Quarterly financial report, for the quarter ended December 31, 2012

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, Quarterly Financial Report as of June 30, 2012 and September 30, 2012 as well as Canada's Economic Action Plan 2012 (Budget 2012). 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 2012-2013 fiscal year, for which full supply was released on June 29, 2012 ^{Footnote 1} and Supplementary Estimates B, for which full supply was released on December 14, 2012 ^{Footnote 2}. 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.

As part of the Parliamentary business of supply, the Main Estimates must be tabled in Parliament on or before March 1 preceding the new fiscal year. Budget 2012 was tabled in Parliament on March 29, after the tabling of the Main Estimates on February 28, 2012. As a result the measures announced in the Budget 2012 could not be reflected in the 2012-2013 Main Estimates, i.e., these authorities do not take into consideration any effect from the Deficit Reduction Action Plan.

In fiscal year 2012-2013, frozen allotments will be established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In future years, the changes to departmental authorities will be implemented through the Annual Reference Level Update, as approved by Treasury Board, and reflected in the subsequent Main Estimates tabled in Parliament.

The authority of Parliament is required before moneys can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts or through legislation in the form of statutory spending authority for specific purposes.

CSC uses the full accrual method of accounting to prepare and present its annual 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) which is included in the statutory votes 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 End and Fiscal Year to Date (YTD) Results

As reflected in the attached Statement of Authorities, as of December 31, 2012, CSC has seen an increase in total authorities of $22.3 million for the current fiscal year compared to the previous fiscal year. This represents a 0.7% increase over the total authorities available as of December 31, 2011. It should be noted that these authorities do not take into consideration any effect from the Deficit Reduction Action Plan.

The following table summarizes the variances in total authorities by vote between December 31, 2011 and December 31, 2012. The items highlighted in yellow represent the variances that occurred in the third quarter of 2012-2013.

Variances in Authorities as of June 30, 2012

Of the net increase in total authorities reflected in the Statement of Authorities, $174.2 million ($171.8 million in operating funding and $2.4 million in capital funding) was received in relation to the implementation of the Truth in Sentencing Act, and $3.8 million for the Tackling Violent Crime Act, where increases in both individual sentence length and the numbers of federal offenders is expected.

These changes will result in CSC accommodating and supervising an increase in the current offender population. However, it was announced in July 2012 that CSC will be reducing its reference levels by approximately $1.48 billion over the period of 2011-2012 to 2017-2018 given that the forecasted growth in the inmate population did not materialize as originally forecasted. For 2012-2013, the adjustments represent a reduction in operating funding of $258 million and a reduction in capital funding of $8 million. These adjustments have not yet been reflected in CSC's authorities.

As part of the Budget 2008 Integrity Funding from the 2010-2011 Annual Reference Level Update, $4.7 million of the Operating vote was reprofiled from previous years to 2012-2013.

The $48.6 million decrease for the National Capital, Accommodation & Operations Plan relates to offender programs and specific accommodation measures. These measures 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.

CSC decreased its reference level by $43.3 million ($32.8 million in operating funding and $10.5 million in capital funding) due to the transfer of some IT responsibilities to Shared Services Canada (SSC). SSC was established by an Order in Council to pool existing resources from across government in order to consolidate and transform IT infrastructure for the Government of Canada.

Funding has been reduced by $41.3 million ($1.6 million in Operating and $39.7 million in Capital) as a result of the 2009 Strategic Review.

There was a $13.3 million decrease in CSC's capital vote reference levels due to reprofiling of capital funds to future years.

The Budgetary Statutory Authority increase of $6.3 million is primarily due to CSC's allocation of the employer's share of the Employee Benefit Plan (EBP).

Variance in Authorities as of September 30, 2012

In September 2012, CSC received notification that the requested Operating Budget Carry-forward of $53.3 million had been transferred. This represents an increase of $3.6 million over the Operating Budget Carry-forward received last year.

CSC received a Capital Budget Carry-forward of $91.1 million, which represents an increase of $36.7 million as compared to the $54.4 million that was received last year.

CSC also received $12.4 million from the Treasury Board to supplement other appropriations for requirements related to parental and maternity allowances, and for entitlements on termination of employment. It represents an increase of $4.0 million over the same period last year.

Variances in Authorities as of December 31, 2012

In the third quarter of 2012-2013, CSC received $6.5 million for Collective Agreement renewals. It represents an increase of $6.3 million over the same period last year.

CSC also received $17.5 million from the Treasury Board to supplement other appropriations for requirements related to parental and maternity allowances, and for entitlements on termination of employment. It represents a decrease of $72.3 million over the same period last year.

Compared to the third quarter of the previous fiscal year, total net budgetary expenditures have decreased by $30.2 million (4.5%), and the total year-to-date expenditures have decreased by $17.4 million (2.6%).

Year-To-Date Expenditures Analysis

The overall decrease of $17.4 million is mainly attributable to a decrease in personnel, transportation and communications as well as in repair and maintenance. These decreases were partially reversed by an increase in acquisition of land, buildings and works. The following paragraphs explain the significant variances in detail.

The year-to-date increase of $80.2 million in acquisition of land, buildings and works expenditures is mainly due to the construction of new living units in many of CSC's existing institutions across the country as necessitated by the Truth in Sentencing Act.

The reduction in personnel expenditures of $54.6 million^{Footnote 5} reflects the decrease in severance benefits paid over the same period last year.

The reduction of $17.7 million in transportation and communications is attributable to the transfer of the email, network and data centre services to Shared Services Canada ($6.5 million) and to CSC's reductions in travel and relocation expenses as a result of ongoing efforts to reduce these costs ($11.2 million).

The reduction of $12.1 million in repair and maintenance is mainly due to the transfer of the email, network and data centre services to Shared Services Canada as per described in the Significant Changes in Relation to Operations, Personnel and Programs section.

Quarter Over Quarter Expenditures Analysis

To explain the higher reduction of $30.2 million in the quarter over quarter budgetary expenditures, one more factor must be considered in addition of the year-to-date variance explanations provided above.

The decrease of $16.5 million in professional and special services expenditures is mainly due to a modification in the Correctional and Training fee^{Footnote 6} invoicing process between CSC and CORCAN that resulted from a difference in the timing of the expenditure. At the end of the second quarter of 2012-2013, CSC had completely paid the Training fee invoice to CORCAN whereas in 2011-2012, CSC had paid monthly the invoice until December 2011.

Spending Trend Analysis

Overall, CSC's trend in annual budgetary expenditures is consistent with 2011-2012. CSC's expenditures in the third quarter of 2012-2013 represented 20.1% of the available authorities compared to 21.2% for the same quarter last year. This spending trend continued for the year-to-date expenditures as 56.6% of the available authorities were used during the first 9 months of 2012-2013, compared to 57.6% for the same period last year.

CSC's Report on Plans and Priorities (RPP) identifies the current risk environment and CSC's key risk areas to the achievement of its strategic outcomes. Within this context, specific financial risks relative to the third quarter include the following:

Budget 2010 Cost Containment Measures will require CSC to internally finance, on a permanent basis, the costs of wage increases resulting from current and future collective agreements negotiated between 2010-2011 and 2012-2013. For the current year, CSC will absorb internally an estimated amount of $20.3 million relating to salary increases.Â

In addition, collective agreements covering approximately 46% of CSC's workforce have expired (mostly with the Union of Canadian Correctional Officers). New agreements could result in significant financial pressure for CSC.

CSC continues to implement measures to address the budgetary constraints resulting from the Expenditure Restraint Act, including:

• maintaining 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.

As noted in the last Quarterly Financial Report of 2011-2012, CSC transferred to Shared Services Canada (SSC) the responsibility for providing email, network and data centre services. As a result of this transfer, effective April 1, 2012, CSC's total authorities were permanently reduced by $43.3 million.