Quarterly Financial Report for the Quarter Ended September 30, 2012

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

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Table of Contents

• 1. Introduction
  • 1.1 Justice Mandate
  • 1.2 Basis of Presentation
  • 1.3 Department of Justice Financial Structure
• 2. Highlights of Fiscal Quarter and Fiscal Year-to-Date (YTD) Results
  • 2.1 Significant Changes to Authorities
  • 2.2 Significant Changes to Revenues Collected
  • 2.3 Significant Changes to Budgetary Expenditures
• 3. Risks and Uncertainties
• 4. Significant Changes in Relation to Operations, Personnel and Programs
• 5. Budget 2012 Implementation
• 6. Statement of Authorities (unaudited)
• 7. Departmental Budgetary Expenditures by Standard Object (unaudited)
• 8. Glossary

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); 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, 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 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 the Government and federal government departments and agencies, represents the Crown in civil litigation and before administrative tribunals, drafts legislation and responds to the 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 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.

In fiscal year 2012–2013, frozen allotments will be established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012 or will simply be reduced by the total amount of funding requested through the Supplementary Estimates process. In future years, the changes to departmental authorities will be implemented through the Annual Reference Level Update, 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:

• Vote 1—Operating Expenditures;
• Vote 5—Grants and Contributions; and
• Statutory authorities related to contributions to the Employee Benefit Plan (EBP) and salaries and motor car allowances for the Minister of Justice and Attorney General of Canada.

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 September 30, 2012. Graph 1 outlines the Department’s gross and net budgetary authorities and expenditures.

For the period ending September 30, authorities provided to the Department included Main Estimates and Treasury Board Central Votes for the Operating Budget Carry Forward.

The Department’s total gross expenditures as of September 30, 2012 were $318.0 million compared to $340.0 million as of September 30, 2011. Excluding $52.2 million in revenues the Department received as of September 30, 2012 and $112.2 million received as of September 30, 2011, total net expenditures were $265.8 million and $227.8 million respectively.

2.1 Significant Changes to Authorities

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

When compared to the second quarter of the previous fiscal year, the total net budgetary authorities available for 2012–2013 were reduced by $54.2 million, from $776.1 million to $721.9 million (see Table 1). This reduction comprises:

• $24.6 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  $5.1 million as a result of the sunsetting of funding to manage immigration cases involving classified information under Division 9 of the Immigration and Refugee Protection Act^[1];
  • Increase of $3.7 million in allocation of the Operating Budget Carry Forward from the preceding fiscal year;
  • Decrease of $2.4 million as a result of the sunsetting of funding for the Aboriginal Justice Strategy^[1];
  • Decrease of $1.2 million associated with the sunsetting of funding for the Strengthening the Justice System through Legal Aid program^[1]; and
  • Decrease of $1.2 million for other adjustments, each less than $1.0 million.
• $26.9 million in Vote 5—Grants and Contributions (G&C):
  • Decrease of $13.2 million associated with the sunsetting of funding for the Strengthening the Justice System through Legal Aid program^[1];
  • Decrease of $9.6 million due to the sunsetting of funding for the Aboriginal Justice Strategy^[1];
  • Decrease of $3.8 million due the sunsetting of funding to manage immigration cases involving classified information under Division 9 of the Immigration and Refugee Protection Act^[1]; and
  • Decrease of $0.3 million for other adjustments, each less than $1.0 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 remainder 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 attached table in Section 6: Statement of Authorities)

Compared to the previous year, revenues collected in the second quarter ending September 30, 2012 decreased from $111.5 million to $29.9 million. This decrease of $81.6 million is largely the result of challenges experienced with implementation of a new monthly billing system associated with the Department’s Cost Recovery Process Improvement Project (CRPI). Most notably, the delays in receiving Interdepartmental Settlement (IS) codes from other government departments and the unfamiliarity of staff and managers with respect to the new process, system and timelines delayed the September billing to the first week of October ($12.6M).

Launched at the beginning of the fiscal year 2012–2013, the CRPI will enable more timely collection of revenues, further promoting good management and fiscal accountability (see Section 4). During the transition period, the Department continues to review, analyze and adjust the process, taking all necessary actions to overcome implementation challenges, bring the billing system to full capacity and make the CRPI a success. In this period, the department increased its training efforts to enhance the understanding by staff and managers of their roles and responsibilities associated with the new process in order to ensure a more effective collection of revenues in future periods. The Department expects to see an increase in cost-recovered revenues in the subsequent quarter as these improvements ease the transition to the new system.

2.3 Significant Changes to Budgetary Expenditures

(Refer to Table 2 in Section 7: Departmental Budgetary Expenditures by Standard Object)

Second-quarter gross budgetary expenditures decreased from $182.8 million in 2011–2012 to $165.7 million in 2012–2013. This reduction of $17.1 million is made up primarily of variances associated with the following standard objects:

• Personnel: A decrease of $13.4 million is due to the one-time $10.0 million severance pay disbursement for Public Service Alliance of Canada (PSAC) members in the 2011–2012 fiscal year, and $3.4 million related to Performance Pay, which has yet to be processed in the 2012–2013 fiscal year.
• Transportation and communications: Of the total decrease of $1.8 million, $0.57 million is a result of the government-wide commitment to reduce discretionary spending on travel, hospitality and conferences. The remainder is attributed to the transfer of IT services to Shared Services Canada.
• Repairs and maintenance: A decrease of $1.9 million includes $1.7 million attributable to the transfer of IT services to Shared Services Canada.
• Utilities, materials and supplies: A decrease of $0.38 million is due primarily to an overall downward trend in spending on discretionary items.

While the gross budgetary expenditures declined by $17.1 million as detailed above, the department also experienced a reduction in revenues collected for legal services. Revenue collected decreased by $81.6 million from $111.5 million in 2011-2012 to $29.9 million during the current quarter.

Consequently, when revenues collected are netted against gross budgetary expenditures, the net budgetary expenditures increased from $71.4 million in 2011-2012 to $135.8 million in the corresponding period of 2012-2013 for an overall increase of $64.5 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

Personnel Changes

On June 29, 2012, the Prime Minister announced the appointment of two Associate Deputy Ministers for the Department of Justice:

• Pierre Legault, appointed Associate Deputy Minister of Justice effective July 3, 2012.
• Lori Sterling, appointed Associate Deputy Minister of Justice effective July 30, 2012.

5. Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012 that will be implemented in order to refocus government and programs; make it easier for Canadians and business to deal with their government; and, modernize and reduce the back office. There were no significant financial impacts in the second quarter on the department’s authorities due to Budget 2012 decisions. The balance of Budget 2012 savings associated with fiscal year 2012-2013 will be reflected in subsequent quarterly financial reports.

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 will be frozen in 2012–2013 and at a cumulative amount of $60.2 million in 2013–2014 for a total reduction of $67.5 million by 2014–2015.

Justice initiatives to achieve these savings include:

• Streamlining internal services by consolidating delivery of Communications, Human Resources, Finance and other administrative and management services;
• Streamlining delivery of legal services to government departments by consolidating some Legal Services Units that report to the same Minister;
• Increasing efficiency by creating and expanding centres of legal expertise in some areas of law; and
• Modernizing operations by moving to electronic information sources.

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.

Approval by Senior Officials

Approved by:

Ottawa, Canada

6. Statement of Authorities (unaudited)

Department of Justice
For the quarter ended September 30, 2012
Statement of Authiorities (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 September 30, 2012	Year to date used at quarter end	Total available for use for the year ending March 31, 2012	Used during the quarter ended September 30, 2011	Year to date used at quarter end
Vote 1 - Operating expenditures	562,893	129,627	257,902	587,450	146,070	274,124
Less: Revenues netted against expenditures	(290,000)	(29,862)	(52,199)	(290,000)	(111,450)	(112,214)
Net Vote 1 operating expenditures	272,893	99,765	205,703	297,450	34,620	161,910
Vote 5 - Grants and contributions	368,799	15,915	19,916	395,699	16,001	24,411
Budgetary statutory authorities	80,170	20,129	40,189	82,912	20,726	41,451
TOTAL AUTHORITIES	721,862	135,809	265,808	776,061	71,347	227,772

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

7. Departmental budgetary expenditures by Standard Object (unaudited)

Department of Justice
For the quarter ended September 30, 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 September 30, 2012	Year to date used at quarter end	Planned expenditures for the year ending March 31, 2012	Expended during the quarter ended September 30, 2011	Year to date used at quarter end
Personnel	535,221	137,130	237,828	547,587	150,503	287,860
Transportation and communications	19,548	1,768	3,391	25,368	3,542	6,854
Information	6,357	696	1,182	4,603	686	1,229
Professional and special services	49,617	7,023	13,255	59,038	6,617	11,735
Rentals	3,856	1,474	2,912	2,065	1,016	1,990
Repair and maintenance	8,338	287	973	8,963	2,176	2,609
Utilities, materials and supplies	5,655	869	1,593	6,715	1,249	1,849
Acquisition of land, buildings and works	0	0	0	350	0	0
Acquisition of machinery and equipment	10,687	361	666	15,673	870	1,229
Transfer payments	368,799	15,935	19,938	395,699	16,001	24,411
Other subsidies and payments	3,784	110	269	0	137	220
Total gross budgetary expenditures	1,011,862	165,671	318,007	1,066,061	182,797	339,986
Less revenues netted against expenditures (Revenues)	(290,000)	(29,862)	(52,199)	(290,000)	(111,450)	(112,214)
Total revenues netted against expenditures	(290,000)	(29,862)	(52,199)	(290,000)	(111,450)	(112,214)
TOTAL NET BUDGETARY EXPENDITURES	721,862	135,809	265,808	776,061	71,347	227,772

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

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. One of these special authorities is the Operating Budget Carry Forward, 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.)

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.

Footnotes

^[1] The government has announced the renewal of these programs and activities. The Department of Justice will access the funding through Supplementary Estimates process.

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