Quarterly Financial Report for the Quarter Ended September 30, 2016

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 2016-17 Main Estimates as well as Budget 2016. In addition, the Departmental Audit Committee (DAC) has reviewed and commented on the report, but no external audit or review has been conducted.

The glossary (Section 7) 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, the administration of justice is an area of shared jurisdiction between the federal government and the provinces and territories. The Department supports the Minister of Justice in her responsibilities for 52 statutes (46 for which she assumes full responsibility and 6 others where the responsibility is shared) and areas of federal law by ensuring a bilingual and bijural national legal framework, principally within the following domains: criminal justice (including victims of crime and 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 the Government and federal government departments and agencies, represents the Crown in civil litigation and before administrative tribunals, and drafts legislation.

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 2016-17 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.

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

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 has the authority 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 increase in resources available for the year and net changes in actual expenditures for the quarter ended September 30, 2016. Graph 1 outlines the Department’s gross and net budgetary authorities and expenditures.

Graph 1: Comparison of Budgetary Authorities and Expenditures as of September 30, 2015 and September 30, 2016
($Millions)

Graph 1: Comparison of Budgetary Authorities and Expenditures as of September 30, 2015 and September 30, 2016

Graph 1 - Text Version

The bar graph shows the Department’s net budgetary authorities and net vote authorities for the quarter ending September 30 for fiscal years 2015-16 and 2016-17. It also shows the Department’s net budgetary expenditures and the revenues netted against expenditures for the same period.

Net budgetary authorities and net vote authorities totaled $705.8 M and $296.2 M, respectively, at September 30, 2016, for total budgetary authorities of $1,002 M.  For the same period in the previous fiscal year, net budgetary authorities and net vote authorities totaled $702.3 M and $296.2 M, respectively, combining for total budgetary authorities of $998.5 M.

Net budgetary expenditures and revenues netted against expenditures for the period ending September 30, 2016 were $231.3 M and $122.2 M, respectively, for total budgetary expenditures of $353.5 M. For the same period in the previous fiscal year, net budgetary expenditures and revenues netted against expenditures totaled $217.5 M and $115.2 M, respectively, for a total of $332.7 M.

For the period ending September 30, 2016, authorities provided to the Department included Main Estimates and the 2015-16 Year End Operating Budget Carry Forward (OBCF). The Department had no items in Supplementary Estimates (A) in 2016-17. However, a total of $2 million (vote 1 and vote 5) was requested in Supplementary Estimates (A) in 2015-16. This funding was included in the 2016-17 Main Estimates.

2.1. Significant Changes to Authorities

(Please refer to the Statement of Authorities table presented in Section 5.)

When compared to the second quarter of the previous fiscal year, the total gross budgetary authorities available for 2016-17 are higher by $3.6 millionFootnote 1, from $998.5 million to $1,002 million. This increase comprises:

  • Decrease of $6.9 million in Vote 1- Operating Expenditures:
    • Decrease of $5.6 million due to the sunsetting of the Supporting Families Experiencing Separation and Divorce Initiative;
    • Decrease of $3.0 million associated with the Legal Services Review;
    • Decrease of $2.7 million related to the sunsetting of temporary funding that had been allocated to enhance activities pursuant to the Protecting Canada’s Immigration System Act, related to the cessation and vacation of refugee status;
    • Decrease of $2.7 million related to the sunsetting of Authorities to Support Comprehensive Claims and Self-Government Negotiations Across Canada;
    • Increase of $4.6 million for activities related to Division 9 of the Immigration and Refugee Protection Act, as well as the pursuit of enhanced diplomatic assurances against torture or mistreatment in serious inadmissibility cases;
    • Increase of $1.7 million in support of Investigative Powers for the 21st Century (IP21C), stemming from the Protecting Canadians from Online Crime Act and the expected Ratification of the Council of Europe’s Convention on Cybercrime (Budapest Convention);
    • Increase of $0.5 million related to the receipt of the 2015-16 Year End Operating Budget Carry Forward (OBCF), compared to the previous year’s OBCF;
    • Increase of $0.3 million related to other adjustments below $1 million.
  • Increase of $9.0 million in Vote 5 - Grants and Contributions (G&C):
    • Increase of $7.9 million in support of legislative and non-legislative measures to implement the Canadian Victims Bill of Rights;
    • Increase of $1.5 million for activities related to Division 9 of the Immigration and Refugee Protection Act, as well as the pursuit of enhanced diplomatic assurances against torture or mistreatment in serious inadmissibility cases;
    • Decrease of $0.4 million related to other adjustments below $1 million.
  • Increase of $1.5 million in budgetary statutory authorities:
    • Increase of $1.9 million due to a change to the Employee Benefit Plan (EBP) rate (from 16.8% to 17.2%);
    • Decrease of $0.4 million due to other adjustments below $1 million.

In addition to the appropriations allocated to the Department through Main Estimates, the Department also has Net Vote Authority (NVA). This authority allows the Department, in a fiscal year, to expend revenues and offset expenditures related to the provision of internal support services, as well as mandatory legal services to government departments and agencies. For both respective quarters ending September 30 of 2015-16 and 2016-17, the Department’s NVA remained unchanged at $296.2 million.

Therefore, the $1,002 million gross budgetary authorities available for 2016-17 include $296.2 million of Net Vote Authorities. The net budgetary authorities available for 2016-17 total $705.8 million.

2.2. Significant Changes to Revenues Netted Against Expenditures

(Please refer to the Statement of Authorities table presented in Section 5.)

Total year-to-date revenues netted against expenditures have increased by $7 million, from $115.2 million in 2015-16 to $122.2 million in 2016-17.  This increase in revenues is mainly explained by changes to the legal services rates.

While revenues netted against expenditures represent $122.2 million, the total year-to-date respendable revenues collected represent $261.2 million. This increase in revenues collected is due to the fact that the majority of the Department’s clients are now being billed in advance instead of on a monthly basis, as outlined in Section 4.

2.3. Significant Changes to Budgetary Expenditures

(Please refer to the Departmental Budgetary Expenditures by Standard Object table presented in Section 6.)

Total year-to-date gross budgetary expenditures increased from $332.7 million in 2015-16 to $353.5 million in 2016-17. This increase of $20.8 million consists of variances associated with the following:

  • an increase of $21.6 million in transfer payments primarily due to the timing differences in issuing payments to recipients;
  • an increase of $0.9 million in office buildings repairs and maintenance;
  • a decrease of $1.4 million in other subsidies and payments due to court awards and cost shared agreements with other government departments;
  • a decrease of $0.8 million in professional and special services;
  • an increase of $0.5 million for a variety of small variances in other standard objects.

3. Risks and Uncertainties

In its delivery of legal services to the federal government, Justice Canada must work closely with client departments and agencies, who share joint responsibility for managing legal risks. Decisions by clients to engage, or not engage, Justice Canada shape the Department’s workload (the nature and volume of demands), as well as its overall delivery capacity since a significant portion of service delivery is funded through cost recovery from clients. Consequently, any unplanned or uncoordinated service demands could impact Justice Canada’s ability to deliver effective and fiscally sustainable services, particularly as federal departments seek to contain spending on legal services. For instance, a decision to not seek legal advice on an item of higher legal risk could lead to more costly litigation in the future, and/or a missed opportunity to consider the issue from a government-wide perspective. Conversely, engaging legal counsel on files that have no legal issues could increase costs unnecessarily. In addition, as legal services expenditures are contained or reduced, the Department could face unanticipated imbalances between expenditures and revenues. Moreover, as the Department balances legal service delivery capacity to respond to current demands, it may have limited capacity to respond to any future surges in demands (in either volume or complexity).

To address this risk, the Department has improved its financial forecasting practices and continued joint planning with clients. This collaboration includes sharing information on the effective management of legal risks, the triggers and costs of litigation, and the appropriate role of legal counsel. These activities are informed by the recent Legal Services Review (LSR) to improve the delivery of legal services across government. The LSR includes measures to manage the demand for legal services and to ensure the fiscal sustainability of those services in the long term. Based on the finding of this review, the Department continues to implement a number of measures to improve efficiency, consistency and innovation in the delivery of legal services. The Department also continues to make improvements to its cost recovery processes to effectively mitigate financial risks.

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

The Department of Justice received Treasury Board (TB) approval to implement a new funding and billing model for legal services provided to client departments as of April 1, 2016. More specifically, Justice moved away from after-the-fact monthly billing for legal services rendered (i.e. service provided in April being invoiced in May) to advance billing for clients above a $200K threshold. The Department now records the funds received in advance from other government departments as deferred revenues. Revenues are recognized against actual costs (legal services rendered) on a monthly basis (in the appropriate accounting period) to ensure that future advance payments are in line with forecasts and to avoid over/under billing. Clients under the $200K threshold continue to be billed for services rendered on a monthly basis and based on actual services rendered. Overall, this should provide more cost certainty to clients regarding their planned legal services, and facilitate discussions between Justice representatives and their clients in relation to the needs and use of legal services. It also allows for planning and decision-making based on sound knowledge of business processes and cost drivers.

In addition, the Department of Justice has implemented a small reorganisation to support better integration, consistency and continuous improvement in how it delivers its mandate. These organizational changes will help deliver better results and support a culture of continuous change and innovation by:

  • establishing clearer lines of accountability;
  • providing coherent, consistent and integrated services and advice, through a whole-of-Justice approach;
  • allowing greater flexibility in the use of resources;
  • enabling continuous improvement and innovation;
  • building increased analytical and strategic strength;
  • ensuring employees contribute at their highest added value;
  • leveraging technology to improve collaboration, openness and integration.

Approval by Senior Officials

Approved by:

Original signed by William F. Pentney, Q.C.
November 29, 2016




William F. Pentney, Q.C.
Deputy Minister of Justice and
Deputy Attorney General of Canada

Original signed by Johanne Bernard, CPA, CMA
November 29, 2016




Johanne Bernard, CPA, CMA
Assistant Deputy Minister and Chief Financial Officer
Management and Chief Financial Officer Sector

Ottawa, Canada

5. Statement of Authorities (unaudited)

Department of Justice
For the quarter ended September 30, 2016
Statement of Authorities (unaudited)
(In thousands of dollars)
  Fiscal year 2016-2017 Fiscal year 2015-2016
Total available for use for the year ending March 31, 2017Table note i Used during the quarter ended September 30, 2016 Year to date used at quarter end Total available for use for the year ending March 31, 2016Table note i Used during the quarter ended September 30, 2015 Year to date used at quarter end
Vote 1 - Operating expenditures 558,099 130,494 254,217 565,050 127,447 255,743
Less: Revenues netted against expenditures (296,200) (80,680) (122,190) (296,200) (68,563) (115,159)
Net Vote 1 operating expenditures 261,899 49,814 132,027 268,850 58,884 140,584
Vote 5 - Grants and contributions 365,234 49,126 59,941 356,225 27,905 38,351
Contributions to employee benefit plans 78,543 19,636 39,272 77,116 19,272 38,544
Minister of Justice and Attorney General of Canada - Salary and motor car allowance 84 28 35 82 21 41
Spending of proceeds from the disposal of surplus Crown assets 2 0 0 3 0 0
Refunds of amounts credited to revenues in previous years 0 0 0 0 0 0
Budgetary statutory authorities 78,629 19,664 39,307 77,201 19,293 38,585
TOTAL AUTHORITIES 705,762 118,604 231,275 702,276 106,082 217,520
Table note i

Includes only Authorities available for use and granted by Parliament at quarter end.

Return to table note i referrer

6. Departmental Budgetary Expenditures by Standard Object (unaudited)

Department of Justice
For the quarter ended September 30, 2016
Departmental Budgetary Expenditures by Standard Object (unaudited)
(In thousands of dollars)
  Fiscal year 2016-2017 Fiscal year 2015-2016
Planned expenditures for the year ending March 31, 2017 Expended during the quarter ended September 30, 2016 Year to date used at quarter end Planned expenditures for the year ending March 31, 2016 Expended during the quarter ended September 30, 2015 Year to date used at quarter end
Expenditures
Personnel
535,275 136,090 270,131 536,195 131,352 270,081
Transportation and communications
10,522 1,518 3,111 12,603 1,600 3,023
Information
4,502 621 1,051 4,580 684 1,175
Professional and special services
51,925 5,952 10,653 53,498 7,009 11,463
Rentals
8,487 2,189 3,101 8,774 2,054 2,632
Repair and maintenance
8,116 1,087 1,279 7,207 141 388
Utilities, materials and supplies
6,325 951 1,553 6,365 724 1,376
Acquisition of machinery and equipment
8,203 533 934 10,815 628 1,122
Transfer payments
365,234 49,126 59,941 356,225 27,905 38,351
Other subsidies and payments
3,373 1,217 1,711 2,214 2,548 3,068
Total gross budgetary expenditures 1,001,962 199,284 353,465 998,476 174,645 332,679
Less revenues netted against expenditures
(Revenues)
(296,200) (80,680) (122,190) (296,200) (68,563) (115,159)
Total revenues netted against expenditures (296,200) (80,680) (122,190) (296,200) (68,563) (115,159)
TOTAL NET BUDGETARY EXPENDITURES 705,762 118,604 231,275 702,276 106,082 217,520

7. Glossary

Authorities

Spending authorities are approvals from Parliament for individual government organizations to spend up to specific amounts. Spending 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, this relates to Quebec civil law and Canadian common law, taking into account other sources of federal law, including aboriginal rules and customs.
Deferred Revenues
An amount received or recorded as receivable but not yet earned and meanwhile carried forward to be taken into income in future periods.
Employee Benefit Plan (EBP)
A statutory item that includes employer costs for the Public Service Superannuation Plan, the Canada and the Quebec Pension Plans, Death Benefits, and the Employment Insurance accounts. Expressed as a percentage of salary, the EBP rate is changed every year as directed by the Treasury Board Secretariat. 
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 is asked to approve these Votes to enable the government to proceed with its spending plans.
Net Vote Authority (NVA)
The authority by which the Department of Justice has permission to collect and spend revenue earned from the provision of legal and internal services within government.
Operating Budget Carry Forward (OBCF)
A Treasury Board centrally managed vote that 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.)
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.
Respendable Revenues Collected
Represents revenues that the department has specific authority from Parliament to respend which may be comprised of deferred revenues and revenues netted against expenditures.  
Revenues netted against expenditures
Represents revenues that are recognized when they are earned (usually when goods are transferred or services rendered).
Special purpose financial reporting framework
The Quarterly Financial Report requirements and structure as 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 goods or services 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)
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 that covers most day-to-day expenses, such as salaries and utilities. It is 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 exceeds $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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