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OSFI Annual Report 2018-2019

Financial Statements

Statement of Management Responsibility Including Internal Control over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2019 and all information contained in these statements rests with the management of the Office of the Superintendent of Financial Institutions (OSFI). These financial statements have been prepared by management in accordance with Public Sector Accounting Standards.

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 OSFI’s financial transactions.

Management is also responsible for maintaining an effective system of internal control over financial reporting designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislation, regulations, authorities and policies.

Management seeks to ensure the objectivity and integrity of data in its financial statements through careful selection, training, and development of qualified staff; through an organizational structure that provides appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards, and managerial authorities are understood throughout OSFI; and through conducting an annual assessment of the effectiveness of the system of internal control over financial reporting.

The system of internal control over financial reporting is designed to mitigate risks to a reasonable level based on an ongoing process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.

Under the responsibility of the Chief Financial Officer, an assessment for the year ended March 31, 2019 was completed in accordance with the Treasury Board Policy on Financial Management and the results and action plan are summarized in the annex.

The effectiveness and adequacy of OSFI’s system of internal control is reviewed by the internal audit staff, who conduct periodic risk based audits of different areas of OSFI’s operations, and by OSFI’s Audit Committee, which oversees management’s responsibilities for maintaining adequate control systems and the quality of financial reporting, and which reviews and provides advice to the Superintendent on the audited financial statements.

Deloitte LLP has audited the financial statements of OSFI and reports on their audit to the Minister of Finance. This report does not include an audit opinion on the annual assessment of the effectiveness of OSFI’s internal controls over financial reporting.

Michele Bridges, CPA, CGA
Chief Financial Officer

Jeremy Rudin
Superintendent of Financial Institutions

Ottawa, Canada
June 27, 2019

Office of the Superintendent of Financial Institutions

STATEMENT OF FINANCIAL POSITION

As at March 31, 2019 (in thousands of Canadian dollars)

Note(s) March 31,
2019
March 31,
2018
Financial assets
Cash entitlement $ 45,942 $ 50,749
Trade and other receivables, net 3, 4 4,458 4,522
Accrued base assessments 3 4,643 3,564
Total financial assets 55,043 58,835
Financial liabilities
Accrued salaries and benefits 10 25,308 30,281
Trade and other payables 4,10 4,582 3,396
Unearned base assessments 10 561 1,165
Unearned pension plan assessments 10 1,228 2,280
Deferred revenue 176 126
Employee benefits – severance 6 5,090 5,185
Employee benefits – sick leave 6 8,023 7,474
Total financial liabilities 44,968 49,907
Net financial assets 10,075 8,928
Non-financial assets
Tangible capital assets 5 13,953 15,564
Prepaid expenses 1,652 1,188
Total non-financial assets 15,605 16,752
Accumulated surplus 11 $ 25,680 $ 25,680

The accompanying notes form an integral part of these financial statements.

  • Michele Bridges, CPA, CGA
  • Chief Financial Officer
  • Jeremy Rudin
  • Superintendent of Financial Institutions

STATEMENT OF OPERATIONS

For the year ended March 31, 2019 (in thousands of Canadian dollars)

Note(s) Budget
2018-19
2019 2018
Regulation and supervision of federally regulated financial institutions
Revenue $ 147,665 $ 154,691 $ 141,867
Expenses 147,665 154,691 141,867
Net results before administrative monetary penalties revenue - - -
Administrative monetary penalties revenue 8 - 21 121
Administrative monetary penalties revenue earned on behalf of the Government - (21) (121)
Net results - - -
Regulation and supervision of federally regulated private pension plans
Revenue 7,128 6,664 7,193
Expenses 7,128 6,664 7,193
Net results - - -
Actuarial valuation and advisory services
Revenue 8,262 7,692 7,259
Expenses 9,207 9,003 8,204
Net results (945) (1,311) (945)
Net results from operations before government funding (945) (1,311) (945)
Government funding 4 945 1,311 945
Surplus from operations $ - $ - $ -

The accompanying notes form an integral part of these financial statements.

STATEMENT OF CHANGES IN NET FINANCIAL ASSETS

For the year ended March 31, 2019 (in thousands of Canadian dollars)

Note(s) Budget
2018-19
2019 2018
Surplus from operations $ - $ - $ -
Tangible capital assets
Acquisition of tangible capital assets 5 (5,344) (3,235) (3,551)
Amortization of tangible capital assets 5 4,986 4,846 5,175
(358) 1,611 1,624
Non-financial assets
Change in prepaid expenses - (464) 54
Increase/(decrease) in net financial assets (358) 1,147 1,678
Net financial assets, beginning of the year 8,928 8,928 7,250
Net financial assets, end of the year $ 8,570 $ 10,075 $ 8,928

The accompanying notes form an integral part of these financial statements.

STATEMENT OF CASH FLOW

For the year ended March 31, 2019 (in thousands of Canadian dollars)

Note(s) 2019 2018
Operating activities
Cash receipts from financial institutions, pension plans and other
government entities
$ 171,669 $ 167,742
Cash paid to suppliers and employees (173,220) (160,164)
Administrative monetary penalties revenue
remitted to the consolidated revenue fund
8 (21) (121)
Net cash (used in) provided by operating activities (1,572) 7,457
Capital activities
Acquisition of tangible capital assets 5 (3,235) (3,551)
Net cash used in capital activities (3,235) (3,551)
Net (decrease) increase in cash entitlement (4,807) 3,906
Cash entitlement, beginning of the year 50,749 46,843
Cash entitlement, end of the year $ 45,942 $ 50,749

The accompanying notes form an integral part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended March 31, 2019 (in thousands of Canadian dollars)

1. AUTHORITY AND OBJECTIVES

The Office of the Superintendent of Financial Institutions (OSFI) was established by the Office of the Superintendent of Financial Institutions Act (OSFI Act) in 1987. Pursuant to the Financial Administration Act (FAA), OSFI is a division of the Government of Canada for the purposes of that Act and is listed in schedule I.1 of the Act. The Government of Canada is OSFI’s parent and the ultimate controlling party of OSFI.

OSFI’s mandate is:

Fostering sound risk management and governance practices

OSFI advances a regulatory framework designed to control and manage risk.

Supervision and early intervention

OSFI supervises federally regulated financial institutions and pension plans to determine whether they are in sound financial condition and meeting regulatory and supervisory requirements.

OSFI promptly advises financial institutions and pension plans if there are material deficiencies, and takes corrective measures or requires that they be taken to expeditiously address the situation.

Environmental scanning linked to safety and soundness of financial institutions

OSFI monitors and evaluates system-wide or sectoral developments that may have a negative impact on the financial condition of federally regulated financial institutions.

Taking a balanced approach

OSFI acts to protect the rights and interests of depositors, policyholders, financial institution creditors and pension plan beneficiaries while having due regard for the need to allow financial institutions to compete effectively and take reasonable risks.

OSFI recognizes that management, boards of directors and pension plan administrators are ultimately responsible for risk decisions and that financial institutions can fail and pension plans can experience financial difficulties resulting in the loss of benefits.

In fulfilling its mandate, OSFI supports the government’s objective of contributing to public confidence in the Canadian financial system.

The Office of the Chief Actuary provides a range of actuarial valuation and advisory services, under the Canada Pension Plan Act and the Public Pensions Reporting Act to the Canada Pension Plan (CPP) and some federal government departments, including the provision of advice in the form of reports tabled in Parliament.

Revenue and spending authority

Pursuant to Section 17 of the OSFI Act, the Minister of Finance may spend any revenues collected under Sections 23 and 23.1 of the OSFI Act to defray the expenses associated with the operation of OSFI. The Act also establishes a ceiling for expenses at $40 million above the amount of revenue collected to be drawn from the Consolidated Revenue Fund of Canada (CRF).

OSFI’s revenues comprise assessments, service charges and fees. The expenses against which assessments may be charged include those in connection with the administration of the Bank Act, the Cooperative Credit Associations Act, the Green Shield Canada Act, the Insurance Companies Act, the Protection of Residential Mortgage or Hypothecary Insurance Act and the Trust and Loan Companies Act. The formula for the calculation of assessments is included in regulations.

Subsections 23(1.1) and 23(5) of the OSFI Act provide that assessments may be charged for the administration of the Pension Benefits Standards Act, 1985 (PBSA, 1985) and the Pooled Registered Pension Plans Act. The assessments for the administration of pension plans subject to the PBSA are set annually in accordance with the Assessment of Pension Plans Regulations.

Section 23.1 of the OSFI Act provides that the Superintendent may assess against a person a prescribed charge (service charge) and applicable disbursements for any service provided by or on behalf of the Superintendent for the person’s benefit or the benefit of a group of persons of which the person is a member. “Person” includes individuals, corporations, funds, unincorporated associations, Her Majesty in Right of Canada or of a province, and a foreign government. The service charges are detailed in the regulations.

Pursuant to Section 16 of the OSFI Act, Parliament has provided annual appropriations to support the operations of the Office of the Chief Actuary (OCA).

2. SIGNIFICANT ACCOUNTING POLICIES

The financial statements of OSFI have been prepared in accordance with Canadian Public Sector Accounting Standards (PSAS) as issued by the Public Sector Accounting Board (PSAB). The accounting policies used in the financial statements are based on the PSAS applicable as at March 31, 2019. The policies set out below are consistently applied to all periods presented.

The significant accounting policies of OSFI are set out below:

  • Cash entitlement (Cash overdraft)

    OSFI does not have its own bank account. The financial transactions of OSFI are processed through the CRF. Cash entitlement represents the maximum amount OSFI is entitled to withdraw from the CRF without further authority.

    OSFI has a statutory revolving expenditure authority pursuant to Section 17.4 of the OSFI Act. This authority enables OSFI to draw up to $40 million from the CRF to ensure availability of funds prior to receipt of revenue. Drawings on this facility are presented as cash overdraft.

    No interest is earned or charged on these amounts.

  • Financial instruments

    The classification of financial instruments at either fair value or amortized cost is determined by OSFI at initial recognition and depends on the purpose for which the financial assets were acquired, or liabilities were incurred. All financial instruments are recognized initially at fair value. The fair value of financial instruments on initial recognition is based on the transaction price, which represents the fair value of the consideration given or received. Subsequent to initial recognition, financial instruments are measured based on the accounting treatment corresponding to their classification.

    Classification Accounting Treatment
    Cash entitlement

    Cash entitlement shall be measured at fair value.

    Gains and losses arising from changes in the fair value of a cash entitlement shall be recorded in Net results from operations before government funding in OSFI’s Statement of Operations.

    Trade and other receivables and Accrued base assessments

    Trade and other receivables and Accrued base assessments are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

    Subsequent to initial recognition at fair value, Trade and other receivables and Accrued base assessments are measured at amortized cost using the effective interest method, less impairment, if any. Any gain, loss or interest income is recorded in revenue or expenses depending on the nature of the receivables that gave rise to the gain, loss or income.

    Financial liabilities Accrued salaries and benefits, Trade and other payables excluding employer’s contributions for employee benefit plans, Unearned base assessments, and Unearned pension plan assessments are measured at amortized cost using the effective interest method. Any gain, loss or interest expense is recorded in revenue or expenses depending on the nature of the financial liability that gave rise to the gain, loss or expense.
  • Impairment of financial assets

    OSFI assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

    For financial assets carried at amortized cost, OSFI first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If OSFI determines that there is objective evidence of impairment for an individual financial asset it must be assessed for impairment either individually, or in a group of financial assets with similar credit risk characteristics. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has occurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. The impairment assessment must be based on the best estimates available in light of past events, current conditions, and taking into account all circumstances known at the date of the preparation of the financial statements. If a future write-off is later recovered, the recovery is credited to the Statement of Operations.

  • Tangible capital assets

    Tangible capital assets are stated at historical cost, net of accumulated amortization and/or accumulated impairment losses, if any. Historical cost includes the costs of replacing parts of property and equipment when incurred, if the recognition criteria are met. Repair and maintenance costs are recognized in the Statement of Operations as incurred.

    Amortization is recorded using the straight-line method over the estimated useful lives of the assets as follows:

    Assets Useful life
    Leasehold improvements Lesser of useful life or remaining term of the lease
    Furniture and fixtures 7 years
    Office equipment 4 years
    Informatics hardware 3 to 5 years
    Informatics software 5 to 8 years

    Internally developed and externally purchased software are capitalized as tangible capital assets. Software acquired separately is measured on initial recognition at cost. The cost of internally developed software consists of directly attributable costs necessary to create, produce, and prepare the software to be capable of operating in the manner intended by OSFI. Amortization of the assets begins when development is complete and the assets are available for use. Costs incurred during the pre-development or post-implementation stages are expensed in the period incurred.

    The assets’ residual values, useful lives and methods of amortization are reviewed at each financial year end and adjusted prospectively, if appropriate.

  • Impairment of non-financial assets

    OSFI assesses at each reporting date whether there are any internal indicators that an asset may be impaired (e.g., damaged assets or assets no longer being used). If any indication exists, or when annual impairment testing for an asset is required, OSFI estimates the asset’s recoverable amount.

    OSFI assesses at each reporting date whether there is any objective evidence that an asset may be impaired. When a non-financial asset no longer contributes to OSFI’s ability to provide goods and services, or the value of future economic benefits associated with the non-financial asset is less than its net book value, the cost of the non-financial asset is reduced to reflect the decline in the asset’s value. Any writedowns are reflected in the Statement of Operations in the period the decline is recognized.

    OSFI assesses internally developed software not yet in use for impairment on an annual basis.

  • Employee benefits

    Short-term benefits are recorded in the Statement of Operations when an employee has rendered the service. Unpaid short-term compensated leave that has vested at the reporting date is accrued at the reporting date and not discounted. OSFI contributes to the Government of Canada sponsored Public Service Health Care Plan and Dental Service Plan for employees. These contributions represent the total obligation of OSFI with respect to these plans.

    Pension benefits

    Substantially all of the employees of OSFI are covered by the public service pension plan (the Plan), a contributory defined benefit plan established through legislation and sponsored by the Government of Canada. Contributions are required by both the employees and OSFI to cover current service cost. Pursuant to legislation currently in place, OSFI has no legal or constructive obligation to pay further contributions with respect to any past service or funding deficiencies of the Plan. Consequently, contributions are recognized as an expense in the year when employees have rendered service and represent the total pension obligation of OSFI.

    Severance

    On termination of employment, employees are entitled to certain benefits provided for under their conditions of employment through a severance benefits plan. The cost of these benefits is accrued as the employees render their services necessary to earn severance benefits. The severance benefits are based upon the final salary of the employee.

    The projected accrued benefit obligation is determined using an accrued benefit method which incorporates management’s best estimate of salary, retirement age and discount rate.

    Other benefits

    The Government of Canada sponsors a variety of other benefit plans from which former employees may benefit upon retirement. The Public Service Health Care Plan and the Pensioners’ Dental Service Plan are the two major plans available to OSFI retirees. These are defined benefit plans sponsored by the Government of Canada. Contributions are required by OSFI to cover current service cost. Pursuant to legislation currently in place, OSFI has no legal or constructive obligation to pay further contributions with respect to any past service or funding deficiencies of the Plan. Consequently, contributions are recognized as an expense in the year when employees have rendered service and represent the total obligation of OSFI with respect to these plans.

    Sick leave

    Employees are eligible to accumulate sick leave until retirement or termination. Unused sick leave is not eligible for payment on retirement or termination, nor can it be used as vacation. All sick leave is an accumulating non-vesting benefit. A liability is recorded for sick leave balances expected to be taken in excess of future allotments.

    The cost of sick leave as well as the present value of the obligation is determined using an actuarial valuation.

  • Leases

    Leases in which a significant portion of the risks and rewards of ownership related to the leased property are substantially retained by the lessor shall be accounted for as operating leases. OSFI records the costs associated with operating leases in the Statement of Operations in the period in which they are incurred. Any lease incentives received from the lessor are charged to the Statement of Operations on a straight-line basis over the period of the lease.

    OSFI does not have borrowing authority and therefore cannot enter into lease agreements that are classified as leased tangible assets. OSFI has established procedures to review all lease agreements and identify if the proposed terms and conditions would result in a transfer to OSFI of substantially all the benefits and risks incidental to ownership.

  • Statement of Operations

    The format of the Statement of Operations has been designed to show the revenues and expenses by each of OSFI’s business lines. It is considered that this format best represents the nature of the activities of OSFI. Expenses have been disclosed by nature in Note 7 of these financial statements.

  • Revenue recognition

    OSFI recognizes revenue so as to recover its expenses. Any amounts that have been billed for which costs have not been incurred are classified as unearned on the statement of financial position. Revenue is recorded in the accounting period in which it is earned (service provided) whether or not it has been billed or collected. At the end of the period, amounts may have been collected in advance of the incurrence of costs or provision of services, or alternatively, amounts may not have been collected and are owed to OSFI.

    Base assessments - Revenue from base assessments is recognized based on actual costs incurred as services are charged based on cost recovery and all costs are considered recoverable. Base assessments are billed annually based on an estimate of the current fiscal year’s operating costs (an interim assessment) together with a final accounting of the previous year’s assessment for actual costs incurred. Assessments are calculated prior to December 31 of each year, in accordance with Section 23(1) of the OSFI Act and the Assessment of Financial Institutions Regulations, 2017. Differences between billed estimates and actual costs incurred at the end of the period are recorded as accrued base assessments or unearned base assessments.

    Pension plan assessments are earned from registered pension plans. Assessment rates are set annually by regulation based on budgeted expenses, pension plan membership and actual results from previous years. Pension plan assessments are charged in accordance with Section 23(1.1) and 23(5) of the OSFI Act. Revenue from pension plan assessments is recognized based on actual costs incurred as services are charged based on cost recovery and all costs are considered recoverable. Differences between the amounts billed to industry and actual costs incurred at the end of the period are recorded as accrued pension plan assessments or unearned pension plan assessments.

    User fees and charges include revenue earned pursuant to the Charges for Services Provided by the Office of the Superintendent of Financial Institutions Regulations, 2002 – as amended from time to time – in respect of legislative approvals and approvals for supervisory purposes, and surcharges assessed to federally regulated financial institutions assigned a “stage” rating pursuant to the Guide to Intervention for Federal Financial Institutions. Assessment surcharges are charged in accordance with the Assessment of Financial Institutions Regulations, 2017. Revenue from user fees and charges is recognized by reference to the stage of completion of the service. Percentage of completion is measured based on actual services performed to date as a percentage of total services to be completed.

    Administrative monetary penalties are penalties levied to financial institutions when they contravene a provision of a financial institutions Act and are charged in accordance with the Administrative Monetary Penalties (OSFI) Regulations. Penalties levied are not available to reduce the net costs that OSFI assesses the industry (i.e., they are non-respendable) and are remitted to the CRF when collected. OSFI assesses its Administrative monetary penalties revenue against specific criteria in order to determine if it is acting as principal or agent. OSFI has concluded that it is acting as a principal for Administrative monetary penalty revenue.

    Cost-recovered services represent revenue earned from sources other than those listed above. These services are provided in accordance with the terms and conditions agreed to by the transacting parties. Revenue from cost recovered services is recognized based on actual costs incurred, and all costs are considered recoverable. Revenue and the matching expenses from cost-recovered services not specifically related to the Regulation and supervision of federally regulated pension plans or Actuarial valuation and advisory services are grouped with the Regulation and supervision of federally regulated financial institutions on the Statement of Operations. This includes costs recovered from other government entities such as the Canada Mortgage and Housing Corporation for OSFI’s supervisory oversight in accordance with the National Housing Act.

  • Government funding

    Government funding, including parliamentary appropriations, is recognized in the period that the appropriation was authorized, and any eligibility criteria met. Parliamentary appropriations for operating purposes are considered to be without stipulations restricting their use and are recognized as revenue when the appropriations are authorized.

  • Contingent liabilities

    Contingent liabilities are potential liabilities, which may become 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.

  • Budget figures

    The 2018-2019 budget is reflected in the Statement of Operations and the Statement of Changes in Net Financial Assets as approved by OSFI’s Executive Committee.

  • Significant judgments, estimates and assumptions

    The preparation of OSFI’s financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability, in which case the impact will be recognized in the financial statements of a future fiscal period.

    In the process of applying its accounting policies, management has made the following judgments that have the most significant effect on the amounts recognized in the financial statements:

    • Recognition of internally developed software;
    • Lease classification;
    • Administrative monetary penalties revenue – OSFI as principal;
    • Estimated useful lives of tangible capital assets;
    • Actuarial assumptions used to value sick leave and severance obligations;
    • Likelihood of occurrence for contingent liabilities; and,
    • Estimates for the allowance for doubtful accounts.

3. TRADE AND OTHER RECEIVABLES

The breakdown of all amounts owing to OSFI, by type, is as follows:

Federally regulated financial institutions Federally regulated private pension plans Actuarial valuation and advisory services Other Total March 31, 2019
Trade receivables $ 36 $ 316 $ - $ 154 $ 506
User fees and charges 1,713 - - - 1,713
Cost-recovered services and other - - - 2,512 2,512
Trade and other receivables, gross 1,749 316 - 2,666 4,731
Allowance for doubtful accounts (2) (271) - - (273)
Trade and other receivables, net 1,747 45 - 2,666 4,458
Accrued base assessments 4,643 - - - 4,643
Total $ 6,390 $ 45 $ - $ 2,666 $ 9,101
% of Total exposure 70.2 % 0.5 % - % 29.3 % 100.0 %
Federally regulated financial institutions Federally regulated private pension plans Actuarial valuation and advisory services Other Total March 31, 2018
Trade receivables $ 212 $ 305 $ - $ 62 $ 579
User fees and charges 1,334 - - - 1,334
Cost-recovered services and other 13 - 14 2,874 2,901
Trade and other receivables, gross 1,559 305 14 2,936 4,814
Allowance for doubtful accounts (35) (257) - - (292)
Trade and other receivables, net 1,524 48 14 2,936 4,522
Accrued base assessments 3,564 - - - 3,564
Total $ 5,088 $ 48 $ 14 $ 2,936 $ 8,086
% of Total exposure 62.9 % 0.6 % 0.2 % 36.3 % 100.0 %

The majority of OSFI’s revenue is comprised of assessments which are invoiced once a year, usually in the second quarter. As a result, trade receivable balances will vary significantly during the year and may also vary from year to year depending on the timing of the invoicing.

OSFI records an allowance for doubtful accounts considering the age of an outstanding receivable and the likelihood of its collection. An allowance for doubtful accounts is also made where collection of the receivable is doubtful based on information gathered through collection efforts. An allowance is reversed once collection of the debt is successful or the amount is written off. Impairment losses on trade and other receivables recognized during the year ended March 31, 2019 were $87 (March 31, 2018 - $115). Recoveries during the same period totaled $95 (March 31, 2018 - $81).

A receivable will be considered to be impaired and written off when OSFI is certain that collection will not occur and all requirements of the OSFI Act or the Debt Write-Off Regulations, 1994 have been met. A total of $11 was written off during the year ended March 31, 2019 (March 31, 2018 - $4). During the period, no interest was earned on impaired assets and none of the past due amounts were renegotiated. Those that are neither past due nor provided for or impaired are considered to be fully collectible.

The aging of trade receivables was as follows:

Days outstanding Current 31-60 61-90 91-120 > 120 Total
March 31, 2019 $ 183 $ 18 $ 1 $ - $ 304 $ 506
March 31, 2018 $ 235 $ 1 $ 13 $ 9 $ 321 $ 579

Refer to Note 10 b) for further information on credit risk applicable to OSFI.

4. RELATED PARTY TRANSACTIONS

OSFI is related, in terms of common ownership, to all Government of Canada departments, agencies and crown corporations. OSFI enters into transactions with these entities in the normal course of business and on normal trade terms. These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

During the year ended March 31, 2019, OSFI purchased goods and services for $38,356 (2018 - $36,419) and earned revenue of $10,641 (2018 - $10,938) from transactions with other government entities. Although most transactions are not individually significant, OSFI did have the following individually significant transactions:

Entity Nature 2019
Expenditure
2019
Payable
2018
Expenditure
2018
Payable
Treasury Board Secretariat Pension contributions, other employee benefits and other services $ 24,639 $ 1,752 $ 22,613 $ 845
Public Services and Procurement Canada Rent and other services $ 10,722 $ 672 $ 10,639 $ 75
Entity Nature 2019
Revenue
2019
Receivable/(Payable)
2018
Revenue
2018
Receivable
Employment and Social Development Canada Actuarial valuation and advisory services $ 4,242 $ (63) $ 4,002 $ 14
Canada Mortgage and Housing Corporation Cost recovered services $ 2,162 $ 2,162 $ 2,419 $ 2,419

As at March 31, 2019, the amount of trade and other receivables and trade and other payables from these related parties was $2,301 (March 31, 2018 - $2,612) and $2,746 (March 31, 2018 - $1,237), respectively.

OSFI receives an annual parliamentary appropriation pursuant to Section 16 of the OSFI Act to support its mandate relating to the OCA. In the year ended March 31, 2019 OSFI was granted $1,311 (2018 - $945) which was recognized into net results and shown on the Statement of Operations. There are no unfulfilled conditions or contingencies attached to this appropriation.

5. TANGIBLE CAPITAL ASSETS

March 31, 2019
Cost
March 31,
2018
Acquisitions Transfer to
"in use"
Disposals March 31,
2019
Leasehold improvements $ 15,059 $ 612 $ - $ - $ 15,671
Furniture and fixtures 5,212 - - (1,926) 3,286
Office equipment 2,488 237 - (660) 2,065
Informatics hardware 6,143 1,297 - (2,081) 5,359
Externally purchased software 650 117 - (304) 463
Internally developed software 19,864 - 116 (285) 19,695
Internally developed software
under development
112 972 (116) - 968
Total $ 49,528 $ 3,235 $ - $ (5,256) $ 47,507
Accumulated amortization March 31,
2018
Amortization Disposals March 31,
2019
Leasehold improvements $ 12,079 $ 787 $ - $ - $ 12,866
Furniture and fixtures 4,702 195 - (1,926) 2,971
Office equipment 1,802 305 - (660) 1,447
Informatics hardware 3,237 1,027 - (2,081) 2,183
Externally purchased software 426 113 - (304) 235
Internally developed software 11,718 2,419 - (285) 13,852
Total $ 33,964 $ 4,846 $ - $ (5,256) $ 33,554
Net book value $ 15,564 $ - $ - $ - $ 13,953
March 31, 2018
Cost
March 31,
2017
Acquisitions Transfer to
"in use"
Disposals March 31,
2018
Leasehold improvements $ 14,121 $ 938 $ - $ - $ 15,059
Furniture and fixtures 5,485 8 - (281) 5,212
Office equipment 2,206 295 - (13) 2,488
Informatics hardware 4,627 2,037 - (521) 6,143
Externally purchased software 3,153 6 - (2,509) 650
Internally developed software 19,859 - 171 (166) 19,864
Internally developed software
under development
16 267 (171) - 112
Total $ 49,467 $ 3,551 $ - $ (3,490) $ 49,528
Accumulated amortization March 31,
2017
Amortization Disposals March 31,
2018
Leasehold improvements $ 11,351 $ 728 $ - $ - $ 12,079
Furniture and fixtures 4,768 215 - (281) 4,702
Office equipment 1,474 341 - (13) 1,802
Informatics hardware 3,003 755 - (521) 3,237
Externally purchased software 2,815 120 - (2,509) 426
Internally developed software 8,868 3,016 - (166) 11,718
Total $ 32,279 $ 5,175 $ - $ (3,490) $ 33,964
Net book value $ 17,188 $ - $ - $ - $ 15,564

None of the assets held have any restriction on title and none of the assets have been pledged as security for liabilities. The internally developed software under development was assessed for impairment at March 31, 2019 and no impairment was recognized. As at March 31, 2019, OSFI had $20,635 of tangible capital assets at cost that were fully amortized and still in use. These assets are near the end of their useful life and are scheduled to be replaced. Their fair value is insignificant.

6. EMPLOYEE BENEFITS

  • Post-employment benefits
    • Pension benefits

      Substantially all of the employees of OSFI are covered by the public service pension plan (the Plan), a contributory defined benefit plan established through legislation and sponsored by the Government of Canada. Contributions are required by both the employees and OSFI. The President of the Treasury Board of Canada sets the required employer contributions based on a multiple of the employees’ required contribution. The general contribution rate effective as at March 31, 2019 was 10.427% (2018 - 9.905%). Total contributions of $10,777 (2018 - $9,268) were recognized as expense in the year ended March 31, 2019.

      The Government of Canada holds a statutory obligation for the payment of benefits relating to the Plan. Pension benefits generally accrue up to a maximum period of 35 years at an annual rate of 2 percent of pensionable service times the average of the best five consecutive years of earnings. The benefits are coordinated with Canada/Québec Pension Plan benefits and they are indexed to inflation.

    • Severance benefits

      OSFI used to administer a severance benefits plan for its employees. On termination of employment, eligible employees were entitled to certain benefits provided for under their conditions of employment based on their years of service. The plan was substantially curtailed in 2013 and employees no longer accumulate years of service. OSFI’s remaining liability in regards to this plan relates primarily to employees who chose to defer receipt of their entitlement until departure. Current service benefits costs relate to the cost of involuntary departures.

      Information about OSFI’s severance benefit plan is presented in the table below.

      March 31,
      2019
      March 31,
      2018
      Accrued benefit obligation, beginning of the year $ 5,186 $ 5,601
      Current service cost 147 137
      Interest cost 107 130
      Benefits used (389) (477)
      Actuarial (gain)/loss 553 (205)
      Accrued benefit obligation, end of the yearFootnote 1 5,604 5,186
      Unamortized net actuarial loss (514) (1)
      Accrued benefit liability 5,090 5,185
      Net benefit plan cost - severance
      Current service cost $ 147 $ 137
      Interest cost 107 130
      Amortization of actuarial loss 39 -
      Benefit cost $ 293 $ 267

      The most recent actuarial valuation for severance benefits was completed by an independent actuary as at March 31, 2019. OSFI measures its accrued benefit obligation for accounting purposes as at March 31 of each year.

      The significant actuarial assumption adopted in measuring OSFI’s accrued benefit obligation is a discount rate of 1.75% (2018 - 2.12%). For measurement purposes, management’s best estimate for the general salary increases to estimate the current service cost and the accrued benefit obligation as at March 31, 2019 is an annual economic increase of 2.0% for the plan year 2020 (2018 - 1.0% for the plan year 2019). Thereafter, an annual economic increase of 1.5% is assumed (2018 - 1.0%). The average remaining service period of active employees covered by the benefit plan is 14 years (2018 - 14 years).

  • Other long-term benefits
    • Sick leave

      Information about OSFI’s sick leave plan is presented in the table below.

      March 31,
      2019
      March 31,
      2018
      Accrued benefit obligation, beginning of the year $ 8,202 $ 8,243
      Current service cost 897 909
      Interest cost 179 204
      Benefits used (708) (366)
      Actuarial (gain)/loss 1,759 (788)
      Accrued benefit obligation, end of the yearFootnote 1 10,329 8,202
      Unamortized net actuarial loss (2,306) (728)
      Accrued benefit liability 8,023 7,474
      Net benefit plan cost - sick leave
      Current service cost $ 897 $ 909
      Interest cost 179 204
      Amortization of actuarial loss 182 58
      Benefit cost $ 1,258 $ 1,171

      The most recent actuarial valuation for sick leave benefits was completed by an independent actuary as at March 31, 2019. OSFI measures its accrued benefit obligation for accounting purposes as at March 31 of each year.

      The significant actuarial assumption adopted in measuring OSFI’s accrued benefit obligation is a discount rate of 1.80% (2018 - 2.16%). For measurement purposes, management’s best estimate for the general salary increases to estimate the current service cost and the accrued benefit obligation as at March 31, 2019 is an annual economic increase of 2.0% for the plan year 2020 (2018 - 1.0% for the plan year 2019). Thereafter, an annual economic increase of 1.5% is assumed (2018 - 1.0%). The average remaining service period of active employees covered by the benefit plan is 14 years (2018 - 14 years).

7. REVENUE AND EXPENSES BY MAJOR CLASSIFICATION

Budget for the year ending
March 31, 2019
March 31,
2019
March 31,
2018
Revenue
Base assessments $ 142,903 $ 149,684 $ 136,983
Cost-recovered services 11,108 10,283 10,309
Pension plan assessments 7,128 6,664 7,193
User fees and charges 1,916 2,416 1,834
Total revenue earned from
respendable sources
163,055 169,047 156,319
Expenses
Personnel 122,723 129,057 117,707
Professional services 15,194 15,603 14,446
Rental 12,068 11,737 11,383
Amortization 4,986 4,846 5,175
Travel 3,678 3,309 2,998
Machinery and equipment 1,126 1,889 1,717
Information 1,442 1,542 1,479
Communications 1,250 1,113 1,140
Repairs and maintenance 1,300 948 797
Materials and supplies 176 301 330
Other 57 13 92
Total expenses 164,000 170,358 157,264
Net results of operations before government
funding and non-respendable administrative
monetary penalties revenue
(945) (1,311) (945)
Government funding 945 1,311 945
Administrative monetary penalties revenue - 21 121
Administrative monetary penalties earned on behalf
of the government
- (21) (121)
Surplus (deficit) from operations $ - $ - $ -
Average number of employees 748 741 695
Personnel expenses
Wages and salaries $ 95,891 $ 101,401 $ 91,647
Other benefits 15,777 16,532 16,082
Post-employment benefits other than severance 10,543 10,777 9,268
Severance benefits 257 293 267
Other personnel costs 255 54 443
Total $ 122,723 $ 129,057 $ 117,707

8. ADMINISTRATIVE MONETARY PENALTIES

Administrative monetary penalties levied by OSFI are remitted to the CRF. The funds are not available for use by OSFI and are not included in the balance of the Cash entitlement. As a result, the penalties do not reduce the amount that OSFI assesses the industry in respect of its operating costs. Refer to Note 2 i) for further information on OSFI’s accounting policy as it relates to administrative monetary penalty revenue.

In the year ended March 31, 2019, OSFI levied $21 (2018 - $121) in administrative monetary penalties.

9. OPERATING LEASE ARRANGEMENTS

OSFI has entered into operating lease agreements for office space and office equipment in four locations across Canada. The minimum aggregate annual payments for future fiscal years are as follows:

As at
March 31,
2019
March 31, 2020 $ 9,779
March 31, 2021 10,129
March 31, 2022 9,977
March 31, 2023 8,527
March 31, 2024 7,129
Thereafter 41,830
Total $ 87,371

10. FINANCIAL RISK MANAGEMENT

OSFI’s financial liabilities include Accrued salaries and benefits, Trade and other payables, Unearned base assessments and Unearned pension plan assessments. The main purpose of these liabilities is to provide short-term financing for OSFI’s operations. Financial assets include Cash entitlement, Trade and other receivables, and Accrued base assessments.

OSFI is exposed to market risk, credit risk and liquidity risk in connection with its financial instruments. OSFI’s risk exposures and its processes to manage these risks did not change significantly during the year ended March 31, 2019.

  • Market risk

    Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity risk. OSFI is exposed to currency risk on any amounts payable that are to be settled in a currency other than the Canadian dollar but is not exposed to interest rate risk nor to other price risk.

    Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. OSFI’s exposure to the risk of changes in foreign exchange rates relates primarily to OSFI’s operating activities (when expenses are denominated in a currency other than the Canadian dollar).

    OSFI manages its exposure to currency risk by structuring its contracts in Canadian dollars wherever possible. The majority of OSFI’s transactions presented were denominated in Canadian dollars; as such, OSFI’s exposure to currency risk for all periods presented is insignificant.

    There is no impact to revenues since all billings are in Canadian dollars.

  • Credit risk

    Credit risk is the risk that the counterparty will not meet its obligations under a financial instrument, resulting in a financial loss. The maximum exposure OSFI has to credit risk as at March 31, 2019 is $9,101 (March 31, 2018 - $8,086) which is equal to the carrying value of its Trade and other receivables and Accrued base assessments.

    All federally regulated financial institutions and federally regulated private pension plans are required to register with OSFI and pay the assessments as established by OSFI. Any loss incurred by OSFI as a result of a counterparty not meeting its obligations is recorded in the year incurred and collected in the following year through assessments to the industry to which the balance pertains, as outlined in the OSFI Act. All remaining receivables are with other Canadian federal and provincial government organizations, where there is minimal potential risk of loss. OSFI does not hold collateral as security.

  • Liquidity risk

    Liquidity risk is the risk that OSFI will encounter difficulty in meeting its obligations associated with current and future financial liabilities. OSFI’s objective is to maintain sufficient Cash entitlement through its collection of base assessments, cost-recovered services and other fees and charges in order to meet its operating requirements. OSFI manages liquidity risk through detailed annual planning and billing processes that are structured to allow for sufficient liquidity from one billing period to the next. OSFI’s objective is to accurately estimate its operating costs and cash requirements for the current year and to recover these through its interim base assessments, fees and other sources of revenue.

    OSFI’s policy is to satisfy liabilities by the following means (in decreasing order of priority):

    • Disbursing payments from its Cash entitlement account; and,
    • Drawing on its revolving expenditure authority, pursuant to Section 17.4 of the OSFI Act.

    Drawings on this facility were $Nil as at March 31, 2019 (2018 - $Nil).

    Refer to Note 1 for further information on OSFI’s authority and Note 2 a) for further information on the accounting policies for its revolving spending authority.

The table below summarizes the maturity profile of OSFI’s financial liabilities as at March 31, 2019 and March 31, 2018 based on contractual undiscounted payments. When the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which OSFI can be required to pay. When amounts are due in installments, each installment is allocated to the earliest period in which OSFI can be required to pay.

On
demand
Less than
3 months
3 to 12
months
1 to 5
years
Greater
than 5
years
March 31,
2019
Total
Accrued salaries & benefits $ 6,710 $ 18,598 $ - $ - $ - $ 25,308
Trade and other payables - 4,582 - - - 4,582
Unearned base assessments - - 561 - - 561
Unearned pension plan assessments - 178 641 409 - 1,228
Total $ 6,710 $ 23,358 $ 1,202 $ 409 $ - $ 31,679
On
demand
Less than
3 months
3 to 12
months
1 to 5
years
Greater
than 5
years
March 31,
2018
Total
Accrued salaries & benefits $ 5,770 $ 17,061 $ 7,450 $ - $ - $ 30,281
Trade and other payables - 3,396 - - - 3,396
Unearned base assessments - - 1,165 - - 1,165
Unearned pension plan assessments - 119 355 1,740 66 2,280
Total $ 5,770 $ 20,576 $ 8,970 $ 1,740 $ 66 $ 37,122

Unearned pension plan assessments represent the accumulation of in-year surplus or deficit against assessments collected. These are in turn paid or collected over a period of five years commencing one year from the year in which they were established. OSFI does not charge nor pay interest to the various pension plans over the five years.

11. ACCUMULATED SURPLUS

March 31, 2019 March 31, 2018
Contributed surplus $ 28,327 $ 28,327
Accumulated deficit (2,647) (2,647)
Accumulated surplus $ 25,680 $ 25,680

OSFI was established on July 2, 1987 by the OSFI Act. OSFI was created through the merger of its two predecessor agencies – the Department of Insurance and the Office of the Inspector General of Banks. To help fund OSFI’s first year of operations and establish a pool of working capital necessary to support its annual assessment and expenditure cycle, OSFI was credited with the assessments that recovered the costs of its predecessors for the previous fiscal year. This amount is reflected as contributed surplus.

The accumulated deficit was created as part of OSFI’s transition to accrual accounting under Canadian Generally Accepted Accounting Principles (GAAP) in fiscal 2000-2001. The transition to GAAP accounts for $789 of the balance. On April 1, 2010, OSFI transitioned to International Financial Reporting Standards (IFRS) from GAAP which increased the accumulated deficit by $2,170. The balance as at March 31, 2011 increased by an additional $380 as a result of the operations for the year ended March 31, 2011 as determined under IFRS. On April 1, 2017, OSFI ceased to report in accordance with IFRS and adopted PSAS. These new standards were adopted with retrospective restatement, and therefore the 2017 comparative figures were restated. The balance at March 31, 2017 decreased by $692 as a result of the restatement of operations for the year ended March 31, 2017, leaving a balance of $2,647 as at March 31, 2019.

Annex to the Statement of Management Responsibility including Internal Control over Financial Reporting

(Unaudited)

Fiscal Year 2018-2019

1. Introduction

This document provides summary information on the measures taken by the Office of the Superintendent of Financial Institutions (OSFI) to maintain an effective system of internal control over financial reporting (ICFR) including information on internal control management, assessment results and related action plans.

Detailed information on OSFI’s authority, mandate and program activities are available in the Departmental Results Report and the Departmental Plan.

2. Departmental system of internal control over financial reporting

2.1 Internal Control Management

OSFI has a well-established governance and accountability structure to support the assessment efforts and oversight of its system of internal control. An internal control management framework, approved by the Superintendent, is in place that includes:

  • Organizational accountability structures as they relate to internal control management to support sound financial management, including roles and responsibilities for senior managers in their areas of responsibility;
  • Values and ethics;
  • On-going communication and training on statutory requirements, policies and procedures for sound financial management and control; and,
  • Monitoring and regular updates on internal control management, as well as the provision of related assessment results and action plans to the Operating Committee and the Audit Committee.

The Audit Committee provides advice to the Superintendent on the adequacy and functioning of the agency’s risk management, control and governance frameworks and processes.

2.2 Service Arrangements Relevant to Financial Statements

2.2.1 Reliance on other federal government organizations

OSFI relies on other organizations for the processing of certain transactions that are recorded in its financial statements. Information concerning the ICFR of other organizations that OSFI relies on can be found on their respective websites.

Common Arrangements

  • Public Services and Procurement Canada (PSPC) centrally administers the payments of salaries, the shared travel system (STS) and the procurement of certain types of goods and services falling outside OSFI’s contracting delegation of authority.
  • Shared Services Canada (SSC) administers the procurement of certain goods related to information management and information technology falling outside OSFI’s contracting delegation of authority.
  • The Department of Justice provides legal services to OSFI.
  • Treasury Board Secretariat (TBS) provides OSFI with information used to calculate various accruals, such as employee benefits rate.

Specific Arrangements

  • TBS provides OSFI with corporate financial systems and system support. The services relate to the support of the SAP financial system platform for capturing all financial transactions and the Cognos Business Intelligence Tool for reporting. As the service provider, TBS is responsible for ensuring that IT–general controls over the SAP environment are designed and operating effectively. As the client, OSFI retains responsibility over certain IT–general controls over the SAP environment, such as user access controls and segregation of duties.
2.2.2 Services that other organizations rely upon

Specific Arrangements

  • OSFI provides financial services for the calculation of assessments revenue and actuarial services to the Financial Consumer Agency of Canada (FCAC).

3. OSFI’s assessment results during fiscal year 2018-2019

During fall 2018, OSFI updated its Five-Year Risk Based Plan for the Assessment, Remediation and Ongoing Monitoring of Internal Controls over Financial Reporting. The plan covers the five-year period from April 1, 2019 to March 31, 2024.

The key findings and significant adjustments required from the current year’s assessment activities are summarized below.

New or significantly amended key controls – In the current year, there were no significantly amended key controls in existing processes that required a reassessment. There were only minor changes to the design process for five of OSFI’s key business processes.

On-going monitoring program – As part of its rotational ongoing monitoring plan, OSFI completed its assessment of financial controls within the following eight key business processes: Accounts Payable, Accounts Receivable, Procurement & Contracting, Month-end/Year-end accruals, Payroll, Quarter-end/Year-end disclosures, Revenue – Base Assessments and Revenue – Pension Plan Assessments. Key controls were reviewed, tested, and found to be operating effectively as designed, with remedial actions required in two processes.

An assessment of the design effectiveness of entity level controls (ELCs) was completed during the fiscal year. Consistent with the five-year risk based monitoring plan in effect, OSFI also completed its operating effectiveness testing of ELCs. Overall, they were found to be adequately designed and operating effectively.

IT General Controls (ITGCs) over the SAP financial system are shared between OSFI and TBS. OSFI completed the operating effectiveness assessment of controls under its responsibility while TBS completed a Reporting on Controls at a Service Organization (commonly called the Canadian Standard on Assurance Engagements (CSAE) 3416) audit over the design and operating effectiveness of the SAP system, which benefits all members of the cluster. TBS reports on the findings of this audit in its Annex to the Statement of Management Responsibility including Internal Control over Financial Reporting.

4. OSFI’s action plan

4.1 Progress during the fiscal year 2018-2019

OSFI conducted its on-going monitoring of ICFR according to its Five-Year Risk Based Plan for the Assessment, Remediation and Ongoing Monitoring of Internal Controls over Financial Reporting as follows:

Monitoring results for 2018-2019 Status
Entity Level Controls Completed as planned and no remedial actions required
IT General Controls Completed as planned and no remedial actions required
Accounts Payable – invoice and payments Completed as planned and no remedial actions required
Accounts Receivable – cash receipts Completed as planned and no remedial actions required
Procurement and Contracting Completed as planned and remedial actions required
Month-end/Year-end Accruals Completed as planned and no remedial actions required
Quarter-end/Year-end note disclosures Completed as planned and no remedial actions required
Payroll Completed as planned and remedial actions required
Revenue – Base Assessments Completed as planned and no remedial actions required
Revenue – Pension Plan Assessments Completed as planned and no remedial actions required

4.2 Action plan for the next fiscal year and subsequent years

OSFI’s updated Five-Year Risk Based Plan for the Assessment, Remediation and Ongoing Monitoring of Internal Controls over Financial Reporting covers the on-going monitoring activities for the period of April 1, 2019 to March 31, 2024. The on-going plan for monitoring internal controls is as follows.

Key Control Area 2019-2020 2020-2021 2021-2022 2022-2023 2023-2024
Entity level controls
IT general controls
Accounts Payable and Payments
Accounts Receivable and Cash Receipts
Budgeting and Forecasting
Procurement & Contracting
Month-end/Quarter-end Accruals
Quarter-end/Year-end Note Disclosures
Payroll
Revenue – Base Assessments
Revenue – Pension Plan Assessments
Revenue – Cost Recovered Services
Revenue – Other
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