Quarterly Financial Report, For the Quarter ended September 30, 2018

Erratum

Date: 2019-01-24
Location: Organizational Budgetary Expenditures by Standard Object (unaudited), Expended during the quarter ended September 30, 2018
Revision: "Information expenditures $143 thousands" replaces "Information expenditures $438 thousands".
Rational for the revision: Original amount reported was not correct.

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. This report has not been subject to an external audit or review.

The purpose of the federal correctional system, as defined by 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 safe 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 and the Departmental Plan 2018-2019.

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes CSC’s spending authorities granted by Parliament and those used by the organization, consistent with the Main Estimates for the 2018-2019 fiscal year for which full supply was released on June 21, 2018Footnote 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 money 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) that 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 total budgetary authorities and net budgetary expenditures as of September 30, 2018 and September 30, 2017 for CSC’s combined operating, capital and budgetary statutory authorities.

Budgetary Authorities and Net Budgetary Expenditures
(in thousands of dollars)

This graph depicts the net budgetary authorities in thousands of dollars
Budgetary Authorities and Net Budgetary Expenditures

This graph depicts the net budgetary authorities as $2,494,706 thousand and the year to date net expenditures as $1,151,575 thousand for the second quarter ending September 30, 2018. In 2017-2018, the net budgetary authorities were $2,529,744 thousand for the second quarter ending September 30, 2017 and the year to date net expenditures were $1,113,850 thousand.

Significant Changes to Authorities

As reflected in the Statement of Authorities for the period ending September 30, 2018, CSC has seen a decrease in total authorities of $35.0 million or 1.4 % for the current fiscal year compared to the previous fiscal year.

Operating Vote

CSC’s Operating Vote decreased by $17.7 million or 0.9% compared to the authorities at the end of September 2017, which is attributed to the net effect of the following items:

  • A decrease of $82.0 million in operating budget carry forward as there was none in 2017-2018 due to CSC’s 2017-2018 Program Integrity funding.
  • An increase of $31.4 million related to compensation for the funded portion of Collective Agreement increases;
  • An increase of $18.9 million for Budget 2017 investments to modernise Canada’s Correctional System, address indigenous over representation and provide greater mental health support for vulnerable offenders;
  • An increase of $9.7 million to address incremental expenditures due to changes in offender population volumes and price fluctuations;
  • An increase of $4.7 million related to a transfer from capital to operating funding as an internal reallocation of resources to support operating requirements; and
  • A decrease of $0.4 million for miscellaneous items.

Capital Vote

CSC’s Capital Vote decreased by $16.4 million or 6.5% compared to the authorities at the end of September 2017, which is attributed to the net effect of the following items:

  • A decrease of $15.1 million due to reduced funding associated with the completion of capital projects;
  • A decrease of $4.7 million related to a transfer from capital to operating funding is an internal reallocation of resources to support operating requirements; and
  • An increase of $3.4 million for the capital carry forward budget as compared to the carry forward for the 2016-2017 fiscal year.

Budgetary Statutory Authorities

CSC’s budgetary statutory authorities decreased by $0.9 million or 0.4% mainly due to a decrease in the rate of the employer’s contribution to the Employee Benefit Plan from 15.7% in the previous year to 15.2% in the current year, as directed by the Treasury Board Secretariat, offset by an increase in the proceeds from the disposal of surplus of Crown assets.

Explanation of Significant Variances from Previous Year Expenditures

Compared with the previous fiscal year, the total year to date net budgetary expenditures increased by $37.7 million or 3.4% mainly due to the following factors:

  • Personnel expenditures increased by $8.1 million primarily due to:
    • An increase of $42.4 million due to increased rates of pay for salaries in the current fiscal year compared to the previous fiscal year as a result of the signing and implementation of various collective agreements after the first quarter of 2017-2018;
    • An increase of $9.4 million for other salary expenses including increased payments to casual and part-time staff and overtime expenses; and
    • A decrease of $42.1 million due to the fewer retroactive payments processed during the current fiscal year compared to the prior fiscal year.
  • Professional and special services increased by $20.8 million due to:
    • An increase of $9.1 million in expenditures for legal services due to early in year billing by Justice Canada;
    • An increase of $7.1 million for training and correctional fees as a result of increased responsibilities for training related to the management of farms and indigenous employment; and
    • An increase of $4.6 million in other professional services primarily due to the timing of invoices received in the first half of the year instead of the second half.
  • Utilities, materials and supplies expenditures decreased by $9.4 million partly due to:
    • A decrease of $5.7 million due to the increased inventory levels of Hepatitis C medication at the end of 2017-2018. Therefore, less medication was purchased in the first two quarters compared to the same period in the prior year; and
    • An increase of $1.7 million for the purchase of footwear.
  • Acquisition of land, buildings and works increased by $26.2 million mainly due to:
    • An increase of $17.1 million primarily related to projects started after September 30, 2017 and continued in 2018-2019, including:
      • $4.3 million for a firing range project at the National Training Academy,
      • $2.1 million for heating and cooling at the Edmonton Institution,
      • $1.7 million for window replacements at the Millhaven Institution,
      • $1.7 million for an electrical distribution project, and
      • $1.6 million for repair and replacement of road lights.
    • An increase of $3.6 million due to a new sewage lagoon project on which major work started in quarter 3 of 2017-2018 therefore resulting in more expenditures in 2018-19 when compared to the same period last year.
  • An increase of $6.6 million in acquisition of machinery and equipment expenditures partly due to purchasing replacement vehicles as part of increased vehicle lifecycle management and due to more projects beginning in the first half of this year when compared to last year. In addition, a number of orders were not delivered on time last fiscal year and therefore expenses were incurred in 2018-2019.
  • A net increase of $15.6 million in CORCAN’s revenues mainly due to:
    • An increase of $9.2 million due to CORCAN sales initiatives to encourage major clients to complete orders earlier in the fiscal year;
    • An increase of $4.3 million due to timing of orders for goods sold and construction projects managed by CORCAN; and
    • An increase of $2.2 million in correctional training fees due to increased responsibilities for training related to the management of farms and indigenous employment.

When compared to the same quarter in the previous fiscal year, total net budgetary expenditures in the second quarter ending September 30, 2018 have decreased by $39.7 million or 6.18%. The net decrease is mainly due to retroactive payments being processed during the second quarter of 2017-2018 following the signing of the collective agreements. Professional service expenditures increased by $17.6 million primarily due to earlier payment of $9.1 million to Justice Canada for legal services when compared to the same quarter last year and an increase of $7.1 million in Correctional training fees for the Indigenous employment initiative and the opening of farms during this fiscal year. There was an increase of $19.9 million in construction expenditures largely caused by an increase in expenditures from Public Services and Procurement Canada. Machinery and equipment purchases increased by $2.6 million mainly due to the replacement of vehicle fleet of $1.3 million and an increase of $1.1 million due to the start of a new project for communications and networking. Additionally, revenues netted against expenditures increased by $27.9 million due to the CORCAN sales initiatives to encourage major clients to complete orders earlier in the fiscal year and an increase in Correctional and Training Fees due to increased responsibilities for training related to the management of farms and indigenous employment.

(in millions of dollars)
Organizational Budgetary Expenditures Year Over Year Quarter Over Quarter
Total Net Budgetary Expenditures 2017-2018 1,113.8 642.6
Total Net Budgetary Expenditures 2018-2019 1,151.5 602.9
Variance 37.7 (39.7)
Explanation of Variances by Standard Object
Personnel 8.1 (43.1)
Professional and special services 20.8 17.6
Utilities, materials and supplies (9.4) (3.9)
Acquisition of land, buildings and works 26.2 19.9
Acquisition of machinery and equipment 6.6 2.6
CORCAN Revenues (15.6) (27.9)
Other 1.0 (4.9)
Total 37.7 (39.7)

Risks and Uncertainties

CSC’s Departmental Plan 2018-2019 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 would freeze the overall federal operating budget. Consequently, CSC would have to fund the increases in salary resulting from collective agreements that took effect during the freeze period (2014-2015 and 2015-2016), and for the ongoing impact of those adjustments. Given that salaries represent a significant portion of CSC’s expenditures, this freeze and other government-wide spending reduction exercises have resulted in significant financial pressures.

CSC continues to review its operations to address the budgetary constraints resulting from the operating budget freeze and is undertaking a comprehensive review, over a two-year period, to identify potential efficiencies and reallocation opportunities, make further investments to mitigate operational and financial risks, ensure resource levels are sufficient for CSC to meet its legislated mandate and continue to deliver results for Canadians, and subsequently stabilize its financial position into the future.

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 CSC’s Operating context and key risks, 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 inability to implement its mandate and ensure the financial sustainability of the organization, the potential loss of partners delivering critical services and providing resources for offenders 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 handle risk-related challenges, ensure operational sustainability and fulfill its mandate. This includes receiving program integrity funding in the last quarter of 2017-2018 along with additional anticipated funding in the future until such time as the comprehensive review is completed.

Significant Changes in Relation to Operations, Personnel and Programs

There have been the following significant changes since July 1, 2018:

  • Anuradha Marisetti, Regional Deputy Commissioner Pacific Region, left CSC in October 2018.
  • Bill C-83 - An Act to amend the Corrections and Conditional Release Act was introduced on October 16, 2018. This Bill is significant for the Correctional Service of Canada (CSC) as it will make important changes to the federal correctional system.

Approvals by Senior Officials

Approved by:

Original Signed by
______________________________
Tony Matson,
Chief Financial Officer

Original Signed By
______________________________
Anne Kelly,
Commissioner
Ottawa, Canada
November 29, 2018

Statement of Authorities (unaudited)

(in thousands of dollars)
  Fiscal Year 2018-2019 Fiscal Year 2017-2018
Total available for use for the year ending March 31, 2019* Used during the quarter ended September 30, 2018 Year to date used at quarter-end Total available for use for the year ending March 31, 2018* Used during the quarter ended September 30, 2017 Year to date used at quarter-end
Expenses
Vote 1 - Operating Expenditures 2,026,626 506,702 973,040 2,044,307 545,983 965,004
Vote 5 - Capital Expenditures 238,494 52,286 73,779 254,942 27,417 37,305
Budgetary Statutory Authorities
CORCAN Gross Expenditures 108,355 26,510 49,329 120,292 23,743 40,004
CORCAN Gross Revenues (108,355) (39,775) (58,832) (120,292) (11,862) (43,199)
CORCAN Net Expenditures (Revenues) - (13,265) (9,503) - 11,881 (3,195)
Contributions to employee benefit plans 228,278 57,069 114,139 229,424 57,324 114,712
Refunds of previous years revenue - 109 109 - - -
Spending of proceeds from the disposal of surplus Crown assets 1,308 11 11 1,071 24 24
Total Budgetary Authorities 2,494,706 602,912 1,151,575 2,529,744 642,629 1,113,850
Non-Budgetary Authorities 44 - - 44 - -
Total Authorities 2,494,750 602,912 1,151,575 2,529,788 642,629 1,113,850

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)

(in thousands of dollars)
Fiscal Year 2018-2019 Fiscal Year 2017-2018
Planned expenditures for the year ending March 31, 2019 Expended during the quarter ended September 30, 2018 Year to date used at quarter-end Planned expenditures for the year ending March 31, 2018 Expended during the quarter ended September 30, 2017 Year to date used at quarter-end
Expenditures
Personnel 1,779,904 406,388 854,604 1,822,147 449,452** 846,505**
Transportation and communications 24,502 5,918 10,676 25,465 6,128** 10,163**
Information 538 143 304 610 150 214
Professional and special services 293,299 108,492 152,549 298,072 90,879** 131,748**
Rentals 22,629 4,939 8,968 16,726 6,861 9,178
Repair and maintenance 23,035 8,211 12,154 23,460 7,620 9,952
Utilities, materials and supplies 130,516 30,467 54,615 129,360 34,398 63,976
Acquisition of land, buildings and works* 149,941 35,136 46,220 178,198 15,261 20,022
Acquisition of machinery and equipment* 85,198 11,602 18,700 73,115 8,963 12,092
Transfer payments 120 438 438 120 1,022 1,052
Other subsidies and payments 93,379 30,953 51,179 82,763 33,757** 52,147**
Total Gross Budgetary Expenditures 2,603,061 642,687 1,210,407 2,650,036 654,491 1,157,049
Less Revenues Netted Against Expenditures
CORCAN (108,355) (39,775) (58,832) (120,292) (11,862) (43,199)
Total Net Budgetary Expenditures 2,494,706 602,912 1,151,575 2,529,744 642,629 1,113,850

* These are mainly Vote 5 (Capital) expenditures

**Amounts re-classified to conform to current quarter presentation.

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