CORCAN Revolving Fund

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Statement of management responsibility

We have prepared the accompanying financial statements of the CORCAN Revolving Fund as required by and in accordance with the Treasury Board of Canada Secretariat Directive on Charging and Special Financial Authorities and with the Receiver General reporting requirements. These financial statements were prepared by the management of the Fund in accordance with the significant accounting policies set out in note 2 of the financial statements, on a basis consistent with that of the preceding year.

Responsibility for the integrity and objectivity of these financial statements rests with the management of the Fund. To assure maximum objectivity and freedom from bias, the financial data contained in these financial statements has been examined by the audit committee of the Department. The information included in these financial statements is based on management's best estimates and judgement with due consideration given to materiality. To fulfil its accounting and reporting responsibilities, the Fund maintains a set of accounts which provides a centralized record of the Fund's financial transactions. Financial information submitted to the Public Accounts of Canada and included in the Departmental Results Reports is consistent with these financial statements.

The Fund's directorate of financial services develops and disseminates financial management and accounting policies and issues specific directives which maintain standards of accounting and financial management. The Fund maintains systems of financial management and internal control which gives due consideration to costs, benefits and risks. They are designed to provide reasonable assurance that transactions are properly authorized by Parliament, are executed in accordance with prescribed regulations, and are properly recorded to maintain accountability of Government funds and safeguard the assets under the Fund's administration. Financial management and internal control systems are augmented by the maintenance of internal audit programs. The Fund also seeks to assure the objectivity and integrity of data in its financial statements by the 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 its regulations, policies, standards and managerial authorities are understood throughout the organization.

Management has presented the financial statements to the Fund's external auditor, Ernst & Young, who audited them and has provided an independent opinion which has been appended to these financial statements.

Approved by:

Kelly Hartle
Chief Executive Officer
CORCAN

Chadi Haddad, MBA, CPA, CMA
Director, CORCAN Financial Services
CORCAN

May 26, 2021
Ottawa, Canada

Statement of authority provided (used) (unaudited) for the year ended March 31
(in thousands of dollars)

  2021 2020
EstimatesLink to table note 1 Actual EstimatesLink to table note 1 Actual
Net results (negative 2,414) (negative 4,389)
Items not requiring use of funds 1,587 1,328 1,652 1,575
Operating source of funds 1,587 (negative 1,086) 1,652 (negative 2,814)
Items requiring use of funds
Net tangible capital assets acquisitions (negative 1,300) (negative 1,405) (negative 1,800) (negative 2,802)
Net other assets and liabilities (negative 1,100) 5,578 (negative 2,100) (negative 4,384)
Authority provided (used) (negative 813) 3,087 (negative 2,248) (negative 10,000)

Reconciliation of unused authority (unaudited) as at March 31
(in thousands of dollars)

  2021 2020
(Credit) debit balance in the accumulated net charge against the Fund's authority account (negative 2,499) 4,020
Payables charged against the appropriation at year-end (negative 10,240) (negative 17,876)
Receivables credited to the appropriation at year-end 4,706 2,736
Net authority provided (used), end of year (negative 8,033) (negative 11,120)
Authority limit 20,000 5,000
Unused authority carried forward (Authority overexpended) 11,967 (negative 6,120)

Independent auditors' report

To the Commissioner of Correctional Service Canada

Opinions

We have audited the financial statements of the CORCAN Revolving Fund (the "Fund"), which comprise the statement of financial position as at March 31, 2021, and the statement of operations and net assets, and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

Unmodified Opinion on the Financial Position

In our opinion, the accompanying statement of financial position as at March 31, 2021 is prepared, in all material respects, in accordance with the financial reporting provisions of Section 1 of the Receiver General for Canada Instructions for Volume III of Public Accounts of Canada.

Qualified Opinion on the Results of Operations and Cash Flows

In our opinion, except for the possible effects of the matter described in the Basis for Opinions, including Basis for Qualified Opinion on the Results of Operations and Cash Flows section of our report, the accompanying statement of operations and net assets and statement of cash flows for the year ended March 31, 2021 are prepared, in all material respects, in accordance with the financial reporting provisions of Section 1 of the Receiver General for Canada Instructions for Volume III of Public Accounts of Canada.

Basis for Opinions, including Basis for Qualified Opinion on the Results of Operations and Cash Flows

The outbreak of coronavirus ("COVID-19"), which has been declared by the World Health Organization to be a global pandemic, has resulted in social distancing practices and mandated travel restrictions that resulted in us being unable to observe the counting of the physical inventories at the end of the year ended March 31, 2020. We were unable to satisfy ourselves by alternative means concerning inventory quantities held at March 31, 2020. Since inventories as at March 31, 2020 affect the determination of the results of operations and cash flows, we were unable to determine whether adjustments to the results of operations and cash flows might be necessary for the year ended March 31, 2020 and 2021. Our audit opinion on the financial statements for the year ended March 31, 2020 was modified accordingly because of the possible effects of this limitation in scope.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Fund in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our unmodified opinion on the financial position and our qualified opinion on the results of operations and cash flows.

Emphasis of Matter—Basis of Accounting and Restriction on Distribution and Use

We draw attention to Note 2 to the financial statements, which describes the basis of accounting. The financial statements are prepared to assist the Fund to comply with the financial reporting provisions of Section 1 of the Receiver General for Canada Instructions for Volume III of Public Accounts of Canada. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for the Fund, the Treasury Board of Canada, the Receiver General for Canada, and Correctional Services Canada and should not be used by parties other than the Fund, the Treasury Board of Canada, the Receiver General for Canada, and Correctional Services Canada. Our opinion is not modified in respect of this matter.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation of the financial statements in accordance with the financial reporting provisions of Section 1 of the Receiver General for Canada Instructions for Volume III of Public Accounts of Canada and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Fund's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Fund or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Fund's financial reporting process.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants

May 27, 2021
Ottawa, Canada

Statement of financial position as at March 31, 2021
(in thousands of dollars)

  2021 2020
Assets
Financial assets
Accounts receivable (note 4) 9,105 6,423
Inventories (note 5) 14,034 19,092
Total financial assets 23,139 25,515
Non-financial assets
Capital assets, net (note 6) 8,348 8,272
Total assets 31,487 33,787
Liabilities
Accounts payable (note 7) 7,684 12,152
Deferred revenue 181 251
Vacation pay and salary accrual 6,058 7,871
Employee termination benefits (note 8) 1,398 1,473
Total liabilities 15,321 21,747
Commitments and contingencies (notes 9 and 13)
Net assets (note 10) 16,166 12,040
Net financial position of the Fund 31,487 33,787

Statement of operations and net assets for the year ended March 31, 2021
(in thousands of dollars)

  2021 2020
Revenues (notes 3 and 11) 61,932 80,150
Cost of goods sold (note 11) 81,636 88,406
Gross margin (negative 19,704) (negative 8,256)
Other revenues
Training, correctional and other fees (note 3) 41,648 35,616
Miscellaneous 163 150
Subtotal 41,811 35,766
Expenses (note 12)
National/regional headquarters 10,138 10,351
Employment and employability programs 11,228 17,471
Selling and marketing 3,155 4,077
Subtotal 24,521 31,899
Net results (negative 2,414) (negative 4,389)
Net assets, beginning of year 12,040 8,563
Net financial resources provided and change in the accumulated net charge against the Fund's authority, during the year 6,519 7,838
Other 21 28
Net assets, end of year (note 10) 16,166 12,040

Statement of cash flows for the year ended March 31, 2021
(in thousands of dollars)

  2021 2020
Operating activities
Net results for the year (negative 2,414) (negative 4,389)
Add (deduct) items not involving cash
Termination benefits expense (note 8) (negative 22) 179
Amortization (note 6) 1,350 1,396
Subtotal (negative 1,086) (negative 2,814)
Changes in non-cash working capital balances related to operations
Accounts receivable (negative 2,682) 2,482
Inventories 5,058 (negative 4,416)
Employee termination benefits (note 8) (negative 53) (negative 95)
Accounts payable (negative 4,468) (negative 615)
Deferred revenue (negative 70) (negative 386)
Vacation pay and salary accrual (negative 1,813) 808
Net financial resources used in operating activities (negative 5,114) (negative 5,036)
Investing activities
Capital asset acquisitions (negative 1,405) (negative 2,804)
Proceeds on disposal of capital assets 2
Net financial resources used in investing activities (negative 1,405) (negative 2,802)
Net financial resources used and change in accumulated net charge against the Fund's authority (negative 6,519) (negative 7,838)
Accumulated net charge against the Fund's authority, beginning of year 4,020 11,858
Accumulated net charge against the Fund's authority, end of year (note 10) (negative 2,499) 4,020

Notes to the financial statements for the year ended March 31, 2021

1. Authority and purpose

The CORCAN Revolving Fund ("CORCAN" or the "Fund") is a special operating agency within Correctional Service Canada ("CSC") financed by way of a Revolving Fund. CORCAN 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 of Canada ("Treasury Board"). CORCAN'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 while under community supervision. 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 $20,000,000 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

(a) Basis of accounting

The financial statements have been prepared in accordance with the reporting requirements of the Receiver General for Canada for revolving funds. The basis of accounting used in these financial statements differs from Canadian public sector accounting standards because:

(b) Recognition of revenue and expenses

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 collectability is reasonably assured.

Revenue is accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenue. Revenue that has been received but not yet earned is recorded as deferred revenue.

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 are accrued to employees under their respective terms of employment.

(c) Net cash provided by government

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

(d) Accounts receivable

Accounts receivable are stated at amounts expected to be ultimately realized; an allowance is made for receivables where recovery is considered uncertain.

(e) Inventories

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

(f) 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 in the month after they are put into service, as follows:

Depreciation policy

Buildings 25 years
Equipment 10 years
Leasehold improvements Term of the lease
Vehicle fleet 5 to 10 years
Other 3 years

(g) 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.

(h) Employee termination benefits

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

(i) 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.

(j) Financial instruments

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

(k) Measurement uncertainty

The preparation of these financial statements in accordance with the Treasury Board's accounting policies requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses reported in the financial statements. At the time of preparation of the financial statements, management believes the estimates and assumptions used to be reasonable. The most significant items where estimates are used are the liability for employee termination benefits and the useful lives of capital assets. Actual results could significantly differ from these estimates. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the period they become known.

3. 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, CSC, the parent organization of CORCAN, has provided and will continue to provide CORCAN with the use of existing infrastructure including buildings and shops as well as maintenance of said facilities, financial systems, human resource services and corporate financial services. The cost of these services is not included as an expense in CORCAN's statement of operations and net assets.

The correctional and training fees are provided by CSC to offset vocational training, offender employment services in the institution and community, policy and program management, funding for new initiatives and salary and operating costs that cannot be recovered by CORCAN through the sale of goods and services due to the correctional environment in which it operates.

The Government of Canada 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, information technology, desktop and other telecommunication support and services, cheque issuance services and legal services provided by Public Works and Government Services Canada, Shared Services Canada and Justice Canada, are not included as an expense in CORCAN's statement of operations and net assets.

CORCAN entered into the following transactions with CSC and other government departments:

Related party transactions
(in thousands of dollars)

  2021 2020
Correctional Service Canada
Trade revenues 21,783 28,265
Training, correctional and other fees 41,648 35,616
Other government departments
Trade revenues 33,880 46,790
Total 97,311 110,671

Related party receivables and payables are disclosed in note 4 and note 7, respectively.

4. Accounts receivable

Accounts receivable consist of the following:

Accounts receivable (in thousands of dollars)

  2021 2020
Government of Canada 4,706 2,736
Outside parties 4,399 3,969
Subtotal 9,105 6,705
Allowance for doubtful accounts (negative 282)
Total 9,105 6,423

5. Inventories

Inventories consist of the following:

Inventories (in thousands of dollars)

  2021 2020
Raw materials 8,832 9,088
Work in progress 347 682
Finished goods 7,286 10,451
Subtotal 16,465 20,221
Provision for obsolete inventory (negative 2,431) (negative 1,129)
Total 14,034 19,092

6. Capital assets

Capital assets consist of the following:

Cost (in thousands of dollars)

  Opening balance Acquisitions Disposals and write-offs Closing balance
Buildings 397 397
Equipment 29,480 52 156 29,376
Leasehold improvements 1,343 1,343
Vehicle fleet 7,310 977 133 8,154
Other 130 130
Total 38,263 1,426 289 39,400

Accumulated amortization (in thousands of dollars)

  Opening balance Acquisitions Disposals and write-offs Closing balance
Buildings 5 5
Equipment 25,346 645 156 25,835
Leasehold improvements 1,342 1,342
Vehicle fleet 3,205 688 133 3,760
Other 98 12 110
Total 29,991 1,350 289 31,052

Net book value (in thousands of dollars)

  2021 2020
Buildings 392
Equipment 3,541 4,134
Leasehold improvements 1 1
Vehicle fleet 4,394 4,105
Other 20 32
Total 8,348 8,272

7. Accounts payable

Accounts payable consist of the following:

Accounts payable (in thousands of dollars)

  2021 2020
Government of Canada 3,170 4,509
Outside parties 4,514 7,643
Total 7,684 12,152

8. Employee future benefits

Pension benefits

CORCAN's employees participate in the Public Service Pension Plan ("PSPP"), 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% 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 plan members and CORCAN contribute to the cost of the Plan. Effective January 2013, important changes were made to the Public Service Superannuation Act ("the act governing the PSPP") through the Jobs and Growth Act, 2012, including:

CORCAN's responsibility with regards 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.

Termination benefits

Following the ratification of new collective agreements, the unionized employees in the Core Public Administration have accepted the elimination of severance benefits for voluntary separation, namely for retirement or resignation. The Treasury Board had subsequently eliminated severance benefits for voluntary separation for the executive and non-represented employees. As at March 31, 2014, there were no CORCAN employees with collective agreements where severance pay had not been eliminated.

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

Employee future benefits (in thousands of dollars)

  2021 2020
Accrued benefit obligation, beginning of year 1,473 1,389
Termination benefits (negative 22) 179
Benefits paid during the year (negative 53) (negative 95)
Accrued benefit obligation, end of year 1,398 1,473

9. Contractual obligations

CORCAN is committed to pay under the terms of lease agreements a total amount of $2,319,048 in 2021–2022. These commitments are related to the leases for the respective Kingston, Edmonton, Saskatoon and Moncton Community Industries and National Headquarters office space.

Future yearly payment amounts are estimated as follows:

Contractual obligations (in thousands of dollars)

2022 3,571
2023 3,157
2024 2,012
2025 1,645
2026 1,643
2027 and thereafter 7,143
Total 19,171

10. Net assets

Net assets consist of the following:

Net assets (in thousands of dollars)

  2021 2020
Contributed capital 30,542 30,542
Accumulated net charges against the Fund's authority 2,499 (negative 4,020)
Accumulated deficit (negative 16,896) (negative 14,510)
Other 21 28
Net assets, end of year 16,166 12,040

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 provided (used) since inception of the Fund.

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

11. Segmented information

Segmented information consists of the following:

Segmented information: Year ended March 31, 2021 (in thousands of dollars)

  Manufacturing Construction Textile Services Agriculture Other Total
Revenues 29,065 17,040 11,273 4,261 293 61,932
Cost of goods sold 37,850 23,925 13,172 5,501 1,188 81,636
Gross margin (negative 8,785) (negative 6,885) (negative 1,899) (negative 1,240) (negative 895) (negative 19,704)
Identifiable assets
Accounts receivable 786 3,294 571 934 44 3,476 9,105
Inventories 9,919 766 2,988 309 52 14,034
Capital assets, net 2,790 3,089 164 257 1,572 476 8,348
Amortization of capital assets 516 445 49 46 167 127 1,350

Segmented information: Year ended March 31, 2020 (in thousands of dollars)

  Manufacturing Construction Textile Services Agriculture Other Total
Revenues 46,210 19,395 9,485 4,831 229 80,150
Cost of goods sold 45,594 24,083 11,259 6,217 1,253 88,406
Gross Margin 616 (negative 4,688) (negative 1,774) (negative 1,386) (negative 1,024) (negative 8,256)
Identifiable assets
Accounts receivable 1,398 1,156 532 922 11 2,404 6,423
Inventories 14,121 517 4,027 358 69 19,092
Capital assets, net 3,031 2,539 209 155 1,739 599 8,272
Amortization of capital assets 616 360 83 67 142 128 1,396

12. Expenses

The following table presents details of national and regional headquarters, employment and employability programs, and selling and marketing expenses by category:

Expenses (in thousands of dollars)

  2021 2020
Salaries 14,057 14,988
Employee benefits 3,262 3,339
Professional and special services 4,291 10,060
Rentals 1,849 1,761
Transportation and communications 66 496
Utilities, materials and supplies 179 567
Other expenditures 581 426
Repairs and maintenance 220 198
Information 16 64
Total 24,521 31,899

13. Contingencies

In the normal course of operations, CORCAN is involved in various claims and legal proceedings. It is the opinion of management that no significant claims exist as at March 31, 2021.

14. COVID-19

The outbreak of the Coronavirus disease ("COVID-19") has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. The duration and impact of the COVID-19 outbreak is unknown at this time, nor is the efficacy of the government and central bank monetary and fiscal interventions designed to stabilize economic conditions. As a result, it is not possible to reliably estimate the length and severity of these developments nor the impact on the financial position and financial results of the Fund in future periods.

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