Public Services and Procurement Canada
Administrative costs charged to the Canada Pension Plan account, financial report for fiscal year ended on March 31, 2019

Administrative costs charged to the Canada Pension Plan account, financial report for fiscal year ended on March 31, 2019 (PDF, 610Ko)

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Independent Auditor's Report

To the Deputy Minister, Public Services and Procurement Canada.

Opinion

We have audited the accompanying financial report on Administrative Costs charged to the Canada Pension Plan account of Public Services and Procurement Canada (PSPC) for the year ended March 31, 2019 and notes to the financial report (collectively referred to as the "financial report").

In our opinion, the accompanying financial report of PSPC as at March 31, 2019 is prepared, in all material respects, in accordance with the financial reporting provisions included 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 (the "memorandum of understanding").

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards (Canadian GAAS). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial report section of our report. We are independent of PSPC in accordance with the ethical requirements that are relevant to our audit of the financial report in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of matter—Basis of accounting

We draw attention to the fact that the financial report has been prepared in accordance with the financial reporting provisions included in Part C of the memorandum of understanding. The financial report has been prepared to assist PSPC to meet the requirements of the memorandum of understanding. As a result, the financial report may not be suitable for another purpose. Our opinion is not modified in respect of this matter.

Responsibilities of management and those charged with governance for the financial report

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

Those charged with governance are responsible for overseeing the PSPC's financial reporting process.

Auditor's responsibilities for the audit of the financial report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.

As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Signed by Deloitte LLP
(Limited Liability Partnership)
Chartered Professional Accountants
Licensed Public Accountants
August 14, 2019

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)
2019 2018 Variance %
Direct costs Not applicable (n/a) n/a n/a n/a
Postage (Note 2) 1,664,700 1,810,800 (146,100) (8)
Cheques and envelopes (Note 3) 72,600 75,100 (2,500) (3)
Banking fees (Note 4) 1,989,900 1,965,700 24,200 1
Information technology (IT) (Note 5) 680,900 684,100 (3,200) (1)
Managed secure file transfer (Note 6) 79,900 78,900 1,000 1
Direct deposit initiative (Note 7) 44,700 59,100 (14,400) (24)
Reconciliation (Note 8) 602,000 635,100 (33,100) (5)
Government services (Note 9) 236,400 262,100 (25,700) (10)
Courier services (Note 10) 32,200 37,700 (5,500) (15)
Pay services (Note 11) 172,800 188,900 (16,100) (9)
Total direct costs 5,576,100 5,797,500 (221,400) (4)
Corporate support costs (Note 12) 74,400 76,400 (2,000) (3)
Total administrative costs 5,650,500 5,873,900 (223,400) (4)
Amount invoiced to the Canada Pension Plan (CPP) account (5,340,400) (6,071,800) n/a n/a
Outstanding amount to be invoiced (reimbursed) to the CPP account 310,100 (197,900) n/a n/a

Approved by Stephanie Kirkland
Assistant Deputy Minister
Pay Administration Branch
Public Services and Procurement Canada

Approved by Jean-Pierre Blais
Assistant Deputy Minister
Receiver General and Pension Branch
Public Services and Procurement Canada

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

Notes to the financial report on administrative costs charged to the Canada Pension Plan account

The following notes to the financial report on administrative costs for the year ended March 31, 2019

Note 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 levels of service, recoverable costs and reporting requirements. The MOU is in effect from April 1, 2015 to March 31, 2020.

Note 2. Postage

Postage costs decreased by $146,100 or 8% compared with the previous year. The domestic postage volume decreased from 1,813,295 to 1,646,277 cheques and foreign postage volume decreased from 393,034 to 340,532. This reduction in volume is attributed mostly to the direct deposit Initiative (DDI) to switch from paper cheques to direct deposit. This decrease in volume resulted in savings of $184,300. These savings were partially offset by an increase in the average domestic postage rate from $0.76 to $0.79 and in the average foreign postage rate from $1.08 to $1.083, which amounts to $38,200.

Postage costs—Fiscal years (rounded to the nearest hundred dollars)
2019 2018 Variance %
Domestic postage 1,296,000 1,386,600 (90,600) (7)
Foreign postage 368,700 424,200 (55,500) (13)
Total postage 1,664,700 1,810,800 (146,100) (8)

Note 3. Cheques and envelopes

Cheque and envelope costs decreased by $2,500 or 3% 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 $6,800. The decrease in volume was partially offset by a rise of the unit cost per cheque and the shipping rate which resulted in an increase of $3,600 and $700 respectively.

Cheques and envelopes costs—Fiscal years (rounded to the nearest hundred dollars)
2019 2018 Variance %
Domestic 54,600 56,800 (2,200) (4)
Foreign 11,300 12,300 (1,000) (8)
Shipping 6,700 6,000 700 12
Total cheques and envelopes 72,600 75,100 (2,500) (3)

Note 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 unit costs, one for cheques ($0.1173 each) and one for direct deposits ($0.0263 each). These rates are applied against the volume of CPP direct deposits and cheques issued.

Banking fees increased by $24,200 or 1% compared with the previous year. This variance is mainly due to higher volume of direct deposit which resulted in an increase of $52,000 partially offset by a decrease in the unit cost associated to direct deposit transactions, which resulted in a decrease of $6,900. The variance is also explained by a decrease in the number of cheques issued. As the number of cheques issued continued to decrease, it generated savings of $19,500 slightly offset by an increase of the unit cost for cheques of $600. Foreign banking fees also decreased by $2,000 as those fees were eliminated with the implementation of a new contract.

Banking fees—Fiscal years (rounded to the nearest hundred dollars)
2019 2018 Variance %
Domestic direct deposits 1,796,700 1,751,600 45,100 3
Domestic cheques 193,200 212,100 (18,900) (9)
Foreign banking fees 0 2,000 (2,000) (100)
Total banking fees 1,989,900 1,965,700 24,200 1

Note 5. Information technology

Information technology (IT) costs decreased by $3,200 or 1% compared with the previous year. Disaster recovery costs increased by $6,100 due to the increase in the CPP payment volume which was partially offset by the reduction of the applied rate. Disaster recovery is an expense shared by multiple programs.

Printing services costs decreased by $9,300 overall, mainly due to the fact that PSPC's print centre printed fewer cheques in the current year, which generated savings of $13,700. This decrease was partially offset by increased costs of $4,400 associated with increased unit costs.

Information technology costs—Fiscal years (rounded to the nearest hundred dollars)
2019 2018 Variance %
Disaster recovery 541,000 534,900 6,100 1
Printing services 139,900 149,200 (9,300) (6)
Total Information technology 680,900 684,100 (3,200) (1)

Note 6. Managed secure file transfer

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

MSFT expenses increased by $1,000 or 1% compared with the previous year. This is mainly due to a $2,000 increase associated with the increase in payment transactions made for the CPP partially offset by a $1,000 decrease related to the unit cost per payment.

Managed secure file transfer costs—Fiscal years (rounded to the nearest hundred dollars)
2019 2018 Variance %
Domestic payments 78,000 77,000 1,000 1
Foreign payments 1,900 1,900 0 0
Total managed secure file transfer 79,900 78,900 1,000 1

Note 7. Direct deposit initiative

The direct deposit initiative (DDI) was introduced following the federal government's announcement to switch from paper cheques to direct deposit. PSPC has invested in communication, system development, information sharing and general operating expenses to promote the switch.

DDI Costs decreased by $14,400 or 24% compared with the previous year. The decrease is due to a reduction in the rate per unit, which generated savings of $9,000, as well as a decline in the volume of cheques issued, which also resulted in savings of $5,400.

Note 8. Reconciliation

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

Reconciliation costs decreased by $33,100 or 5% compared with the previous year. This is mainly due to a reduction in the number of domestic cheques requiring reconciliation (1,813,295 to 1,646,277 cheques), as well as, a reduction of the salary unit cost for direct deposits reconciliations. However, this reduction was partially offset by an increase in the unit cost for cheque reconciliations ($0.2228 to $0.2306) as a result of a reduction in the number of cheques issued by PSPC for all programs.

Reconciliation costs—Fiscal years (rounded to the nearest hundred dollars)
2019 2018 Variance %
Salaries 440,000 481,700 (41,700) (9)
Operating and maintenance costs 162,000 153,400 8,600 6
Total reconciliation 602,000 635,100 (33,100) (5)

Note 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 decreased by $25,700 or 10% compared with the previous year. The decrease is due to a reduction from 15.7% to 15.2% to the rate applied to the Employee Benefit Plan, a reduction of the Public Service Insurance Plan rate (9.2% in 2018), and an overall slight decrease in salary expenses charged to CPP mainly from reconciliation costs.

Government services costs—Fiscal years (rounded to the nearest hundred dollars)
2019 2018 Variance %
Employee Benefit Plan (15.2%)—Treasury Board rates 97,900 108,600 (10,700) (10)
Accommodation (13%)—Treasury Board rates 83,700 89,900 (6,200) (7)
Public Service Insurance Plan (8.5%)—Treasury Board rates 54,800 63,600 (8,800) (14)
Total government services 236,400 262,100 (25,700) (10)

Note 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 PSPC's Cheque Redemption Control Directorate for reconciliation.

Courier services costs decreased by $5,500 or 15% compared with the previous year. This decrease is due to a reduction in the number of cheques issued by PSPC, resulting in a decrease of $3,500, as well as a $2,000 decrease related to the transportation unit cost.

Note 11. Pay services

Pay service costs are the costs incurred by PSPC in providing pay-related services to employees who administer the CPP within ESDC/Service Canada. Pay service 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 service costs decreased by $16,100 or 9%. This decrease is due to the reduction in the average cost per pay as a result of a reduction in salary costs and operating and maintenance costs recoverable from CPP.

Pay services costs—Fiscal years (rounded to the nearest hundred dollars)
2019 2018 Variance %
Salaries 153,600 154,600 (1,000) (1)
Operating and maintenance costs 19,200 34,300 (15,100) (44)
Total pay services 172,800 188,900 (16,100) (9)

Note 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 $2,000 or 3% compared with the previous year. This is mainly attributable to the decrease in costs to prepare the financial report, which is attributed to reduced salary costs from internal audit to manage the independent third party annual audit.

Corporate support costs—Fiscal years (rounded to the nearest hundred dollars)
2019 2018 Variance %
Internal services support 40,500 40,900 (400) (1)
Preparation of the financial report 33,900 35,500 (1,600) (5)
Total corporate support 74,400 76,400 (2,000) (3)
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