Public Service Insurance (9.3%)Footnote * 60,300 56,400 3,900 7
Total government services 274,300 270,400 3,900 1

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 $3,500 or 8% compared with the previous year. This is due to a reduction in the number of cheques issued by PSPC, resulting in a decrease of $10,300. This decrease was offset by a $6,800 increase related to the transportation unit cost.

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.

The Pay services costs of this year are aligned with the previous year's costs, with a slight increase of $2,900 or 1%.

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 $15,000 or 17% compared with the previous year, due to the reduction in internal services costs, mostly attributable to the full impact of the CPP cheque standardization.

The following table consists of a list of corporate support costs charged by Public Works and Government Services Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2017 and the previous fiscal year ended March 31, 2016 (for comparison) that are presented in the financial report.

Corporate support costs—Fiscal years
(Rounded to the nearest hundred dollars)
  2017 2016 Variance %
Internal services support 34,300 51,600 (17,300) (34)
Preparation of the financial report  40,700 38,400 2,300 6
Total corporate support 75,000 90,000 (15,000) (17)
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