2010-708 Administrative Costs Chargeable to Canada Pension Plan Account (Final Report)

October 22, 2010

Auditors' Report

To the Deputy Chief Oversight Officer, Office of Audit and Evaluation
Public Works and Government Services Canada (PWGSC)

We have audited the financial report of Administrative Costs Chargeable to the Canada Pension Plan Account by Public Works and Government Services Canada for the year ended March 31, 2010 in accordance with the Agreement between Public Works and Government Services Canada and Human Resources and Skills Development Canada, formerly Social Development Canada, for the Provision of the Canada Pension Plan and International Agreement, in effect from April 1, 2005 to March 31, 2010. This financial report is the responsibility of Public Works and Government Services Canada management. Our responsibility is to express an opinion on this financial report based on our audit.

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

In our opinion, this financial report presents fairly, in all material respects, the Administrative Costs Chargeable to the Canada Pension Plan Account by Public Works and Government Services Canada for the year ended March 31, 2010 in accordance with the Agreement referred to above, in effect from April 1, 2005 to March 31, 2010.

Signed by PricewaterhouseCoopers LLP

Chartered Accountants, Licensed Public Accountants

Public Works and Government Services Canada

Year ended March 31

Table Summary

This table consists of a list of administrative costs charged by Public Works and Government Services Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2010 and the previous fiscal year ended March 31, 2009 (for comparison) up to the outstanding amounts to be invoiced or be reimbursed to the CPP Account.

FINANCIAL REPORT ON ADMINISTRATIVE COSTS
CHARGEABLE TO THE CANADA PENSION PLAN ACCOUNT
(Rounded to the nearest hundred dollars)

Administrative Costs	2010 $	2009 $	Increase (Decrease) $	%
Direct costs	5,856,800	5,683,200	173,600	3.1%
Data Centre Services costs	4,167,000	4,424,800	(257,800)	-5.8%
Cheque reconciliation costs	1,512,300	1,543,500	(31,200)	-2.0%
Government service costs	299,900	311,000	(11,100)	-3.6%
Accommodation costs	235,700	231,300	4,400	1.9%
Management costs	36,100	37,000	(900)	-2.4%
Total administrative costs	12,107,800	12,230,800	(123,000)	-1.0%
Amount invoiced to the Canada Pension Plan (CPP) account	12,408,900	12,075,500
Outstanding amounts to be invoiced (reimbursed) to the CPP account	(301,100)	155,300

See accompanying notes to the financial report

Approved by
Renée Jolicoeur
Assistant Deputy Minister
Accounting, Banking and Compensation Branch

Approved by
Alex Lakroni
Chief Financial Officer
Finance Branch

Notes to the Financial Report
Analysis of Variances
(Rounded to the nearest hundred dollars)

Year ended March 31

1. INTRODUCTION

An agreement entitled Agreement between Public Works and Government Services Canada and Social Development Canada for the Provision of Canada Pension Plan and International Agreement (the "Agreement") was signed in February 2006 between Public Works and Government Services Canada (PWGSC) and Social Development Canada (SDC), a department which is now part of Human Resources and Skills Development Canada (HRSDC). This Agreement is in effect from April 1, 2005 to March 31, 2010 and is comprised of two parts: part one is the Memorandum of Understanding which sets out the basic principles regarding the services to be provided by PWGSC; and part two is the annual schedules containing the details of the services to be provided during each fiscal year.

2. DIRECT COSTS

Table Summary

This table consists of a list of direct costs charged by Public Works and Government Services Canada to the Canada Pension Plan (CPP) accounts for the current fiscal year ended March 31, 2010 and the previous fiscal year ended March 31, 2009 (for comparison) that are presented in the financial report.

Direct Costs

Direct Costs	2010 $	2009 $	Increase (Decrease) $	%
Postage	3,587,700	3,412,700	175,000	5.1%
Banking fees	1,681,100	1,843,100	(162,000)	-8.8%
Cheques and envelopes	266,600	258,200	8,400	3.3%
Collateral costs	321,400	169,200	152,200	90.0%
Total direct costs	5,856,800	5,683,200	173,600	3.0%

Postage

The net increase in postage costs of $175,000 was the result of an increase in the average rates for postage of $182,300 (from $0.496 to $0.522 for domestic postage and from $0.550 to $0.571 for international postage), which was slightly offset by a reduction in postage volumes of 14,100 units (from 6,885,000 units to 6,870,900 units) for a decrease of $7,300.

Banking fees

The Receiver General (RG) paid banking fees on behalf of HRSDC for charges incurred in the support of customer and non-customer encashment and fees. The charges were based on a unit transaction-banking fee for payments issued by cheque and by direct deposit. Banking fees have decreased by an amount of $162,000 from the prior fiscal year. The volume for Canada Pension Plan (CPP) payments made by cheque decreased by 14,100 units (from 6,885,000 units to 6,870,900 units), and the average banking fee transaction costs for cheques also decreased from $0.1120 to $0.1085 per transaction, resulting in a cost reduction of $25,800. The average banking fee transaction costs for direct deposits also decreased from $0.0243 to $0.0204 per transaction which resulted in a cost decrease of $172,000. This decrease was offset by an increase of $35,800 in costs due to an increase in the number of direct deposit transactions of 1,757,700 units (from 44,078,700 units to 45,836,400 units).

Cheques and envelopes

The total increase of $8,400 in cheque and envelope costs was the result of a decrease in the number of CPP payments made by cheque of 14,100 units for $550 which was then offset by an increase in the price of cheques and envelopes of $8,950.

Collateral costs

Collateral costs were incurred for the transfer of funds between the RG concentrator account set up for HRSDC and the Consolidated Revenue Fund (CRF) at the Bank of Canada, using the Large Value Transfer System (LVTS). For the first eight (8) months of the 2008-2009 fiscal year, these costs were billed on a fixed monthly basis at a rate of $11,000, of which $10,000 pertained to minimum collateral costs and $1,000 to administrative fees. Effective December 2008, the service provider was changed from the Royal Bank of Canada to the Bank of Nova Scotia. The new Contract with the Bank of Nova Scotia was therefore in effect for four (4) months of the 2008-2009 fiscal year and twelve (12) months of the 2009-2010 fiscal year. Under the new Contract, collateral costs were $205 per month, plus an additional variable collateral cost based on the total dollar amount processed using LVTS. This change in the calculation effective December 2008 resulted in an overall increase of $152,200 for collateral costs in 2009-2010.

3. DATA CENTRE SERVICES (DCS) COSTS - INFORMATION TECHNOLOGY SERVICES BRANCH (ITSB)

DCS costs consisted of fees for mainframe application hosting, printing, and disaster recovery services.

Costs appropriated to the CPP for mainframe application hosting services are derived from a user recovery agreement between ITSB at PWGSC and HRSDC. PWGSC's Accounting, Banking and Compensation Branch (ABCB) determines the amount of disaster recovery service costs incurred and attributable to the CPP in support of the Standard Payment System (SPS). ITSB determines the costs appropriated to the CPP for printing services based upon actual volumes.

The overall decrease in DCS costs for 2009-2010 of $257,800 was mainly attributable to a decrease in mainframe application hosting service costs of $203,900 and a decrease in printing costs of $92,000. This decrease was offset by an increase in disaster recovery service costs of $38,100.

4. CHEQUE RECONCILIATION COSTS

Cheque reconciliation costs related to service costs for payment redemptions are directly attributable to CPP payments. The Cheque Redemption Control Directorate (CRCD) provided payment reconciliation and redemption services for CPP payments on behalf of the RG.

In 2009-2010, the cheque reconciliation costs decreased by $31,200 from the prior fiscal year. This net change was due to a decrease of $39,300 in the CRCD salary costs, which was offset by an increase of $8,100 in operating and capital expenditures.

5. GOVERNMENT SERVICE COSTS

Government service costs were expenditures incurred to cover employee benefit plans and health care plans. The net decrease in government service costs of $11,100 was the result of a decrease in both cheque reconciliation salary costs of $39,300 and management costs of $4,000. The decrease in the employee benefits plan rate by 0.5% (from 17.5% to 17.0%) was offset by an equivalent percentage increase in the health care plan rate (from 8.0% to 8.5%) thereby resulting in no additional variance in government service costs for the 2009-2010 fiscal year.

6. ACCOMMODATION COSTS

Accommodation costs were incurred for the space occupied to provide CPP services. The increase in CPP accommodation costs by $4,400 in 2009-2010 was a result of the change in the ratio between CPP payments issued and total paid items processed by CRCD (from 18.93% to 19.29%) which is applied to the total accommodation costs incurred by CRCD. Total accommodation costs incurred by CRCD did not change from the previous fiscal year.

7. MANAGEMENT COSTS

Management costs were incurred for the compilation and preparation of this annual financial report. Management costs comprise of work completed by PWGSC's Cost-Based Management Directorate (CBMD) in the Finance Branch, the Office of Audit and Evaluation (OAE), and external audit costs incurred on behalf of the OAE. The net decrease of $900 in 2009-2010 was attributed to an increase in OAE salary costs of $5,000 offset by a decrease in CBMD salary costs of $5,900.