Quarterly financial report, for the quarter ended June 30, 2021

• 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 2021-2022.

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 2021-2022 fiscal year for which the interim supply was released on March 31, 2021 ^{Footnote 1} and the full supply was released June 24, 2021^{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 2021-22 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 June 30, 2021 and June 30, 2020 for CSC’s combined operating, capital and budgetary statutory authorities.

This graph depicts the budgetary authorities as $2,794,041 thousand and the year to date net budgetary expenditures as $582,453 thousand for the first quarter ending June 30, 2021. In 2020-21, the budgetary authorities were $2,554,845 thousand for the first quarter ending June 30, 2020 and the year to date net budgetary expenditures were $553,237 thousand.

As reflected in the Statement of Authorities for the period ending June 30, 2021, CSC has seen an increase in total authorities of $239.2 million or 9.4% for the current fiscal year compared to the previous fiscal year.

CSC’s Operating Vote increased by $213.6 million or 10.0% compared to the authorities at the end of June 2020, which is attributed to the net effect of the following items:

• An increase of $140.1 million related to funding approved for Support for the Correctional Service of Canada (Budget 2020);
• An increase of $35.3 million related to compensation for the funded portion of collective agreement increases;
• An increase of $22.1 million in funding related to Transforming Federal Corrections (Bill C-83);
• An increase of $11.8 million for critical operating requirements related to COVID-19;
• An increase of $8.8 million in quasi-statutory funding related to changes in prices and volume of goods and services being procured;
• An increase of $0.7 million related to Funding for Mental Health for Offenders and CORCAN Farms (Budget 2018);
• A decrease of $2.5 million related to funding for Addressing the Needs of Vulnerable Offenders (Budget 2017);
• A decrease of $2.2 million to transfer funds to the Parole Board of Canada due to the establishment of an alternative cost recovery mechanism in Correctional Services Canada for the provision of Information Technology and Information Management Services;
• A decrease of $0.3 million related to the Program and Administrative Services (PA) Modernization initiative; and
• A decrease of $0.2 million in funding for the Federal Contaminated Sites Action Plan;

CSC’s Capital Vote was unchanged from the authorities at the end of June 2020.

CSC’s budgetary statutory authorities increased by $25.6 million or 11.5% compared to June 2020, which is related to:

• An increase of $23.9 million for the department’s allocation of the employer’s share of the employee benefit plan;
• An increase of $2.3 million resulting from a drawdown on the CORCAN revolving fund authority; and
• A decrease of $0.6 million of proceeds from the disposal of surplus Crown assets.

Compared with the previous fiscal year, the total year to date net budgetary expenditures increased by $29.3 million or 5.3% mainly due to the following factors:

• Personnel expenditures increased by $35.0 million primarily due to:
  • An increase of $24.1 million in salary consisting of the following:
    • An increase of $14.5 million due to the increase of rates of pay resulting from the implementation of various collective agreements ratified after the first quarter of 2020-21;
    • An increase of $8.1 million due to signing bonuses following the ratification of collective agreements;
    • An increase of $1.5 million to adapt to the impacts of COVID-19;
  • An increase of $6.0 million for the employer’s contributions to the employee benefit plan. This will be adjusted at year-end based on total salary expenditures;
  • An increase of $4.9 million in retroactive payments following the ratification of collective agreements;
  • An increase of $1.3 million in overtime expenses mainly related to the COVID-19 response;
  • A decrease of $0.7 million in severance pay; and
  • A decrease of $0.6 million for other supplementary personnel costs mainly caused by staff departures and transfers between departments.
• Transportation and communications expenditures increased by $0.6 million primarily due to the COVID-19 restrictions in effect during the first quarter of 2020-21 compared to the first quarter of 2021-22, where restrictions have declined and resulted in an increase in relocation and travel:
  • An increase of $0.4 million in relocation costs; and
  • An increase of $0.2 million in public servant travel mainly due to the recruitment of Correctional Officers.
• Professional and special services increased by $13.4 million primarily due to:
  • An increase of $9.2 million caused by a delay last fiscal year in the intra-departmental billing between CORCAN and CSC for the Correctional and Training Fee;
  • An increase of $3.5 million due to COVID-19, as many activities were stopped or delayed during last year’s first quarter and have resumed to a certain degree this year:
    • An increase of $1.4 million in health care services/specialists due to last year’s stopped work orders;
    • An increase of $1.4 million in other consultant fees, excluding the information technology and telecommunication consultants;
    • An increase of $0.5 million in information technology and telecommunications consultants; and
    • An increase of $0.2 million in inmate training; and
  • An increase of $0.7 million in information technology and telecommunications consultants for various projects not related to COVID-19.
• Rentals increased by $4.6 million primarily due to:
  • An increase of $4.0 million in license and maintenance fees mainly due to invoices processed earlier in 2021-22 than last year and an amount of $1.7 million due to the COVID-19 response, to maintain CSC’s ongoing operational activities;
  • An increase of $0.4 million in rental of office buildings and industrial and commercial buildings; and
  • An increase of $0.2 million in other rentals.
• Utilities, materials and supplies decreased by $14.7 million primarily due to:
  • An increase of $0.7 million in utilities caused by a timing difference in recording this expenditure from one quarter to another;
  • A decrease of $13.9 million, as, last year, CSC purchased higher levels of supplies to ensure sufficient inventory to support its operational activities during the early period of the COVID-19 pandemic. This approach was not required this fiscal year. The variance is made up of the following categories:
    • An increase of $0.2 million in utilities due to electricity expenditures;
    • A decrease of $11.9 million in medical supplies, including personal protective equipment (PPE) purchases;
    • A decrease of $1.4 million in food inventory and in the methods of delivery of meals to inmates; and
    • A decrease of $0.8 million in cleaning products;
  • A decrease of $1.5 million in allowance for footwear, which is paid every second year.
• Acquisition of land, buildings and works increased by $3.0 million, due to the construction projects that were stopped or delayed last fiscal year, in response to COVID-19.
• Acquisition of machinery and equipment increased by $1.4 million primarily due to:
  • An increase of $1.6 million for laptops and other IT equipment, required to allow the organization to maintain operations during the pandemic, which were ordered last year but only delivered in 2021-22; and
  • A decrease of $0.2 million in other equipment and parts.
• Other subsidies and payments decreased by $10.1 million primarily due to:
  • A decrease of $10.0 million of court ordered payments; and
  • A decrease of $0.1 million in miscellaneous expenditures.
• A net increase of $4.4 million in CORCAN’s revenues due to the activities at the institutions returning gradually to normal and the recognition of Correctional and Training revenue in April 2021, as last year the payment from CSC was received in May 2020.
• An increased of $0.5 million in other standard objects.

CSC’s Departmental Plan 2021-2022 identifies the current risk environment and CSC’s key risk areas to the achievement of its strategic outcomes.

CSC secured permanent integrity funding in 2019-20 to maintain operations after completing its Comprehensive Review. In the short term, CSC is focused on maintaining operations during and in the aftermath of the COVID-19 pandemic. CSC will address existing financial challenges, and will continue working on a modernization plan over the three-year planning period. During 2020-21, CSC stabilized its existing Departmental Financial Management System (DFMS) using an Oracle technical upgrade, and in 2021-22 will continue to advance plans for the future modernization of the DFMS through a SAP hosting solution.

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 2021-2022, 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.

Since the beginning of the pandemic, Correctional Service Canada (CSC) has implemented rigorous infection prevention and control measures at its sites. By the end of the first quarter of 2021-2022, there were no new cases of COVID-19 among the inmate population in any of CSC’s institutions. Over 76% of the inmate population has had at least one dose of the vaccine and more than 68% are fully vaccinated. Since the situation has stabilized, CSC is gradually resuming inmate visits with appropriate public health measures in place.

Having seen no new COVID-19 cases during this first quarter of 2021-22 and a successful vaccination campaign within correctional facilities, working groups have been put in place and are developing plans to resume activities at CSC. These plans will ensure we make evidence-based decisions, put in place the proper safeguards, and determine exactly how any return to a new normal will roll-out.

Furthermore, CSC will adopt a phased and gradual restoration of interventions, programs and services approach, ensuring there are appropriate measures in place to limit health and safety risks, while supporting public safety efforts. CSC will adjust restrictions in adherence with national, provincial and local public health authorities.

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 $20.0M following Treasury Board approval. 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.

There have been no changes to key senior personnel in the first quarter of 2021-2022.