Quarterly Financial Report, For the Quarter ended June 30, 2013

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, 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 2013-2014 fiscal year, for which full supply was released on June 20, 2013^{Footnote 1}. 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 did not take into consideration any effect from the Deficit Reduction Action Plan.

In fiscal year 2012-2013, frozen allotments were established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In 2013-2014, the changes to departmental authorities were reflected in the 2013-2014 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 June 30, 2013, CSC has seen a reduction in total authorities of $428.4 million for the current fiscal year compared to the previous fiscal year. This represents a 14.2% decrease over the total authorities available as of June 30, 2012.

The following table summarizes the variances in total authorities by vote between June 30, 2012 and June 30, 2013.

Variances in Authorities as of June 30, 2013

Through CSC 2013-2018 Accommodation Plan, funding has been reduced by $203.9 million. As part of the Plan, CSC's reference levels were reduced by $165.3 million in operating, $19.8 million in capital and $18.8 million in Employee Benefit Plan. This reduction in operating is associated with the return of funds related to projected inmate population growth which has not materialized for the Tackling Violent Crime Act and the Truth in Sentencing Act. The reduction in capital of $19.8 million is the result of two adjustments. Capital funding was reduced by $89.8 million to reflect the inmate population growth that has not materialized and an increase of $70.0 million was provided to address the ongoing capitalized maintenance requirements of existing and planned additional units within existing institutions.

The $170.2 million relates to savings identified as part of the Budget 2012 (Deficit Reduction Action Plan).

There was a reduction in capital vote reference levels of $81.1 million due to reprofiling of capital funding among fiscal years. It is attributable to the Construction Portfolio ($12.3 million), the reduction in opening reference level relating to the Truth in Sentencing Act ($57.6 million), the Strategic Review Reallocation ($10.8 million) and other adjustments ($0.4 million).

In the first quarter of 2013-2014, CSC received $25.1 million for Collective Agreement renewals.

The $1.0 million increase for the National Capital, Accommodation & Operations Plan (NCAOP) represents a net adjustment from previous years' plans. These changes are based on funding formulae driven by variations in Consumer Price Index and offender population levels, both incarcerated and in the community, as well as changes to the offender profile.

Quarterly Expenditures Analysis

Compared to the first quarter of the previous fiscal year, total net budgetary expenditures have decreased by $3.6 million (0.7%).

Quarter Over Quarter Expenditures Analysis

The overall decrease of $3.6 million is mainly attributable to a reduction in professional and special services expenditures. This decrease was partially offset by an increase in acquisition of land, buildings and works. The following paragraphs explain the significant variances.

The decrease of $14.2 million in professional and special services expenditures is mainly due to a modification in the Correctional and Training fee^{Footnote 5} invoicing process between CSC and CORCAN that resulted from a difference in the timing of the expenditure. At the end of the first quarter, CSC had only partially paid the Training fee invoice to CORCAN whereas in 2012-2013, CSC had completely paid the Training fee invoice to CORCAN during the first quarter.

The quarter over quarter increase of $10.0 million in acquisition of land, buildings and works expenditures is mainly due to the ongoing construction of new living units in many of CSC's existing institutions across the country.

Spending Trend Analysis

CSC's spending trend in the first quarter of 2013-2014 is comparable to the same quarter last year ($518.8 million versus $522.4 million). Overall, no major variance in spending has been observed in the first quarter as the majority of the savings will materialize once the Deficit Reduction Action Plan saving measures are implemented as planned later in the fiscal 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 first quarter include the following:

Collective agreements covering approximately 44% of CSC's workforce have expired (primarily 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^{Footnote 6}, 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 strict controls on travel and hospitality expenditures; and,
• reducing contracts for non-essential professional services.

Significant Changes in Relation to Operations, Personnel and Programs

During the first quarter of 2013-2014, there have been no significant changes in relation to operations, personnel and programs.

Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012 that are being 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.

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 pursuing the implementation of 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 current and following fiscal years, CSC is actively managing the roll-out of all initiatives through regular and sustained monitoring at the local, regional and national levels. For 2013-2014, although delays are anticipated in the implementation of a few initiatives, interim mitigation strategies have been implemented to achieve the savings as planned.

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: 
Don Head, Commissioner
Ottawa, Canada
August 15, 2013

Signed by:
Liette Dumas-Sluyter,
CMA, CIA Chief Financial Officer

Statement of Authorities (unaudited)

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.

Departmental Budgetary Expenditures by Standard Object (unaudited)

* Planned expenditures do not reflect measures announced in Budget 2012.

** The variations in planned expenditures by Standard Object in 2013 are attributable to the implementation of Budget 2012 Saving Measures as well as the return of operating and capital funds associated with the CSC Accommodation Plan 2013-2018.