Quarterly financial report, for the quarter ended September 30, 2011

This quarterly report has been prepared by management as required by section 65.1 of the Financial Administration Act and in the form and manner prescribed by the Treasury Board. This quarterly report should be read in conjunction with the Main Estimates, Supplementary Estimates and the Quarterly Financial Report as of June 30, 2011. This report has not been subject to an external audit or review.

Correctional Service Canada (CSC), as part of the criminal justice system and respecting the rule of law, contributes to public safety by actively encouraging and assisting offenders to become law-abiding citizens, while exercising reasonable, safe, secure and humane control. It delivers its mandate under four major program activities. A summary description of CSC’s program activities can be found in Part II of the Main Estimates.

CSC contributes to public safety by administering court-imposed sentences for offenders sentenced to two years or more. This involves managing institutions of various security levels and supervising offenders on different forms of conditional release, while assisting them to become law-abiding citizens. CSC also administers post-sentence supervision of offenders with Long Term Supervision Orders for up to ten years.

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the CSC’s spending authorities granted by Parliament and those used by the department, consistent with the Main Estimates and Supplementary Estimates A for the 2011-2012 fiscal year, for which full supply was released on June 27, 2011. 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.

When Parliament is dissolved for the purposes of a general election, section 30 of the Financial Administration Act authorizes the Governor General, under certain conditions, to issue a special warrant authorizing the Government to withdraw funds from the Consolidated Revenue Fund. A special warrant is deemed to be an appropriation for the fiscal year in which it is issued.

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 budgetary 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.

Authorities Analysis

As reflected in the attached Statement of Authorities, as of September 30, 2011, CSC has seen an increase in total authorities of 23.5% ($588.8 million) compared to the previous year.

The following table summarizes the variances:

Of the $588.8 million overall increase, $514.2 million was reflected in the first quarterly report of 2011-2012. The additional items since June have been highlighted.

Of the net increase in total authorities reflected in the Statement of Authorities, $458.0 million ($234.9 million in operating funding and $223.1 million in capital funding) was received in relation to the implementation of the Truth in Sentencing Act, and $19.6 million for the Tackling Violent Crime Act, which will increase both individual sentence length and the numbers of federal offenders. These changes will result in CSC accommodating and supervising a significant increase to the current offender population.

The Budgetary Statutory Authority increased $44.0 million in the first quarter. This was related to CSC’s allocation of the employer’s share of the Employee Benefit Plan (EBP) and the disposal of crown assets. At the end of the second quarter, the Budgetary Statutory Authority increase is $43.8 million. The $0.2 million variance is due to the disposal of crown assets.

CSC received an increase of $33.7 million for the National Capital, Accommodation & Operations Plan. The increase is related to offender programs and specific accommodation measures, which are based on funding formulae driven by variations in population levels both incarcerated and in the community, as well as changes to the types of offender.

Funding for capital expenditures has been reduced by $15.4 million as a result of the 2009 Strategic Review.

There was a $27.3 million decrease in CSC’s capital vote reference levels due to reprofiling of capital funds to future years.

The other increases in the second quarter include the Operating Budget Carry-forward, the Capital Budget Carry-forward, and adjustments related to personnel costs identified as Paylist Requirements.

In September 2011, CSC received notification that the requested Operating Budget Carry-forward of $49.7 million had been transferred. This represents an increase of $12.0 million over the Operating Budget Carry-forward received last year. The Operating Budget Carry-forward included $17.2 million of personnel related expenses such as severance pay and parental benefits that were cash-managed by CSC when Parliament was prorogued and for which Treasury Board subsequently provided funding.

CSC also received a Capital Budget Carry-forward of $54.5 million. No Capital Budget Carry-forward was requested last year.

CSC received $8.3 million to offset Paylist Requirements. These are personnel costs resulting from newly negotiated contracts. These funds relate to contract increases for the period that predates the Expenditure Restraint Act and the Cost Containment Measures.

Compared to the second quarter of the previous fiscal year, total net budgetary expenditures have increased by $99.8 million (17.7%), resulting in a total year-to-date increase of $134.1 million. The implementation of the Truth in Sentencing Act and the Tackling Violent Crime Act resulted in an increase of $34.3 million in the first quarter of 2011-2012 over the same period in 2010-2011, primarily due to increased expenditures in personnel and acquisition of land, buildings and works. This trend continued in the second quarter of 2011-2012.

Operating expenditures in the second quarter have increased by $64.6 million over the same period of last year. Salaries and overtime expenditures increased by $58.1 million^{Footnote 1} and is a result of the increased staffing relating to the implementation of the legislation. There was a $5.9 million increase in training fees between CSC and CORCAN over the same period last year. This increase is reflected in the professional and special services category and is mainly due to a difference between this year and last year in the timing of invoices between CORCAN and CSC.

Capital expenditures increased by $28.0 million, which is mainly attributable to improvements to and construction of infrastructure ($27.2 million in the acquisition of land, buildings and works) to support the projected increase in the offender population.

The Budgetary Statutory Authority increase is primarily related to the Employee Benefit Plan (EBP) ($10.8 million^{Footnote 2}). This expenditure is charged monthly by the Treasury Board Secretariat based on an annual projection of personnel expenditures.

As a result of legislative changes, the number of inmates in CSC’s custody has grown and is expected to significantly increase over the next few years. This growth will exert significant pressure on CSC’s already ageing infrastructure and requires the construction geared towards increased capacity. To mitigate this risk, CSC has established an Infrastructure Renewal Team. This team is working with operational sites, regions, and sectors at National Headquarters to ensure appropriate levels of staff, accommodation space and other resources are in place to allow for effective case management, program delivery, and community supervision as the population increases.

Separate from the increased funding noted under the Authorities Analysis section, Budget 2010 stipulated that the operating budgets of departments would remain frozen at their 2010-2011 levels for the fiscal years 2011-2012 and 2012-2013. In the last two years, CSC has implemented measures to address these constraints, such as:

• introducing new staff deployment standards for Correctional Officers and computerized roster systems to ensure efficient staffing levels in federal institutions, resulting in a significant reduction in overtime expenditures;
• improving integrated human resource and business planning methods to improve the accuracy of forecasts for future staffing, recruitment, and essential training needs;
• implementing a more focused approach to reducing travel and hospitality expenditures; and,
• piloting an innovative Integrated Correctional Program Model that will reduce redundancies and overlap between some of the programs offered to offenders, leading to efficiencies in program delivery.

Further, in line with the objectives defined in Budget 2010, any increase in funding required as the result of a new collective agreement will be absorbed within current funding levels as part of the mitigation strategies outlined above. It should be noted that the collective agreement with the Union of Canadian Correctional Officers expired as of May 31, 2010. This group represents 41% of CSC’s employees, and therefore, a new collective agreement could result in a significant financial pressure on CSC.

More information is available on the following page.
* Includes only Authorities that were available for use and granted by Parliament as of September 30, 2010.
** Includes only Authorities that were available for use and granted by Parliament as of September 30, 2011.