Quarterly Financial Report - For the period ending December 31, 2018

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

1. Introduction

This quarterly financial report (QFR) has been prepared by management as required by section 65.1 of the Financial Administration Act and in the form and manner prescribed by the Treasury Board. The report should be read in conjunction with the Main Estimates for 2018-19, as well as Budget 2018. The quarterly report has not been subject to an external audit or review.

1.1 Mandate

The Minister of Public Safety and Emergency Preparedness is the minister responsible for the Royal Canadian Mounted Police (RCMP). The responsibilities of the RCMP are set out in section 18 of the Royal Canadian Mounted Police Act. The RCMP's mandate is multi-faceted, it includes preventing and investigating crime; maintaining peace and order; enforcing laws; contributing to national security; ensuring safety of state officials, visiting dignitaries and foreign missions; and providing vital operational support services to other police and law enforcement agencies within Canada and abroad.

Further information on the mandate, roles, responsibilities and programs of the RCMP can be found in the Part II of the Main Estimates.

1.2 Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the RCMP's spending authorities granted by Parliament and those used by the department consistent with the Main Estimates, Supplementary Estimates (A), Operating Budget Carry Forward and Capital Budget Carry Forward, Reimbursement of Paylist requirements and compensation adjustments for the 2018-19 fiscal year. This quarterly report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

The authority of Parliament is required before money can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts, or through legislation in the form of statutory spending authority for specific purposes.

The RCMP uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental results reporting process. However, the spending authorities voted by Parliament remain on a cash expenditure basis.

2. Highlights of the fiscal quarter and fiscal year-to-date (YTD) results

2.1 Statement of Authorities

For the period ending December 31, 2018, the RCMP had $4,057.2 million in total authorities available for use, as reflected in Annex A: Statement of Authorities. This amount includes the Main Estimates, Supplementary Estimates (A), Compensation Adjustments, Operating Budget Carry Forward, Reimbursement of Paylist Requirements, Capital Budget Carry Forward, transfer from Treasury Board (TB) Central Vote 40 - Budget 2018 implementation and proceeds collected from the disposal of Crown assets, as displayed in Graph 1: Comparison of Total Budgetary Authorities below.

Total authorities have increased by $708.6 million, when compared to the previous year, which includes a year-over-year increase of $648.0 million in Vote 1 – Operating expenditures, a $44.6 million increase in Vote 10 – Grants and contribution and a $18.8 million increase in Budgetary statutory authorities. These increases are partially offset by a decrease of $2.8 million in Vote 5 – Capital expenditures. The overall increase is primarily related to the net increase of $658.1 million in the 2018-19 Main Estimates, an increase of $105.0 million related to Budget 2018 items received through a transfer from TB Central Vote 40, an increase of $13.1 million in Operating and Capital Budget Carry Forward and an increase of $12.8 million in the proceeds collected from the disposal of Crown assets. Part of this increase is offset by a decrease of $68.6 million in Compensation Adjustments, a decrease of $6.3 million in supplementary estimates and a decrease of $5.5 million in Paylist Requirements.

Graph 1: Comparison of Total Budgetary Authorities as of December 31, 2017 and December 31, 2018 (in millions of dollars)

  • Comparison of Total Budgetary Authorities as of December 31, 2017 and December 31, 2018 (in millions of dollars)
    Comparison of Total Budgetary Authorities as of December 31, 2017 and December 31, 2018 (in millions of dollars)
    2018-19 2017-18
    Main Estimates $3,541 $2,883
    Supplementary Estimates (A) $163 $0
    Supplementary Estimates (B) $0 $170
    TB Vote 15 – Compensation Adjustments $1 $70
    TB Vote 25 – Operating Budget Carry Forward $134 $140
    TB Vote 30 – Paylist Requirements $32 $38
    TB Vote 33 – Capital Budget Carry Forward $57 $37
    TB Vote 40 – Budget Implementation $105 $0
    Proceeds from Disposal of Crown Assets $24 $11
    Totals $4,057 $3,349

Table 1: Authorities Available for use (in thousands of dollars) Footnote 1
Authorities 2018-19 2017-18 Variance %
Vote 1 - Net Operating expenditures 2,919,953 2,271,932 648,021 29%
Vote 5 - Capital expenditures 372,313 375,079 (2,766) (1%)
Vote 10 - Grants and contributions 273,173 228,573 44,600 20%
Budgetary statutory authorities 491,807 473,038 18,769 4%
Total Authorities 4,057,246 3,348,622 708,624 21%

For more information on the authority changes impacting the RCMP we would direct the reader to our 2018-19 Main Estimates.

2.1.1 Variance in Vote 1 – Net Operating expenditure authorities

The increase of $648.0 million in Net Operating expenditures, reflected in Table 1: Authorities Available for Use, is due to a year-over-year increase of $643.6 million in the 2018-19 Main Estimates as compared to the previous year and increase of $100.7 million in Budget 2018 Implementation Vote. These increases are partially offset by a decrease of $68.6 million in Compensation Adjustments, a decrease of $16.7 million in Supplementary Estimates, a decrease of $5.5 million in Operating Budget Carry Forward, and a decrease of $5.5 million in Reimbursement of Paylist requirements. The increase is primarily related to a new funding model for the Contract Policing program ($500.1 million). This one-time, fiscally-neutral technical adjustment increase in appropriations will be largely offset by an equal increase in non-respendable non-taxable revenue to be deposited in the Consolidated Revenue Fund. The overall federal portion of the cost to deliver contract policing services remains consistent with prior year increases. The increase is also related to funding for the 2018 G7 Summit in Charlevoix, Quebec ($126.9 million) and negotiated salary adjustments for RCMP regular members, Civilian Members and Public Service employees ($61.8 million). These increases are partially offset by sunsetting funding related to the Merlo-Davidson class action settlement agreement ($63.7 million). But also attributable to the fact that most of funding for compensation adjustments including for retroactive payments were received in 2017-18.

2.1.2 Variance in Vote 5 – Capital expenditure authorities

Capital authorities have decreased by $2.8 million when compared to the third quarter of 2017-18 as a result of an overall decrease in the 2018-19 Main Estimates and partially offset by an increase in Capital Budget Carry Forward, Supplementary Estimates and Budget 2018 Implementation Vote. The decrease is primarily due to six reductions in funding level related to: funding received to maintain and upgrade federal infrastructure assets ($21.7 million); replacing the RCMP National Forensic Laboratory Services facilities ($6.1 million); the National Operation Center (NOC) ($5.8 million); funding for the RCMP's Contract Policing program ($4.9 million); funding to expand biometric screening in Canada's immigration system ($1.2 million); and funding for the security infrastructure of the Rideau Cottage official residence ($1.2 million). These decreases are partially offset by an increase in funding for the 2018 G7 Summit in Charlevoix, Quebec ($16.6 million) and an increase in funding for the National Cybercrime Coordination Unit (NC3) ($2.9 million).

2.1.3 Variance in Vote 10 – Grants and contributions

The increase of $44.6 million in Grants and contributions authorities is related to changes in the 2018-19 Main Estimates for projected costs of the grant to compensate members of the RCMP for injuries received in the performance of their duties. The increase is as a result of a higher number of Members receiving disability pension awards and the indexation of disability pension benefits.

2.1.4 Variance in Budgetary statutory authorities

The increase in budgetary statutory authorities of $18.7 million is primarily related to changes in the 2018-19 Main Estimates. They include an increase of $24.1 million in Employee Benefit Plan costs related to new initiatives and a change in the rate used to calculate Employee Benefit Plan costs government wide and an increase of $12.8 million in Proceeds from Disposal of Crown Assets. These increases are offset by reductions in Employee Benefit Plan ($16.4 million) received in supplementary estimates exercise in 2018-19 compared to 2017-18 and in funding for the Pension Continuation Act (PCA) statutory grant ($1.8 million) as there are fewer recipients.

2.2 Statement of Departmental Budgetary Expenditures by Standard Object

The RCMP has spent approximately 68% of its authorities at the end of the third quarter, compared with 74% in the previous year, as demonstrated in Graph 2: Comparison of Total Budgetary Authorities and Net Expenditures below, when vote netted revenue is taken into consideration.

Graph 2: Comparison of Total Budgetary Authorities and Net Expenditures as of December 31, 2017 and December 30, 2018 (in millions of dollars and percentage)

  • Graph 2: Comparison of Total Budgetary Authorities and Net Expenditures as of December 31, 2017 and December 30, 2018 (in millions of dollars and percentage)
    Graph 2: Comparison of Total Budgetary Authorities and Net Expenditures as of December 31, 2017 and December 30, 2018 (in millions of dollars and percentage)
    2018-19 2017-18
    Total Budgetary Authorities $4,057 $3,349
    Net expenditures as of December 31 $2,765 (68%) $2,477 (74%)

Table 2: Net Expenditures by standard objects at the end of the third quarter 2018-19 were 11.6% or $288.2 million higher than the previous year. This variance is primarily the result of an increase in gross budgetary expenditures of $173.3 million (or 4.6%) from the previous, in addition to $114.9 million (or 8.9%) in decreased revenue collections. A detailed review by standard object emphasizes some significant variances which are described below.

Table 2: Expended by Standard Object at Quarter end (in thousands of dollars) Footnote 2 Footnote 3
Standard Objects 2018-19 2017-18 Variance %
Personnel 2,524,069 2,624,119 (100,050) (3.8%)
Transportation and telecommunications 191,070 178,473 12,597 7.1%
Information 1,540 1,449 91 6.3%
Professional and special services 341,732 300,036 41,696 13.9%
Rentals 125,174 95,080 30,094 31.7%
Purchased repair and maintenance 62,095 57,410 4,685 8.2%
Utilities, materials and supplies 111,515 91,793 19,722 21.5%
Acquisition of land, buildings and works 64,602 48,945 15,657 32.0%
Acquisition of machinery and equipment 176,804 119,505 57,299 47.9%
Transfer payments 187,992 167,295 20,697 12.4%
Public debt charges 561 - 561 100.0%
Other subsidies and payments 160,381 90,083 70,298 78.0%
Total gross budgetary expenditures 3,947,535 3,774,188 173,347 4.6%
Less: Vote Netted Revenues (1,182,533) (1,297,399) 114,866 (8.9%)
Total net budgetary expenditures 2,765,002 2,476,789 288,213 11.6%
2.2.1 Variance by Revenue

Vote netted revenue collected by the end of the third quarter of 2018-19 decreased by $114.9 million (or 8.9%) over the same period last year. This decrease is for the most part related to the change in Contract Policing revenue collection process. 2018-19 is the first year of implementation of the new Contract Policing Funding Formula, whereby revenues related to indirect costs are deposited to the Consolidated Revenue Fund instead of the being re-spendable.

2.2.2 Variance by Personnel

Personnel expenditures are $100.1 million (or 3.8%) lower when compared to 2017-18. The decrease is primarily due to retroactive salary payments that occurred in the first quarter of 2017-18, in addition to an associated decrease of $21 million for employee benefit plan costs. This significant decrease was partially offset by the ongoing impact of the new rates of pay and increased overtime and extra duty pay costs for security related to the G7 Summit, in Charlevoix Quebec.

2.2.3 Variance by Professional and special services

Professional and Special Services have increased by $41.7 million (or 13.9%) when compared to 2017-18. The increase is primarily due to an increase of $10.3 million in expenditures related to security costs for the G7 Summit, increased expenditures of $5 million for Information Management and Information Technology projects. Health costs for regular members and pensioners have also increased by $7.1 million. Additionally, professional services have increased in relation to Real Property projects $3.8 million. The remaining increases can be attributed to invoicing timing differences.

2.2.4 Variance by Rentals

Rentals have increased by $30.1 million (or 31.7%) when compared to 2017-18. This increase is primarily due to increased costs incurred for security costs related to the G7 Summit.

2.2.5 Variance by Utilities, materials and supplies

Utilities, Materials and Supplies have increased by $19.7 million (or 21.5%) in comparison to 2017-18. This is mainly due to increased costs of $6.4 million incurred for security related to the G7 Summit, increased fuel expenditures of $6.6 million and increased utility costs of $1.2 million. The remaining variance is attributed for the most part to timing differences of invoices throughout the organization.

2.2.6 Variance by Acquisition of land, buildings and works

Acquisitions of Land, Buildings and Works expenditures have increased by $15.7 million (or 32%) when compared to 2017-18. This increase primarily relates to $11 million for the construction of the new Vancouver laboratory. The remaining variance is largely related to various incremental construction projects compared to the previous fiscal year.

2.2.7 Variance by Acquisition of machinery and equipment

Increased expenditures for the acquisition of machinery and equipment of $57.3 million (or 47.9%) in comparison to 2017-18 is primarily due to $23.3 million in security costs for the G7 Summit, and $19.3 million related to the timing of radio purchases. In addition, as identified in the second quarter Quarterly Financial Report, there are increased expenditures for the purchase of a rotary winged aircraft that have increased to $11.3 million due to the contract that includes multiple payments. The remaining variance is largely as a result of timing differences in the vehicle bulk purchases, the acquisition of annual inventories, information management and information technology invoices, and investigational aids.

2.2.8 Variance by Transfer payments

Increases of $20.7 million (or 12.4%) related to Transfer Payments are related to the Grant to compensate members injured in the performance of their duties resulting from an increase in the number of members receiving disability pension awards and the annual increases due to the indexation of disability pension benefits.

2.2.9 Variance by Public debt charges

The $0.6 million (or 100%) increase in expenditures is due to a government wide coding change. Previously these expenditures were captured under Other Subsidies and payments as was the case in 2017-18.

2.2.10 Variance by Other subsidies and payments

Other subsidies and payments have increased by $70.3 million (or 78%) in comparison to 2017-18. This is primarily due to timing differences associated to the allocation of $58.9 million in disability grant expenditures. These expenditures will appear under the Transfer payment standard object in the fourth quarter and in the RCMP's 2018-19 Public Accounts. In addition there was an increase in payouts of claims as part of the Merlo-Davidson Legal Settlement.

3. Risks and uncertainties

The Departmental QFR reflects the results of the current fiscal period in relation to the Main Estimates, Supplementary Estimates (A), the Operating Budget Carry Forward, the Capital Budget Carry Forward, compensation adjustments, paylist expenditures reimbursement and transfer from Budget 2018 implementation Vote.

The RCMP is funded through annual appropriations and are, therefore, impacted by any changes in funding approved through Parliament. In addition, it receives a significant portion of funding through vote netted revenue (VNR) from the provision of policing services to provinces, territories, municipalities and first nations communities, as well as from cost sharing agreements with provinces and territories for the provision of DNA analysis by the RCMP. The RCMP also receives VNR authorities to bill Parliamentary Protective Service (PPS) for the provision of security services throughout the Parliamentary precinct and the grounds of Parliament Hill.

On October 6, 2016, the RCMP announced that a settlement agreement had been reached between the RCMP and the plaintiffs in the Merlo and Davidson lawsuits filed on behalf of current and former female regular members, civilian members and public service employees. The settlement agreement was approved by the Federal Court and includes an independent claims process with compensation for women working, or having worked, at the RCMP who experienced harassment, bullying or discrimination based on their gender or sexual orientation during their employment from September 16, 1974 until May 30, 2017. The assessment of claims is the responsibility of an Independent Assessor appointed by the Federal Court. The window in which class members could file claims ran from August 12, 2017 to May 22, 2018. According to statistics posted on the Independent Assessor's website, a total of 3,131 claims were filed. As claims are assessed by the Independent Assessor, compensation awards are currently being paid to claimants in accordance with the terms of the settlement.

Given the increasing demands on RCMP resources, particularly on National Security files, the RCMP is facing significant resourcing challenges. The increased concerns around terrorism and extremism, cybercrime, changing demographics, population growth and rapid technological advancements continues to create unanticipated operational requirements and increase the existing organizational costs.

In recent years, the RCMP's reference levels have been constrained by government-wide spending reduction exercises which have resulted in significant financial pressures. In order to assess the financial integrity issues faced by the RCMP and serve as the basis for longer term strategic recommendations to the Minister of Public Safety and Emergency Preparedness, a comprehensive resourcing review was undertaken, and a final report was completed in May 2017. The review findings have been assessed and the RCMP returned to Treasury Board with a fulsome Departmental Review in the fall of 2018 that included short, medium and long-term proposals to address its ongoing resourcing issues. Although Ministers supported the proposed path forward in principle, the RCMP is awaiting a confirmation of a source of funds and a formal, detailed decision letter from Treasury Board before implementation begins.

4. Significant changes in relation to operations, personnel and programs

4.1 Operations

There has been no significant change in relation to operations in the third quarter of 2018-19.

4.2 Personnel

There has been no significant change in relation to personnel in the third quarter of 2018-19.

4.3 Programs

There has been no significant change in relation to programs in the third quarter of 2018-19.

Approved by Senior Officials

Approved by:

Original signed by

Brenda Lucki, Commissioner

Original signed by

Dennis Watters, CPA, CA
Chief Financial and Administrative Officer

Ottawa, Canada

Date: February 27, 2019

Annex A: Statement of Authorities (unaudited)

Fiscal year 2018-2019 (In thousands of dollars)
Total available for use for the year ending
March 31, 2019 Footnote 4
Used during the quarter ended
December 31, 2018
Year to date used at quarter-end
Gross Operating expenditures 4,619,941 1,090,693 3,229,181
Less: Vote Netted Revenues 1,699,988 491,708 1,182,533
Vote 1 - Net Operating expenditures 2,919,953 598,985 2,046,648
Vote 5 - Capital expenditures 372,313 63,777 168,040
Vote 10 - Grants and contributions 273,173 61,859 241,670
Pensions and other employee benefits - Members of the Force 399,291 76,127 240,832
Contributions to employee benefit plans (public servants) 60,336 14,872 44,615
Pensions under the Royal Canadian Mounted Police Pension Continuation Act 8,250 1,684 5,221
Refunds of amounts credited to revenues in previous years 0 638 1,331
Proceeds from the Disposal of Crown Assets under the Surplus Crown Assets Act 23,930 13,532 16,645
Court Awards 0 0 0
Statutory Authorities 491,807 106,853 308,644
Total budgetary authorities 4,057,246 831,474 2,765,002

Fiscal year 2017-2018 (In thousands of dollars)
Total available for use for the year ending March 31, 2018 Footnote 4 Used during the quarter ended December 31, 2017 Year to date used at quarter-end
Gross Operating expenditures 4,291,071 1,086,936 3,172,251
Less: Vote Netted Revenues 2,019,139 528,121 1,297,399
Vote 1 - Net Operating expenditures 2,271,932 558,815 1,874,852
Vote 5 - Capital expenditures 375,079 44,874 125,685
Vote 10 - Grants and contributions 228,573 52,753 157,534
Pensions and other employee benefits - Members of the Force 377,722 74,942 253,492
Contributions to employee benefit plans (public servants) 74,227 17,574 52,720
Pensions under the Royal Canadian Mounted Police Pension Continuation Act 10,000 1,906 5,961
Refunds of amounts credited to revenues in previous years 0 89 268
Proceeds from the Disposal of Crown Assets under the Surplus Crown Assets Act 11,089 5,203 6,277
Court Awards 0 0 0
Statutory Authorities 473,038 99,714 318,718
Total budgetary authorities 3,348,622 756,156 2,476,789

Annex B: Departmental budgetary expenditures by standard object (unaudited)

Fiscal year 2018-2019 (In thousands of dollars)
Planned expenditures for the year ending March 31, 2019 Expended during the quarter ended December 31, 2018 Year to date used at quarter-end
Expenditures:
Personnel 3,522,270 840,334 2,524,069
Transportation and communications 253,969 61,760 191,070
Information 5,246 611 1,540
Professional and special services 565,000 120,986 341,732
Rentals 146,159 41,021 125,174
Purchased repair and maintenance 121,649 27,495 62,095
Utilities, materials and supplies 170,972 36,888 111,515
Acquisition of land, buildings and works 126,038 26,678 64,602
Acquisition of machinery and equipment 307,015 66,773 176,804
Transfer payments 281,424 63,544 187,992
Public debt charges 561 186 561
Other subsidies and payments 256,931 36,906 160,381
Total gross budgetary expenditures 5,757,234 1,323,182 3,947,535
Less Revenues netted against expenditures:
Vote Netted Revenues 1,699,988 491,708 1,182,533
Total Revenues netted against expenditures: 1,699,988 491,708 1,182,533
Total net budgetary expenditures 4,057,246 831,474 2,765,002

Fiscal year 2017-2018 (In thousands of dollars)
Planned expenditures for the year ending March 31, 2018 Expended during the quarter ended December 31, 2018 Year to date used at quarter-end
Expenditures:
Personnel 3,947,686 841,035 2,624,119
Transportation and communications 195,126 60,549 178,473
Information 3,893 639 1,449
Professional and special services 453,829 110,492 300,036
Rentals 101,962 49,393 95,080
Purchased repair and maintenance 103,567 25,358 57,410
Utilities, materials and supplies 136,807 30,767 91,793
Acquisition of land, buildings and works 101,545 21,714 48,945
Acquisition of machinery and equipment 304,812 44,217 119,505
Transfer payments 238,573 54,659 167,295
Public debt charges 0 0 0
Other subsidies and payments 229,961 45,454 90,083
Total gross budgetary expenditures 5,367,761 1,284,277 3,774,188
Less Revenues netted against expenditures:
Vote Netted Revenues 2,019,139 528,121 1,297,399
Total Revenues netted against expenditures: 2,019,139 528,121 1,297,399
Total net budgetary expenditures 3,348,622 756,156 2,476,789
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