Audited Financial Statements 2005-2006

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Office of the Privacy Commissioner of Canada

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Statement of Management Responsibility

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2006 and all information contained in these statements rests with the management of the Office of the Privacy Commissioner of Canada. These financial statements have been prepared by management in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector, and year-end instructions issued by the Office of the Comptroller General.

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 the Office’s financial transactions. Financial information submitted to the Public Accounts of Canada and included in the Office’s Departmental Performance Report is consistent with these financial statements.

Management maintains a system of financial management and internal control designed to provide reasonable assurance that financial information is reliable, that the Office’s assets are safeguarded and that transactions are in accordance with the Financial Administration Act, are executed in accordance with prescribed regulations, within Parliamentary authorities, and are properly recorded to maintain accountability of Government funds. Management also seeks to ensure the objectivity and integrity of data in its financial statements by 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 regulations, policies, standards and managerial authorities are understood throughout the Office.

The financial statements of the Office of the Privacy Commissioner of Canada have been audited by the Auditor General of Canada, the independent auditor for the Government of Canada.

Ottawa, Canada
July 21, 2006

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Auditor's Report

To the Speaker of the House of Commons and the Speaker of the Senate

I have audited the statement of financial position of the Office of the Privacy Commissioner of Canada as March 31, 2006 and the statements of operations, equity of Canada and cash flow for the year then ended. These financial statements are the responsibility of the Office’s management. My responsibility is to express an opinion on these financial statements based on my audit.

I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amount and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In my opinion, these financial statements present fairly, in all material respects, the financial position of the Office as at march 31, 2006 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

Further, in my opinion, the transactions of the Office that have come to my notice during my audit of the financial statements have, in all significant respects, been in accordance with the Financial Administration Act regulations and the Privacy Act.

Ottawa, Canada
July 21, 2006

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Statement of Financial Position

Office of the Privacy Commissioner of Canada

(in thousands of dollars)		2006	2005
Assets
	Financial assets
	Petty cash advances	–	2
	Due from the Consolidated Revenue Fund	1,597	1,983
	Accounts receivable (Note 4)	48	295
	Total financial assets	1,645	2,280
	Non-financial assets
	Prepaid expenses	47	25
	Tangible capital assets (Note 5)	810	905
	Total non-financial assets	857	930
Total		2,502	3,210
Liabilities
	Accounts payable and accrued liabilities	1,413	1,738
	Accrued employee salaries	246	409
	Vacation pay and compensatory leave	370	360
	Employee severance benefits (Note 6 )	1,282	1,280
	Total liabilities	3,311	3,787
Equity of Canada		(809)	(577)
Total		2,502	3,210
Contingent liabilities (Note 7 )
Contractual obligations (Note 8 )
The accompanying notes form an integral part of these financial statements.

Approved by:

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Statement of Operations

Office of the Privacy Commissioner of Canada

(in thousands of dollars)
			2006				2005
			Assess and Investigate	Privacy Education	Research and Policy	Total	Total
Operating Expenses
	Salaries and employee benefits		5,518	1,290	1,385	8,193	8,449
	Professional and special services		1,371	675	351	2,397	1,960
	Accommodation		557	73	103	733	704
	Transportation and communications		277	126	80	483	389
	Amortization		280	37	51	368	337
	Information		22	142	4	168	180
	Repairs and maintenance		119	16	22	157	223
	Utilities, materials and supplies		73	17	16	106	116
	Rentals		54	15	10	79	40
	Machinery and equipment		41	10	8	59	194
	Other		3	–	1	4	2
Total Operating Expenses			8,315	2,401	2,031	12,747	12,594
Transfer Payments			–	–	154	154	318
Net cost of operations			8,315	2,401	2,185	12,901	12,912
The accompanying notes form an integral part of these financial statements.

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Statement of Equity of Canada

Office of the Privacy Commissioner of Canada

(in thousands of dollars)
	2006	2005
Equity of Canada, beginning of the year	(577)	(744)
Net cost of operations	(12,901)	(12,912)
Net cash provided by Government	11,680	10,195
Change in Due from Consolidated Revenue Fund	(386)	1,474
Services received without charge from other government departments (Note 9)	1,375	1,410
Equity of Canada, end of the year	(809)	(577)
The accompanying notes form an integral part of these financial statements.

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Statement of Cash Flow

Office of the Privacy Commissioner of Canada

(in thousands of dollars)
			2006		2005
Operating activities
Net cost of operations			12,901		12,912
Non-cash items
		Amortization of tangible capital assets	(368)		(337)
		Services received without charge (Note 9)	(1,375)		(1,410)
Variations in Statement of Financial Position:
		Increase (decrease) in accounts receivable and advances	(249)		42
		Increase (decrease) in prepaid expenses	22		(27)
		Decrease (increase) in liabilities	476		(1,429)
Cash used by operating activities			11,407		9,751
Capital investment activities
Acquisition of tangible capital assets			273		444
Net cash provided by Government of Canada			11,680		10,195
The accompanying notes form an integral part of these financial statements.

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Notes to the Financial Statements

Office of the Privacy Commissioner of Canada

1. Authority and Objectives

The Office of the Privacy Commissioner of Canada (the Office), was created under the Privacy Act, which came into force on July 1, 1983. The Privacy Commissioner is an independent officer of Parliament appointed by the Governor-in-Council following approval of her nomination by resolution of the Senate and the House of Commons. The Office is designated, by Order-in-Council, as a department for purposes of the Financial Administration Act. As such, it is established under the authority of Schedule I.1 of the Act and is funded through annual appropriations. The Commissioner is accountable for, and reports directly to Parliament on the results achieved.

The objectives of the Office of the Privacy Commissioner of Canada are:

• investigating complaints and conducting audits;
• publishing information about personal information-handling practices in the public and private sector;
• conducting research into privacy issues; and
• promoting awareness and understanding of privacy issues by the Canadian public.

2. Summary of Significant Accounting Policies

These financial statements have been prepared in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector, and year-end instructions issued by the Office of the Comptroller General.

Significant accounting policies are as follows:

1. Due from the Consolidated Revenue Fund

   Due from the Consolidated Revenue Fund (CRF) represents the amount of cash that the Office is entitled to draw from the Consolidated Revenue Fund without further appropriations, in order to discharge its liabilities.

2. Parliamentary appropriations

   The Office of the Privacy Commissioner of Canada is financed by the Government of Canada through Parliamentary appropriations. Appropriations provided to the Office do not parallel financial reporting according to generally accepted accounting principles since appropriations are primarily based on cash flow requirements. Consequently, items recognized in the statement of operations and the statement of financial position are not necessarily the same as those provided through appropriations from Parliament. Note 3 provides a high-level reconciliation between the bases of reporting.

3. Net cash provided by Government

   The Office operates within the Consolidated Revenue Fund, which is administered by the Receiver General for Canada. All cash received by the Office is deposited to the CRF and all cash disbursements made by the Office are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments of the federal government.

4. Expenses

   Expenses are recorded on the accrual basis:

   • Contributions are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement.
   • Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment.
   • Services received without charge from other government departments are recorded as operating expenses at their estimated cost.
5. Employee future benefits

   (i) Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multi-employer pension plan administered by the Government of Canada. The Office’s contributions to the Plan are charged to expenses in the year incurred and represent the total obligation of the Office to the Plan. Current legislation does not require the Office to make contributions for any actuarial deficiencies of the Plan.
   (ii) Severance benefits: Employees are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. 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.

6. Accounts receivable

   Accounts receivable are stated at amounts expected to be ultimately realized. A provision is made for receivables where recovery is considered uncertain.

7. Contingent liabilities

   Contingent liabilities are potential liabilities which may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

8. Tangible capital assets

   All tangible capital assets and leasehold improvements having an initial cost of $2,500 or more are recorded at their acquisition cost. The capitalization of software and leasehold improvements has been done on a prospective basis from April 1, 2001.

   The amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the asset as follows:

   Tangible capital asset class	Amortization period
   Informatics hardware	3 years
   Computer software	3 years
   Other equipment	10 years
   Motor vehicles	10 years
   Leasehold improvements	Term of the lease

9. Measurement uncertainty

   The preparation of these financial statements in accordance with Treasury Board accounting policies, which are consistent with Canadian generally accepted accounting principles for the public sector, and year-end instructions issued by the Office of the Comptroller General, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, the liability for employee severance 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.

3. Parliamentary Appropriations

The Office receives most of its funding through annual Parliamentary appropriations. Items recognized in the statement of operations and the statement of financial position in one year may be funded through Parliamentary appropriations in prior, current or future years. Accordingly, the Office 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 appropriations used:

(in thousands of dollars)		2006	2005
Net cost of operations		12,901	12,912
Adjustments for items affecting net cost of operations but not affecting appropriations Add (Less):
	Services received without charge	(1,375)	(1,410)
	Amortization of tangible capital assets	(368)	(337)
	Revenue not available for spending	122	–
	Vacation pay and compensatory leave	(10)	7
	Employee severance benefits	(2)	(42)
Sub-Total		11,268	11,130
Adjustments for items not affecting net cost of operations but affecting appropriations Add (Less):
	Acquisition of tangible capital assets	273	444
	Change in prepaid expenses	22	(27)
	Other adjustments	68	(7)
Sub-Total		363	410
Total appropriations used		11,631	11,540

b) Appropriations provided and used:

(in thousands of dollars)		2006	2005
	Vote 45 - Program expenditures	10,744	10, 881
	Statutory contributions to employee benefit plans	1,163	1,189
		11,907	12,070
Less:
	Lapsed appropriations: Operating	(276)	(530)
Current year appropriations used		11,631	11,540

c) Reconciliation of net cash provided by Government to current year appropriations used:

(in thousands of dollars)		2006	2005
Net cash provided by Government		11,680	10,195
Revenue not available for spending		122	–
Variation in accounts receivable and advances		249	(42)
Variation in accounts payable and accrued liabilities		(325)	1,214
Variation in accrued employee salaries		(163)	180
Other adjustments		68	(7)
		(171)	1,345
Current year appropriations used		11,631	11,540

4. Accounts Receivable

The following table presents details of accounts receivable:

(in thousands of dollars)	2006	2005
Receivables from other Federal Government departments and agencies	–	261
Receivables from external parties	48	34
Total	48	295

5. Tangible Capital Assets

(in thousands of dollars)

	Informatics hardware	Computer software	Other equipment	Motor vehicles	Leasehold improvements	Total
Opening Cost	931	317	515	24	73	1,860
Acquisitions	198	48	4	–	23	273
Disposals	–	–	–	–	–	–
Closing Cost	1,129	365	519	24	96	2,133
Opening Accumulated Amortization	564	129	232	12	18	955
Disposals	–	–	–	–	–	–
Current Year Amortization	193	106	48	2	19	368
Closing Accumulated Amortization	757	235	280	14	37	1,323
Net Book Value 2006	372	130	239	10	59	810
Net Book Value 2005	367	188	283	12	55	905

Amortization expense for the year ended March 31, 2006 is $368,000 (2005 — $337,000).

6. Employee Benefits

a) Pension benefits: The Office’s employees participate in the Public Service Pension 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 Plans benefits and they are indexed to inflation.

Both the employees and the department contribute to the cost of the Plan. The 2005-06 expense amounts to $860,000 ($872,000 in 2004-05), which represents approximately 2.4 times the contributions by employees.

The Office’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.

b) Severance benefits: The Office provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future appropriations. Information about the severance benefits, measured as at March 31, is as follows:

(in thousands of dollars)		2006	2005
	Accrued benefit obligation, beginning of the year	1,280	1,238
	Expense for the year	131	94
	Benefits paid during the year	(129)	(52)
	Accrued benefit obligation, end of the year	1,282	1,280

7. Contingent Liabilities

Claims and litigation – Claims have been made against the Office in the normal course of operations. Legal proceedings for claims totaling approximately $50,000 were still pending at March 31, 2006. Some of these potential liabilities may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded in the financial statements.

8. Contractual Obligations

The nature of the Office’s activities can result in some large multi-year contracts and obligations whereby the department will be obligated to make future payments when the services/goods are received. Significant contractual obligations that can be reasonably estimated consist of operating leases, which are summarized as follows:

(in thousands of dollars)	Total
2006-2007	41
2007-2008	36
2008-2009	27
2009-2010	27
2010-2011	4
Total	135

9. Related Party Transactions

The Office is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The Office enters into transactions with these entities in the normal course of business and on normal trade terms. During the year, the Office expensed $2,659,314 ($3,382,383 in 2005) from transactions with other government departments, agencies and Crown corporations. These expenses include services received without charge in the amount of $1,375,000 ($1,410,000 in 2005), as presented in part (a).

a) Services received without charge:

During the year, the Office received without charge from other departments, accommodation, the employer’s contribution to the health and dental insurance plans, payroll services, and audit services. These services without charge have been recognized in the Office’s Statement of Operations as follows:

(in thousands of dollars)	2006	2005
Accommodations provided by Public Works and Government Services Canada	733	704
Contributions covering employer's share of employees' insurance premiums and expenditures paid by Treasury Board Secretariat	529	528
Payroll services provided by Public Works and Government Services Canada	3	3
Audit services provided by the Office of the Auditor General of Canada	110	175
Total	1,375	1,410

b) Payables and receivables outstanding at year-end with related parties:

(in thousands of dollars)	2006	2005
Accounts receivable with other government departments and agencies	–	261
Accounts payable to other government departments and agencies	468	421

10. Equity of Canada

The Equity of Canada, which is currently in a deficit position, represents liabilities incurred by the Office, net of capital tangible assets, which have not yet been funded through appropriations. Significant components of this amount are employee severance benefits and vacation pay liabilities. These amounts are expected to be funded by appropriations in future years as they are paid.

11. Comparative Information

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