Quarterly financial report, for the quarter ended December 31, 2015

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 and Quarterly Financial Reports as of June 30, 2015 and September 30, 2015. This report has not been subject to an external audit or review.

The purpose of the federal correctional system, as defined in 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 2015-2016 fiscal year, for which full supply was released on June 19, 2015^{Footnote 1} and Supplementary Estimates (B), for which full supply was released on December 11, 2015^{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.

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 consolidated 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 and Fiscal Year to Date (YTD) Results

The following graph provides a comparison of the net budgetary authorities and expenditures as of December 31, 2015 and December 31, 2014 for CSC's combined Operating, Capital and Budgetary Statutory Authorities.

As reflected in the Statement of Authorities for the period ending December 31, 2015, CSC has seen a decrease in total net authorities of $40.9 million or 1.6% for the current fiscal year compared to the previous fiscal year.

CSC's Operating Vote decreased by $27.2 million or 1.4% compared to the authorities at the end of December 2014, which is attributed to the net effect of the following items:

• A decrease of $17.7 million in Operating Budget Carry Forward compared to prior fiscal year;
• A decrease of $3.9 million for the return of funds to the fiscal framework for the requirements related to the mandatory minimum penalties for serious drug offenders;
• A decrease of $2.8 million for signed Collective Agreements;
• A decrease of $1.9 million related to the transfer to the Canada School of Public Service;
• A decrease of $0.6 million due to funding received in 2014-15 through Supplementary Estimates (B) for Federal Contaminated Sites Action Plan (FCSAP); and
• A decrease of $0.3 million related to miscellaneous adjustments.

CSC's Capital Vote decreased by $20.1 million or 7.8 % compared to the authorities at the end of December 2014, which is attributed to the net effect of the following items:

• A decrease of $26.9 million in Capital Budget Carry Forward compared to prior fiscal year;
• A net decrease of $7.3 million in capital investments due to reduced requirements related to the completion of the construction of new units and adjustments related to reprofiling of funds from previous years;
• An increase of $8.9 million in capital through Supplementary Estimates (A) for the 2014 Federal Infrastructure Initiative; and
• An increase of $5.2 million related to funding transferred in 2014-15 through Supplementary Estimates (B) to the Royal Canadian Mounted Police (RCMP) to support the renovation and fit-up of "B" Block living unit.

CSC's Budgetary Statutory Authorities increased by $6.4 million or 2.7% mainly due to the net increase to the allocation of the employer's share of the Employee Benefit Plan (EBP) costs.

Compared with the previous year, the total year to date net budgetary expenditures decreased by $191.4 million or 10.5% due to the following factors:

• Personnel expenditures decrease is mainly due to the severance pay liquidation of $90 million in 2014-15 related to the signing of the collective agreement with the Union of Canadian Correctional Officers in November 2013 and the implementation of saving measures to achieve administrative efficiencies within National Headquarter and Regional Headquarters organizational structures;
• Other subsidies and payments expenditures also decreased mainly due to a one-time transition amount of $51.5 million as at quarter three of 2014-2015 compared to $0.4 million as at quarter three of 2015-2016 for implementing "salary payment in arrears" by the Government of Canada; and
• Acquisition of land, buildings and works decrease is mainly due to reduced requirements related to the completion of the construction of new living units.

When compared to the same period in the previous fiscal year, the total net budgetary expenditures in the third quarter ending December 31, 2015 has decreased by $26.9 million or 4.6%. The net decrease is mainly due to the following:

• Personnel expenditures decrease is mainly due to the implementation of saving measures to achieve administrative efficiencies within National Headquarter and Regional Headquarters organizational structures; and
• Acquisition of land, buildings and works decrease is mainly due to reduced requirements related to the completion of the construction of new living units.

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.

CSC's specific risks, as outlined in the RPP of 2015-16, are the increasingly diverse and evolving profile of the offender population, the maintenance of required levels of operational safety and security in institutions and the community, the ability to manage significant change related to transformation, legislative changes and fiscal constraints, the potential loss of partners delivering critical services and providing resources for offenders and the need to sustain results related to violent reoffenders.

CSC has put in place risk mitigation strategies to address the stated potential risks. The integrated approach allows CSC to manage risk-related challenges, ensure operational sustainability and fulfill its mandate.

During the third quarter of 2015-16, there have been no significant changes in relation to operations, personnel and programs.

Approvals by Senior Officials
Approved by:

More information is available on the following page.
* Includes only Authorities available for use and granted by Parliament at quarter-end.
** CORCAN has conducted a review of its operations and is expected to achieve cost savings by closing and clustering various shops and by implementing a centralized governance model.

* These are mainly Vote 5 (Capital) expenditures