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 Table 16a - Correctional Service Canada Financial Statements

Statement of Management Responsibility

CORRECTIONAL SERVICE CANADA

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2008 and all information contained in these statements rests with departmental management.  These financial statements have been prepared by management in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector. 

Management is responsible for the integrity and objectivity of the information in these financial statements.  Some of the information in the financial statements is based on management's best estimates and judgment and gives due consideration to materiality.  To fulfil its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the department's financial transactions.  Financial information submitted to the Public Accounts of Canada and included in Correctional Service Canada's Departmental Performance Report is consistent with these financial statements.

Management maintains a system of financial management and internal control designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are in accordance with the Financial Administration Act, are executed in accordance with prescribed regulations, within Parliamentary authorities, and are properly recorded to maintain accountability of Government funds.  Management also seeks to ensure the objectivity and integrity of data in its financial statements by careful selection, training and development of qualified staff, by organizational arrangements that provide appropriate divisions of responsibility, and by communication programs aimed at ensuring that regulations, policies, standards and managerial authorities are understood throughout the department. 

The financial statements of the department have not been audited.

 

Don Head,
Commissioner
Ottawa, Canada
August 8, 2008

 

Louise Saint-Laurent,
CA, Chief Financial Officer

 

Statement of Operations (unaudited)

CORRECTIONAL SERVICE CANADA

For the year ended March 31

	2008			2007 (restated)
(in thousands of dollars)	Care and Custody	Rehabilitation and Case Management	Total	Total
Transfer payments
Non-profit organizations	-	1,054	1,054	846
Individuals	209	-	209	356
Other countries and international organizations	-	75	75	55
Total transfer payments	209	1,129	1,338	1,257
Operating expenses
Salaries and employee benefits	1,031,040	428,086	1,459,126	1,476,706
Professional and special services	157,491	70,469	227,960	206,709
Utilities, maintenance and supplies	123,130	15,028	138,158	116,461
Amortization	80,161	75	80,236	77,020
Repairs and maintenance	56,361	11,401	67,762	51,546
Travel	23,550	28,071	51,621	36,730
Machinery and equipment	21,272	10,690	31,962	23,351
Payment in lieu of taxes	26,304	-	26,304	26,651
Inmate pay	-	20,141	20,141	19,581
Cost of goods sold	-	18,577	18,577	14,754
Accommodation	3,725	8,451	12,176	9,964
Other	662	5,830	6,492	11,806
Relocation	2,309	2,016	4,325	3,582
Loss on disposal of tangible capital assets	2,160	64	2,224	1,024
Total operating expenses	1,528,165	618,899	2,147,064	2,075,885
Total Expenses	1,528,374	620,028	2,148,402	2,077,142
Revenues
Sales of goods and services	2,362	49,409	51,771	50,813
Other	5,910	761	6,671	5,129
Gains on sales of tangible capital assets	972	49	1,021	870
Total Revenues	9,244	50,219	59,463	56,812
Net Cost of Operations	1,519,130	569,809	2,088,939	2,020,330

The accompanying notes form an integral part of these financial statements.

Statement of Financial Position (unaudited)

CORRECTIONAL SERVICE CANADA

At March 31

(in thousands of dollars)				2008	2007 (restated)
Assets
Financial Assets
Accounts receivable, loans and advances (Note 4)				18,530	21,361
Inventory held for resale				9,670	9,215
Total financial assets				28,200	30,576
Non-financial Assets
Prepaid expenses				424	344
Inventory not for resale				25,935	19,936
Tangible capital assets (Note 5)				1,259,347	1,249,211
Total non-financial assets				1,285,706	1,269,491
Total				1,313,906	1,300,067
Liabilities and Equity of Canada
Liabilities
Accounts payable and accrued liabilities				230,533	187,788
Vacation pay and compensatory leave				55,193	52,196
Inmate trust fund (Note 7)				14,306	12,271
Employee severance benefits (Note 6)				219,160	179,180
Environmental liabilities (Note 8)				14,355	13,776
Claims and litigations (Note 8)				5,064	5,519
Total liabilities				538,611	450,730
Equity of Canada				775,295	849,337
Total				1,313,906	1,300,067

Contingent liabilities (Note 8)
Contractual obligations (Note 9)
The accompanying notes form an integral part of these financial statements.

Statement of Equity of Canada (unaudited)

CORRECTIONAL SERVICE CANADA

For the year ended March 31

(in thousands of dollars)	2008	2007 (restated)
Equity of Canada, beginning of year	849,337	951,323
Assets transferred from another department (Note 11)	1,870	-
Correction of previous years' tangible capital assets balance (Note 12)	-	(3,172)
Correction of previous years' severance liability (Note 12)	-	(8,658)
Equity of Canada, adjusted beginning of year	851,207	939,493
Net cost of operations	(2,088,939)	(2,020,330)
Current year appropriations used (Note 3)	1,963,935	1,865,543
Revenue not available for spending	(11,651)	(8,715)
Change in net position in the Consolidated Revenue Fund (Note 3)	(46,445)	(33,020)
Services received without charge from other government departments (Note 10)	107,188	106,366
Equity of Canada, end of year	775,295	849,337

The accompanying notes form an integral part of these financial statements.

Statement of Cash Flow (unaudited)

CORRECTIONAL SERVICE CANADA

For the year ended March 31

(in thousands of dollars)	2008	2007 (restated)
Operating activities
Net cost of operations	2,088,939	2,020,330
Non Cash items:
Amortization of tangible capital assets	(80,236)	(77,020)
Net loss on disposal and write-down of tangible capital assets	(1,201)	(154)
Services provided without charge (Note 10)	(107,188)	(106,366)
Variations in Statement of Financial Position:
(Decrease) increase in accounts receivable and advances	(2,831)	9,677
Increase (Decrease) in prepaid expenses	80	(1,972)
Increase in inventories	6,453	752
Increase in liabilities	(87,881)	(104,269)
Cash used by operating activities	1,816,135	1,740,978
Capital investment activities
Acquisitions of  tangible capital assets	90,725	83,700
Proceeds from disposal of tangible capital assets	(1,021)	(870)
Cash used by capital investment activities	89,704	82,830
Financing activities
Cash Provided by Government of Canada	1,905,839	1,823,808

The accompanying notes form an integral part of these financial statements.

Notes to the Financial Statements (unaudited)

CORRECTIONAL SERVICE CANADA

1. Authority and Objectives

The constitutional and legislative framework that guides the Correctional Service of Canada (CSC) is set out by the  Constitution Act 1982 and the Corrections and Conditional Release Act  (CCRA).

CSC, as part of the criminal justice system and respecting the rule of law,
contributes to public safety by actively encouraging and assisting offenders to become law-abiding citizens, while exercising
reasonable, safe, secure and humane control.  It delivers its mandate under two major program activities:

Care and Custody : Administering a sentence through reasonable, safe and humane custody;  Rehabilitation and Case Management :  Assisting in the safe rehabilitation and reintegration of offenders into communities.

2. Summary of Significant Accounting Policies

The financial statements have been prepared in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector.

Significant accounting policies are as follows:

a) Parliamentary appropriations

CSC is financed by the Government of Canada through Parliamentary appropriations.  Appropriations provided to the department do not parallel financial reporting according to generally accepted accounting principles since appropriations are primarily based on cash flow requirements.  Consequently, items recognized in the statement of operations and the statement of financial position are not necessarily the same as those provided through appropriations from Parliament.  Note 3 provides a high-level reconciliation between the bases of reporting.

b) Consolidation

These financial statements include the accounts of CSC as well as its revolving fund CORCAN.  All of the accounts of this sub-entity have been consolidated with those of CSC and all inter-organizational balances and transactions have been eliminated.

c) Net Cash Provided by Government

CSC operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada.  All cash received by the department is deposited to the CRF and all cash disbursements made by the department are paid from the CRF.  The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments of the federal government.

d) Change in Net Position in the Consolidated Revenue Fund (CRF)

Change in net position in the Consolidated Revenue Fund is the difference between the net cash provided by Government and appropriations used in a year, excluding revenue not available for spending recorded by the department.  It results from timing differences between when a transaction affects appropriations and when it is processed through the CRF.

e) Revenues

Revenues are accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenues.

f)   Expenses

Expenses are recorded on the accrual basis:

• Grants are recognized in the year in which the conditions for payment are met.  In the case of grants which do not form part of an existing program, the expense is recognized when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements; 
• Contributions are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement; 
• Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment; 
• Services provided without charge by other government departments for accommodation, the employer's contribution to the health and dental insurance plans, worker's compensation coverage and legal services are recorded as operating expenses at their estimated cost. 

g)   Employee future benefits

• Pension benefits:  Eligible employees participate in the Public Service Pension Plan, a multi-employer plan administered by the Government of Canada.  CSC's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan.  Current legislation does not require CSC to make contributions for any actuarial deficiencies of the Plan.
• Severance benefits: Employees are entitled to severance benefits under labour contracts or conditions of employment.  These benefits are accrued as employees render the services necessary to earn them.  The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.  

h) Accounts and loans receivables from external parties

Accounts and loans receivables are stated at amounts expected to be ultimately realized; a provision is made for receivables where recovery is considered uncertain.

i) Contingent liabilities

Contingent liabilities are potential liabilities which may become actual liabilities when one or more future events occur or fail to occur.  To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded.  If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

j) Environmental liabilities

Environmental liabilities reflect the estimated costs related to the management and remediation of environmentally contaminated sites.  Based on management's best estimates, a liability is accrued and an expense recorded when the contamination occurs or when the department becomes aware of the contamination and is obligated, or is likely to be obligated to incur such costs.  If the likelihood of the department's obligation to incur these costs is not determinable, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes to the financial statements.

k) Inventories 

• Inventories held for resale include raw materials, finished goods and work-in-progress.  They belong to the CORCAN revolving fund and are valued at the lower of cost and net realizable value.
• Inventories not for resale consist of material and supplies held for future program delivery.  They are valued at cost.  If they no longer have service potential, they are written-off.

l) Tangible capital assets

All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost.  CSC does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections. 

Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the asset as follows

Asset Class	Sub-asset class	Amortization Period
Buildings	Buildings	25 to 40 years
Works and infrastructure	Works and infrastructure	20 to 25 years
Machinery & equipment	Machinery & equipment	10 years
	Informatics hardware	3 to 4 years
	Informatics software	3 to 10 years
	Arms and weapons for defence	10 years
	Other equipment	10 years
Vehicles	Motor vehicles (non-military)	5 years
	Other vehicles	10 years
Leasehold improvements	Leasehold improvements	Term of lease
Assets under construction		Once in service, in accordance with asset class

m) Measurement uncertainty

The preparation of these financial statements in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, environmental liabilities, the liability for employee severance benefits and the useful life of tangible capital assets.  Actual results could significantly differ from those estimated.  Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3. Parliamentary Appropriations

The Department receives most of its funding through annual Parliamentary appropriations.  Items recognized in the statement of operations and the statement of financial position in one year may be funded through Parliamentary appropriations in prior, current or future years.  Accordingly, the Department has different net results of operations for the year on a government funding basis than on an accrual accounting basis.  The differences are reconciled in the following tables: 

a) Reconciliation of net cost of operations to current year appropriations used:

(in thousands of dollars)	2008	2007 (restated)
Net cost of operations	2,088,939	2,020,330
Adjustments for items affecting net cost of operations but not affecting appropriations :
Add (Less):
Amortization	(80,236)	(77,020)
Revenue not available for spending	11,651	8,715
Vacation pay and compensatory leave	(2,997)	(3,550)
Environmental liabilities and other provisions	(124)	(2,471)
Employee severance benefits	(39,980)	(52,560)
Loss on disposal and write-down of tangible capital assets	(1,201)	(154)
Legal services	-	(2,029)
Services provided without charge	(107,188)	(106,366)
Other	(2,686)	(4,107)
	(222,761)	(239,542)
Adjustments for items not affecting net cost of operations but affecting appropriations :
Add:
Acquisitions of tangible capital assets	90,725	83,700
Inventories	6,743	752
Prepaid expenses	289	303
	97,757	84,755
Current year appropriations used	1,963,935	1,865,543

b) Appropriations provided and used:

(in thousands of dollars)	2008	2007
Vote 25 (40) - Operating expenditures	1,727,162	1,601,550
Vote 30 (45) - Capital expenditures	189,697	136,740
Statutory amounts	196,676	192,130
	2,113,535	1,930,420
Less:
Authorities available for future years	19,182	13,746
Lapsed appropriations: Operating	81,361	38,930
Lapsed appropriations: Capital	49,057	12,201
Current year appropriations used	1,963,935	1,865,543

c) Reconciliation of net cash provided by Government to current year appropriations used:

(in thousands of dollars)	2008	2007
Net cash provided by Government	1,905,839	1,823,808
Revenue not available for spending	11,651	8,715
	1,917,490	1,832,523
Change in net position in the Consolidated Revenue Fund
Variation in accounts receivable, loans, and advances	2,672	(9,639)
Variation in accounts payable and accrued liabilities	42,745	44,876
Other adjustments	1,028	(2,217)
	46,445	33,020
Current year appropriations used	1,963,935	1,865,543

4. Accounts Receivable, Loans and Advances

The following table presents details of accounts receivable, advances, and loans :

(in thousands of dollars)	2008	2007
Receivables from other Federal Government departments and agencies	10,711	13,004
Receivables from external parties	7,968	8,409
Accountable advances and standing advances to employees	472	331
Parolee loans	4	4
	19,155	21,748
Allowance for doubtful accounts on external receivables and parolee loans	(625)	(387)
Total	18,530	21,361

5. Tangible Capital Assets

(in thousands of dollars)

	Cost					Accumulated amortization
Capital asset class	(restated) Opening Balance	Acquisi-tions	Disposals,  write-offs and adjustments	Transfer of assets under construction and adjustments	Closing Balance	Opening Balance	Amorti- zation	Disposals,  write-offs and adjustments	Closing Balance	2008 Net book Value	(restated) 2007 Net book value
Land	12,467	-	153	26	12,646	-	-	-	-	12,646	12,467
Buildings	1,455,421	-	(4,113)	5,195	1,456,503	547,695	44,407	(2,881)	589,221	867,282	907,726
Works and infrastructure	408,624	-	1,378	17,335	427,337	256,700	18,087	1,152	275,939	151,398	151,924
Machinery and equipment	197,241	21,421	(7,864)	-	210,798	104,593	13,410	(9,040)	108,963	101,835	92,648
Vehicles	42,401	8,087	(2,509)	-	47,979	26,707	4,129	(3,592)	27,244	20,735	15,694
Leasehold improvements	2,681	-	(1,330)	1,441	2,792	399	203	-	602	2,190	2,282
Assets under construction	66,470	61,217	(429)	(23,997)	103,261	-	-	-	-	103,261	66,470
Total	2,185,305	90,725	(14,714)	-	2,261,316	936,094	80,236	(14,361)	1,001,969	1,259,347	1,249,211

Amortization expense for year ended March 31, 2008 is $80,236,000 (2007 - $77,020,000).

6. Employee Benefits

a)  Pension benefits:

CSC's employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government of Canada.  Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings.  The benefits are integrated with Canada/Quebec Pension Plans benefits and they are indexed to inflation.

Both the employees and the department contribute to the cost of the Plan.  The 2007-2008 expense amounts to $135,693,742 ($136,752,791 in 2006-2007), which represents approximately 2.1 times (2.2 in 2006-2007) the contributions by employees.

The department's responsibility with regard to the Plan is limited to its contributions.  Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

b) Severance benefits:

CSC provides severance benefits to its employees based on eligibility, years of service and final salary.  These severance benefits are not pre-funded.  Benefits will be paid from future appropriations.  Information about the severance benefits, measured as at March 31, is as follows:

(in thousands of dollars)	2008	2007 (restated)
Accrued benefit obligation, beginning of year	179,180	126,907
Expenses for the year	57,736	71,817
Benefits paid during the year	(17,756)	(19,544)
Accrued benefit obligation, end of year	219,160	179,180

7. Inmate Trust Fund

Pursuant to section 111 of the Corrections and Conditional Release Act,  the Inmate Trust Fund is credited with moneys received from inmates at the time of incarceration, net of earnings of inmates from employment inside institutions, moneys received for inmates while in custody, moneys received from sales of hobbycraft, moneys earned through work while on day parole, and interest.  Payments to assist in the reformation and rehabilitation of inmates are also charged to this account.

(in thousands of dollars)	2008	2007
Beginning balance	12,271	11,460
Receipts	40,722	37,809
Disbursements	(38,687)	(36,998)
Ending balance	14,306	12,271

8. Contingent Liabilities

a) Contaminated sites

Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where the department is obligated or likely to be obligated to incur such costs.  The department has identified approximately 74 sites (67 in 2007) where such action is possible and for which a liability of $14,354,720 ($13,775,571 in 2007) has been recorded.  CSC has estimated additional clean-up costs of $21,989,000 ($22,039,000 in 2007) that are not accrued, as these are not considered likely to be incurred at this time.  CSC's ongoing efforts to assess contaminated sites may result in additional environmental liabilities related to newly identified sites, or changes in the assessments or intended use of existing sites.  These liabilities will be accrued by the department in the year in which they become known.

b) Claims and ligitations

Claims have been made against the department in the normal course of operations.  Some of these claims may become actual liabilities when one or more future events occur or fail to occur.  To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded in the financial statements.  A liability has then been accrued for the amount of $5,063,500 ($5,519,500 in 2007) while management has estimated that other claims totalling $32,000 ($30,000 in 2007) are unlikely to become a liability for the department.  In addition, there are other claims for which management can not estimate the outcome or the amount of a potential settlement.

9. Contractual Obligations

The nature of the department's activities can result in some large multi-year contracts and obligations whereby the department will be obligated to make future payments when the services/goods are received.  Significant contractual obligations that can be reasonably estimated are summarized as follows:

(in thousands of dollars)	2009	2010	2011	2012	2013 and thereafter	Total
Acquisition of other goods and services	5,114	5,114	4,500	1,490	7,078	23,296

10. Related Party Transactions

CSC is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations.  CSC enters into transactions with these entities in the normal course of business and on normal trade terms.  Also, during the year, CSC received services which were obtained without charge from other Government departments as presented in part a).  In addition, as at March 31, CSC had accounts receivable and accounts payable with other government departments and agencies as presented in part b).

a) Services provided without charge:

During the year CSC received without charge from other departments services such as accommodation, legal fees, employer's contribution to the health and dental insurance plans and worker's compensation coverage.  These services without charge have been recognized in CSC's Statement of Operations as follows:

(in thousands of dollars)	2008	2007
Accommodation	12,177	9,964
Employer's contribution to the health and dental insurance plans	88,202	88,696
Legal services	1,168	1,942
Worker's compensation	5,641	5,764
Total	107,188	106,366

The Government has structured some of its administrative activities for efficiency and cost-effectiveness purposes so that one department performs these on behalf of all without charge.  The costs of these services, which include payroll and cheque issuance services provided by Public Works and Government Services Canada, are not included as an expense in CSC's Statement of Operations.

b) Payables and receivables outstanding at year-end with related parties

(in thousands of dollars)	2008	2007
Accounts receivable from other government departments and agencies	10,711	13,004
Accounts payable to other government departments and agencies	27,756	41,848

11. Assets transferred from another department

In March 2007, CSC and the National Parole Board (NPB) signed a Master service Agreement in regards of the integration of information technology (IT) support for both organizations within an unified and accountable governance structure. As a result, in April 2008, NPB has transferred its IT capital assets to CSC, the net book value of this transfer is $1,870,000.

12. Correction of previous year's errors

In 2007-2008, CSC reviewed its tangible capital assets balances.  During that exercise, prior years' errors were detected.  The tangible capital assets balances was overstated.  As a result, an adjustment to equity for $3,172,000 was made.  The restatement has no impact on amortization nor on the statement of operations of 2006-2007.

In addition, an adjustment of $8,658,000 was made to equity for an understatement of the severance liability due to a miscalculation of the liability at March 31, 2007.  The salary and employee benefits for 2006-2007 was adjusted by $37,771.

Table 16b - CORCAN Revolving Fund Financial Statements

March 31, 2008

AUDITORS’ REPORT

To the Commissioner, Correctional Service Canada

We have audited the statement of financial position of CORCAN Revolving Fund as at March 31, 2008 and the statements of operations, net assets and cash flows for the year then ended. These financial statements have been prepared to comply with Section 6.4 of the Treasury Board of Canada's policy on special revenue spending authorities. These financial statements are the responsibility of CORCAN's Revolving Fund management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these financial statements present fairly, in all material respects, the financial position of CORCAN Revolving Fund as at March 31, 2008 and the results of its operations and its cash flows for the year then ended in accordance with the basis of accounting as described in note 2 to the financial statements.

These financial statements, which have not been, and were not intended to be, prepared in accordance with Canadian generally accepted accounting principles, are solely for the information and use of the management of the Revolving Fund and the Treasury Board. The financial statements are not intended to be and should not be used by anyone other than the specified users or for any other purpose.

Ottawa, Canada,
May 23, 2008.

Chartered Accountants
Licensed Public Accountants

 

CORCAN Revolving Fund

STATEMENT OF FINANCIAL POSITION

As at March 31 
[in thousands of dollars] 

	2008 $	2007 $  [restated - see note 3]
ASSETS
Current
Accounts receivable [note 5]	4,727	5,225
Inventories [note 6]	9,670	9,215
Other	5	181
	14,402	14,621
Capital assets [note 7]	11,978	10,467
	26,380	25,088
LIABILITIES
Current
Accounts payable [note 8]	10,778	8,476
Deferred revenue	334	727
Vacation pay and salary accrual	2,978	2,447
	14,090	11,650
Long-term
Employee termination benefits [note 9]	5,246	5,145
Commitments and contingencies [notes 10 and 14]
Net assets [note 11]	7,044	8,293
	26,380	25,088

See accompanying notes 

CORCAN Revolving Fund

STATEMENT OF OPERATIONS AND NET ASSETS

Year ended March 31
  [in thousands of dollars] 

	2008 $	2007 $  [restated - see note 3]
REVENUES AND COST OF GOODS SOLD
Revenues [note 12]	70,588	60,307
Cost of goods sold [note 12]	75,587	66,253
	(4,999)	(5,946)
OTHER REVENUES
Training and correctional fees [note 4]	23,308	22,262
Miscellaneous	459	332
	23,767	22,594
EXPENSES
National/regional headquarters [note 13]	9,218	8,746
Employment and employability programs [ note 13]	3,561	3,331
Selling and marketing [note 13]	2,693	2,172
	15,472	14,249
Net results	3,296	2,399
Net assets, beginning of year as originally reported	8,622	9,188
Restatement of prior year figures [note 3]	(329)	(621)
Net assets, beginning of year as restated	8,293	8,567
Net financial resources used (provided) and change in the ANCAFA account during the year	(4,545)	(2,673)
Net assets, end of year [note 11]	7,044	8,293

See accompanying notes 

CORCAN Revolving Fund 

STATEMENT OF CASH FLOWS

Year ended March 31 
[in thousands of dollars] 

	2008 $	2007 $  [restated - see note 3]
OPERATING ACTIVITIES
Net results	3,296	2,399
Adjustments for non -cash items:
Termination benefits expense	681	409
Amortization	1,669	1,516
Loss (gain) on disposal of capital assets	145	3
Other	183	-
	5,974	4,327
Changes in non -cash working capital:
Accounts receivable	498	242
Inventories	(455)	646
Other	176	50
Employee termination benefits	(580)	(201)
Accounts payable	2,302	440
Deferred revenue	(393)	443
Vacation pay and salary accrual	531	141
Net financial resources provided by operating activities	8,053	6,088
INVESTING ACTIVITIES
Capital asset acquisitions	(3,557)	(3,419)
Proceeds on disposal of capital assets	49	4
Net financial resources used by investing activities	(3,508)	(3,415)
Net financial resources provided (used) and change in accumulated net charge against the Fund's authority	4,545	2,673
Accumulated net charge against the Fund's authority, beginning of year	14,380	11,707
Accumulated net charge against the Fund's authority, end of year	18,925	14,380

See accompanying notes

CORCAN Revolving Fund

NOTES TO FINANCIAL STATEMENTS

March 31, 2008

1. AUTHORITY AND PURPOSE

CORCAN Revolving Fund is a special operating agency within Correctional Service Canada financed by way of a Revolving Fund. The CORCAN Revolving Fund ["CORCAN" or "the Fund"] was established under Appropriation Act No. 4, 1991-92, which authorized the operation of the Fund effective April 1, 1992 in accordance with terms and conditions prescribed by the Treasury Board. CORCAN Revolving Fund's purpose is to aid in the safe reintegration of offenders into Canadian society by providing employment and training opportunities to offenders incarcerated in federal penitentiaries and, for brief periods of time, after they are released into the community. The Fund has a continuing non-lapsing authority from Parliament to make payments out of the Consolidated Revenue Fund for working capital, capital acquisitions and temporary financing of accumulated operating deficits, the total of which is not to exceed $5,000,000 at any time. An amount of $15,218,000 representing net assets assumed by the Fund was charged to this authority when the Fund became operative on April 1, 1992. The Fund is a non-taxable entity.

2. SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statements have been prepared in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector. The significant accounting policies are as follows:

Basis of accounting

These financial statements have been prepared in accordance with the significant accounting policies set out below to comply with the Treasury Board of Canada reporting requirements for revolving funds prescribed by the Receiver General for Canada. The basis of accounting used in these financial statements differs from Canadian generally accepted accounting principles as follows:

• Employee's vacation pay liability is based on management's estimates of the liability. Termination benefits liability is based on valuations provided by Treasury Board to management;
• Funding for capital assets received from Treasury Board at inception of the Fund is recorded as contributed capital and not as a reduction of the cost of capital assets.

Recognition of revenue and expense

Except as noted below, the Fund recognizes revenue when persuasive evidence of a final agreement exists, delivery has occurred and services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.

Revenues are accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenues. Revenues that have been received but not yet earned are recorded as deferred revenues.

For construction contracts, the percentage of completion method of accounting is used. Degree of completion is determined by comparing direct costs incurred to date to the total direct costs anticipated for the entire contract. The effect of changes to the total estimated income for each contract is recognized in the period in which the determination is made and losses, if any, are recognized fully when anticipated.

Expenses are recorded in the period they are incurred. Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment.

Net cash provided by government

CORCAN operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by CORCAN is deposited to the CRF and all cash disbursements made by CORCAN are paid from the CRF. The net cash provided by government is the difference between all cash receipts and all cash disbursements including transactions between departments of the federal government.

Accounts receivable

Accounts and loans receivables are stated at amounts expected to be ultimately realized; a provision is made for receivables where recovery is considered uncertain.

Inventories

Raw materials, finished goods and work in process inventories are valued at the lower of cost and net realizable value. The Fund makes provisions for excess and obsolete inventory on a site by site basis.

Capital assets

Capital assets with an initial cost of $10,000 or greater are recorded at cost and are amortized on a straight-line basis over their estimated useful lives commencing on the month after they are put in service, as follows:

Equipment	10  years
Office furniture and equipment	10  years
Leasehold improvement	Straight-line over the life of the lease
Vehicle fleet	5  years
Computer equipment	3  years

Employee future benefits

Pension plan

Employees of the Fund are covered by the Public Service Retirement Pension Plan (the Plan) administered by the Government of Canada. Under present legislation, contributions made by the Fund to the Plan are limited to an amount equal to the employee's contributions on account of current service. These contributions represent the total pension obligations of the Fund and are charged to operations on a current basis. The Fund is not required under present legislation to make contributions with respect to actuarial deficiencies of the Public Service Superannuation Account and/or with respect to charges to the Consolidated Revenue Fund for the indexation of payments under the Supplementary Retirement Benefits Act.

Pension benefits

Eligible employees participate in the Public Service Pension Plan, a multiemployer administered by the Government of Canada. The department's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Current legislation does not require the department to make contributions for any actuarial deficiencies of the Plan.

Severance benefits

Employees of CORCAN Revolving Fund are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the government as a whole.

Measurement uncertainty

The preparation of these financial statements in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are the liability for employee severance benefits and the useful life of capital assets. Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

Sick leave

Employees are permitted to accumulate unused sick leave. However, such leave entitlements may only be used in the event of an illness. As per current government practice, unused sick leave upon employee termination is not payable to the employee. Accordingly, no amount has been accrued in these financial statements.

Financial instruments

The fair value of the financial instruments approximates costs unless otherwise specified. The Fund's financial instruments consist of accounts receivable, accounts payable, accrued liabilities and employee termination benefits. It is management's opinion that the Fund is not exposed to significant interest, currency or credit risks arising from those instruments.

3. RESTATEMENT OF PRIOR YEAR FIGURES

Changes in accounting policy

In 2007-2008, the Fund changed its accounting policy for employee termination benefits. Prior to April 1, 1992, the Fund inception date, termination benefits were funded in full by Treasury Board, and continued to be for a period of 15 years. Effective April 1, 2007, employee termination benefits related to the pre April 1, 1992 period are now recorded as a liability of the Fund. In accordance with Treasury Board Guidelines for Revolving Funds section 6140, Termination Benefits, all changes are applied retrospectively as a change in accounting policy.

Accordingly, the Fund has retrospectively restated its financial position as at March 31, 2007 as well as its results of operations and cash flow for the year then ended. As a result of this change, the 2006-2007 opening net asset balance decreased by $1,335,000, operating expenses decreased by $80,000, and the employee termination benefits increased by $1,255,000 as of March 31, 2007.

Recovery of severance benefits

In 2007-2008, the Fund received $926,000 from Treasury Board relating to severance benefits earned by employees for services rendered prior to 1992 and paid by the Fund. At the time of payment the Fund was not legally responsible for these termination benefits, and therefore recognized a higher expense than it was obligated. Accordingly, the Fund has restated its financial position as at March 31, 2007 as well as its results of operation and cash flow for the year then ended. As a result of this correction of an error, the 2006-2007 opening net assets increased by $714,000, operating expenses were reduced by $212,000, and accounts receivable (Government of Canada) was increased by $926,000 as at March 31, 2007. The $926,000 balance was collected in full in fiscal 2008-2009.

4. RELATED PARTY TRANSACTIONS

CORCAN is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. CORCAN enters into transactions with these entities in the normal course of business and on normal trade terms.

During the year, Correctional Service Canada, the parent organization of CORCAN, has provided and is to continue to provide CORCAN Revolving Fund with the use of existing infrastructure including buildings, shops and farms as well as maintenance of said facilities and human resource services. The cost of these services is not included as an expense in CORCAN's Statement of Operations and Net Assets.

The Government has structured some of its administrative activities for efficiency and cost-effectiveness purposes so that one department performs these on behalf of all without charge. The costs of these services, which include payroll, cheque issuance services and legal services provided by Public Works, Government Services Canada and Justice Canada, are not included as an expense in the CORCAN's Statement of Operations and Net Assets.

CORCAN Revolving Fund entered into the following transactions with the Correctional Service Canada ["CSC"] and all other government departments:

[In thousands of dollars]

RELATED PARTY TRANSACTIONS	2008 $	2007 $
Correctional Service Canada Trade revenues	26,523	14,524
Training, correctional and other fees	23,308	22,262
Other Government Departments Trade revenues	34,134	34,964
	83,965	71,750

5. ACCOUNTS RECEIVABLE 

[In thousands of dollars]

ACCOUNTS RECEIVABLE	2008 $	2007 $ [restated - note 3]
Government of Canada	2,381	2,108
Outside parties	2,687	3,315
	5,068	5,423
Allowance for doubtful accounts	(341)	(198)
	4,727	5,225

6. INVENTORIES 

Inventories consist of the following: 

[In thousands of dollars]

INVENTORIES	2008 $	2007 $
Raw materials	4,857	3,963
Work-in-progress	435	439
Finished goods	4,040	3,869
Agribusiness inventory	995	1,222
	10,327	9,493
Provision for obsolete inventory	(657)	(278)
	9,670	9,215

7. CAPITAL ASSETS AND ACCUMULATED AMORTIZATION

Capital assets consist of the following: 

Cost
[in thousands of dollars]

Asset	Opening balance $	Acquisitions  $	Disposals and write-offs $	Closing balance $
Equipment	27,511	2,589	1,867	28,233
Leasehold improvement	1,300	112	-	1,412
Vehicle fleet	1,395	852	174	2,073
Other	323	4	288	39
	30,529	3,557	2,329	31,757

 

Accumulated amortization
[in thousands of dollars]

Asset	Opening balance $	Amortization $	Disposals and write-offs $	Closing balance $
Equipment	18,936	1,303	1,632	18,607
Leasehold improvement	77	123	-	200
Vehicle fleet	883	230	165	948
Other	166	13	155	24
	20,062	1,669	1,952	19,779

 

Net book value
[in thousands of dollars]

Asset	2008 Net book value $	2007 Net book value $
Equipment	9,626	8,575
Leasehold improvement	1,212	1,223
Vehicle fleet	1,125	512
Other	15	157
	11,978	10,467

The amortization expense for the year was $1,669,000 [2007 - $1,516,000].

8. ACCOUNTS PAYABLE 

[in thousands of dollars]

ACCOUNTS PAYABLE	2008 $	2007 $
Government of Canada	902	1,628
Outside parties	9,876	6,848
	10,778	8,476

9. EMPLOYEE FUTURE BENEFITS 

Pension benefits: CORCAN's employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plans benefits and they are indexed to inflation.

Both the employees and CORCAN contribute to the cost of the Plan. The 2007-2008 expense amounts to $3,619,000 ($3,364,000 in 2006-2007), which represents approximately 2.6 times the contributions by employees.

CORCAN's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

Information about the severance benefits, measured as at March 31, is as follows:

[in thousands of dollars]

Information about the severance benefits, measured as at March 31	2008 $	2007 $ [restated - note 3]
Accrued benefit obligation, beginning of the year	5,145	4,937
Expense for the year	681	409
Benefits paid during the year	(580)	(201)
	5,246	5,145

10. COMMITMENTS

The nature of CORCAN's activities can result in some multi-year contracts and obligations whereby CORCAN will be obligated to make future payments when the services/goods are received. CORCAN Revolving Fund is committed under the terms of various lease agreements including an amount of $8,796,000 relating to the Kingston warehouse. The lease was entered into on September 2006 and expires in August 2016.

Significant contractual obligations that can be reasonably estimated are summarized as follows:

Year	$ [in thousandsof dollars]
2009	1,137
2010	1,245
2011	1,235
2012	1,224
2013 and thereafter	4,877
	9,718

11. NET ASSETS 

[in thousands of dollars]

	2008 $	2007 $ [restated - note 3]
Contributed capital	30,542	30,542
Accumulated net charge against the Fund's authority	(18,925)	(14,380)
Accumulated deficit	(4,573)	(7,869)
Net assets, end of year	7,044	8,293

Contributed capital represents the value of capital assets financed from contributed capital at the inception of the Fund.

Accumulated Net charge against the Fund's authority represents the amount of the fund's non-lapsing authority that has been used (provided) since inception of the Fund.

The accumulated deficit is an accumulation of each year's surpluses (losses).

12. REVENUES AND COST OF GOODS SOLD

 [in thousands of dollars] 

Year ended March 31, 2008	Revenues $	Cost of goods sold $	Gross margin $
Agribusiness and forestry	7,534	11,647	(4,113)
Services	5,312	5,524	(212)
Textile	7,203	6,939	264
Manufacturing	37,524	38,275	(751)
Construction	13,015	13,202	(187)
	70,588	75,587	(4,999)

[in thousands of dollars] 

Year ended March 31, 2007	Revenues $	Cost of goods sold $	Gross margin $
Agribusiness and forestry	7,896	10,919	(3,023)
Services	5,022	5,586	(564)
Textile	3,935	4,977	(1,042)
Manufacturing	32,392	34,048	(1,656)
Construction	11,062	10,723	339
	60,307	66,253	(5,946)

13. EXPENSES 

[in thousands of dollars] 

The following table presents details of expenses by category:	2008 $	2007 $
Salaries and employee benefits	9,268	8,360
Transportation and communication	886	943
Information	104	65
Professional and special services	3,653	3,335
Rentals	877	1,049
Purchased repair and maintenance	63	71
Utilities, materials and supplies	347	276
Other expenditures	274	150
	15,472	14,249

14. CONTINGENCIES 

In the normal course of operations, CORCAN Revolving Fund becomes involved in various claims and legal proceedings. It is the opinion of management that no claims exist at March 31, 2008.

15. COMPARATIVE INFORMATION

Comparative figures have been reclassified to conform to the current year's presentation.

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