Quarterly financial report, for the quarter ended June 30, 2011

This quarterly report has been prepared by management 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.

Correctional Service Canada (CSC), as part of the criminal justice system and respecting the rule of law, contributes to public safety by actively encouraging and assisting offenders to become law-abiding citizens, while exercising reasonable, safe, secure and humane control. It delivers its mandate under four major program activities. A summary description of CSC’s program activities can be found in Part II of the Main Estimates.

CSC contributes to public safety by administering court-imposed sentences for offenders sentenced to two years or more. This involves managing institutions of various security levels and supervising offenders on different forms of conditional release, while assisting them to become law-abiding citizens. CSC also administers post-sentence supervision of offenders with Long Term Supervision Orders for up to ten years.

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 department, consistent with the Main Estimates and Supplementary Estimates A for the 2011-2012 fiscal year, for which full supply was released on June 27, 2011. 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.

When Parliament is dissolved for the purposes of a general election, section 30 of the Financial Administration Act authorizes the Governor General, under certain conditions, to issue a special warrant authorizing the Government to withdraw funds from the Consolidated Revenue Fund. A special warrant is deemed to be an appropriation for the fiscal year in which it is issued.

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) that is included in the budgetary 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.

As reflected in the attached Statement of Authorities, in 2011-2012, CSC has seen an increase in total authorities from the previous year (2010-2011) of 20.8% ($514.2 million).

The following table summarizes the variances:

Of the net increase in total authorities reflected in the Statement of Authorities, $458.0 million ($234.9 million in operating funding and $223.1 million in capital funding) was received in relation to the implementation of the Truth in Sentencing Act, and $19.6 million for the Tackling Violent Crime Act, which will increase both individual sentence length and the number of federal offenders.

The Budgetary Statutory Authority increase of $44.0 million is related to CSC’s allocation of the employer’s share of the Employee Benefit Plan (EBP), due to employee growth, and the disposal of crown assets.

CSC received an increase of $33.7 million for the National Capital, Accommodation & Operations Plan. This increase is related to offender programs and specific accommodation measures, which are based on funding formulae driven by type and variations in the number of offenders (incarcerated and in the community).

Funding for capital expenditures has been reduced by $15.4 million as a result of the 2009 Strategic Review.

There was a $27.3 million decrease in CSC’s capital vote reference levels due to reprofiling of capital funds to future years.

Compared to the first quarter of the previous fiscal year, total net budgetary expenditures have increased by $34.3 million (7.4%). The implementation of newly enacted legislation is the key driver of the growth.

Capital expenditures increased by $11.7 million, which is mainly attributable to improvements to and construction of infrastructure ($5.0 million in repair and maintenance and $6.7 million in the acquisition of land, buildings and works) to support the projected increase in the offender population.

The budgetary statutory authorities increase ($11.7 million^{Footnote 1}) is primarily related to the Employee Benefit Plan (EBP). This expenditure is charged monthly by the Treasury Board Secretariat based on an annual projection of personnel expenditures.

Although operating expenditures have decreased by $8.0 million, salaries and overtime expenditures increased by $11.3 million^{Footnote 2}, and were offset by a reduction in professional and special services of $20.2 million. This reduction is mostly due to a timing difference of a training fee transfer between CSC and CORCAN, which was partially processed in the first quarter of this fiscal year. This also explains the overall reduction in CORCAN’s gross revenue.

As a result of legislative changes, the number of inmates in CSC’s custody has grown and is expected to significantly increase over the next few years. This growth will exert significant pressure on CSC’s already ageing infrastructure and requires the construction of new capacity. To mitigate this risk, CSC has established an Infrastructure Renewal Team. This team is working with operational sites, regions, and sectors at National Headquarters to ensure appropriate levels of staff, accommodation space and other resources are in place to allow for effective case management, program delivery, and community supervision as the population increases.

Separate from the increased funding noted under the Authorities Analysis section, Budget 2010 stipulated that the operating budgets of departments would remain frozen at their 2010-2011 levels for the fiscal years 2011-2012 and 2012-2013. In the last two years, CSC has implemented measures to address these constraints, such as:

• introducing new staff deployment standards for Correctional Officers and computerized roster systems to ensure efficient staffing levels in federal institutions, resulting in significant reduction to overtime;
• improving the integrated human resource and business planning methods to improve the accuracy of forecast future staffing, recruitment, and essential training needs;
• implementing a more focused approach to reducing travel and hospitality expenditures; and,
• piloting an innovative Integrated Correctional Program Model that will reduce redundancies and overlap between some of the programs offered to offenders, the preliminary findings of which are showing efficiencies in program delivery.

Further, in line with the objectives defined in Budget 2010, any increase in funding required as the result of a new collective agreement will be absorbed within current funding levels as part of the mitigation strategies outlined above. It should be noted that the collective agreement with the Union of Canadian Correctional Officers expired as of May 31, 2010. This group represents 41% of CSC’s employees, and therefore, a new collective agreement could result in a significant financial pressure on CSC.

More information is available in the attached table.
* Includes only Authorities available for use and granted by Parliament at quarter-end.