Quarterly Financial Report for the Quarter Ended, December 31, 2011

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

• Table of Contents

A) 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 and manner prescribed by the Treasury Board. This quarterly report should be read in conjunction with the 2011-2012 Main Estimates and Supplementary Estimates (A). This report has been reviewed and commented on by the Departmental Audit Committee (DAC) but has not been subject to an external audit or review.

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. The Department supports the Minister of Justice in his responsibilities for 51 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; and, Aboriginal justice. The Department also supports the Attorney General as the chief law officer of the Crown both in terms of the ongoing operations of government, as well as the development of new policies, programs and services for Canadians to support the Government’s priorities. Specifically, the Department provides legal advice to the Government and all federal government departments and agencies, represents the Crown in civil litigation and before administrative tribunals, drafts legislation, and responds to the other legal needs of federal departments and agencies.

Further information on the mandate, roles, responsibilities and programs of the Department can be found in the Department of Justice 2011-2012 Main Estimates, available on the following Web site: www.tbs-sct.gc.ca/est-pre/20112012/me-bpd/docs/me-bpd-eng.pdf

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 and Supplementary Estimates for the 2011-2012 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.

Department of Justice Financial Structure

The Department of Justice financial structure is comprised of several budgetary authorities: Vote 1 – Operating Expenditures; Vote 5 – Grants and Contributions; and statutory authorities related to contributions to the Employee Benefit Plan and the Minister of Justice and Attorney General of Canada salary and motor car allowance.

As the primary legal services provider to other government departments and agencies, the Department of Justice has the authority to collect and spend revenue from legal services provided to other government departments and agencies as part of its Vote 1 authority. 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)”.

B) 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 actual expenditures for the quarter ended December 31, 2011. Graph 1 outlines the Department’s gross and net budgetary authorities and expenditures.

As of December 31, 2011 the Department had a total of $1,090.8 million of authorities including NVA compared to $1,067.5 million as of December 31, 2010. Excluding NVA, the Department’s net budgetary authorities for the same period were $800.8 million in 2011-2012 and $777.5 million in 2010-2011.

The Department’s total gross expenditures as of December 31, 2011 were $558.7 million compared to $549.3 million as of December 31, 2010. For both fiscal years, excluding the amounts of revenues the Department received as of December 31st ($167.1 million in 2011-2012 and $171.4 million in 2010-2011), total net expenditures were $391.6 million and $377.9 million respectively.

Significant Changes to Authorities

When compared to the third quarter of the previous fiscal year, the total net budgetary authorities available for the year increased by $23.3 million, from $777.5 million to $800.8 million. This is comprised of increases of $9.4 million in Vote 1 – Operating expenditures, $16.2 million in Statutory authorities and a reduction of $2.3 million in Vote 5 – Grants and Contributions.

For the period ending December 31, 2010, the authorities provided to the Department included Main Estimates, Supplementary Estimates (A) and (B), 2009-2010 Operating Budget Carry Forward and Permanent allocation from Treasury Board for Collective Agreements that were ratified prior to Budget 2010 cost containment measures. In contrast, the 2011-2012 authorities provided for the same period include Main Estimates, Supplementary Estimates (A), 2010-2011 Operating Budget Carry Forward and reimbursement of paylists expenditures including parental and maternity leave, reimbursement of severance pay and entitlements upon cessation of service. No Supplementary Estimates (B) were tabled for the Department this fiscal year.

As per the Statement of Authorities for the period ending December 31, 2011, below are major factors contributing to the net increase in total authorities available of $23.3 million:

Vote 1 – Operating Expenditures

The Department’s Vote 1 has increased by $9.4 million and is mainly explained as follows:

• Increases to reflect changes in funding levels over previous years levels:
  • Treasury Board reimbursement of paylist expenditures including parental and maternity leave, severance pay and other entitlements upon cessation of service ($24.5 million); and
  • Operating Budget Carry Forward ($10.6 million). Funding of $23.6 million was received for the fiscal year 2011-2012, while the level of supplementary funding for this item during the corresponding period of fiscal year 2010-2011 was $13.0 million.
• Increase to reflect the transfer of funding to the Office of the Director of Public Prosecutions factored into the authorities for 2010-2011, which have not taken place in 2011-2012 ($2.2 million).
• Decreases to reflect a reduction or end of funding (sunsetting or one time):
  • Reprofilling of the funding for the Law Group retroactive salary increases ($13.7 million).
  • Government advertising programs ($6.0 million).
  • Enhancing Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime ($1.0 million).
• Decrease related to the 2009 Strategic Review: Law Practice Model Reductions ($6.3 million).
• Decreases resulting from Budget 2010 Cost Containment Measures in 2011-2012 ($0.4 million). Funding was reduced by $1.6 million in 2011-2012 as compared to $1.2 million in 2010-2011.
• Decrease resulting from PWGSC Cost Efficiencies Savings ($0.7 million)

Vote 5 – Grants and Contributions (G&C)

The Department’s Vote 5 net decrease of $2.3 million is primarily explained as follows:

• Increase to reflect funding approval received for immigration cases involving classified information under Division 9 of the Immigration and Refugee Protection Act ($1.0 million).
• Decrease related to the one-time transfer of funding from the Department of Citizenship and Immigration in 2010-2011 related to refugee legal aid funding to provinces and territories ($2.0 million).
• Decreases to reflect a reduction of funding:
  • To support violence prevention in Aboriginal communities and national support for missing person’s investigations ($0.6 million)
  • To support victim services in the Territories under the Federal Victims Strategy ($0.7 million), which reflects the creation of PPSC and subsequent transfer of responsibilities between PPSC and Justice.

Budgetary Statutory Authorities

The budgetary Statutory Authorities for the Department increased by $16.2 million and is mainly explained by the following:

• Increase related to the Employee Benefit Plan due to the increase in NVA in the 2010-2011 Supplementary Estimates “B” process which was appropriated in the Main Estimates of 2011-2012 ($12.0 million).
• Increase related to the change in the costs of the Employee Benefit Plan (from 17% to 18%) ($2.5 million).
• Increase related to the Employee Benefit Plan as a result of salary funding received by the Department ($1.7 million).

Significant Changes to Revenues Collected

There have been no significant changes to the total year to date revenues collected as of December 31, 2011 ($167.1 million) compared to December 31, 2010 ($171.4 million). The significant change in the revenues collected in the third quarter of 2011 ($54.9 million) compared to the third quarter of 2010 ($138.0 million) is mainly attributed to the Department increasing its frequency of invoicing and collections with client departments which increased the revenues collected in previous quarters.

Significant Changes to Budgetary Expenditures

When compared to the third quarter of the previous fiscal year, the level of gross budgetary expenditures increased from $206.0 million to $218.7 million.

The Department experienced an increase in both grants and contributions expenditures and in personnel expenditures. Grants and contributions (transfer payment) expenditures increased by 17.1% ($8.9 million) in the third quarter of 2011-2012 largely due to recipients requesting payments earlier than the previous year. Personnel expenditures show a net increase of 4.0% ($5.3 million) in comparison to the same period of the previous year. The Employee Benefit Plan rate increase as well as the one time severance pay disbursement for Public Service Alliance of Canada (PSAC) members, have contributed to an increase in salary expenditures in the third quarter of 2011-2012. Other significant variances in expenditures for this quarter compared to last year’s can be explained by the following Standard Objects:

• Information: the Department of Justice launched a one-time advertising campaign in 2010-2011 called “Victims Matter”. The total amount spent on the campaign the last fiscal year was approximately $5.0 million.
• Professional and Special Services: $2.9 million was spent on Crown Agents in a major litigation case in 2010-2011 which has not resulted in similar expenditure for the 2011-2012 fiscal year. The Department has also spent less in 2011-2012 in Temporary Help Services, Expert Witness and Training Consultants.
• Repair and maintenance: the Department is proceeding forward with a leasehold improvement project for 2011-2012 of which $2.1 million has been expended so far.

The total net budgetary expenditures recorded in the quarter ending December 31, 2011, show an increase of $95.9 million, from $68.0 million to $163.8 million. This is largely due to increased payments in grants and contributions expenditures and the lower level of revenues collected in the third quarter.

C) Risks and Uncertainties

This Quarterly Financial Report reflects the results of the current fiscal period in relation to the Main Estimates, for which full supply was released on June 27, 2011, and the Supplementary Estimates (A) authorities. The Department had no requirements for the Supplementary Estimates (B).

Budget 2010 announced that the operating budgets of departments would be frozen at their 2010-2011 levels for the fiscal years 2011-2012 and 2012-2013. Given the Department’s reliance on cost recovery and the associated fiscal restraint identified in Budget 2010, there is a risk that other government departments and agencies reduce requests for and funding associated with legal services from the Department of Justice. This could have significant impact on the Department, as it carries the salary and operating liability in providing legal services in an environment where client demands for legal services and revenues are evolving .

Risk drivers:

• The Department relies on cost recovery from other government departments and agencies (over $290 million per year);
• In response to cost containment and cost reduction measures outlined in Budget 2010, other government departments and agencies are seeking to reduce their operational costs, including those for legal services; and
• Given this fiscal environment, other government departments and agencies are interested in reducing expenditures despite a heightened demand for legal services.

The Department of Justice is continuously reviewing various options to mitigate these funding constraints. Impacts on departmental activities have been managed through the following actions and mitigation strategies:

• Achieving efficiencies and flexibilities in the management and delivery of legal services to other government departments; more specifically through the application of the Law Practice Model which aims to align legal services workforce to files based on complexity and risk.
• Working with other government departments and agencies to mitigate the effects of lowering their call for legal services; and
• Raising awareness for the costs of legal services through regular communications between senior departmental officials.

The 2011 Speech from the Throne and Budget 2011 launched a comprehensive one-year Strategic and Operating Review restraint exercise across all of government. This 2011-2012 review will focus on improving the efficiency and effectiveness of government operations and programs. Savings resulting from the Strategic and Operating Review are expected to be recorded in Budget 2012. It is also expected that future budgets will be impacted commencing in fiscal year 2012-2013. However, the nature and extent of these impacts are not yet known.

D) Significant changes in relation to operations, personnel and programs

Law Practice Model

The Department continues to implement the Law Practice Model, a Strategic Review initiative that aims to equip the Department with the right mix of counsel necessary to continue to deliver effective and efficient legal services.

Shared Services Canada

On August 4, 2011, an Order in Council (OIC) established Shared Services Canada (SSC) as part of the Public Works and Government Services Canada portfolio to streamline and reduce duplication in the government’s IT services. SSC will consolidate the resources and personnel currently supporting email, data centres and networks, and associated internal services.

On November 15, 2011, a second OIC was approved, giving to Shared Services Canada control and supervision over the Email, Data Centre and Network Services Unit. The appropriations to be transferred from Justice to SSC pursuant to Section 31.1 of the Financial Administration Act included amounts in connection with the noted services. To facilitate the transition, the Department has modified its chart of accounts to account for the SSC’s expenditures until the end of the current fiscal year.

Approval by Senior Officials

Approved by:

Ottawa, Canada

 

Statement of Authorities (unaudited)
(In thousands of dollars)

	Fiscal year 2011-2012			Fiscal year 2010-2011
	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	Total available for use for the year ending March 31, 2011	Used during the quarter ended December 31, 2010	Year to date used at quarter end
Vote 1 - Operating expenditures	612,218	137,112	411,236	602,824	137,351	414,528
Less: Revenues netted against expenditures	(290,000)	(54,894)	(167,108)	(290,000)	(137,999)	(171,379)
Net Vote 1 operating expenditures	322,218	82,218	244,128	312,824	(648)	243,149
Vote 5 - Grants and contributions	395,699	60,828	85,239	397,956	51,951	84,632
Budgetary statutory authorities	82,912	20,791	62,242	66,711	16,676	50,107
TOTAL AUTHORITIES	800,829	163,837	391,609	777,491	67,979	377,888

Pursuant to s. 31.1 of the Financial Administration Act and Order-in-Council P.C. 2011-1297 effective November 15^th, 2011, $10,935,701 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. To date $1,280,505 expenditures have been incurred on behalf of Shared Services Canada by Department of Justice Canada against Shared Services Canada (vote 1).

 

Departmental budgetary expenditures by Standard Object (unaudited)
(In thousands of dollars)

	Fiscal year 2011-2012			Fiscal year 2010-2011
Expenditures	Planned expenditures for the year ending March 31, 2012	Expended during the quarter ended December  31, 2011	Year to date used at quarter end	Planned expenditures for the year ending March 31, 2011	Expended during the quarter ended December 31, 2010	Year to date used at quarter end
Personnel	572,355	136,678	424,538	550,370	131,420	408,100
Transportation and communications	25,368	3,786	10,640	26,275	4,478	11,888
Information	4,603	642	1,871	5,287	1,874	3,816
Professional and special services	59,038	10,673	22,408	54,703	11,145	27,825
Rentals	2,065	1,155	3,145	2,400	1,082	3,165
Repair and maintenance	8,963	1,899	4,508	3,792	1,429	3,020
Utilities, materials and supplies	6,715	1,225	3,074	6,880	1,331	3,124
Acquisition of land, buildings and works	350	0	0	0	0	0
Acquisition of machinery and equipment	15,673	1,479	2,708	15,150	1,094	3,184
Transfer payments	395,699	60,828	85,239	397,956	51,951	84,632
Other subsidies and payments	0	366	586	4,678	178	444
Total gross budgetary expenditures	1,090,829	218,731	558,717	1,067,491	205,978	549,267
Less revenues netted against expenditures Revenues	(290,000)	(54,894)	(167,108)	(290,000)	(137,999)	(171,379)
Total revenues netted against expenditures	(290,000)	(54,894)	(167,108)	(290,000)	(137,999)	(171,379)
TOTAL NET BUDGETARY EXPENDITURES	800,829	163,837	391,609	777,491	67,979	377,888

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