Correctional Service Canada
Quarterly Financial Report

For the Quarter ended December 31, 2012

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Table of Contents

Introduction

This quarterly report has been prepared by management as required by section 65.1 of the Financial Administration Act and in the form and manner prescribed by the Treasury Board. This quarterly report should be read in conjunction with the Main Estimates, Supplementary Estimates, Quarterly Financial Report as of June 30, 2012 and September 30, 2012 as well as Canada's Economic Action Plan 2012 (Budget 2012). This report has not been subject to an external audit or review.

Correctional Service Canada (CSC), as part of the criminal justice system and respecting the rule of law, contributes to public safety by actively encouraging and assisting offenders to become law-abiding citizens, while exercising reasonable, safe, secure and humane control. It delivers its mandate under four major program activities. A summary description of CSC's program activities can be found in Part II of the Main Estimates.

CSC contributes to public safety by administering court-imposed sentences for offenders sentenced to two years or more. This involves managing institutions of various security levels and supervising offenders on different forms of conditional release, while assisting them to become law-abiding citizens. CSC also administers post-sentence supervision of offenders with Long Term Supervision Orders for up to ten years.

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the CSC's spending authorities granted by Parliament and those used by the department, consistent with the Main Estimates, and Supplementary Estimates A for the 2012-2013 fiscal year, for which full supply was released on June 29, 20121 and Supplementary Estimates B, for which full supply was released on December 14, 20122. This quarterly report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

As part of the Parliamentary business of supply, the Main Estimates must be tabled in Parliament on or before March 1 preceding the new fiscal year. Budget 2012 was tabled in Parliament on March 29, after the tabling of the Main Estimates on February 28, 2012. As a result the measures announced in the Budget 2012 could not be reflected in the 2012-2013 Main Estimates, i.e., these authorities do not take into consideration any effect from the Deficit Reduction Action Plan.

In fiscal year 2012-2013, frozen allotments will be established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In future years, the changes to departmental authorities will be implemented through the Annual Reference Level Update, as approved by Treasury Board, and reflected in the subsequent Main Estimates tabled in Parliament.

The authority of Parliament is required before moneys can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts or through legislation in the form of statutory spending authority for specific purposes.

CSC uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

CSC has an active Revolving Fund (CORCAN) which is included in the statutory votes of the enclosed Statement of Authorities. CORCAN's purpose is to aid in the safe reintegration of offenders into Canadian society by providing employment and training opportunities to offenders incarcerated in federal penitentiaries and, for brief periods of time, after they are released into the community. CORCAN has a continuing non-lapsing authority from Parliament to make payments out of the Consolidated Revenue Fund (CRF) for working capital, capital acquisitions and temporary financing of accumulated operating deficits, the total of which is not to exceed $5.0 million at any time.

Highlights of Fiscal Quarter End and Fiscal Year to Date (YTD) Results

Authorities Analysis

As reflected in the attached Statement of Authorities, as of December 31, 2012, CSC has seen an increase in total authorities of $22.3 million for the current fiscal year compared to the previous fiscal year. This represents a 0.7% increase over the total authorities available as of December 31, 2011. It should be noted that these authorities do not take into consideration any effect from the Deficit Reduction Action Plan.

The following table summarizes the variances in total authorities by vote between December 31, 2011 and December 31, 2012. The items highlighted in yellow represent the variances that occurred in the third quarter of 2012-2013.

(in millions of dollars)
  Operating
(Vote 25)
Capital
(Vote 30)
Budgetary Statutory Authorities Total
Quarterly Financial Report as of June 30, 2012        
Truth in Sentencing Act 171.8 2.4 - 174.2
Tackling Violent Crime Act 3.8 - - 3.8
Budget 2008 4.7 - - 4.7
National Capital, Accommodation and Operations Plan (48.6) - - (48.6)
Shared Services Canada (32.8) (10.5) - (43.3)
Strategic Review (1.6) (39.7) - (41.3)
Reprofiling to future years - (13.3) - (13.3)
Budgetary Statutory Authorities - - 6.3 6.3
Other 1.7 - - 1.7
Quarterly Financial Report as of September 30, 2012        
Operating Budget Carry-forward 3.6 - - 3.6
Capital Budget Carry-forward - 36.7 - 36.7
Reimbursement of personnel costs 4.0 - - 4.0
Disposal of Crown Assets 0.1 - - 0.1
Other (0.1) - - (0.1)
Quarterly Financial Report as of December 31, 2012        
Vote 15 - Collective Agreements 6.3 - - 6.3
Reimbursement of personnel costs (72.3) - - (72.3)
Disposal of Crown Assets (0.2) - - (0.2)
Total 40.4 (24.4) 6.3 22.3

Variances in Authorities as of June 30, 2012

Of the net increase in total authorities reflected in the Statement of Authorities, $174.2 million ($171.8 million in operating funding and $2.4 million in capital funding) was received in relation to the implementation of the Truth in Sentencing Act, and $3.8 million for the Tackling Violent Crime Act, where increases in both individual sentence length and the numbers of federal offenders is expected.

These changes will result in CSC accommodating and supervising an increase in the current offender population. However, it was announced in July 2012 that CSC will be reducing its reference levels by approximately $1.48 billion over the period of 2011-2012 to 2017-2018 given that the forecasted growth in the inmate population did not materialize as originally forecasted. For 2012-2013, the adjustments represent a reduction in operating funding of $258 million and a reduction in capital funding of $8 million. These adjustments have not yet been reflected in CSC's authorities.

As part of the Budget 2008 Integrity Funding from the 2010-2011 Annual Reference Level Update, $4.7 million of the Operating vote was reprofiled from previous years to 2012-2013.

The $48.6 million decrease for the National Capital, Accommodation & Operations Plan relates to offender programs and specific accommodation measures. These measures are based on funding formulae driven by variations in population levels, both incarcerated and in the community, as well as changes to the types of offender.

CSC decreased its reference level by $43.3 million ($32.8 million in operating funding and $10.5 million in capital funding) due to the transfer of some IT responsibilities to Shared Services Canada (SSC). SSC was established by an Order in Council to pool existing resources from across government in order to consolidate and transform IT infrastructure for the Government of Canada.

Funding has been reduced by $41.3 million ($1.6 million in Operating and $39.7 million in Capital) as a result of the 2009 Strategic Review.

There was a $13.3 million decrease in CSC's capital vote reference levels due to reprofiling of capital funds to future years.

The Budgetary Statutory Authority increase of $6.3 million is primarily due to CSC's allocation of the employer's share of the Employee Benefit Plan (EBP).

Variance in Authorities as of September 30, 2012

In September 2012, CSC received notification that the requested Operating Budget Carry-forward of $53.3 million had been transferred. This represents an increase of $3.6 million over the Operating Budget Carry-forward received last year.

CSC received a Capital Budget Carry-forward of $91.1 million, which represents an increase of $36.7 million as compared to the $54.4 million that was received last year.

CSC also received $12.4 million from the Treasury Board to supplement other appropriations for requirements related to parental and maternity allowances, and for entitlements on termination of employment. It represents an increase of $4.0 million over the same period last year.

Variances in Authorities as of December 31, 2012

In the third quarter of 2012-2013, CSC received $6.5 million for Collective Agreement renewals. It represents an increase of $6.3 million over the same period last year.

CSC also received $17.5 million from the Treasury Board to supplement other appropriations for requirements related to parental and maternity allowances, and for entitlements on termination of employment. It represents a decrease of $72.3 million over the same period last year.

Quarterly Expenditures Analysis

Compared to the third quarter of the previous fiscal year, total net budgetary expenditures have decreased by $30.2 million (4.5%), and the total year-to-date expenditures have decreased by $17.4 million (2.6%).

(in millions of dollars)
Departmental Budgetary Expenditures Year To
 Date
Quarter Over Quarter
Total Net Budgetary Expenditures 2011-2012 1,834.1 675.4
Total Net Budgetary Expenditures 2012-2013 1,816.7 645.2
Variance (17.4) (30.2)
Explanation of Variances by Standard Object    
Acquisition of land, buildings and works3 80.2 30.3
Personnel4 (54.6) (30.0)
Transportation and communications4 (17.7) (7.9)
Repair and maintenance4 (12.1) (2.6)
Professional and special services4 (0.9) (16.5)
Other4 (12.3) (3.5)
Total (17.4) (30.2)

Year-To-Date Expenditures Analysis

The overall decrease of $17.4 million is mainly attributable to a decrease in personnel, transportation and communications as well as in repair and maintenance. These decreases were partially reversed by an increase in acquisition of land, buildings and works. The following paragraphs explain the significant variances in detail.

The year-to-date increase of $80.2 million in acquisition of land, buildings and works expenditures is mainly due to the construction of new living units in many of CSC's existing institutions across the country as necessitated by the Truth in Sentencing Act.

The reduction in personnel expenditures of $54.6 million5 reflects the decrease in severance benefits paid over the same period last year.

The reduction of $17.7 million in transportation and communications is attributable to the transfer of the email, network and data centre services to Shared Services Canada ($6.5 million) and to CSC's reductions in travel and relocation expenses as a result of ongoing efforts to reduce these costs ($11.2 million).

The reduction of $12.1 million in repair and maintenance is mainly due to the transfer of the email, network and data centre services to Shared Services Canada as per described in the Significant Changes in Relation to Operations, Personnel and Programs section.

Quarter Over Quarter Expenditures Analysis

To explain the higher reduction of $30.2 million in the quarter over quarter budgetary expenditures, one more factor must be considered in addition of the year-to-date variance explanations provided above.

The decrease of $16.5 million in professional and special services expenditures is mainly due to a modification in the Correctional and Training fee6 invoicing process between CSC and CORCAN that resulted from a difference in the timing of the expenditure. At the end of the second quarter of 2012-2013, CSC had completely paid the Training fee invoice to CORCAN whereas in 2011-2012, CSC had paid monthly the invoice until December 2011.

Spending Trend Analysis

Overall, CSC's trend in annual budgetary expenditures is consistent with 2011-2012. CSC's expenditures in the third quarter of 2012-2013 represented 20.1% of the available authorities compared to 21.2% for the same quarter last year. This spending trend continued for the year-to-date expenditures as 56.6% of the available authorities were used during the first 9 months of 2012-2013, compared to 57.6% for the same period last year.

Risks and Uncertainties

CSC's Report on Plans and Priorities (RPP) identifies the current risk environment and CSC's key risk areas to the achievement of its strategic outcomes. Within this context, specific financial risks relative to the third quarter include the following:

Budget 2010 Cost Containment Measures will require CSC to internally finance, on a permanent basis, the costs of wage increases resulting from current and future collective agreements negotiated between 2010-2011 and 2012-2013. For the current year, CSC will absorb internally an estimated amount of $20.3 million relating to salary increases. 

In addition, collective agreements covering approximately 46% of CSC's workforce have expired (mostly with the Union of Canadian Correctional Officers). New agreements could result in significant financial pressure for CSC.

CSC continues to implement measures to address the budgetary constraints resulting from the Expenditure Restraint Act, including:

  • maintaining staff deployment standards for Correctional Officers and computerized roster systems to ensure efficient staffing levels in federal institutions, resulting in a significant reduction in overtime expenditures;
  • improving integrated human resource and business planning methods to improve the accuracy of forecasts for future staffing, recruitment, and essential training needs;
  • implementing a more focused approach to reducing travel and hospitality expenditures; and,
  • piloting an innovative Integrated Correctional Program Model that will reduce redundancies and overlap between some of the programs offered to offenders, leading to efficiencies in program delivery.

Significant Changes in Relation to Operations, Personnel and Programs

As noted in the last Quarterly Financial Report of 2011-2012, CSC transferred to Shared Services Canada (SSC) the responsibility for providing email, network and data centre services. As a result of this transfer, effective April 1, 2012, CSC's total authorities were permanently reduced by $43.3 million.

Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012 that will be implemented in order to refocus government and programs; make it easier for Canadians and business to deal with their government and, modernize and reduce the back office.

The Correctional Service of Canada (CSC) is doing its part to support the federal government's return to a balanced budget, reduce the deficit, and deliver on its commitments to Canadians.

Budget 2012 announced that CSC will achieve savings of $85.5 million in 2012-2013, $170.2 million in 2013-2014, and ongoing savings of $295.4 million by 2014-2015. The organization will achieve these cost savings by implementing measures to increase offender accountability, achieve administrative efficiencies, streamline operations and program delivery, and close three institutions by 2014-2015 (Kingston Penitentiary and the Regional Treatment Centre in Ontario and Leclerc Institution in Quebec).

CSC has fully achieved its target for 2012-2013. For the next two fiscal years, all initiatives are on track for completion within identified timelines. CSC is actively managing the roll-out of all initiatives through regular and sustained monitoring at the local, regional and national levels, in order to ensure that implementation is proceeding on time, on plan, and on budget.

The initiatives arising from Budget 2012 will further enable CSC to focus resources on the organization's key priorities and core mandate, while at the same time ensuring the organization will continue delivering strong public safety results for Canadians.

Approvals by Senior Officials

Signed by:__________________

Liette Dumas-Sluyter, CMA, CIA
Chief Financial Officer

Signed by:_________________

Don Head, Commissioner
Ottawa, Canada
February 14, 2013


Statement of Authorities (unaudited)
Authorities Fiscal Year 2012-2013 Fiscal Year 2011-2012
(in thousands of dollars) Total available for use for the year ending
March 31, 2013* **
Used during the quarter ended December 31, 2012 Year to date used at quarter-end Total available for use for the year ending
March 31, 20121*
Used during the quarter ended December 31, 20112 Year to date used at quarter-end2

Note 1: Pursuant to section 31.1 of the Financial Administration Act and Order-in-Council P.C. 2011-1297 effective November 15, 2011, $16.4 million is deemed to have been appropriated to Shared Services Canada (SSC) Operating Expenditures and $4.4 million is deemed to have been appropriated to SSC Capital Expenditures, which results in a reduction for the same amount in CSC, Vote 25 (Operating Expenditures) and Vote 30 (Capital Expenditures), Appropriation Act No.1, 2011-2012.

Note 2: Includes amounts incurred on behalf of SSC from the date of transfer of November 15 to December 31, 2011. It is not possible to reasonably estimate the amount of expenditures incurred on behalf of SSC.

More information is available on the following page.

* Includes only Authorities that were available for use and granted by Parliament as of quarter end.

** Total available for use does not reflect measures announced in Budget 2012 or the return of funds ($258 million in operating and $8 million in capital) announced in July 2012.

Vote 25 – Operating Expenditures 2,396,525 465,701 1,384,756 2,356,032 530,394 1,477,558
Vote 30 – Capital Expenditures 547,554 108,579 228,785 571,981 77,969 152,985
             
Budgetary Statutory Authorities            
CORCAN Gross Expenditures 86,633 21,564 58,684 80,460 25,633 64,640
CORCAN Gross Revenues (86,633) (16,422) (52,691) (80,460) (22,709) (53,442)
CORCAN Net Expenditures (Revenues) - 5,142 5,993 - 2,924 11,198
Other Budgetary Statutory Authorities 264,746 65,773 197,142 258,513 64,130 192,329
Total Budgetary Authorities 3,208,825 645,195 1,816,676 3,186,526 675,417 1,834,070
Non-Budgetary Authorities 46 - - 49 1 -
Total Authorities 3,208,871 645,195 1,816,676 3,186,575 675,418 1,834,070

Departmental Budgetary Expenditures by Standard Object (unaudited)
Budgetary
Expenditures
Fiscal Year 2012-2013 Fiscal Year 2011-2012
(in thousands of dollars) Planned expenditures for the year ending
March 31, 2013*
Expended during the quarter ended
December 31, 2012
Year to date used at quarter-end Planned expenditures for the year ending
March 31, 20121
Expended during the quarter ended
December 31, 20112
Year to date used at quarter-end2

Note 1: Pursuant to section 31.1 of the Financial Administration Act and Order-in-Council P.C. 2011-1297 effective November 15, 2011, $16.4 million is deemed to have been appropriated to Shared Services Canada (SSC) Operating Expenditures and $4.4 million is deemed to have been appropriated to SSC Capital Expenditures, which results in a reduction for the same amount in CSC, Vote 25 (Operating Expenditures) and Vote 30 (Capital Expenditures), Appropriation Act No.1, 2011-2012.

Note 2: Includes amounts incurred on behalf of SSC from the date of transfer of November 15 to December 31, 2011. It is not possible to reasonably estimate the amount of expenditures incurred on behalf of SSC.

* Planned expenditures do not reflect measures announced in Budget 2012 or the return of funds ($258 million in operating and $8 million in capital) announced in July 2012.

Expenditures            
Personnel 1,834,739 434,874 1,279,109 1,821,139 464,924 1,333,670
Transportation and communications 73,847 7,403 19,756 74,757 15,334 37,422
Information 2,113 187 513 2,509 471 868
Professional and special services 471,045 65,290 199,612 452,685 81,804 200,476
Rentals 20,496 3,643 9,872 15,307 2,654 8,647
Repair and maintenance 63,199 5,795 12,894 62,138 8,410 24,991
Utilities, materials and supplies 183,094 28,486 76,984 174,620 31,930 81,762
Acquisition of land, buildings and works 394,598 95,723 199,626 371,276 65,422 119,388
Acquisition of machinery and equipment 154,964 8,721 20,854 202,826 13,866 27,722
Transfer payments 1,590 278 556 1,573 514 951
Other subsidies and payments 95,773 11,217 49,591 88,156 12,797 51,615
Total Gross Budgetary Expenditures 3,295,458 661,617 1,869,367 3,266,986 698,126 1,887,512
             
Less Revenues Netted Against Expenditures            
CORCAN (86,633) (16,422) (52,691) (80,460) (22,709) (53,442)
             
Total Net Budgetary Expenditures 3,208,825 645,195 1,816,676 3,186,526 675,417 1,834,070

1 Released through Orders in Council P.C. 2012-0956 and P.C. 2012-0957

2 Released through Orders in Council P.C. 2012-1766

3 These variances mainly explain the increase of CSC's expenditures in Vote 30 (Capital Expenditures) as presented in Statement of Authorities.

4 These variances explain the decrease of CSC's expenditures in Vote 25 (Operating Expenditures) as presented in Statement of Authorities.

5 The total variation in personnel expenditures represents a decrease in salaries and overtime ($59.4 M) and an increase in EBP ($4.8 M).

6 The Correctional and Training fee's purpose is to offset salary and operating costs that cannot be recovered by CORCAN through the sale of goods and services due to the correctional environment in which it operates.