Quarterly financial report, for the quarter ended September 30, 2013

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, 2013 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. Â 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 2013-2014 fiscal year, for which full supply was released on June 20, 2013^{Footnote 1}. This quarterly report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

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 2012-13 Main Estimates, i.e., these authorities did not take into consideration any effect from the Deficit Reduction Action Plan.

In fiscal year 2012-2013, frozen allotments were established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In 2013-2014, the changes to departmental authorities were reflected in the 2013-2014 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. Â 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 September 30, 2013, CSC has seen a reduction in total authorities of $585.7 million for the current fiscal year compared to the previous fiscal year. This represents an 18.4% decrease over the total authorities available as of September 30, 2012.

The following table summarizes the variances in total authorities by vote between September 30, 2012 and September 30, 2013. The items highlighted in yellow represent the decrease that occurred in the second quarter of 2013-14.

Variances in Authorities for the Period of October 1st, 2012 to June 30, 2013^{Footnote 3}

Through CSC 2013-2018 Accommodation Plan, funding has been reduced by $203.9 million. As part of the Plan, CSC's reference levels were reduced by $165.3 million in operating, $19.8 million in capital and $18.8 million in Employee Benefit Plan. This reduction in operating is associated with the return of funds related to projected inmate population growth which has not materialized for the Tackling Violent Crime Act and the Truth in Sentencing Act. The reduction in capital of $19.8 million is the result of two adjustments. Capital funding was reduced by $89.8 million to reflect the inmate population growth that has not materialized and an increase of $70.0 million was provided to address the ongoing capitalized maintenance requirements of existing and planned additional units within existing institutions.

The $170.2 million relates to savings identified as part of the Budget 2012 (Deficit Reduction Action Plan).

There was a reduction in capital vote reference levels of $81.1 million due to reprofiling of capital funding among fiscal years. It is attributable to the Construction Portfolio ($12.3 million), the reduction in opening reference level relating to the Truth in Sentencing Act ($57.6 million), the Strategic Review Reallocation ($10.8 million) and other adjustments ($0.4 million).

In the first quarter of 2013-2014, CSC received $25.1 million for Collective Agreement renewals.

The $1.0 million increase for the National Capital, Accommodation & Operations Plan (NCAOP) represents a net adjustment from previous years' plans. These changes are based on funding formulae driven by variations in Consumer Price Index and offender population levels, both incarcerated and in the community, as well as changes to the offender profile.

As of September 30, CSC request to carry forward operating and capital funds in 2013-14^{Footnote 4} was not yet approved by Treasury Board and therefore resulted in a reduction in authorities of $53.3 million in operating and $91.1 million in capital funds.

The reduction of $12.4 million is attributable to a timing difference in the reception of funds from Treasury Board to supplement other appropriations for requirements related to parental and maternity allowances, and for entitlements on cessation of service or employment.

Compared to the second quarter of the previous fiscal year, total net budgetary expenditures have increased by $4.0 million (0.6%). In the same manner, the total year-to-date expenditures have slightly increased by $0.4 million (0.03%).

The decrease of $9.3 million in year-to-date expenditure and the increase of $4.8 million in quarter over quarter expenditure in professional and special services expenditures are mainly due to a modification in the Correctional and Training fee^{Footnote 5} invoicing process between CSC and CORCAN that resulted from a difference in the timing of the expenditure. In 2012-2013, CSC had completely paid the Training fee invoice to CORCAN during the first quarter whereas in 2013-2014 CORCAN is invoicing CSC throughout the year.

Overall, CSC's trend in annual budgetary expenditures is consistent with 2012-2013. CSC's spending trend in the second quarter of 2013-2014 is comparable to the same quarter last year ($653.1 million versus $649.1 million).

Although the Deficit Reduction Action Plan saving measures will reduce CSC's expenditures as measures are implemented as planned later in the year, it is expected that CSC's total expenditures for the current fiscal year will increase compared to 2012-2013. This forecasted expenditures increase is mostly attributable to:

• The retroactive pay adjustment and the one-time severance payments pursuant to the collective agreement negotiated with the Union of Canadian Correctional Officers (see Risk and Uncertainties section for further details); and
• The increase in expenditures related to the implementation of the Tackling Violent Crime Act and the Truth in Sentencing Act.

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 second quarter include the following:

On November 5, 2013, the Treasury Board of Canada and the Union of Canadian Correctional Officers have ratified a new collective agreement (retroactive to June 1, 2010) that has resulted in significant financial impact for CSC. For fiscal year 2013-14, the financial impact of this settlement is estimated to be up to $90.5 million and approximately $30 million annually for future years (including the employer's share of Employee Benefit Plan). The 2012-13 Departmental Performance Report provides additional details regarding the carry forward of funds in 2013-14 that will be mainly used to cover the increase in salary. As part of this new agreement, the accumulation of severance benefits under the employee severance pay program will cease and the employees will be given the option to be immediately paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits on termination from the public service. Although CSC will report an increase in salary expenditures due to the one-time severance payments, it will not create an additional financial pressure for CSC since additional funding will be provided by the Treasury Board of Canada to cover these costs.

CSC continues to implement measures to address the budgetary constraints resulting from the Expenditure Restraint Act^{Footnote 6}, 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 strict controls on travel and hospitality expenditures; and,
• reducing contracts for non-essential professional services.

During the second quarter of 2013-2014, CSC completed the closure of three institutions (Kingston Penitentiary and the Regional Treatment Centre in Ontario and Leclerc Institution in Quebec) as previously announced on April 19, 2012 by the federal government.

All transfers of inmates were made in accordance with the Corrections and Conditional Release Act, and risk assessments were performed by CSC before transferring an offender to a facility that meets his or her security and programming needs.

CSC has put in place a comprehensive plan to accommodate staff impacted by the closures, with the majority of affected staff being redeployed to other facilities or other institutions nearby.

CSC is currently building additional new units within existing institutions to accommodate the increase in offender population due to the implementation of the Tackling Violent Crime Act and the Truth in Sentencing Act. Most staff affected by the closure of the institutions have been accommodated and will remain on strength to meet the staffing requirements as new accommodation units come on-line.

More information is available on the following page.

^* Includes only Authorities that were available for use and granted by Parliament as of quarter end.

^** Total available for use does not reflect measures announced in Budget 2012.

^* Planned expenditures do not reflect measures announced in Budget 2012.

^** The variations in planned expenditures by Standard Object in 2013 are attributable to the implementation of Budget 2012 Saving Measures as well as the return of operating and capital funds associated with the CSC Accommodation Plan 2013-2018.