Quarterly financial report, for the quarter ended June 30, 2014

This quarterly report has been prepared by management of Correctional Service of Canada (CSC) 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. This report has not been subject to an external audit or review.

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). A summary description of CSC's program activities can be found in Part II of the Main Estimates.

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 organization, consistent with the Main Estimates, and Supplementary Estimates A for the 2014-2015 fiscal year, for which full supply was released on June 20, 2014^{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.

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.

The following graph provides a comparison of the net budgetary authorities and expenditures as of June 30, 2014 and June 30, 2013 for CSC's combined Operating, Capital and Budgetary Statutory Authorities.

As reflected in the Statement of Authorities, as of June 30, 2014, CSC has seen a reduction in total net authorities of $263.4 million for the current fiscal year compared to the previous fiscal year. This represents a 10.1% decrease over the total net authorities available as of June 30, 2013.

Operating Vote

CSC's Operating Vote decreased by $95.9 million or 4.8%, which is attributed to the net effect of the following items:

• An increase of $49.2 million related to transfer from Capital to Operating Vote due to the implementation of the common definition of Capital Asset defined in Treasury Board Accounting Standard 3.1;
• A decrease of $111.5 million (excluding employee benefit plan (EBP) of $13.7 million) related to savings identified as part of Budget 2012 (Canada's Economic Action Plan);
• A decrease of $31.0 million to offset the additional EBP costs (Statutory authorities) as a result of a transfer from non-personnel Operating budget to Personnel budget for realignment based on historical trends; and,
• A net decrease of $2.6 million related to miscellaneous adjustments.

Capital Vote

CSC's Capital Vote decreased by $171.3 million or 48.2%, which is attributed to the net effect of the following items:

• Through CSC's 2013-2018 Accommodation Plan, funding has been reduced by $122.1 million. As part of the plan, CSC's reference levels were reduced by $125.9 million 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, and an increase of $3.8 million was provided to address the ongoing capitalized maintenance requirements of existing and planned additional units within existing institutions; and,
• A decrease of $49.2 million related to transfer from Capital to Operating Vote due to the implementation of the common definition of Capital Asset defined in Treasury Board Accounting Standard 3.1.

Budgetary Statutory Authorities

CSC's Budgetary Statutory Authorities increased by $3.8 million mainly due to the net increase in the employee benefit plan (EBP) costs associated with the change in personnel costs.

Compared to the first quarter of the previous fiscal year, total net budgetary expenditures have increased by $110.6 million or 21.3%.

The most notable variances by standard object from the first quarter last year to this year are as follows:

• An increase of $84.8 million in personnel expenditures which is mainly due to the severance pay liquidation related to the signature of the collective agreement with the Union of Canadian Correctional Officers;
• A decrease of $6.6 million in professional and special services expenditures which is mainly due to a delay in finalizing contracts with community residential facilities;
• A decrease of $17.4 million in acquisition of land, buildings and works expenditures which is mainly due to the completion of several new living unit constructions in the previous year; and,
• An increase of $48.3 million in other subsidies and payments which is mainly due to a one-time transition amount of $50.5 million for implementing 'salary payment in arrears' by the Government of Canada.

CSC's spending in the first quarter of 2014-2015 has increased compared to the same quarter last year ($629.4 million versus $518.8 million). Overall, the increase is mainly due to non-recurring payments related to the severance pay and the pay in arrears.

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.

In the 2013 Speech from the Throne, the Government of Canada announced it will freeze the overall federal operating budget. Consequently, CSC will have to fund the increases in salary resulting from collective agreements that take effect during the freeze period (2014-15 and 2015-16), and for the ongoing impact of those adjustments.

CSC continues to review its operation to address the budgetary constraints resulting from the operating budget freeze.

During the first quarter of 2014-2015, there have been no significant changes in relation to operations, personnel and programs.

More information is available on the following page.
* Includes only Authorities available for use and granted by Parliament at quarter-end.

* These are mainly Vote 5 (Capital) expenditures