Quarterly Financial Report, For the Quarter ended December 31, 2017

Introduction

This quarterly report has been prepared by management of Correctional Service of Canada (CSC) 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 and Quarterly Financial Reports as of June 30, 2017 and September 30, 2017. This report has not been subject to an external audit or review.

The purpose of the federal correctional system, as defined in law, is to contribute to the maintenance of a just, peaceful and safe society by carrying out sentences imposed by courts through the safe and humane custody and supervision of offenders; and by assisting the rehabilitation of offenders and their reintegration into the community as law-abiding citizens through the provision of programs in penitentiaries and in the community (Corrections and Conditional Release Act, s.3). A summary description of CSC’s program activities can be found in Part II of the Main Estimates.

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 organization, consistent with the Main Estimates and Supplementary Estimates (B) for the 2017-2018 fiscal year, for which full supply was released on December 11, 2017^{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.

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 consolidated 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 authorities 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 and Fiscal Year to Date (YTD) Results

The following graph provides a comparison of the budgetary authorities and net budgetary expenditures as of December 31, 2017 and December 31, 2016 for CSC’s combined Operating, Capital and Budgetary Statutory Authorities.

Budgetary Authorities and Net Budgetary Expenditures

Significant Changes to Authorities

As reflected in the Statement of Authorities for the period ending December 31, 2017, CSC has seen an increase in total net authorities of $108.4 million or 4.3% for the current fiscal year compared to the previous fiscal year.

Operating Vote

CSC’s Operating Vote increased by $105.8 million or 5.2% compared to the authorities at the end of December 2016, which is attributed to the net effect of the following items:

• An increase of $52.7 million related to Collective Agreements;
• A net increase of $31.2 million related to the Operating Budget Carry Forward compared to prior fiscal year;
• An increase of $12.0 million related to Budget 2017: Addressing the needs of vulnerable offenders in the federal correctional system;
• A net increase of $10.4 million related to Quasi-Statutory Requirements;
• An increase of $4.6 million related to Paylist Requirements;
• An increase of $0.1 million related to miscellaneous items;
• A decrease of $4.9 million related to the 2016 Budget Reduction for Advertisement, Travel and Professional Services; and
• A net decrease of $0.3 million related to 2017-2018 funding of Federal Contaminated Sites Action Plan (FCSAP – Phase III) compared to previous year.

Capital Vote

CSC’s Capital Vote increased by $23.8 million or 10.3% compared to the authorities at the end of December 2016 which is attributed to the net effect of the following items:

• An increase of $27.5 million in capital investments mainly due to reprofiling of funds from previous years;
• A net increase of $0.4 million related to the Capital Budget Carry Forward compared to prior fiscal year;
• An increase of $0.2 million related to a transfer from the RCMP for the Shared Learning Facility Project; and
• A decrease of $4.3 million due to the Accelerated Infrastructure Program ceased funding in 2017-2018.

Budgetary Statutory Authorities

CSC’s Budgetary Statutory Authorities decreased by $21.2 million or 8.4% mainly due to a decrease in the organization’s allocation of the employer’s share of the Employee Benefit Plan and the proceeds from the disposal of surplus of Crown assets.

Explanation of Significant Variances from Previous Year Expenditures

Compared with the previous year, the total year to date net budgetary expenditures increased by $63.9 million or 3.9% due to multiple factors:

• Personnel expenditures increased by $49.4 million mainly due to the retroactive payments being processed during the third quarter of 2017-2018 following the signing of various collective agreements;
• Professional and special services increased by $13.4 million mainly due to an increase in community-based residential services and other minor increases in various professional and special services expenditures;
• Other increased by $12.2 million mainly due to reduced CORCAN revenues netted against expenditures, timing differences associated with the interdepartmental invoicing for administrative charges related to the Workers' Compensation, and an increase in inventory consumption by CORCAN;
• Acquisition of land, buildings and works expenditures decreased by $7.4 million as a result of timing differences with interdepartmental invoicing for CSC's portion of various construction projects; and
• Utilities, materials and supplies decreased by $3.7 million mainly due to timing differences in the purchase of medications for Hepatitis C drug treatments approved by Health Canada.

When compared to the same period in the previous fiscal year, total net budgetary expenditures in the third quarter ending December 31, 2017 have increased by $20.0 million or 3.5%. The net increase is due to the increase of $10.2 million in personnel related to the retroactive payments being processed during the third quarter of 2017-2018 following the signing of various collective agreements. Additionally, professional and special services increased by $21.2 million as a result of timing differences with interdepartmental invoicing of legal services fees between CSC and Department of Justice and timing differences in the Exchange of Service Agreements (ESA) with the provinces and territories. Utilities, materials and supplies decreased by $14.4 million mainly due to timing differences in the purchase of medications for Hepatitis C drug treatments approved by Health Canada.

Risks and Uncertainties

CSC's Departmental Plan (DP) identifies the current risk environment and CSC's key risk areas to the achievement of its strategic outcomes.

In the 2013 Speech from the Throne, the Government of Canada announced it will freeze the overall federal operating budget. Consequently, CSC will have to fund the increases in salary resulting from collective agreements that take effect during the freeze period (2014-2015 and 2015-2016), and for the ongoing impact of those adjustments.

CSC continues to review its operation to address the budgetary constraints resulting from the operating budget freeze.

CSC continues to experience ongoing issues related to the Phoenix Pay System. Given the complexity of our workforce coupled with the operational nature of our organization, CSC has experienced a significantly high number of pay related issues. CSC is continuously working internally and with external stakeholders to resolve these issues.

CSC’s specific risks, as outlined in the DP of 2017-2018, are the increasingly diverse and evolving profile of the offender population, the maintenance of required levels of operational safety and security in institutions and the community, the potential loss of partners delivering critical services and providing resources for offenders, the ability to manage significant change related to transformation, legislative changes and fiscal constraints, and the need to sustain results related to violent reoffenders.

CSC has put in place risk mitigation strategies to address the stated potential risks. The integrated approach allows CSC to manage risk-related challenges, ensure operational sustainability and fulfill its mandate.

Significant Changes in Relation to Operations, Personnel and Programs

Significant changes in relation to Operations, Personnel and Programs during the third quarter of 2017-2018 include:

• Denis Bombardier was appointed to the position of Chief Financial Officer, Correctional Service Canada, effective October 16, 2017.
• Don Head announced on November 1, 2017 his decision to retire effective February 3, 2018.
• Anne Kelly has been appointed to the position of Interim Commissioner, effective February 5, 2018.

Approvals by Senior Officials

Statement of Authorities (unaudited)

More information is available on the following page.
* Includes only Authorities available for use and granted by Parliament at quarter-end.

Organizational Budgetary Expenditures by Standard Object (unaudited)

* These are mainly Vote 5 (Capital) expenditures