Statement of management responsibility (2008-2009)

Correctional Service Canada

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2009 and all information contained in these statements rests with departmental management. These financial statements have been prepared by management in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment and gives due consideration to materiality. To fulfil its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the department's financial transactions. Financial information submitted to the Public Accounts of Canada and included in Correctional Service Canada's Departmental Performance Report is consistent with these financial statements.

Management maintains a system of financial management and internal control designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are in accordance with the Financial Administration Act, are executed in accordance with prescribed regulations, within Parliamentary authorities, and are properly recorded to maintain accountability of Government funds. Management also seeks to ensure the objectivity and integrity of data in its financial statements by careful selection, training and development of qualified staff, by organizational arrangements that provide appropriate divisions of responsibility, and by communication programs aimed at ensuring that regulations, policies, standards and managerial authorities are understood throughout the department.

The financial statements of the department have not been audited.




Don Head,
Commissioner

Ottawa, Canada
July 29, 2009

Statement of Operations [unaudited]

For the year ended March 31

(in thousands of dollars)

2009 2008
Custody Correctional Interventions Community
Supervision
Total Total
Transfer payments
Non-profit organizations - 885 637 1,522 1,054
Individuals 84 - - 84 209
Other countries and international organizations 8 72 - 80 75
Total transfer payments 92 957 637 1,686 1,338
Operating expenses
Salaries and employee benefits 1,156,971 372,618 117,024 1,646,613 1,459,126
Professional and special services 96,821 66,805 93,999 257,625 227,960
Utilities, maintenance and supplies 120,663 14,123 1,940 136,726 138,158
Repairs and maintenance 94,298 2,962 61 97,321 67,762
Amortization 79,241 1,965 - 81,206 80,236
Travel 31,570 16,896 7,183 55,649 51,621
Machinery and equipment 27,594 4,176 417 32,187 31,962
Payment in lieu of taxes 27,109 - - 27,109 26,304
Inmate pay - 23,534 - 23,534 20,141
Cost of goods sold - 15,278 - 15,278 18,577
Accommodation 4,287 - 9,095 13,382 12,176
Relocation 3,180 2,007 679 5,866 4,325
Net loss on disposal of tangible assets 428 (26) - 402 1,203
Other 3,042 13,459 948 17,449 6,492
Total operating expenses 1,645,204 533,797 231,346 2,410,347 2,146,043
Total Expenses 1,645,296 534,754 231,983 2,412,033 2,147,381
Revenues
Sales of goods and services 1,684 51,672 - 53,356 51,771
Other 2,395 1,653 42 4,090 6,671
Total Revenues 4,079 53,325 42 57,446 58,442
Net Cost of Operations 1,641,217 481,429 231,941 2,354,587 2,088,939

The accompanying notes form an integral part of these financial statements.

Statement of Financial Position [unaudited]

At March 31

(in thousands of dollars)

2009 2008
Assets
Financial Assets
Accounts receivable, loans and advances (Note 4) 27,636 18,530
Inventory held for resale 11,892 9,670
Total financial assets 39,528 28,200
Non-financial Assets
Prepaid expenses 451 424
Inventory not for resale 23,830 25,935
Tangible capital assets (Note 5) 1,299,130 1,259,347
Total non-financial assets 1,323,411 1,285,706
Total 1,362,939 1,313,906
Liabilities and Equity of Canada
Liabilities
Accounts payable and accrued liabilities 277,587 230,533
Vacation pay and compensatory leave 58,767 55,193
Employee severance benefits (Note 6) 267,941 219,160
Inmate trust fund (Note 7) 15,524 14,306
Environmental liabilities (Note 8) 13,493 14,355
Claims and litigations (Note 8) 1,154 5,064
Total liabilities 634,466 538,611
Equity of Canada 728,473 775,295
Total 1,362,939 1,313,906

Contingent liabilities (Note 8)
Contractual obligations (Note 9)

The accompanying notes form an integral part of these financial statements.

Statement of Equity of Canada [unaudited]

For the year ended March 31

(in thousands of dollars)

2009 2008
Equity of Canada, beginning balance 775,295 849,337
Assets transferred from another department - 1,870

Equity of Canada, adjusted beginning balance

775,295

851,207
Net cost of operations (2,354,587) (2,088,939)
Current year appropriations used (Note 3) 2,231,306 1,963,935
Revenue not available for spending (8,715) (11,651)
Change in net position in the Consolidated Revenue Fund (Note 3) (41,829) (46,445)
Services received without charge from other government departments (Note 10) 127,003 107,188
Equity of Canada, ending balance 728,473 775,295

The accompanying notes form an integral part of these financial statements.

Statement of Cash Flow [unaudited]

For the year ended March 31

(in thousands of dollars)

2009 2008
Operating activities
Net cost of operations 2,354,587 2,088,939
Non Cash items:
Amortization of tangible capital assets (81,206) (80,236)
Net loss on disposal of tangible assets (402) (1,201)
Capital asset adjustments 271 -
Services provided without charge (Note 10) (127,003) (107,188)
Variations in Statement of Financial Position:
Increase (Decrease) in accounts receivable and advances 9,106 (2,831)
Increase in prepaid expenses 27 80
Increase in inventories 117 6,453
Increase in liabilities (95,855) (87,881)
Cash used by operating activities 2,059,642 1,816,135
Capital investment activities
Acquisitions of tangible capital assets 121,722 90,725
Proceeds from disposal of tangible assets (602) (1,021)
Cash used by capital investment activities 121,120 89,704
Financing activities
Cash Provided by Government of Canada 2,180,762 1,905,839

The accompanying notes form an integral part of these financial statements.

Notes to the Financial Statements [unaudited]

For the year ended March 31, 2009

1. Authority and Objectives

The constitutional and legislative framework that guides the Correctional Service Canada (CSC) is set out by the Constitution Act 1982 and the Corrections and Conditional Release Act (CCRA).

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 three major program activities:

Custody: Activities related to the provision of reasonable, safe, secure and humane custody of inmates;

Correctional Interventions: Activities related to the delivery of correctional interventions and programs in institutions and communities designed to successfully reintegrate offenders into society as law-abiding citizens;

Community Supervision: Activities related to the supervision of eligible offenders in the community, including the provision of a structured and supportive environment during the gradual reintegration process in the community.

2. Summary of Significant Accounting Policies

The financial statements have been prepared in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector.

Significant accounting policies are as follows:

a) Parliamentary appropriations

CSC is financed by the Government of Canada through Parliamentary appropriations. Appropriations provided to the department do not parallel financial reporting according to generally accepted accounting principles since appropriations are primarily based on cash flow requirements. Consequently, items recognized in the statement of operations and the statement of financial position are not necessarily the same as those provided through appropriations from Parliament. Note 3 provides a high-level reconciliation between the bases of reporting.

b) Consolidation

These financial statements include the accounts of CSC including its revolving fund CORCAN. All of the accounts of this sub-entity have been consolidated with those of CSC and all inter-organizational balances and transactions have been eliminated.

c) Net Cash Provided by Government

CSC operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the department is deposited to the CRF and all cash disbursements made by the department are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments of the federal government.

d) Change in the Net Position in the Consolidated Revenue Fund (CRF)

Change in net position in the CRF is the difference between the net cash provided by Government and appropriations used in a year, excluding the amount of non respendable revenue recorded by the department. It results from timing differences between when a transaction affects appropriations and when it is processed through the CRF.

e) Revenues

Revenues are accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenues.

f) Expenses

Expenses are recorded on the accrual basis:

g) Employee future benefits

h) Accounts and loans receivable from external parties

Accounts and loans receivables are stated at amounts expected to be ultimately realized; a provision is made for receivables where recovery is considered uncertain.

i) Inventories

j) Tangible capital assets

All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. CSC does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections.

Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the asset as follows:

Asset Class Sub-asset class Amortization Period
Buildings Buildings 25 to 40 years
Works and infrastructure Works and infrastructure 20 to 25 years
Machinery & equipment Machinery & equipment 10 years
Informatics hardware 3 to 4 years
Informatics software 3 to 10 years
Arms and weapons for defence 10 years
Other equipment 10 years
Vehicles Motor vehicles (non-military) 5 years
Other vehicles 10 years
Leasehold improvements Leasehold improvements Term of lease
Assets under construction Once in service, in accordance with asset class

k) Contingent liabilities

Contingent liabilities are potential liabilities which may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

l) Environmental liabilities

Environmental liabilities reflect the estimated costs related to the management and remediation of environmentally contaminated sites. Based on management's best estimates, a liability is accrued and an expense recorded when the contamination occurs or when the department becomes aware of the contamination and is obligated, or is likely to be obligated to incur such costs. If the likelihood of the department's obligation to incur these costs is not determinable, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes to the financial statements.

m) Measurement uncertainty

The preparation of these financial statements in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, environmental liabilities, the liability for employee severance benefits and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3. Parliamentary Appropriations

The Department receives most of its funding through annual Parliamentary appropriations. Items recognized in the statement of operations and the statement of financial position in one year may be funded through Parliamentary appropriations in prior, current or future years. Accordingly, the Department has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables:

a) Reconciliation of net cost of operations to current year appropriations used:

(in thousands of dollars)

2009 2008
Net cost of operations 2,354,587 2,088,939
Adjustments for items affecting net cost of operations but not affecting appropriations:
Add (Less):
Amortization (81,206) (80,236)
Revenue not available for spending 8,715 11,651
Vacation pay and compensatory leave (3,574) (2,997)
Environmental liabilities and other provisions 4,772 (124)
Employee severance benefits (48,781) (39,980)
Net loss on disposal of tangible assets (402) (1,201)
Services provided without charge (127,003) (107,188)
Other 350 (2,686)
(247,129) (222,761)
Adjustments for items not affecting net cost of operations but affecting appropriations:
Add (Less):
Acquisitions of tangible capital assets 121,722 90,725
Deferred Revenues (500) -
Inventories 2,490 6,743
Prepaid expenses 136 289
123,848 97,757
Current year appropriations used 2,231,306 1,963,935

b) Appropriations provided and used:

(in thousands of dollars)

2009 2008
Vote 30 (25) - Operating expenditures 1,884,884 1,727,162
Vote 35 (30) - Capital expenditures 271,261 189,697
Statutory amounts 215,362 196,676
2,371,507 2,113,535
Less:
Authorities available for future years 9,802 19,182
Lapsed appropriations: Operating 57,130 81,361
Lapsed appropriations: Capital 73,269 49,057
Current year appropriations used 2,231,306 1,963,935

c) Reconciliation of net cash provided by Government to current year appropriations used:

(in thousands of dollars)

2009 2008
Net cash provided by Government 2,180,762 1,905,839
Revenue not available for spending 8,715 11,651
2,189,477 1,917,490
Change in net position in the Consolidated Revenue Fund
Variation in accounts receivable, loans and advances (9,071) 2,672
Variation in accounts payable and accrued liabilities 46,556 42,745
Other adjustments 4,344 1,028
41,829 46,445
Current year appropriations used 2,231,306 1,963,935

4. Accounts Receivable, Loans and Advances

The following table presents details of accounts receivable, loans and advances:

(in thousands of dollars)

2009 2008
Receivables from other Federal Government departments and agencies 22,634 10,711
Receivables from external parties 6,344 7,968
Accountable advances and standing advances to employees 412 472
Parolee loans and advances to individuals other than employees 102 4
29,492 19,155
Allowance for doubtful accounts on external receivables and parolee loans (1,856) (625)
Total 27,636 18,530

5. Tangible Capital Assets

(in thousands of dollars)

Cost Accumulated amortization
Capital asset class Beginning Balance Acquisi-tions Disposals, write-offs and adjustments Transfer of assets under construction and adjustments Ending Balance Beginning Balance Amorti-zation Disposals, write-offs and adjustments Ending Balance 2009 Net book Value 2008 Net book value
Land 12,646 - - (179) 12,467 - - - 12,467 12,646
Buildings 1,456,503 - 220 72,150 1,528,433 589,221 46,804 193 635,832 892,601 867,282
Works and infrastructure 427,337 - 50 5,749 433,036 275,939 18,019 50 293,908 139,128 151,398
Machinery and equipment 210,798 30,272 6,252 (301) 234,517 108,963 11,649 6,044 114,568 119,949 101,835
Vehicles 47,979 7,939 3,600 236 52,554 27,244 4,512 2,802 28,954 23,600 20,735
Leasehold improvements 2,792 - - - 2,792 602 222 - 824 1,968 2,190
Assets under construction 103,261 83,511 - (77,355) 109,417 - - - 109,417 103,261
Total 2,261,316 121,722 10,122 300 2,373,216 1,001,969 81,206 9,089 1,074,086 1,299,130 1,259,347

Amortization expense for year ended March 31, 2009 is $81,205,857 (2008 - $80,236,000).

6. Employee Benefits

a) Pension benefits:

CSC's employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2% per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Qu├ębec Pension Plans benefits and they are indexed to inflation.

Both the employees and the department contribute to the cost of the Plan. The 2008-2009 expense amounts to $145,132,226 ($135,693,742 in 2007-2008), which represents approximately 2.0 times (2.1 in 2007-2008) the contributions by employees.

The department's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

b) Severance benefits:

CSC provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future appropriations. Information about the severance benefits, measured as at March 31, is as follows:

(in thousands of dollars)

2009 2008
Accrued benefit obligation, beginning balance 219,160 179,180
Expenses for the year 65,741 57,736
Benefits paid during the year (16,960) (17,756)
Accrued benefit obligation, ending balance 267,941 219,160

7. Inmate Trust Fund

Pursuant to section 111 of the Corrections and Conditional Release Regulations, the Inmate Trust Fund is credited with moneys received from inmates at the time of incarceration, net of earnings of inmates from employment inside institutions, moneys received for inmates while in custody, moneys received from sales of hobbycraft, moneys earned through work while on day parole, and interest. Payments to assist in the reformation and rehabilitation of inmates are also charged to this account.

(in thousands of dollars)

2009 2008
Beginning balance 14,306 12,271
Receipts 40,867 40,722
Disbursements (39,649) (38,687)
Ending balance 15,524 14,306

8. Contingent Liabilities

a) Environmental liabilities

Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where the department is obligated or likely to be obligated to incur such costs. The department has identified approximately 76 sites (74 in 2008) where such action is possible and for which a liability of $13,492,696 ($14,354,720 in 2008) has been recorded. CSC has estimated additional clean-up costs of $5,970,000 ($21,989,000 in 2008) that are not accrued, as these are not considered likely to be incurred at this time. CSC's ongoing efforts to assess contaminated sites may result in additional environmental liabilities related to newly identified sites, or changes in the assessments or intended use of existing sites. These liabilities will be accrued by the department in the year in which they become known.

b) Claims and ligitations

Claims have been made against the department in the normal course of operations. Some of these claims may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded in the financial statements. A liability has then been accrued for the amount of $1,153,500 ($5,063,500 in 2008) while management has estimated that other claims totalling $22,000 ($32,000 in 2008) are unlikely to become a liability for the department. In addition, there are other claims for which management can not estimate the outcome or the amount of a potential settlement.

9. Contractual Obligations

The nature of the department's activities can result in some large multi-year contracts and obligations whereby the department will be obligated to make future payments when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

(in thousands of dollars)

2010 2011 2012 2013 2014
and
thereafter
Total
Acquisition of other goods and services 4,000 4,000 1,000 1,000 7,000 17,000

10. Related Party Transactions

CSC is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. CSC enters into transactions with these entities in the normal course of business and on normal trade terms. During the year, CSC received services which were obtained without charge from other Government departments as presented in part a). In addition, as at March 31, CSC had accounts receivable and accounts payable with other government departments and agencies as presented in part b).

a) Services provided without charge:

During the year CSC received without charge from other departments services such as accommodation, legal fees, employer's contribution to the health and dental insurance plans and worker's compensation coverage. These services without charge have been recognized in CSC's Statement of Operations as follows:

(in thousands of dollars)

2009 2008
Accommodation 13,381 12,177
Employer's contribution to the health and dental insurance plans 105,595 88,202
Legal services 2,225 1,168
Worker's compensation 5,802 5,641
Total 127,003 107,188

The Government has structured some of its administrative activities for efficiency and cost-effectiveness purposes so that one department performs these on behalf of all without charge. The costs of these services, which include payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General, are not included as an expense in CSC's Statement of Operations.

b) Payables and receivables outstanding at year-end with related parties:

(in thousands of dollars)

2009 2008
Accounts receivable from other government departments and agencies 22,634 10,711
Accounts payable to other government departments and agencies 47,680 27,756

11. Comparative Figures

Certain comparative figures have been reclassified to conform to the current year's presentation.

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