Quarterly financial report, for the quarter ended September 30, 2016

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 and 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 safe 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 which full supply was released on June 23, 2016^{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.

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 September 30, 2016 and September 30, 2015 for CSC's combined Operating, Capital and Budgetary Statutory Authorities.

As reflected in the Statement of Authorities for the period ending September 30, 2016, CSC has seen an increase in total net authorities of $5.9 million or 0.24% for the current fiscal year compared to the previous fiscal year.

CSC's Operating Vote increased by $5.0 million or 0.3% compared to the authorities at the end of September 2015, which is attributed to the net effect of the following items:

• A net increase of $8.2 million for the Operating Budget Carry Forward compared to prior fiscal year;
• An increase of $1.1 million related to the implementation of the Canadian Victims Bill of Rights;
• A decrease of $2.1 million related to an increase in CSC's contribution to the Canada School of Public Service under its new service delivery model (CSC's contribution in 2016-2017 is $4.1 million compared to $2.0 million in 2015-2016);
• A decrease of $1.0 million related to the Federal Contaminated Sites Action Plan;
• A decrease of $1.0 million related to the National Infrastructure Contribution Program due to adjustment to reprofiling of funds in previous year; and
• A net decrease of $0.2 million related to miscellaneous adjustments.

CSC's Capital Vote decreased by $6.1 million or 2.6% compared to the authorities at the end of September 2015 which is attributed to the net effect of the following items:

• A decrease of $8.9 million for Supplementary Estimates (A) received in 2015-2016 related to the 2014 Federal Infrastructure Initiative;
• A net decrease of $0.6 million related to miscellaneous adjustments;
• A net decrease of $6.0 million for the Capital Budget Carry Forward compared to prior fiscal year;
• An increase of $5.1 million in capital investments mainly due to reprofiling of funds in previous years; and
• An increase of $4.3 million from the Accelerated Infrastructure Program.

CSC's Budgetary Statutory Authorities increased by $7.0 million or 2.8% mainly due to the department's allocation of the employer's share of the Employee Benefit Plan and the proceeds from the disposal of surplus Crown assets.

Compared with the previous year, the total year to date net budgetary expenditures decreased by $13.3 million or 1.2% due to multiple factors:

• Professional and special services increased mainly due to the requirement to record advance payments to the Department of Justice following the implementation of a new funding and billing model for legal services effective April 1, 2016. This variance can further be explained by the budget transfer of CSC's Vocational and Community Employment Coordinators to CORCAN, as well as a modification in the Correctional and Training fee^{Footnote 2} invoicing process between CSC and CORCAN that resulted in a difference in the timing of expenditures. Furthermore, this explains a net increase of $9.9 million in CORCAN's revenues netted against expenditures as compared to the same period last year;
• Personnel expenditures decreased 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 expenditures decreased as a result of timing differences with interdepartmental invoicing for CSC's portion of various construction projects.

When compared to the same period in the previous fiscal year, the total net budgetary expenditures in the second quarter ending September 30, 2016 has increased by $10.9 million or 1.8%. The net increase is mainly due to the implementation of a new funding and billing model for legal services with the Department of Justice, a modification in the Correctional and Training fee^{Footnote 2a} invoicing process between CSC and CORCAN which resulted in a net increase in CORCAN's revenues netted against expenditures.

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 (2014-2015 and 2015-2016), 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 2016-2017, 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 handle risk-related challenges, ensure operational sustainability and fulfill its mandate.

Effective September 2, 2016, our Assistant Commissioner, Corporate Services and Chief Financial Officer (CFO), Liette Dumas-Sluyter retired. Denis Bombardier, Deputy Chief Financial Officer, was appointed to act in this position.

During the second quarter of 2016-2017, there have been no other 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