Statement of management responsibility, including internal control over financial reporting 2018-2019

Consolidated Statement Of Operations And Organizational Net Financial Position (unaudited)

For the Year Ended March 31
(in thousands of dollars)
2019 Planned Results 2019 2018 Restated
(Note 16)
Expenses
Custody 1,554,834 1,649,156 1,780,978
Correctional Interventions 521,449 535,178 566,537
Community Supervision 172,560 169,777 161,653
Internal Services 324,982 337,238 345,396
Expenses incurred on behalf of Government - (116) (11)
Total expenses 2,573,825 2,691,233 2,854,553
Revenues
Sales of goods and services 61,899 58,094 57,613
Miscellaneous revenues 3,566 5,181 3,832
Revenues earned on behalf of Government (3,566) (5,181) (3,832)
Total revenues 61,899 58,094 57,613
Net cost of operations before government funding and transfers 2,511,926 2,633,139 2,796,940
Government funding and transfers
Net cash provided by Government 2,691,963 2,388,868
Change in due from Consolidated Revenue Fund (114,327) 221,286
Services provided without charge by other government departments (note 14a) 149,187 169,872
Transfer of the transition payments for implementing salary payments in arrears (5) (6)
Other transfers of assets and liabilities from/(to) other government departments (note 14c) 47 (12)
Total Government Funding and Transfers 2,726,865 2,780,008
Net (revenue from) cost of operations after government funding and transfers (93,726) 16,932
Organizational net financial position - Beginning of year 2,094,498 2,111,430
Organizational net financial position - End of year 2,118,224 2,094,498

Segmented information (note 15)

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

Consolidated Statement Of Change in Organizational Net Debt (unaudited)

For the Year Ended March 31
(in thousands of dollars)
2019 2018 Restated
(Note 16)
Net cost of (revenue from) operations after government funding and transfers (93,726) 16,932
Change due to tangible capital assets
Acquisition of tangible capital assets (note 11) 231,599 187,650
Amortization of tangible capital assets (note 11) (120,562) (120,225)
Proceeds from disposal of tangible capital assets (1,629) (1,762)
Gain on disposal of tangible capital assets 610 394
Tangible capital assets adjustments (note 11) (638) (4,645)
Total change due to tangible capital assets 109,380 61,412
Change due to inventories not for resale (3,440) 3,775
Change due to prepaid expenses - (1)
Net increase in organizational net debt 12,214 82,118
Organizational net debt - Beginning of year 164,920 82,802
Organizational net debt - End of year 177,134 164,920

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

Consolidated Statement of Cash Flows (unaudited)

For the Year Ended March 31
(in thousands of dollars)
2019 2018 Restated
(Note 16)
Operating activities
Net cost of operations before government funding and transfers 2,633,139 2,796,940
Non-cash items
Amortization of tangible capital assets (note 11) (120,562) (120,225)
Net gain on disposal of tangible capital assets 610 394
Tangible capital assets adjustments (note 11) (638) (4,645)
Services provided without charge by other government departments (note 14a) (149,187) (169,872)
Transition payments for implementing salary payments in arrears 5 6
Variations in Consolidated Statement of Financial Position
Decrease (increase) in accounts payable and accrued liabilities (note 4) 97,508 (259,498)
(Increase) in vacation pay and compensatory leave (5,630) (3,973)
Decrease (increase) in employee future benefits (note 5) 4,665 (755)
(Increase) decrease in Inmate Trust Fund (note 6) (433) 1,600
(Increase) in environmental liabilities (note 7) (8) (43)
Decrease (increase) in deferred revenue (note 8) 1,272 (392)
Increase (decrease) in accounts receivable, advances and loans (note 9) 1,815 (39,597)
(Decrease) in prepaid expenses - (1)
(Decrease) increase in inventories (516) 2,933
Transfer of assets (from)/to other government department (note 14c) (47) 12
Cash used in operating activities 2,461,993 2,202,884
Capital investing activities
Acquisitions of tangible capital assets (note 11) 231,599 187,650
Proceeds from disposal of tangible capital assets (1,629) (1,762)
Cash used in capital investing activities 229,970 185,888
Financing activities
Decrease in lease obligations for tangible capital assets - 96
Cash used in financing activities - 96
Net cash provided by Government of Canada 2,691,963 2,388,868

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

Notes to the Consolidated Financial Statements (unaudited)

For the Year Ended March 31

1. Authority and Objectives

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

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 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). It delivers its mandate under four major core responsibilities:

Care and Custody: CSC provides for the safety, security and humane care of inmates, including day-to-day needs of inmates such as food, clothing, accommodation, mental health services, and physical health care. It also includes security measures within institutions such as drug interdiction, and appropriate control practices to prevent incidents;

Correctional Interventions: CSC conducts assessment activities and program interventions to support federal offenders' rehabilitation and facilitate their reintegration into the community as law-abiding citizens. CSC also engages Canadian citizens as partners in its correctional mandate, and provides outreach to victims of crime;

Community Supervision: CSC supervises offenders in the community and provides structure and services to support their safe and successful reintegration into the community. Services include accommodation options, community health services, and the establishment of community partnerships. CSC manages offenders on parole, statutory release, and long-term supervision orders; and

Internal Services: Internal Services are those groups of related activities and resources that the federal government considers to be services in support of programs and/or required to meet corporate obligations of an organization. Internal Services refers to the activities and resources of the ten distinct service categories that support program delivery in the organization, regardless of the Internal Services delivery model in a department. The ten service categories are: Management and Oversight Services; Communications Services; Legal Services; Human Resource Management Services; Financial Management Services; Information Management Services; Information Technology Services; Real Property Services; Materiel Services; and Acquisition Services.

2. Summary of Significant Accounting Policies

These consolidated financial statements have been prepared using CSC's accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

Significant accounting policies are as follows:

a) Parliamentary authorities

CSC is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to CSC do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Consolidated Statement of Operations and Organizational Net Financial Position and in the Consolidated Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. The planned results amounts in the "Expenses" and "Revenues" sections of the Consolidated Statement of Operations and Organizational Net Financial Position are the amounts reported in the Consolidated Future-Oriented Statement of Operations included in the 2018-2019 Departmental Plan. Planned results are not presented in the "Government funding and transfers" section of the Statement of Operations and Departmental Net Financial Position and in the Statement of Change in Departmental Net Debt because these amounts were not included in the 2018-2019 Departmental Plan.

b) Consolidation

These consolidated financial statements include the accounts of the sub-entity for which the Commissioner is accountable. The accounts of this sub-entity, CORCAN Revolving Fund, have been consolidated with those of CSC and all intra-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 CSC is deposited to the CRF and all cash disbursements made by CSC 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 Government.

d) Amounts due from or to the Consolidated Revenue Fund (CRF)

Amounts due from or to the CRF are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that CSC is entitled to draw from the CRF without further authorities to discharge its liabilities.

e) Revenues

f) Expenses

Expenses are recorded on an accrual basis:

g) Employee future benefits

h) Accounts and loans receivable from external parties

Accounts and loans receivable are initially recorded at cost. When necessary, an allowance for valuation is recorded to reduce the carrying value of accounts and loans receivable to amounts that approximate their net recoverable value.

i) Inventories

j) Tangible capital assets

The costs of acquiring land, buildings, equipment and other capital property are capitalized as tangible capital assets and, except for land, are amortized to expense over the estimated useful lives of the assets, as described in Note 11. All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. Tangible capital assets do not include immovable assets located on reserves as defined in the Indian Act, works of art, museum collection and Crown land to which no acquisition cost is attributable; and intangible assets.

k) Contingent liabilities and Contingent assets

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

Contingent assets are possible assets which may become actual assets when one or more future events occur or fail to occur. If the future event is likely to occur or fail to occur, the contingent asset is disclosed in the notes to the financial statements.

l) Environmental liabilities

An environmental liability for the remediation of contaminated sites is recognized when all of the following criteria are satisfied: an environmental standard exists, contamination exceeds the environmental standard, CSC is directly responsible or accepts responsibility, it is expected that future economic benefits will be given up and a reasonable estimate of the amount can be made. The liability reflects CSC's best estimate of the amount required to remediate the sites to the current minimum standard for its use prior to contamination. When the future cash flows required to settle or otherwise extinguish a liability are estimable, predictable and expected to occur over extended future periods, a present value technique is used. The discount rate used reflects the Government's cost of borrowing, associated with the estimated number of years to complete remediation.

The recorded liabilities are adjusted each year, as required, for inflation, new obligations, changes in management estimates and actual costs incurred.

If the likelihood of the Government's responsibility is not determinable, a contingent liability is disclosed in the notes to the financial statements.

m) Measurement uncertainty

The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the consolidated financial statements and accompanying notes at March 31. The estimates are based on facts and circumstances, historical experience, general economic conditions and reflect the Government's best estimate of the related amount at the end of the reporting period. The most significant areas where estimates are used are contingent liabilities, environmental liabilities, the liability for employee future benefits, the fair value of non-monetary transactions related to leased tangible capital assets 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 consolidated financial statements in the year they become known.

Environmental liabilities as discussed in Note 7 are subject to measurement uncertainty due to the evolving technologies used in the estimation of the costs for remediation of contaminated sites, the use of future estimated costs, and the fact that not all sites have had a complete assessment of the extent and nature of remediation. Changes to underlying assumptions, the timing of the expenditures, the technology employed, or the revisions to environmental standards or changes in regulatory requirements could result in significant changes to the environmental liabilities recorded.

n) Related party transactions

Related party transactions, other than inter-entity transactions, are recorded at the exchange amount.

Inter-entity transactions are transactions between commonly controlled entities. Inter-entity transactions, other than restructuring transactions, are recorded on a gross basis and are measured at the carrying amount, except for the following:

  1. Services provided on a recovery basis are recognized as revenues and expenses on a gross basis and measured at the exchange amount.
  2. Certain services received on a without charge basis are recorded for departmental financial statement purposes at the carrying amount.

3. Parliamentary Authorities

CSC receives most of its funding through annual Parliamentary authorities. Items recognized in the Consolidated Statement of Operations and Organizational Net Financial Position and the Consolidated Statement of Financial Position in one year may be funded through Parliamentary authorities in prior, current or future years. Accordingly, CSC 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 authorities used

(in thousands of dollars)
2019 2018 Restated
Net cost of operations before government funding and transfers 2,633,139 2,796,940
Adjustments for items affecting net cost of operations but not affecting authorities:
Add (Less):
Amortization of tangible capital assets (note 11) (120,562) (120,225)
Gain on disposal of tangible capital assets 610 394
Services provided without charge by other government departments (note 14a) (149,187) (169,872)
(Increase) in vacation pay and compensatory leave (5,630) (3,973)
Decrease (increase) in employee future benefits 4,665 (755)
(Increase) in environmental liabilities (8) (43)
Refund of prior years' expenditures 7,880 (5,305)
Other (26,389) (75,249)
(288,621) (375,028)
Adjustments for items not affecting net cost of operations but affecting authorities:
Add (Less):
Acquisitions of tangible capital assets (note 11) 231,599 187,650
Transition payments for implementing salary payments in arrears 5 6
(Decrease) increase in inventories (516) 2,933
(Decrease) in prepaid expenses - (1)
Other 13,715 15,612
244,803 206,200
Current year authorities used 2,589,321 2,628,112

b) Authorities provided and used

(in thousands of dollars)
2019 2018
Vote 1 - Operating expenditures 2,176,639 2,285,036
Vote 5 - Capital expenditures 235,661 247,857
Statutory amounts 227,360 214,975
2,639,660 2,747,868
Less:
Authorities available for future years 4,727 12,076
Lapsed authorities: Operating 37,744 45,447
Lapsed authorities: Capital 7,868 62,233
Current year authorities used 2,589,321 2,628,112

4. Accounts Payable and Accrued Liabilities

The following table presents details of CSC's accounts payable and accrued liabilities:

(in thousands of dollars)
2019 2018
Accounts payable - Other government departments and agencies 26,572 33,633
Accounts payable - External parties 85,958 99,242
Total accounts payable 112,530 132,875
Accrued liabilities 312,691 389,854
Total accounts payable and accrued liabilities 425,221 522,729

5. Employee Future Benefits

a) Pension Benefits

CSC's employees participate in the public service pension plan (the "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 percent 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 Plan benefits and they are indexed to inflation.

Both the employees and CSC contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to Economic Action Plan 2012, employee contributors have been divided into two groups: Group 1 relates to existing plan members as of December 31, 2012 and Group 2 relates to members joining the Plan as of January 1, 2013. Each group has a distinct contribution rate.

The 2018-2019 expense amounts to $153,259 thousand ($143,100 thousand in 2017-2018). For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2017-2018) the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2017-2018) the employee contributions.

CSC's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the Consolidated Financial Statements of the Government of Canada, as the Plan's sponsor.

b) Severance benefits

Severance benefits provided to CSC's employees were previously based on an employee's eligibility, years of service and salary at termination of employment. However, since 2011 the accumulation of severance benefits for voluntary departures progressively ceased for substantially all employees. Employees subject to these changes were given the option to be paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits upon departure from the public service. By March 31, 2019, substantially all settlements for immediate cash out were completed. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities.

The changes in the obligations during the year were as follows:

(in thousands of dollars)
2019 2018
Accrued benefit obligation - Beginning of year 67,616 66,861
Expenses for the year (207) 3,655
Benefits paid during the year (4,458) (2,900)
Accrued benefit obligation - End of year 62,951 67,616

6. Inmate Trust Fund

Pursuant to section 111 of the Corrections and Conditional Release Regulations, this account is credited with all moneys brought into the institution by an inmate on admission or readmission, and all moneys that are received on the inmate's behalf while in custody, including, monetary gifts from a third party, payments for program participation, pay earned while on work release or conditional release in the community, moneys received from a third party for work performed in an institution or a CSC approved inmate operated business enterprise, sale of hobby craft or custom work, a payment, allowance or income paid by either a private or government source. Deductions may be made from this account for issues such as debts to the Crown, the Inmate Welfare Fund, canteen expenditures, telephone calls, payments to assist in the reformation and rehabilitation of the inmate, and any other payments for which the inmate is liable.

(in thousands of dollars)
2019 2018
Beginning of year 17,299 18,899
Receipts 39,905 39,309
Disbursements (39,472) (40,909)
End of year 17,732 17,299

7. Environmental Liabilities

Remediation of contaminated sites

The Government's "Federal Approach to Contaminated Sites" sets out a framework for management of contaminated sites using a risk-based approach. Under this approach the Government has inventoried the contaminated sites identified on federal lands, allowing them to be classified, managed and recorded in a consistent manner. This systematic approach aids in identification of the high risk sites in order to allocate limited resources to those sites which pose the highest risk to human health and the environment.

CSC has identified a total of 51 sites (50 sites in 2018) where contamination may exist and assessment, remediation and monitoring may be required. Of these, CSC has identified 22 sites (23 sites in 2018) where action is required and for which a gross liability of $2,048 thousand ($1,875 thousand in 2018) has been recorded. This liability estimate has been determined based on site assessments performed by environmental experts.

In addition, a statistical model based upon a projection of the number of sites that will proceed to remediation and upon which current and historical costs are applied is used to estimate the liability for a group of unassessed sites. As a result, there are 18 unassessed sites (23 sites in 2018) of which 9 sites are projected to have a liability (14 sites in 2018) estimate of $1,163 thousand ($1,328 thousand in 2018) which has been recorded using this model.

These two estimates combined, totalling $3,211 thousand ($3,203 thousand in 2018), represents management's best estimate of the costs required to remediate the sites to the current minimum standard for its use prior to contamination, based on information available at the financial statement date.

For the remaining 20 sites (13 sites in 2018), no liability for remediation has been recognized. Some of these sites are at various stages of testing and evaluation and if remediation is required, liabilities will be reported as soon as a reasonable estimate can be determined. For these sites, CSC does not expect to give up any future economic benefit (there is likely no significant environmental impact or human health threats). These sites will be re-examined and a liability for remediation will be recognized if future economic benefits will be given up.

The following table presents the total estimated amounts of these liabilities by nature and source and the total undiscounted future expenditures as at March 31, 2019 and March 31, 2018. When the liability estimate is based on a future cash requirement, the amount is adjusted for inflation using a forecast CPI rate of 2.2% (1.9% in 2018). Inflation is included in the undiscounted amount.

The following table presents the total estimated amounts of these liabilities by nature and source as at March 31, 2019, and March 31, 2018.

Nature & source of liability
2019 2018
Nature & Source Total Number of Sites Number of Sites with a liability Estimated Liability and Total Undiscounted Expenditures(4)
(in thousands of dollars)
Total Number of Sites Number of Sites with a liability Estimated Liability and undiscounted expenditures
2018(4)
(in thousands of dollars)
Fuel Related Practices (1) 23 11 1,103 23 14 1,312
Landfills/Waste Sites (2) 19 13 1,275 15 13 1,046
Other (3) 9 7 833 12 10 845
Totals 51 31 3,211 50 37 3,203

(1) Contamination primarily associated with fuel storage and handling, e.g. accidental spills related to fuel storage tanks or former fuel handling practices, e.g. petroleum hydrocarbons, polyaromatic hydrocarbons and BTEX.

(2) Contamination associated with former landfill/waste site or leaching from materials deposited in the landfill/waste site, e.g. metals, petroleum hydrocarbons, polyaromatic hydrocarbons, BTEX, other organic contaminants, etc.

(3) Contamination from other sources, e.g. use of pesticides, herbicides, fertilizers at agricultural sites; use of PCBs, firefighting training areas, firing ranges and training facilities, etc.

(4) It was determined that the effects of discounting of these liabilities for each fiscal year is immaterial for CSC. Therefore, the present value technique has not been used to calculate the discounted value for each site.

Also during the year 7 sites (8 sites in 2018) were closed as they were either remediated or assessed to confirm that they no longer meet all the criteria required to record a liability for contaminated sites.

CSC's ongoing efforts to assess contaminated sites may result in additional environmental liabilities.

8. Deferred Revenue

Deferred revenue represents the balance at year-end of unearned revenues stemming from amounts received from external parties which are restricted to fund the expenditures related to specific projects, and amounts received for fees prior to services being performed. Revenue is recognized in the period that these expenditures are incurred or in which the service is performed. Details of the transactions related to this account are as follows:

(in thousands of dollars)
2019 2018
Opening balance 1,909 1,517
Amounts received 16,191 17,706
Revenue recognized (17,463) (17,314)
Ending balance 637 1,909

9. Accounts Receivable, Advances and Loans

The following table presents details of CSC's accounts receivable, advances, and loan balances:

(in thousands of dollars)
2019 2018
Receivables - Other government departments and agencies 24,276 35,507
Receivables - External parties 63,886 51,511
Employee advances 4,763 4,453
Parolee loans and advances to individuals other than employees 75 57
93,000 91,528
Allowance for doubtful accounts on receivables from external parties and parolee loans (632) (435)
Gross accounts receivable and advances 92,368 91,093
Accounts receivable held on behalf of Government (711) (1,251)
Net accounts receivable and advances 91,657 89,842

10. Inventories

The following table presents details of CSC's inventories:

(in thousands of dollars)
2019 2018
Inventories held for resale
Raw materials 8,180 7,557
Work in progress 479 245
Finished goods 6,822 4,863
15,481 12,665
Provision for obsolete inventory (805) (913)
Total inventories held for resale 14,676 11,752
Inventories not for resale
Supplies 18,329 22,763
Clothing 9,750 9,849
Building materials 4,557 4,365
Utilities 2,479 1,847
Other 2,974 2,705
Total inventories not for resale 38,089 41,529
Total Inventories 52,765 53,281

The cost of consumed inventories not for resale recognized as an expense in the Consolidated Statement of Operations and Organizational Net Financial Position is $136,513 thousand in 2018-2019 ($119,344 thousand in 2017-2018).

11. Tangible Capital Assets

Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the asset as follows:
Asset Class Amortization Period
Buildings 25 to 40 years
Works and Infrastructure 20 to 25 years
Machinery and Equipment 10 years
Informatics Hardware and Software 3 to 10 years
Vehicles 5 to 10 years
Leasehold Improvements Straight Line over the lesser of useful life of improvement or lease term
Assets under Capital Leases Straight Line over the lesser of useful life of improvement or lease term
Assets under construction are recorded in the applicable asset class in the year they are put into service and are not amortized until they are put into service.
(in thousands of dollars)
Cost Accumulated Amortization Net Book Value
Capital
Asset Class
Opening Balance Acquisitions Adjustments (1) Disposals and Write-Offs Closing Balance Opening Balance Amortization Adjustments (1) Disposals and Write-Offs Closing Balance 2019 2018 Restated
(Note 16)
Land 14,546 - - - 14,546 - - - - - 14,546 14,546
Buildings 2,559,455 - 192,964 (1,402) 2,751,017 1,178,467 80,938 (93) (1,260) 1,258,052 1,492,965 1,380,988
Works and infrastructure 738,589 - 28,709 - 767,298 474,964 17,912 92 - 492,968 274,330 263,625
Machinery
and
equipment
128,062 4,777 777 (3,645) 129,971 90,853 9,593 (4,217) (3,501) 92,728 37,243 37,209
Informatics Hardware and Software 92,880 - (421) - 92,459 71,724 - 4,211 - 75,935 16,524 21,156
Vehicles 77,746 14,002 (345) (5,918) 85,485 41,255 8,097 113 (5,185) 44,280 41,205 36,491
Leasehold Improvements 55,669 - 1,261 - 56,930 30,260 4,022 - - 34,282 22,648 25,409
Leased tangible
capital assets
- - - - - - - - - - - -
Assets under construction 438,465 212,820 (223,477) - 427,808 - - - - - 427,808 438,465
Total 4,105,412 231,599 (532) (10,965) 4,325,514 1,887,523 120,562 106 (9,946) 1,998,245 2,327,269 2,217,889
  1. Adjustments include assets under construction of $223,146 thousand ($52,720 thousand in 2017-2018) that were transferred to the other capital asset classes upon completion of the project. Other net adjustments of $638 thousand are as a result of the capital asset validation exercise undertaken during the fiscal year.

In April 2012, the Government of Canada announced it would close three institutions (Kingston Penitentiary, Ontario Regional Treatment Centre (ORTC) and Leclerc Institution). The closures were completed in September 2013 as planned. As of September 2013, the Kingston Penitentiary and ORTC were closed and will remain as tangible capital assets of CSC until such time a decision as to their future use is made.

During the capital asset validation exercise undertaken during 2018-2019, it was determined that there were capital assets that were incorrectly capitalized twice at Kingston Penitentiary. Kingston Penitentiary's updated net book value is $40,254 thousand ($41,834 thousand in 2017-2018). There is no change from 2017-2018 to the ORTC net book value of $4,991 thousand or the Ontario RHQ net book value of $789 thousand. Should a change in the Kingston Penitentiary's, ORTC's, or Ontario RHQ's net book values become known, any applicable amounts will be recorded at that time. Leclerc Institution remains a tangible capital asset of CSC and has been leased under a long-term operating agreement with the Province of Quebec.

CSC also has Buildings and Works and Infrastructure located on reserves as defined in the Indian Act which are not recognized above.

12. Contractual Obligations

The nature of the CSC's activities can result in some large multi-year contracts and obligations whereby the organization will be obligated to make future payments in order to carry out its transfer payment programs or when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

(in thousands of dollars)
2020 2021 2022 2023 2024 and thereafter Total
Acquisition of goods and services 263,229 8,497 5,011 546 317 277,600

13. Contingent Liabilities and Contingent Assets

a) Contingent Liabilities

Claims & Litigation

Claims have been made against CSC in the normal course of operations. These claims include items with pleading amounts and others for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. CSC has recorded an allowance for claims and litigations where it is likely that there will be a future payment and a reasonable estimate of the loss can be made. Other claims and litigations against CSC that have not been recorded in the allowance include class action suits for which the likelihood of liability is not determinable and/or a reasonable amount cannot be estimated.

b) Contingent Assets

CSC may bring a claim as part of its normal course of operations which could result in a contingent asset, however none are known to exist as at March 31, 2019.

14. Related Party Transactions

CSC is related as a result of common ownership to all government departments, agencies, and Crown corporations. Related parties also include individuals who are members of key management personnel or close family members of those individuals, and entities controlled by, or under shared control of, a member of key management personnel or a close family member of that individual.

CSC enters into transactions with these entities in the normal course of business and on normal trade terms.

During the year, CSC did not enter into material transactions at a value different from that which would have been arrived at if the parties were unrelated.

a) Common services provided without charge by other government departments

During the year, CSC received services without charge from certain common services organizations related to accommodation, legal services, the employer's contribution to the health and dental insurance plans, and worker's compensation coverage. These services without charge have been recorded at their carrying value in CSC's Consolidated Statement of Operations and Organizational Net Financial Position as follows:

(in thousands of dollars)
2019 2018
Employer's contribution to the health and dental insurance plans 125,955 146,334
Accommodation 17,564 18,138
Workers' compensation 4,195 4,180
Legal services 1,473 1,220
Total 149,187 169,872

The Government has centralized some of its administrative activities for efficient, cost-effective, and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, such as the payroll and cheque issuance services provided by Public Services and Procurement Canada, audit services provided by the Office of the Auditor General, and information technology services provided by Shared Services Canada, are not included in CSC's Consolidated Statement of Operations and Organizational Net Financial Position.

b) Other transactions with other government departments

(in thousands of dollars)
2019 2018
Accounts receivable 24,276 35,507
Accounts payable 26,572 33,633
Expenses 353,996 291,358
Revenues 52,917 51,621

Expenses and revenues disclosed in b) exclude common services provided without charge, which are already disclosed in a).

c) Transfers of assets and liabilities (to) from other government departments

During the year, CSC transferred in amounts related to salary overpayments receivable from other government departments for a net amount of $47 thousand ($12 thousand in the prior year).

There were no capital asset transfers with other government departments during 2018-2019.

15. Segmented Information

Presentation by segment is based on CSC's departmental results framework. The presentation by segment is based on the same accounting policies as described in the Summary of Significant Accounting Policies in note 2. The following table presents the expenses incurred and revenues generated for the main programs, by major objects of expense and by major types of revenue. The segment results for the period are as follows:

(in thousands of dollars)
2019 2018 Restated
(Note 16)
Care and Custody Correctional Interventions Community Supervision Internal Services Intra-entity Transactions
(with CORCAN)
Total Total
Transfer payments
Non-profit organizations 763 - 1,107 - - 1,870 2,259
Total transfer payments 763 - 1,107 - - 1,870 2,259
Operating expenses
Salaries and employee benefits 1,200,177 423,440 25,415 245,937 - 1,894,969 2,018,571
Professional and special services 111,775 68,365 125,892 41,114 (33,476) 313,670 304,688
Utilities, materials and supplies 130,667 35,933 3,389 4,535 (1,646) 172,878 164,587
Amortization of tangible capital assets 113,591 1,676 1,493 3,802 - 120,562 120,225
Payment in lieu of taxes 34,001 - - - - 34,001 34,344
Rentals 1,678 2,849 3,992 16,360 - 24,879 25,589
Accommodation - - 8,713 8,851 - 17,564 18,137
Travel 6,470 4,526 410 5,885 (2) 17,289 16,683
Repairs and maintenance 25,779 5,887 629 614 (17,618) 15,291 16,007
Machinery and equipment 9,802 2,286 207 3,551 (2,169) 13,677 22,162
Inmate pay - 12,851 - - - 12,851 12,846
Damages and Claims Against the Crown 8,538 21 - 10 - 8,569 13,737
Relocation - 306 - 5,734 (2) 6,038 5,047
Telecommunications 184 5 3 468 - 660 564
(Gain)/loss on disposal of tangible capital assets (610) 4 43 (47) - (610) (394)
Environmental liabilities (165) 173 - - - 8 43
Other subsidies and expenses 28,745 7,618 136 2,526 (1,842) 37,183 79,469
Intra-entity Transactions (with CORCAN) (22,239) (30,762) (1,652) (2,102) 56,755 - -
Total operating expenses 1,648,393 535,178 168,670 337,238 - 2,689,479 2,852,305
Sub-Total Expenses 1,649,156 535,178 169,777 337,238 - 2,691,349 2,854,564
Expenses incurred on behalf of Government - - - (116) (116) (11)
Total Expenses 1,649,156 535,178 169,777 337,122 - 2,691,233 2,854,553
Revenues
Sales of goods and services - 84,216 - - (26,122) 58,094 57,613
Miscellaneous revenues 3,991 31,756 - 67 (30,633) 5,181 3,832
Revenues earned on behalf of Government (3,991) (1,123) - (67) - (5,181) (3,832)
Intradepartmental Transactions (with CORCAN) - (56,755) - - 56,755 - -
Total Revenues - 58,094 - - 58,094 57,613
Net cost of operations before government funding and transfers 1,649,156 477,084 169,777 337,122 - 2,633,139 2,796,940

16. Adjustments to prior year's results

During 2018-2019, CSC conducted a targeted review of certain tangible capital assets, resulting in a retroactive adjustment to write-off duplicate assets. At year-end, CSC reviewed its methodology for the calculation of its Due from Consolidated Revenue Fund account, which also resulted in a retroactive adjustment to CSC's net financial position. The impact of these changes is shown in the table below.

(in thousands of dollars)
As previously stated Effect of the adjustment Restated
Statement of Financial Position
Due from CRF 433,223 (30,669) 402,554
Total Gross Financial Assets 536,068 (30,669) 505,399
Tangible capital assets 2,242,957 (25,068) 2,217,889
Total non-financial assets 2,284,486 (25,068) 2,259,418
Net financial position 2,150,235 (55,737) 2,094,498
Statement of Operations and Net Financial Position
Total expenses 2,855,386 (833) 2,854,553
Net cost of operations before Government funding and transfers 2,797,773 (833) 2,796,940
Change in Due from Consolidated Revenue Fund 183,942 37,344 221,286
Government funding and transfers 2,742,664 37,344 2,780,008
Net cost of operations after government funding and transfers 55,109 (38,177) 16,932
Organizational net financial position - Beginning of year 2,205,344 (93,914) 2,111,430
Statement of Change in Net Debt
Net cost of operations after government funding and transfers 55,109 (38,177) 16,932
Amortization of tangible capital assets (121,058) 833 (120,225)
Total change due to tangible capital assets 60,579 833 61,412
Organizational net debt - Beginning of year 14,789 68,013 82,802
Statement of Cash Flows
Net cost of operations before government funding and transfers 2,797,773 (833) 2,796,940
Amortization of tangible capital assets (121,058) 833 (120,225)
Note 11. Tangible capital assets
Cost
Buildings 2,567,767 (8,312) 2,559,455
Works and infrastructure 762,288 (23,699) 738,589
Total 4,137,423 (32,011) 4,105,412
Accumulated Amortization
Buildings 1,181,684 (3,217) 1,178,467
Works and infrastructure 478,690 (3,726) 474,964
Total 1,894,466 (6,943) 1,887,523
Net Book Value
Buildings 1,386,083 (5,095) 1,380,988
Works and infrastructure 283,598 (19,973) 263,625
Total 2,242,957 (25,068) 2,217,889

17. Comparative information

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

Annex to the Statement of Management Responsibility Including Internal Control Over Financial Reporting (unaudited)

Summary of the Assessment of Effectiveness of the Systems of Internal Control Over Financial Reporting for Fiscal Year 2018-2019 and the Action Plan of Correctional Service of Canada

1. Introduction

This document provides summary information on the measures taken by Correctional Service of Canada (CSC) to maintain an effective system of internal control over financial reporting (ICFR) including information on internal control management and assessment results and related action plans.

Detailed information on CSC's authority, mandate, and program can be found in the Departmental Results Report and the Departmental Plan.

2. Departmental System of Internal Control over Financial Reporting

CSC recognizes the importance of setting the tone from the top to ensure that employees throughout the organization understand their roles and responsibilities in maintaining an effective system of ICFR.

2.1 Internal Control Management

CSC has a well-established governance and accountability structure to support organizational assessment efforts and oversight of its system of internal control. CSC's Internal Controls over Financial Reporting Framework clearly defines the expectations, the requirements and the roles and responsibilities for internal controls.

This Framework, approved by the Commissioner in May 2018, includes the following elements in support of sound stewardship of public resources and reliable financial reporting:

CSC's ICFR Framework also requires the Commissioner to engage with the DAC on risk-based assessment plans and associated results related to the effectiveness of CSC's system of ICFR.

2.2 Service Arrangements Relevant to Financial Statements

CSC relies on other organizations for the processing of certain transactions that are recorded in its financial statements as follows:

3. CSC's Assessment Results during Fiscal Year 2018-2019

The key findings and significant adjustments required from the current year's assessment activities are summarized below.

New or significantly amended key controls: In the current year, there were no significantly amended key controls in existing processes which required a reassessment.

Ongoing monitoring program: As part of its rotational ongoing monitoring plan, the department completed its reassessment of Real Property, Revenues and Accounts Receivable, Hospitality and the the Information Technology General Controls (ITGC) of the Scheduling and Deployement System (SDS). The ITGC testing of the Human Resources Management System (HRMS) is currently underway and is expected to be completed in 2019-2020. For the most part, the key controls that were tested performed as intended, with the following opportunities for improvement:

Real Property

Revenues and Accounts Receivable

Information Technology General Controls (ITGC): Design and Operational Testing of Scheduling and Deployment System (SDS)

4. CSC's Action Plan

4.1 Progress during Fiscal Year 2018-2019

During 2018-2019, CSC has continued to conduct its ongoing monitoring according to the previous year's fiscal year's rotation plan as shown in the following table. However, due to reduced staff levels some modifications were made to the plan:

Progress During Fiscal Year 2018-2019
Element in previous year's action plan Status as at March 31, 2019
Real Property Ongoing Monitoring completed, remedial actions started
Hospitality Ongoing Monitoring completed, no remedial actions required
Revenues and Accounts Receivables Ongoing Monitoring completed, remedial actions started
Information Technology General Control : Scheduling and Deployement System (SDS) Design and Ongoing Monitoring completed for SDS; remedial actions started
Fixed Asset (other than Real Property) Remedial actions are in progress
Travel Remedial actions have been completed
4.2 Status and action plan for the next fiscal year and subsequent years

CSC's rotational ongoing monitoring plan over the next three years, based on an annual validation of the high-risk processes and controls and related adjustments to the ongoing monitoring plan as required, is shown in the following table.

Rotational Ongoing Monitoring Plan
Key Control Areas Ongoing monitoring rotationi
2019-2020 2020-2021 2021-2022
Entity-Level Controls x
IT General Controls x x x
Revenues and Accounts Receivable
Inventory x
Tangible Capital Assets x* x x
Salary and Employee Benefits x x x
Other Operating Expenses and Accounts Payable x x
Inmate Trust Fund
Financial Statement Close and Reporting x x
i The frequency of the ongoing monitoring of key control areas is risk-based and may occur over a multi-year cycle.
* Identifies partial ongoing monitoring work. The work will consist of a process description updates, risk assessment update and monitoring of the implementation of management action plans. No extensive sample testing will be done.

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