Quarterly Financial Report for the Quarter ended December 31, 2023

Introduction

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 the Quarterly Financial Reports for the quarters ended June 30, 2023 and September 30, 2023. 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 2023-2024.

Basis of Presentation

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 2023-2024 fiscal year for which the interim supply was released on March 30, 2023^{Footnote 1}  and the full supply was released June 23, 2023^{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 money can be spent by the Department. 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 a cash 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, 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 $20.0 million at any time. Through Supplementary Estimates (A), 2020–2021^{Footnote 3} , this limit was increased from a previous amount of $5.0 million. This increase was requested as a consequence of reduced sales and operations resulting from the COVID-19 pandemic. The limit will gradually decrease until fiscal year 2025-26, at which point it will return to the original $5.0 million threshold.

CSC also has a Vote Netted Revenue (VNR) authority in place, currently only being utilised for transactions with the Parole Board of Canada (PBC).  The total VNR authority for 2023-24 is $3.9 million, which allows CSC to bill PBC for information management and information technology services on a full incremental cost recovery basis. Throughout this report, the VNR authorities are netted with CSC’s vote 1 operating authorities.

Highlights of Fiscal Quarter and Fiscal Year to Date (YTD) Results

The following graph provides a comparison of the total budgetary authorities and net budgetary expenditures as of December 31, 2023 and December 31, 2022 for CSC’s combined operating, capital and budgetary statutory authorities.

Figure 1 - Budgetary Authorities and Net Budgetary Expenditures

Significant Changes to Authorities

As reflected in the Statement of Authorities for the period ending December 31, 2023, CSC has seen an increase in total authorities of $282.7 million or 8.5% for the current fiscal year compared to the previous fiscal year.

Operating Vote

CSC’s Operating Vote increased by $273.5 million or 9.8% compared to the authorities at the end of December 2022, which is attributed to the net effect of the following items:

• An increase of $105.0 million related to compensation for the funded portion of collective agreement increases;
• An increase of $97.1 million related to funding for class action lawsuits;
• An increase of $45.6 million in funding to stabilize operations towards rising Workers’ Compensation Board costs (Budget 2023);
• An increase of $42.0 million in quasi statutory funding related to changes in prices (inflation) and volume of goods and services being procured;
• An increase of $15.1 million in funding for equipment and licenses to maintain a hybrid workforce (Budget 2023);
• An increase of $14.2 million in funding related to Transforming Federal Corrections (Bill C-83);
• An increase of $11.4 million in funding for maintaining enhanced cleaning protocols across correctional facilities (Budget 2023);
• An increase of $2.4 million in funding for essential network enhancements;
• An increase of $2.2 million in funding to modernize existing security equipment infrastructure capability;
• An increase of $0.9 million in funding to increase capacity to address and foster a timely redress and resolution of offender grievances;
• A decrease of $44.6 million in funding to support pressures related to COVID-19;
• A decrease of $15.2 million related to funding from the Operating Budget Carry Forward;
• A decrease of $1.1 million related to the reprofile of unused 2020-21 funding which was earmarked for the Innovative Solutions Canada initiative;
• A decrease of $1.1 million in funding for the Application Modernization Initiative;
• A decrease of $0.2 million to transfer funds to the Royal Canadian Mounted Police for Law Enforcement Record Check Services; and
• A decrease of $0.2 million in funding for the Federal Contaminated Sites Action Plan.

Capital Vote

CSC’s Capital Vote increased by $0.1 million compared to the authorities at the end of December 2022, which is attributed to the net effect of the following items:

• An increase of $4.5 million in funding for essential network enhancements;
• An increase of $4.1 million related to funding from the Capital Budget Carry Forward;
• An increase of $3.9 million in funding to modernize existing security equipment infrastructure capability;
• An increase of $1.3 million in funding to reduce suspension points in correctional facilities infrastructure to increase inmate safety; and
• A decrease of $13.7 million related to the reprofile of unused 2020-21 funding for the completion of capital projects.

Budgetary Statutory Authorities

CSC’s budgetary statutory authorities increased by $9.1 million or 3.4% compared to December 2022, which is attributed to the net effect of the following items:

• An increase of $9.3 million for the department’s allocation of the employer’s share of the employee benefit plan;
• An increase of $1.4 million of proceeds from the disposal of surplus Crown assets; and
• A decrease of $1.6 million resulting from a reduction of the drawdown on the CORCAN revolving fund authority.

Explanation of Significant Variances from Previous Year Expenditures

Compared with the previous fiscal year, the total year to date net budgetary expenditures increased by $271.6 million or 13.4% mainly due to the following factors:

• Personnel expenditures increased by $151.5 million primarily due to:
  • An increase of $139.0 million due to the ratification of several collective agreements, including signing bonuses and various allowance increases;
  • An increase of $7.3 million due to the increase in Workers’ Compensation Boards (WCB) expenditures; and
  • An increase of $5.2 million for the employer’s contributions to the employee benefit plan. This will be adjusted at year-end based on total salary expenditures.
• Transportation and communication expenditures increased by $2.3 million primarily due to:
  • An increase of $2.1 million in public servants travel;
  • An increase of $0.7 million in travel due to inmate transfers; and
  • A decrease of $0.5 million in relocation.
• Professional and special services increased by $38.8 million primarily due to:
  • An increase of $23.7 million in quasi statutory items due to changes in offender population volumes and price fluctuations, mainly consisting of:
    • An increase of $15.9 million in the actual day bed usage at Community Residential Facilities; and
    • An increase of $7.8 million in health care services and specialists.
  • An increase of $15.1 million in legal services;
• Rentals increased by $8.2 million primarily due to:
  • An increase of $5.3 million in license and maintenance fees mainly for additional licenses; and
  • An increase of $2.9 million in rental of buildings mainly due to invoices being processed earlier this year than last year.
• Repair and maintenance increased by $1.8 million, mainly in institutional buildings.
• Utilities, materials and supplies increased by $16.1 million primarily due to:
  • An increase of $10.7 million in quasi statutory items due to changes in offender population volumes and price fluctuations, mainly consisting of:
    • An increase of $6.6 million in food inventory;
    • An increase of $3.2 million in the purchasing of medications; and
    • An increase of $0.9 million in medical supplies.
  • An increase of $5.4 million in miscellaneous manufactured articles, such as building materials and carpentry supplies.
• Acquisition of land, buildings and works increased by $44.6 million, mainly in construction projects to address aging critical infrastructure.
• Acquisition of machinery and equipment increased by $6.5 million primarily due to:
  • An increase of $3.4 million in computer equipment for lifecycle replacement; and
  • An increase of $3.1 million in security equipment and supplies.
• Other subsidies and payments increased by $7.2 million primarily due to:
  • An increase of $4.4 million due to the increase in Workers’ Compensation Boards (WCB) expenditures; and
  • An increase of $2.8 million in court ordered payments.
• A net increase of $6.4 million in CORCAN’s revenues due to receiving new funding for vocational training and an increase in revenue due to an increase of orders from clients.
• A net increase of $1.0 million in other standard objects.

(in million of dollars)

Risks and Uncertainties

CSC’s Departmental Plan 2023-2024 identifies the current risk environment and CSC’s key risk areas to the achievement of its strategic outcomes.

CSC will address existing financial challenges, and will continue working on a modernization plan over the three-year planning period.

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 is continuously working internally and with external stakeholders to resolve these issues.

CSC’s specific risks, as outlined in CSC’s Departmental Plan 2023-2024, are the increasingly complex and diverse 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 and modernization of the organization, the potential loss of support of partners delivering critical services and providing resources for offenders, the maintenance of public confidence in the federal correctional system, and the maintenance of a safe, secure, healthy, respectful, and collaborative working environment as established by its legal and policy obligations, mission, and values statement.

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

Treasury Board of Canada Secretariat has provided CSC with its baseline calculations for the spending reduction targets resulting from the Refocusing Government Spending, for which CSC is working on a multi-year savings plan.

Significant Changes in Relation to Operations, Personnel and Programs

CSC’s Special Operating Agency (SOA), CORCAN, operates a revolving fund with authority to spend its revenues. Due to the resulting measures around COVID-19, CORCAN could not operate under normal conditions.  Consequently, CORCAN’s drawdown limit increased to $20.0 million following Treasury Board approval. By the end of 2023-24, CORCAN’s drawdown limit will decrease by $3.0 million, this limit will gradually decrease until fiscal year 2025-26, at which point it will return to the original $5.0 million threshold.

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 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 has started and is continuing the process of making the necessary infrastructure changes, developing policies, and hiring and training staff to operate the SIUs. Funding for these initiatives gradually increases over a period of five years and stabilizes in fiscal year 2024-2025.

The Offender Management System (OMS) is a legacy solution for offender management that is mission-critical for CSC’s operations, research, performance reporting and legal compliance. Based on the current system, CSC is unable to operate at optimal efficiency, missing opportunities to improve effectiveness, and unable to respond in a timely manner to legislative changes or the informational demands of key stakeholders and federal partners. An investment in Offender Management System Modernization (OMSM) is underway to improve efficiency, allowing for better performance; enhanced effectiveness, contributing positively to public safety results; and improved flexibility, enabling improved responsiveness to changing legislation, adapting policy and shifting stakeholder demands.

In the third quarter of 2023-2024, the following changes have occurred within the senior leadership:

• Director General, Classifications, Resourcing, and Operations was appointed as Deputy Commissioner for Women;
  
• Assistant Deputy Commissioner, Correctional Operations, Quebec Region, was appointed as Regional Deputy Commissioner, Quebec Region; and
• Executive Director of Audit Operations was appointed as Chief Audit Executive and Evaluation.

Approvals by Senior Officials

Approved by: