Quarterly financial report, for the quarter ended December 31, 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, Supplementary Estimates and Quarterly Financial Reports as of June 30, 2016 and September 30, 2016. 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, Supplementary Estimates (A) for the 2016-2017 fiscal year, for which full supply was released on June 23, 2016^{Footnote 1} and Supplementary Estimates (B), for which full supply was released on December 16, 2016^{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, 2016 and December 31, 2015 for CSC's combined Operating, Capital and Budgetary Statutory Authorities.

As reflected in the Statement of Authorities for the period ending December 31, 2016, CSC has seen an increase in total net authorities of $45.4 million or 1.9% for the current fiscal year compared to the previous fiscal year.

CSC's Operating Vote increased by $44.4 million or 2.3% compared to the authorities at the end of December 2015, which is attributed to the net effect of the following items:

• An increase of $30.6 million related to funding for the 2016-17 Quasi-Statutory Requirements through Supplementary Estimates (B);
• A net increase of $8.2 million for the Operating Budget Carry Forwardcompared to prior fiscal year;
• An increase of $7.8 million for the reimbursement of Paylist requirements (Vote 30);
• An increase of $1.1 million related to the implementation of the Canadian Victims Bill of Rights;
• An increase of $0.3 million related to 2016 Federal Infrastructure Initiative;
• 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 National Infrastructure Contribution Program;
• A net decrease of $0.3 million related to the Federal Contaminated Sites Action Plan; 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 December 2015, which is attributed to the net effect of the following items:

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

CSC's Budgetary Statutory Authorities increased by $7.1 million or 2.9% mainly due to the net increase to the allocation of the employer's share of the Employee Benefit Plan (EBP) costs associated with the change in personnel costs and the proceeds from the disposal of surplus Crown assets.

The total year to date net budgetary expenditures remained consistent with those of the previous year (net decrease of $0.1 million). Individual variances contributing to the overall variance can be explained by the factors below:

• Professional and special services increased by $13.9 million 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 transfer of funds associated with CSC's Vocational and Community Employment Coordinators to CORCAN, as well as a modification in the Correctional and Training fee^{Footnote 3} invoicing process between CSC and CORCAN that resulted in a difference in the timing of expenditures. Furthermore, this contributed to a net increase of $8.3 million in CORCAN's revenues netted against expenditures as compared to the same period last year;
• Utilities, materials and supplies increased by $8.1 million mainly due to increases in the purchase of medications for new Hepatitis C drug treatments approved by Health Canada; and
• Acquisition of land, buildings and works expenditures decreased by $14.2 million as a result of a timing difference with interdepartmental invoicing for CSC's portion of various construction projects.

When compared to the same period in the previous fiscal year, total net budgetary expenditures in the third quarter ending December 31, 2016 have increased by $13.2 million or 2.4%. The net increase is mainly a result of a timing difference associated with the interdepartmental invoicing for CSC's portion of the Federal Worker's Compensation expenditure affecting personnel expenditures. Additionally, personnel expenditures increased compared to the same period in the previous fiscal year due in part to higher overtime usages. Furthermore, utilities, materials and supplies increased due to increases in the purchase of medications for new Hepatitis C drug treatments approved by Health Canada. Professional and special services decreased slightly as a result of timing differences for the advance payments made to Community Residential Facilities.

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 manage risk-related challenges, ensure operational sustainability and fulfill its mandate.

During the third quarter of 2016-2017, 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