Quarterly financial report, for the quarter ended June 30, 2019

• Introduction
  • Basis of Presentation
• Highlights of Fiscal Quarter and Fiscal Year to Date (YTD) Results
  • Significant Changes to Authorities
  • Explanation of Significant Variances from Previous Year Expenditures
• Risks and Uncertainties
• Significant Changes in Relation to Operations, Personnel and Programs
• Statement of Authorities (unaudited)
• Organizational Budgetary Expenditures by Standard Object (unaudited)

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. 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 and the Departmental Plan 2019-2020.

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes CSC’s spending authorities granted by Parliament and those used by the organization, consistent with the Main Estimates for the 2019-2020 fiscal year for which full supply was released on June 28, 2019 ^{Endnote i}. 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 money 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 results reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

CSC has an active Revolving Fund (CORCAN) that is included in the statutory authorities 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 total budgetary authorities and net budgetary expenditures as of June 30, 2019 and June 30, 2018 for CSC’s combined operating, capital and budgetary statutory authorities.

CSC’s 2019-20 Main Estimates include $95.0M under Vote 10 for funding approved through Budget 2019 for “Support for the Correctional Service of Canada”, to support CSC’s existing operations. Funding approved through Vote 10 has not yet been transferred to CSC and is not yet available for use. Therefore, Vote 10 has been excluded from the budgetary authorities presented here and in the Statement of Authorities.

As reflected in the Statement of Authorities for the period ending June 30, 2019, CSC has seen an increase in total authorities available for use of $41.3 million or 1.7 % for the current fiscal year compared to the previous fiscal year.

CSC’s Operating Vote increased by $36.3 million or 1.8 % compared to the authorities at the end of June 2018, which is attributed to the net effect of the following items:

• An increase of $27.6 million related to the funded portion of Collective Agreement increases;
• An increase of $7.9 million to cover incremental expenditures due to changes in offender population volumes and price fluctuations;
• An increase of $6.2 million related to funding for Vulnerable Offenders (Budget 2017);
• An increase of $4.3 million to further support the mental health needs of inmates and to support the reopening of the penitentiary farms at Joyceville and Collins Bay institutions (Budget 2018);
• A decrease of $9.5 million due to reallocation of funds to Shared Services Canada to modernize and enhance Government digital services (Budget 2018);
• A decrease of $0.1 million in funding for the Federal Contaminated Sites Action Plan Initiative;
• A decrease of $0.1 million in funding to the Greening Government Fund Initiative.

CSC’s Capital Vote decreased by $1.3 million or 0.7% compared to the authorities at the end of June 2018, which is attributed to CSC’s contribution to the Financial Management Transformation Initiative of the Treasury Board of Canada Secretariat.

CSC’s budgetary statutory authorities increased by $6.3 million or 2.8% compared to June 2018, which is related to increases in personnel expenses associated with the items described above, as well as proceeds from the disposal of surplus of crown assets.

Compared with the previous fiscal year, the total year to date net budgetary expenditures decreased by $8.9 million or 1.6% mainly due to the following factors:

• Personnel expenditures decreased by $12.8 million primarily due to:
  • An increase of $7.1 million to personnel salaries due to increased rates of pay for salaries and allowances in the current fiscal year compared to the previous fiscal year as a result of the signing and implementation of various collective agreements;
  • A decrease of $21.5 million due to fewer retroactive payments processed during the current fiscal year compared to the prior fiscal year; and
  • An increase of $1.6 million to employer contribution to employee benefits plans due to increased rates of pay for salaries in the current fiscal year compared to the previous fiscal year because of the signing and implementation of various collective agreements.
• Professional and special services increased by $11.8 million primarily due to:
  • An increase of $9.5 million as a result of a change in the intra-departmental billing between CORCAN and CSC for the Correctional and Training Fee from 25% in the first quarter of 2018-19 to 50% in the first quarter of 2019-20, as well as increases in the total fee related to the management of farms and Indigenous employment/training initiatives; and
  • An increase of $2.0 million in welfare services due to an increase Community Residential Facility bed requirements.
• Utilities, materials and supplies increased by $7.4 million primarily due to:
  • An increase of $8.9 million for pharmaceutical and other medical products associated with the needs of the offender population;
  • An increase of $0.6 million for officer uniforms; and
  • A decrease of $1.7 million in payment of footwear allowance which is paid every second year.
• Acquisition of machinery and equipment expenditures decreased by $5.0 million primarily due to:
  • A decrease of $4.4 million related to the purchase of vehicles in the prior fiscal year as part of increased vehicle lifecycle management.
• A net increase of $9.4 million in CORCAN’s revenues primarily due to:
  • An increase of $9.5 million as a result of a change in the intra-departmental billing between CORCAN and CSC for the Correctional and Training Fee from 25% in the first quarter of 2018-19 to 50% in the first quarter of 2019-20, as well as increases in the total fee related to the management of farms and Indigenous employment/training initiatives; and
  • A net decrease of $0.1 million due to fewer sales in both manufacturing and textiles, which were offset by an increase in construction revenues in the first quarter of this fiscal year, compared to the first quarter of the last fiscal year.

CSC’s Departmental Plan 2019-20 identifies the current risk environment and CSC’s key risk areas to the achievement of its strategic outcomes.

CSC continues to manage financial pressures resulting from prior-year operating budget freezes (2014-2015 and 2015-2016), other government-wide spending reduction exercises, and increases in non-discretionary costs. CSC has undertaken a comprehensive review, over a two-year period, to identify potential efficiencies and reallocation opportunities, make further investments to mitigate operational and financial risks, ensure resource levels are sufficient for CSC to meet its legislated mandate and continue to deliver results for Canadians, and subsequently stabilize its financial position into the future.

CSC continues to experience ongoing issues related to the Phoenix Pay System. Given the complexity of our workforce coupled with the operational nature of our organization, CSC has experienced a significantly high number of pay related issues. CSC continues to work with internal and external stakeholders to resolve these issues.

CSC’s specific risks, as outlined in CSC’s Plans at a glance and operating context, 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 inability to implement its mandate and ensure the financial sustainability of the organization, 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. This included receiving program integrity funding in the last quarter of 2017-2018 and the third quarter of 2018-2019. Additional funding to support CSC’s operations has been announced in the 2019 Budget Plan, however this funding is still pending the approval of the Treasury Board, before being transferred to CSC, and is not included in the Statement of Authorities available to CSC. Additional funding is anticipated in the future, until the comprehensive review is completed.

CSC received significant investments via the Fall Economic Statement (2018) to enhance mental health services for offenders, and support amendments to transform federal corrections, specifically in support of Bill C-83. Bill C-83 An Act to amend the Corrections and Conditional Release Act and another Act received Royal Assent on June 21, 2019. The amendments will eliminate administrative and disciplinary segregation, and introduce a new correctional model including the use of structured intervention units (SIUs) for inmates who cannot be managed safely within a mainstream inmate population. CSC is in the process of making the necessary infrastructure changes, developing policy, and hiring and training staff to open the SIUs. Funding for these initiatives will gradually increase over the following five years and stabilize in fiscal year 2024-2025.

There have been no changes to key senior personnel in the first quarter of 2019-2020.