Quarterly Financial Report for the Quarter Ended September 30, 2017

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 and manner prescribed by the Treasury Board. The report should be read in conjunction with the 2017-18 Main Estimates, 2017-18 Supplementary Estimates A, as well as Budget 2017. 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 53 statutes 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; Indigenous 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.  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 2017-18.  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.

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

Although the Department has implemented a new advanced billing process (as outlined in Section 4), revenues are reported when they are netted against expenditures rather than when they are collected, to ensure consistency of presentation and comparability with prior year reports.

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, 2017. 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, 2016, and September 30, 2017

Graph 1 described below

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 2016-17 and 2017-18.  It also shows the Department’s net budgetary expenditures and the revenues earned for the same period.

Net budgetary authorities and net vote authorities totaled $728.4M and $296.2M, respectively, at September 30, 2017, for total budgetary authorities of $1,024.6M.  For the same period in the previous fiscal year, net budgetary authorities and net vote authorities totaled $705.8M and $296.2M, respectively, combining for total budgetary authorities of $1,002.0M.

Net budgetary expenditures and revenues earned for the period ending September 30, 2017 were $276.6M and $84.9M, respectively, for total budgetary expenditures of $361.5M.  For the same period in the previous fiscal year, net budgetary expenditures and revenues earned totaled $231.3M and $122.2M, respectively, for a total of $353.5M.

For the period ending September 30, 2017, authorities provided to the Department included the Main Estimates, Supplementary Estimates (A) and the 2016-17 Year End Operating Budget Carry Forward (OBCF). The Department requested a total of $45.9 million through Supplementary Estimates (A) in 2017-18. However, the Department had no items in Supplementary Estimates (A) for fiscal year 2016-17.

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 2017-18 are higher by $22.6 million, from $1,002.0 million to $1,024.6 million. This increase comprises:

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 collect 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 2016-17 and 2017-18, the Department’s NVA remained unchanged at $296.2 million.

Therefore, the $1,024.6 million gross budgetary authorities available for 2017-18 include $296.2 million of Net Vote Authorities. The net budgetary authorities available for 2017-18 total $728.4 million.

2.2. Significant Changes to Respendable Revenues Collected and Earned

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

Total year-to-date respendable revenues earned have decreased by $37.3 million, from $122.2 million in 2016-17 to $84.9 million in 2017-18. This is mainly explained by a delay in signature of Memoranda of Understanding with certain client Departments and by a change in the billing schedule compared to last fiscal year.  In 2017-18, the second billing is scheduled for October compared to August and September in 2016-17.

While the total year-to-date revenues netted against expenditures represent $84.9 million, the total year-to-date respendable revenues collected represent $107.7 million. The difference between respendable revenues collected and revenues netted against expenditures is due to the fact that the Department’s clients generating the highest revenues are 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 $353.5 million in 2016-17 to $361.5 million in 2017-18. This increase of $8.0 million consists of variances associated with the following:

3. Risks and Uncertainties

There is an ongoing risk that unanticipated changes in the volume or nature of legal service requests, as well as changes in law practice management, could impact the Department’s ability to deliver effective and fiscally sustainable services.

An important factor driving this uncertainty are the activities and decisions of client organizations, which shape the Department’s workload and its overall delivery capacity, funded in significant part through cost recovery. For instance, a decision to follow a course of action with higher associated legal risk could result in greater demands for the Department, from advisory support in the short-term to litigation services in the long-term. Conversely, engaging legal counsel on files that have no substantive legal issues could increase costs unnecessarily.

Hence, the legal service demands that the Department is called upon to meet may evolve, depending on the priorities clients pursue, their level of tolerance towards legal risk, and their choices about when to engage the Department of Justice.

Meeting these evolving demands is made more challenging as clients seek to contain spending on legal services. Should the containment or reduction of legal services expenditures not be properly planned, 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. The Department is focused on redefining legal services, building partnerships with clients, and streamlining business performance. Through an ongoing commitment to continuous innovation and improvement, the Department has sought to find further efficiencies in managing demand and streamlining processes. The Department also continues to make improvements to its cost recovery processes to effectively mitigate financial risks.

The Department of Justice could face an additional financial pressure following the ratification of the Law (LP) collective agreement.  This is the largest collective agreement for the Department of Justice and it remains unsigned at the end of the second quarter.

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

On July 31, 2017, the Prime Minister of Canada announced the appointment of Mr. François Daigle to the position of Associate Deputy Minister of Justice.

Beginning in fiscal year 2016-17, the Department implemented a new billing model for legal services provided to client departments. 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 advanced billing for clients above a $200K threshold. In 2017-18, this threshold was raised from $200K to $2.0 million. This change minimizes impact on smaller client departments’ cash flow and reduces the administrative burden for both the Department and its smaller clients.

Approval by Senior Officials

Approved by:

Me Nathalie G. Drouin, Ad. E.
Deputy Minister of Justice and
Deputy Attorney General of Canada

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

Ottawa, Canada
November 29, 2017

5. Statement of Authorities (unaudited)

Department of Justice
Quaterly Financial Report
For the quarter ended September 30, 2017
Statement of Authorities (unaudited)
(In thousands of dollars)
  Fiscal year 2017-18 Fiscal year 2016-17
Total available for use for the year ending March 31, 2018Table note i Used during the quarter ended September 30, 2017 Year to date used at quarter end 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
Vote 1 - Gross Operating expenditures 561,954 137,043 266,707 558,099 130,494 254,217
Less: Revenues netted against expenditures (296,200) (66,054) (84,859) (296,200) (80,680) (122,190)
Net Vote 1 - Net Operating expenditures 265,754 70,989 181,848 261,899 49,814 132,027
Vote 5 - Grants and contributions 390,315 51,126 58,974 365,234 49,126 59,941
Contributions to employee benefit plans 72,231 17,865 35,730 78,543 19,636 39,272
Minister of Justice and Attorney General of Canada - Salary and motor car allowance 84 21 42 84 28 35
Spending of proceeds from the disposal of surplus Crown assets 4 0 0 2 0 0
Refunds of amounts credited to revenues in previous years 0 0 0 0 0 0
Budgetary statutory authorities 72,319 17,886 35,772 78,629 19,664 39,307
Total authorities 728,388 140,001 276,594 705,762 118,604 231,275
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
Quarterly Financial Report
For the quarter ended September 30, 2017
Departmental Budgetary Expenditures by Standard Object (unaudited)
(In thousands of dollars)
  Fiscal year 2017-18 Fiscal year 2016-17
Planned expenditures for the year ending March 31, 2018 Table note ii Expended during the quarter ended September 30, 2017 Year to date used at quarter end Planned expenditures for the year ending March 31, 2017 Table note ii Expended during the quarter ended September 30, 2016 Year to date used at quarter end
Expenditures
Personnel
 531,325 136,456 274,936 535,275 136,090 270,131
Transportation and communications
 11,411 1,573 2,809 10,522 1,518 3,111
Information
 4,342 556 933 4,502 621 1,051
Professional and special services
 50,008 7,251 11,487 51,925 5,952 10,653
Rentals
 9,490 3,140 3,972 8,487 2,189 3,101
Repair and maintenance
 5,962 495 593 8,116 1,087 1,279
Utilities, materials and supplies
 5,936 859 1,523 6,325 951 1,553
Acquisition of machinery and equipment
 7,257 1,222 1,483 8,203 533 934
Transfer payments
 390,315 51,126 58,974 365,234 49,126 59,941
Other subsidies and payments
 8,542 3,377 4,743 3,373 1,217 1,711
Total gross budgetary expenditures 1,024,588 206,055 361,453 1,001,962 199,284 353,465
Less revenues netted against expenditures
(Revenues)		 (296,200) (66,054) (84,859) (296,200) (80,680) (122,190)
Total revenues netted against expenditures (296,200) (66,054) (84,859) (296,200) (80,680) (122,190)
Total net budgetary expenditures 728,388 140,001 276,594 705,762 118,604 231,275
Table note ii

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

Return to table note ii referrer

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.
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.
Respendable Revenues Earned
Represents revenues that are recognized when they are earned (usually when services are rendered).
Special purpose financial reporting framework
The Quarterly Financial Report requirements and structure as defined in the GC 4400 Departmental Quarterly Financial Report.
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 late winter 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.