Quarterly Financial Report for the Quarter Ended December 31, 2012

Statement outlining results, risks and significant changes in operations, personnel and programs

[ Quarterly Financial Reports ]

Table of Contents

1. Introduction

This quarterly financial report has been prepared by management as required by section 65.1 of the Financial Administration Act (FAA) and in the form prescribed by the Treasury Board. The report should be read in conjunction with the 2012–2013 Main Estimates as well as Canada’s Economic Action Plan 2012 (Budget 2012) and with the 2012-2013 Supplementary Estimates (B); the Department had no items in the 2012–2013 Supplementary Estimates (A) process. The Departmental Audit Committee (DAC) has reviewed and commented on the report, but no external audit or review has been conducted.

The glossary (Section 8) contains definitions for key financial terms that are hyperlinked in the text.

1.1 Justice Mandate

The Department of Justice has the mandate to support the dual roles of the Minister of Justice and the Attorney General of Canada.

Under Canada’s federal system, justice is an area of shared jurisdiction between the federal government and the provinces and territories. The Department supports the Minister of Justice in his responsibilities for 49 statutes and areas of federal law by ensuring a bilingual and bijural national legal framework principally within the following domains: criminal justice (including youth criminal justice), family justice, access to justice, Aboriginal justice, public law and private international law.

The Department also supports the Attorney General as the chief law officer of the Crown, both in terms of the ongoing operations of government and of the development of new policies, programs and services for Canadians. The Department provides legal advice to federal government departments and agencies, represents the Crown in civil litigation and before administrative tribunals, and drafts legislation.

Further information on the mandate, roles, responsibilities and programs of the Department can be found in the Department of Justice 2012–2013 Main Estimates, available on the following Web site: http://www.tbs-sct.gc.ca/est-pre/20122013/me-bpd/me-bpd-eng.pdf

1.2 Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting and a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities. The accompanying Statement of Authorities includes the Department’s spending authorities granted by Parliament and those used by the Department consistent with the Main Estimates for the 2012–2013 fiscal year.

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.

The Department uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental performance reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

As part of the Parliamentary business of supply, the Main Estimates must be tabled in Parliament on or before March 1 preceding the new fiscal year. Budget 2012 was tabled in Parliament on March 29, after the tabling of the Main Estimates on February 28, 2012. As a result the measures announced in the Budget 2012 could not be reflected in the 2012–2013 Main Estimates.

Treasury Board authority established, through the 2012-2013 Supplementary Estimates (B), frozen allotments in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In future years, the changes to departmental authorities will be implemented through the Annual Reference Level Update (ARLU) as approved by Treasury Board, and reflected in the subsequent Main Estimates tabled in Parliament.

1.3 Department of Justice Financial Structure

The Department of Justice financial structure is comprised of several budgetary authorities:

As the primary legal services provider to other government departments and agencies, the Department of Justice collects and spends revenue generated by these legal services as part of its Vote 1 authority. The Department of Justice also obtained authority in the last quarter of 2011–2012 to spend revenues collected for providing internal administrative support services to other government departments. In departmental reporting, these revenues reduce total departmental authorities and expenditures. For the purposes of this report, these revenues are referenced as “Net Vote Authorities (NVA)” or “Revenues netted against expenditures (revenues)”.

2. Highlights of Fiscal Quarter and Fiscal Year To Date (YTD) Results

This section highlights the significant items that contributed to the net decrease in resources available for the year and in actual expenditures for the quarter ended December 31, 2012. Graph 1 outlines the Department’s gross and net budgetary authorities and expenditures.

Graph 1: Comparison of Budgetary Authorities and Expenditures as of December 31, 2011, and December 31, 2012
($Millions)

Graph 1: Comparison of Budgetary Authorities and Expenditures as of December 31, 2011, and December 31, 2012

Description

For the period ending December 31, authorities provided to the Department included Main Estimates, Supplementary Estimates (B), and Treasury Board Central Votes for the Operating Budget Carry Forward and Paylist Requirements.

The Department’s total gross expenditures as of December 31, 2012 were $490.1 million compared to $558.7 million as of December 31, 2011. The decrease in spending to date, totalling $68.6 million, is primarily related to delays in the signing of major Federal/ Provincial/ Territorial agreements in the current quarter in the amount of $37.8M (as explained in subsection 2.3); the one-time payment of $12.0 million to members of the Public Service Alliance of Canada (PSAC) associated with collective agreement changes and incurred as of the end of the third quarter of 2011–2012 fiscal year; as well as a general decline in spending associated with the implementation of Budget 2012 savings measures.

Excluding $195.2 million in revenues the Department received as of December 31, 2012 and $167.1 million received as of December 31, 2011, total net expenditures were $294.9 million and $391.6 million respectively.

2.1 Significant Changes to Authorities

(Refer to table in Section 6: Statement of Authorities)

When compared to the third quarter of the previous fiscal year, the total net budgetary authorities available for 2012–2013 were reduced by $45.3 million, from $800.8 million to $755.6 million (see table in section 6). This reduction comprises:

  • $37.3 million in Vote 1—Operating Expenditures:
    • Decrease of $18.3 million in fiscal year 2012–2013 due to the transfer of IT services to Shared Services Canada in accordance with the Government’s plan to consolidate and centralize such services;
    • Decrease of $13.5 million in Treasury Board reimbursement of paylist expenditures upon cessation of service (Paylist Requirements);
    • Decrease of $8.1 million for savings identified as part of the Budget 2012 savings measures;
    • Increase of $3.7 million in allocation of the Operating Budget Carry Forward from the preceding fiscal year;
    • Decrease of $2.8 million for other adjustments, each less than $1.0 million;
    • Increase of $1.7 million to support an enhancement of Canada’s cessation and vacation of refugee claims activities related to the provisions of Bill C-31;
  • An increase of $6.2 million in Net Vote Authority was also granted, to allow the Department to expend revenues received in a fiscal year, and offset expenditures incurred in the fiscal year, arising from the provision of mandatory legal services to Government departments and agencies, and the provision of internal support services. Net Vote Authority is netted against Vote 1 - Operating expenditures and, consequently, has no impact on the variances in Net Vote 1 operating expenditures.
  • $5.3 million in Vote 5—Grants and Contributions (G&C):
    • Decrease of $3.2 million for savings identified as part of the Budget 2012 savings measures;
    • Decrease of $1.7 million in funding to manage immigration cases involving classified information under Division 9 of the Immigration and Refugee Protection Act;
    • Decrease of $0.4 million for other adjustments, each under $0.5 million.
  • $2.7 million in budgetary statutory authorities:
    • Decrease of $1.7 million to reflect the reduction of EBP rates from 18 percent to 17.6 percent;
    • Decrease of $1.5 million to reflect the funding transferred during fiscal year  2011–2012 to Shared Services Canada; and
    • The remaining offsetting increase of $0.5 million is a result of changes to EBP following changes in level of funding of various Department activities.

2.2 Significant Changes to Revenues Collected

(Refer to table in Section 6: Statement of Authorities.)

Compared to the previous year, revenues collected in the third quarter ending December 31, 2012 increased from $54.9 to $143.0 million. This increase of $88.1 million is mainly a result of the Department overcoming challenges it experienced in the second quarter as part of the transition to a new monthly billing system associated with the Department’s Cost Recovery Process Improvement Project (CRPI). Launched at the beginning of the fiscal year 2012-2013, the CRPI project will enable a more timely collection of revenues, further promoting good management and fiscal accountability. As is the case with the implementation of large scale changes, some implementation challenges were experienced as individuals familiarize themselves with a new system and process.

In the third quarter, the Department received Interdepartmental Settlement (IS) codes from other government departments and the enhanced understanding by staff and managers of their roles and responsibilities has expedited the revenue collection process.

The Department will continue its training efforts in order to ensure a more effective collection of revenues in future periods, and will continue to review, analyze and adjust the process, as required.

2.3 Significant Changes to Budgetary Expenditures

(Refer to table in Section 7: Departmental Budgetary Expenditures by Standard Object.)

Third quarter gross budgetary expenditures decreased from $218.7 million in 2011–2012 to $172.1 million in 2012–2013. This reduction of $46.6 million is made up primarily of variances associated with the following standard objects:

  • Personnel: A decrease of $2.1 million is mainly due to one time severance pay disbursement for Public Service Alliance of Canada (PSAC) members in the third quarter of 2011-2012;
  • Transportation and communication: Of the total decrease of $1.3 million, approximately $1.1 is attributed to the transfer of IT services to Shared Services Canada in 2011-2012. The remainder is a result of the government-wide commitment to reduce discretionary spending on travel, hospitality and conferences;
  • Professional services: A decrease of $3.4 million reflects $0.9 million reduction in tuition fees expenses and cost of attending courses. The remainder reflects ongoing efforts to ensure spending is allocated to the highest priorities in a context of fiscal constraint;
  • Transfer payments: A decrease of $37.8 million consists of $38.5 million decrease resulting from delays in the signing of Federal/Provincial/Territorial agreements for Legal Aid and Access to Justice Services programs, and of an offsetting increase in the amount of $0.7 million for other smaller agreements being processed. Payments will be processed once agreements are signed and provinces forward their claims;
  • The remaining reduction reflects further ongoing efforts undertaken by the Department to align spending with the highest priorities in a context of fiscal constraint.

The Department also experienced an increase in revenues collected for legal services. Revenue collected increased by $88.1 million from $54.9 million in 2011-2012 to $143.0 million during the current quarter (refer to section 2.2 for further information).

Consequently, when revenues collected are netted against gross budgetary expenditures, the net budgetary expenditures decreased from $163.8 million in 2011-2012 to $29.1 million in the corresponding period of 2012-2013 for an overall decrease of $134.7 million.

3. Risks and Uncertainties

Justice Canada carries the salary and operating liability of maintaining capacity to support its clients. Risk is created for Justice Canada as federal departments and agencies seek to reduce expenditures in light of cost containment measures announced in Budget 2010 and Budget 2012. Beyond financial implications, the Department’s future delivery capacity could be negatively impacted.

To mitigate this risk, the Department continues to focus on improvements to its cost recovery and forecasting processes. The Department also continues to work with clients to help them effectively manage their legal risks and find sound ways to lower their demand for legal services. For example, the Department has developed reference material for federal managers to improve their understanding of the triggers and costs associated with litigation.

4. Significant Changes in Relation to Operations, Personnel and Programs

  • On October 15, 2012, the Prime Minister announced the appointment of William F. Pentney as the new Deputy Minister of Justice, effective November 5, 2012;
  • For the first time since the implementation of its Net Vote Authority, the Department will realize an overall reduction in revenues collected for the provision of legal services to other government departments and agencies. This decline is caused by the reduction in legal services rates, as well as the reduction in the number of legal practitioners, both associated with the implementation of Budget 2012 savings measures, and by other departments and agencies’ spending reductions in a context of fiscal constraint.

5. Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012 that have and will be implemented in order to refocus government and programs; make it easier for Canadians and businesses to deal with their government; and, modernize and reduce the back office.

Over the budget’s three-year implementation period, the Department of Justice is committed to achieving savings of $67.5 million.

Grants and Contributions spending will be reduced by $38.8 million by 2013–2014. Effective April 1, 2013, the Youth Justice Services Funding Program will be funded at a level of $141.7 million annually. A further reduction of $28.7 million will be made in overall departmental operating funding over three fiscal years.

In conjunction with these savings, departmental authorities in the amount of $12.3 million were frozen in the 2012-2013 Supplementary Estimates (B). More specifically, Personnel and Operating Expenses were frozen at an amount of $9.1 million and Contributions at $3.2 million.

The departmental authorities will be reduced at a cumulative amount of $60.2 million in 2013–2014 for a total reduction of $67.5 million by 2014–2015.

Justice’s initiatives to achieve these savings include:

  • Streamlining internal services by consolidating the delivery of Communications, Human Resources, Finance and other administrative and management services. Organizational changes have been made to realize these efficiencies and the Department continues to review and implement cost effective business processes and practices;
  • Streamlining the delivery of legal services to government departments is ongoing and has resulted in staff reductions and savings;
  • Partnerships with other government departments are aimed at mutually satisfactory organizational redesign and focus on legal services delivery;
  • Creating and expanding centres of legal expertise in some areas of law to increase efficiency, and continuing to implement cost effective legal services processes and practices;
  • Modernizing operations by moving to electronic information sources and expanding the use of electronic information services. Specifically:
    • The Department has moved entirely to e-publications of previous hardcopy publications such as the Canada Gazette Part III;
    • It has also minimized costly subscriptions and contracts for paper and electronic legal research resources such as QuickLaw; maximized the use of free accessible electronic research sources such as CanLII and Justipedia; and has reduced its outlay for hard copy legal research resources.

The Department is making every effort to find positions for as many priority and affected employees as possible. To facilitate this effort, the Department established a Priority Placement Unit and a Workforce Management Board on April 30, 2012. This ensures that senior management reviews and challenges staffing actions that do not result in the placement of an affected employee or those holding a priority status.

Approval by Senior Officials

Approved by:

Original signed by William F. Pentney
February 28, 2013




William F. Pentney
Deputy Minister

Original signed by Daniel Schnob
February  28, 2013




Daniel Schnob
Chief Financial Officer


Ottawa, Canada

6. Statement of Authorities (unaudited)

Department of Justice
For the quarter ended December 31, 2012
Statement of Authorities (unaudited)
(In thousands of dollars)
  Fiscal year 2012-2013 Fiscal year 2011-2012
  Total available for use for the year ending March 31, 2013* Used during the quarter ended December 31, 2012 Year to date used at quarter end Total available for use for the year ending March 31, 2012** Used during the quarter ended December 31, 2011 Year to date used at quarter end
Vote 1 - Operating expenditures 581,154 128,976 386,878 612,218 137,112 411,236
Less: Revenues netted against expenditures (296,200) (143,021) (195,220) (290,000) (54,894) (167,108)
Net Vote 1 operating expenditures 284,954 (14,045) 191,658 322,218 82,218 244,128
Vote 5 - Grants and contributions 390,429 23,067 42,983 395,699 60,828 85,239
Budgetary statutory authorities 80,170 20,049 60,238 82,912 20,791 62,242
TOTAL AUTHORITIES 755,553 29,071 294,879 800,829 163,837 391,609

* Total available for use does not reflect measures announced in Budget 2012.

** Pursuant to s. 31.1 of the Financial Administration Act and Order-in-Council P.C. 2011-1297 effective November 15th, 2011, $10,935 thousand is deemed to have been appropriated to Shared Services Canada (vote 1), which results in a reduction for the same amount in Department of Justice Canada, Vote 1, Appropriation Act No.1, 2011-2012.

7. Departmental budgetary expenditures by Standard Object (unaudited)

Department of Justice
For the quarter ended December 31, 2012
Departmental budgetary expenditures by Standard Object (unaudited)
(In thousands of dollars)
  Fiscal year 2012-2013 Fiscal year 2011-2012
Expenditures Planned expenditures for the year ending March 31, 2013*** Expended during the quarter ended December 31, 2012 Year to date used at quarter end Planned expenditures for the year ending March 31, 2012**** Expended during the quarter ended December 31, 2011 Year to date used at quarter end
Personnel 553,630 134,519 408,347 572,355 136,678 424,538
Transportation and communications 19,522 2,439 5,830 25,368 3,786 10,640
Information 6,349 633 1,815 4,603 642 1,871
Professional and special services 49,547 7,274 20,529 59,038 10,673 22,408
Rentals 3,851 1,529 4,441 2,065 1,155 3,145
Repair and maintenance 8,326 723 1,696 8,963 1,899 4,508
Utilities, materials and supplies 5,647 1,100 2,693 6,715 1,255 3,074
Acquisition of land, buildings and works 166 0 0 350 0 0
Acquisition of machinery and equipment 10,507 393 1,059 15,673 1,479 2,708
Transfer payments 390,429 23,067 43,005 395,699 60,828 85,239
Other subsidies and payments 3,779 415 684 0 366 586
Total gross budgetary expenditures 1,051,753 172,092 490,099 1,090,829 218,731 558,717
Less revenues netted against expenditures
(Revenues)
(296,200) (143,021) (195,220) (290,000) (54,894) (167,108)
Total revenues netted against expenditures (296,200) (143,021) (195,220) (290,000) (54,894) (167,108)
TOTAL NET BUDGETARY EXPENDITURES 755,553 29,071 294,879 800,829 163,837 391,609

*** Planned expenditures do not reflect measures announced in Budget 2012.

**** Pursuant to s. 31.1 of the Financial Administration Act and Order-in-Council P.C. 2011-1297 effective November 15th, 2011, $10,935 thousand is deemed to have been appropriated to Shared Services Canada (vote 1), which results in a reduction for the same amount in Department of Justice Canada, Vote 1, Appropriation Act No.1, 2011-2012.

8. Glossary

Authorities

Expenditure authorities are approvals from Parliament for individual government organizations to spend up to specific amounts. Expenditure authority is provided in two ways:

  1. Annual Appropriation Acts that specify the amounts and broad purposes for which funds can be spent; and
  2. Other specific statutes that authorize payments and set out the amounts and time periods for those payments.
Bijural

Relates to the coexistence and interaction of two legal systems or legal traditions in a given legal framework— in Canada, Quebec civil law and Canadian common law, taking into account the other sources of federal law, including aboriginal rules and customs.

Cost Recovery Process Improvement Project (CRPI)

A project undertaken by the Department of Justice to increase the efficiency and frequency of invoicing and collections activities related to the provision of legal services to other government departments. The CRPI involves the integration of the case management and financial system and standardization of business processes.

Employee Benefit Plans (EBP)

The statutory item “Employee Benefit Plans” (EBP) consists of employer costs for the Public Service Superannuation Plan, the Canada and the Quebec Pension Plans, Death Benefits, and the Employment Insurance accounts. The EBP rate is changed every year as directed by the Treasury Board Secretariat and it is expressed as a percentage of salary.

Expenditure basis

Costs are reported when liabilities are incurred or cash is paid out. Revenues are reported when cash is received.

Full accrual method of accounting

Costs are reported based on their consumption. Revenues are reported when earned.

Main Estimates

Each year, the government prepares estimates in support of its request to Parliament for authority to spend public funds. This request is formalized through the introduction of appropriation bills in Parliament. In support of the Appropriation Act, the Main Estimates identify the spending authorities (Votes) and amounts to be included in subsequent appropriation bills. Parliament will be asked to approve these Votes to enable the government to proceed with its spending plans.

Net Vote Authority

The authority by which the Department of Justice has permission to collect and spend revenue from the provision of legal and internal services within government.

Operating Budget Carry Forward

Treasury Board centrally managed vote, which permits departments to bring forward eligible lapsing funds from one fiscal year to the next in an amount up to five percent of the operating budgets contained in their Main Estimates. (See also Voted and statutory appropriations.)

Paylist Requirements vote

Treasury Board centrally managed vote, which supplements other appropriations for requirements related to parental and maternity allowances, entitlements on cessation of service or employment and adjustments made to terms and conditions of service or employment of the public service.

Reference level

The amount of funding that the Treasury Board has approved for departments and agencies to carry out policies and programs for each year of the planning period.

Special purpose financial reporting framework

The Quarterly Financial Report requirements and structure is defined in the Treasury Board Accounting Standard 1.3.

Standard objects

A system in accounting that classifies and summarizes records by categories, such as type of good or service acquired, for monitoring and reporting.

Sunsetting

The end of temporary funding.

Supplementary Estimates

The President of the Treasury Board tables three Supplementary Estimates usually in late spring, late fall and early spring to obtain the authority of Parliament to adjust the government's expenditure plan set out in the estimates for that fiscal year. Supplementary Estimates serve two purposes. First, they seek authority for revised spending levels that Parliament will be asked to approve in an Appropriation Act. Second, they provide Parliament with information on changes in the estimated expenditures to be made under the authority of statutes previously passed by Parliament. Each Supplementary Estimates document is identified alphabetically A, B, C, etc.

Treasury Board Centrally Managed Votes

Special authorities that enable Treasury Board to perform its statutory responsibilities for managing the government’s financial, human and materiel resources.

Voted and statutory appropriations

Expenditures made by government require the authority of Parliament. That authority is provided in two ways: annual Appropriation Acts or Supply Bills specify the amounts and broad purposes for which funds can be spent; and other specific statutes authorize payments and set out the amounts and time periods for those payments. The amounts approved in appropriation acts are referred to as voted amounts, and the expenditure authorities provided through other statutes are called statutory authorities.

Vote 1—Operating Expenditures

A vote used when there is a requirement for either a “capital expenditures” vote or a “grants and contributions” vote or both; that is, when expenditures of either type equal or exceed $5 million. Where they do not, the appropriate expenditures are included in the “program expenditures” vote.

Vote 5—Grants and Contributions

A vote used when grants and/or contributions expenditures equal or exceed $5 million.

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