Quarterly Financial Report - For the period ending June 30, 2016

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 2016-17, as well as Canada's Economic Action Plan 2016 (Budget 2016). 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 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 for the 2016-17 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 moneys can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts or through legislation in the form of statutory spending authority for specific purposes.

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

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

2.1 Statement of Authorities

For the period ending June 30, 2016, the RCMP had $2,765.5 million in total authorities available for use, as reflected in Annex A: Statement of Authorities. This amount includes the Main Estimates, in-year statutory adjustments and $5.5 million related to the proceeds collected from the disposal of Crown assets, as displayed in Graph 1: Comparison of Total Budgetary Authorities below.

Total authorities have increased by $78.9 million, when compared to the previous year, which includes a year-over-year increase of $67.2 million in Vote 1 – Operating expenditures, $14.6 million increase in Vote 10 – Grants and contribution and a $19.2 million increase in Budgetary statutory authorities. These increases are partially offset by a decrease of $22.1 million in Vote 5 – Capital expenditures. The overall increase is primarily related to the net increase of $129.3 million in the 2016-17 Main Estimates and a minor increase of $1M for in-year statutory adjustments when compared to last year. Part of this increase is offset by a decrease of $49.4 million due to the timing and content of Supplementary Estimates. The RCMP's 2015-16 Supplementary Estimates (A) was $49.4 million primarily related to a transfer for First Nations Community Policing Service, whereas in 2016-17 the RCMP did not have a Supplementary Estimates (A) submission. In addition, a decrease of $1.7 million is seen in Proceeds from Disposal of Crown Assets as the carry forward amount has decreased in 2016-17 when compared to 2015-16.

Graph 1: Comparison of Total Budgetary Authorities as of June 30, 2015 and June 30, 2016 (in millions of dollars)

Graph 1: Comparison of Total Budgetary Authorities as of June 30, 2015 and June 30, 2016 (in millions of dollars)
Comparison of Total Budgetary Authorities as of June 30, 2015 and June 30, 2016 (in millions of dollars)
2015-16 2016-17
Main Estimates $2,630 $2,759
Supplementary Estimates (A) $49 $0
In-year Statutory Adjustments $0 $1
Proceeds from Disposal of Crown Assets $7 $6
Total $2,686 $2,766
2.1.1 Variance in Vote 1 – Net Operating expenditure authorities

The increase of $67.2 million in Vote 1 – Net Operating expenditures, reflected in Table 1: Authorities Available for Use, is mainly related to the year-over-year increase of $109.3 million in the 2016-17 Main Estimates, primarily for the Capital Vote Definition Transfers from the Capital expenditures to the Operating expenditures ($49.2 million), funding for the federal costs of Contract Policing Services for all contract jurisdictions ($37.4 million), funding for additional investigative resources to counter-terrorism (18.1 million) and funding to advance Phase II of Canada's Cyber Security Strategy (5.0 million). This is offset by funding received in the 2015-16 Supplementary Estimates (A) of $42.1M, $41.5 million of which is for a transfer from Public Safety and Emergency Preparedness for the First Nations Community Policing Service.

2.1.2 Variance in Vote 5 – Capital expenditure authorities

Capital authorities have decreased by $22.1 million when compared to the first quarter of 2015-16. This is as a result of an overall decrease in the 2016-17 Main Estimates of $15.2M primarily due to the Capital Vote Definition Transfers ($49.2 million) and the Biometric Screening reprofile to future years (4.6 million). This is partially offset by the funding received from various TB submissions. The overall decrease in Capital authorities is also attributed to the timing and content of the Supplementary Estimates. In 2015-16 Supplementary Estimates (A), $6.9 million was allocated to the RCMP as a result of the Federal Infrastructure Program which provided funding for various projects at detachments in Quebec and Ontario; however, the RCMP did not have a Supplementary Estimates (A) submission in 2016-17.

2.1.3 Variance in Vote 10 – Grants and contributions

The increase of $14.6 million in Vote 10 – Grants and contributions is a year-over-year increase in the 2016-17 Main Estimates mainly attributable to the increase in projected costs of the grant to compensate members of the RCMP for injuries received in the performance of their duties, as a result of increases in the number of Members receiving disability pension awards and the annual increases due to the indexation of disability pension benefits.

2.1.4 Variance in Budgetary statutory authorities

The increase in budgetary statutory authorities of $19.2 million is primarily related to an increase in the 2016-17 Main Estimates and is associated to the increase in Employee Benefit Plan costs due to a change in the rate used to calculate Employee Benefit Plan costs government wide.

Table 1: Authorities Available for use (in thousands of dollars) Footnote 1
Authorities 2016-17 2015-16 Variance %
Vote 1- Net Operating expenditures 1,835,515 1,768,319 67,196 4%
Vote 5 - Capital expenditures 246,781 268,898 (22,117) -8%
Vote 10 - Grants and contributions 194,973 180,352 14,621 8%
Budgetary statutory authorities 488,279 469,038 19,241 4%
Total Authorities 2,765,548 2,686,607 78,941 3%

For more information on the authority changes impacting the RCMP we would direct the reader to our 2016-17 Main Estimates.

2.2 Statement of Departmental Budgetary Expenditures by Standard Object

The RCMP has spent approximately 19% of its authorities at the end of the first quarter, compared with 22% 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.

Table 2: Expenditures by Standard Object at Quarter End shows net expenditures used during the first quarter being approximately 14% lower than the previous year; this is a result of an overall reduction of expenditures in the current fiscal year. A year to date comparison of gross expenditures reflects a modest increase of $4.8 million in 2016-17 over 2015-16. A detailed review by standard object emphasizes some significant variances which are described below.

Graph 2: Comparison of Total Budgetary Authorities and Net Expenditures as of June 30, 2015 and June 30, 2016 (in millions of dollars and percentage)

Graph 2: Comparison of Total Budgetary Authorities and Net Expenditures as of June 30, 2015 and June 30, 2016 (in millions of dollars and percentage)
Comparison of Total Budgetary Authorities and Net Expenditures as of June 30, 2015 and June 30, 2016 (in millions of dollars and percentage)
2015-16 2016-17
Total Budgetary Authorities $2,686 $2,766
Net expenditures for the quarter $603 (22%) $521 (19%)
2.2.1 Variance by Revenue

Vote netted revenue collected in 2016-17 is higher by $87.0 million (or 22%) over the same period last year, which is attributed to an increase of $86.9 million in Contract Policing Services. The increased revenue collection is due to timing differences and to an overall increase in activities in that program.

2.2.2 Variance by Personnel

Personnel expenditures have decreased by $15.1 million as compared to the first quarter expenditures in 2015-16. This reduction primarily results from a decrease in employer's contribution to the pensions and other benefits for the RCMP's regular members as there was an extra pay period in the first quarter of 2015-16 compared to 2016-17.

2.2.3 Variance by Information

Information related costs have increased by $0.1 million (or 32%) as compared to the first quarter expenditures in 2015-16. This increase can be attributed to films and other visual services related to promotional materials produced.

2.2.4 Variance by Professional and Special Services

Professional and Special Services have increased by $8.6 million (or 15%) when compared to 2015-16. The increase is largely due to the increased funding and work related to the Federal Infrastructure Program and the Federal Infrastructure Initiatives. Expenditures related to Guards and Matrons are also higher in 2016-17 compared to 2015-16 which is due to timing of payments in Contract Policing Services. In addition, health costs for regular members and pensioners have gone up by $1.9 million due to standard growth. These increases are partially offset by a decrease in legal services costs as there was a delay in implementing the new legal services billing process, resulting in no payments being made to the Department of Justice in the first quarter of 2016-17. This issue has been resolved and the RCMP will start recognizing expenditures in the second quarter.

2.2.5 Variance by Rentals

Rental costs have increased by $7.1 million representing a year over year increase of 52%. This variance is primarily due to timing issues in different areas. First, the rental costs have gone up by $1.0 million in Northwest Territories and Nunavut due to timing of processing Interdepartmental Settlements by Public Services and Procurement Canada (PSPC) for leased housing. Second, a year-over-year increase of $1.7 million in Manitoba and Nova Scotia is related to radio system. The billing issues in 2015-16 caused a delay in processing the invoices. Lastly, an increase of $2.3 million in Internal Services is mainly due to timing of billing from PSPC. In 2015-16, PSPC introduced an updated financial system that delayed the processing of Interdepartmental Settlements whereas there have been no significant delays in billing in 2016-17.

2.2.6 Variance by Acquisition of Land, Buildings, and Works

Acquisitions of Land, Buildings and Works expenditures have increased by $3.5 million (or 67%) when compared to 2015-16. A significant portion of this variance is related to the Federal Infrastructure Program and the Federal Infrastructure Initiative, as well as the construction costs of new detachments in different divisions. These increases are partially offset by a decrease related to the timing of employee housing purchases.

2.2.7 Variance by Acquisition of Machinery & Equipment

Acquisitions of Machinery and Equipment expenditures have decreased by $6.3 million (or 23%) when compared to 2015-16. The variance is mainly related to timing differences in the acquisition and repairs of vehicles in different divisions across the country.

2.2.8 Variance by Transfer Payments

Transfer payment expenditures are $4.8 million (or 11%) higher in 2016-17 as compared to 2015-16. It is primarily due to an increase of $4.5 million in 2016-17 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 Other subsidies and payment

A $2.8 million (or 63%) decrease in year-over-year expenditures for other subsidies and payments is mainly related to the timing of items being cleared from suspense account.

Table 2: Expended by Standard Object at Quarter End (in thousands of dollars) Footnote 2 Footnote 3
Standard Objects 2016-17 2015-16 Variance %
Personnel 748,997 764,104 (15,107) -2%
Transportation and telecommunications 56,283 53,180 3,104 6%
Information 399 302 96 32%
Professional and special services 65,620 57,068 8,552 15%
Rentals 20,626 13,573 7,054 52%
Repair and maintenance 10,381 10,728 (347) -3%
Utilities, materials and supplies 26,851 24,686 2,166 9%
Acquisition of land, buildings and works 8,790 5,256 3,534 67%
Acquisition of machinery and equipment 20,690 26,965 (6,275) -23%
Transfer payments 50,033 45,193 4,840 11%
Other subsidies and payments 1,679 4,502 (2,823) -63%
Total gross budgetary expenditures 1,010,349 1,005,557 4,793 0%
Less: Vote Netted Revenue 489,585 402,588 86,997 22%
Total net budgetary expenditures 520,764 602,969 (82,204) -14%

3. Risks and Uncertainties

The Departmental QFR reflects the results of the current fiscal period in relation to the Main Estimates, for which full supply was released on June 22, 2016.

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. Subsequent to the creation of the Parliamentary Protective Services (PPS) in 2015-16, the RCMP now also receives significant Vote Netted Revenue authorities related to PPS. PPS is a new entity responsible for the full protection on Parliament Hill and the VNR authority allows the RCMP to bill PPS for security services on Parliament Hill.

On January 16, 2015, the Supreme Court of Canada (SCC) determined that the exclusion of RCMP members from the definition of "employee" in the Public Service Labour Relations Act (PSLRA) and the "imposition of the" Staff Relations Representative Program (SRRP) is unconstitutional. As a result, all members are subject to the Public Service Labour Relations Act when the SCC's decision took effect on May 17, 2016. On March 9, 2016, the Government of Canada introduced new legislation in the House of Commons (Bill C-7, An Act to amend the Public Service Labour Relations Act, the Public Service Labour Relations and Employment Board Act and other Acts and to provide for certain other measures) that would provide additional parameters within which members and reservists will have the ability to bargain collectively. Following significant debate that resulted in extensive amendments, Bill C-7 passed third reading in the Senate on June 21, 2016. The bill is expected to make its way back to the House of Commons once Parliament resumes in September for consideration of proposed amendments.

Given the increasing demands on RCMP resources, particularly on National Security files, the RCMP is facing significant resources challenges. The increased concerns around terrorism and extremism, cybercrime, changing demographics, population growth and rapid technological advancements might create unforeseen 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. To address the current financial challenges, a Resourcing Review has been launched in August 2016 that will assess the financial integrity issues faced by the RCMP, and serve as the basis for a longer term strategic recommendations to the Minister of Public Safety and Emergency Preparedness. The Review will run its course through the rest of the calendar year.

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 first quarter of 2016-17.

4.2 Personnel

The Chief Financial and Administrative Officer (CFAO), Deputy Commissioner Alain Duplantie retired from the RCMP in April 2016, after 36 years of service. Dennis Watters, CPA, CA, CFE has been serving as Acting CFAO in the interim. Further information will be made available once an appointment has been made.

4.3 Programs

There has been no significant change in relation to programs in the first quarter of 2016-17.

Approved by:

Bob Paulson,
Commissioner
(Ottawa, Canada)
Date Signed: August 26, 2016

Dennis Watters, CPA, CA, CFE
Acting Chief Financial and Administrative Officer

Annex A: Statement of Authorities (unaudited) - For the quarter ended June 30, 2016

Fiscal year 2016-2017 (In thousand of dollars) Footnote 4
Total available for use for the year ending March 31, 2017 Footnote 5 Used during the quarter ended June 30, 2016 Year to date used at quarter-end
Gross Operating expenditures 3,768,745 837,972 837,972
Less: Vote Netted Revenues 1,933,231 489,585 489,585
Vote 1 - Net Operating expenditures 1,835,514 348,387 348,387
Vote 5 - Capital expenditures 246,781 20,875 20,875
Vote 10 - Grants and contributions 194,973 44,587 44,587
Pensions and other employee benefits - Members of the Force 395,891 85,610 85,610
Contributions to employee benefit plans (public servants) 75,916 18,846 18,846
Pensions under the Royal Canadian Mounted Police Pension Continuation Act 11,000 2,447 2,447
Refunds of amounts credited to revenues in previous years 12 12
Proceeds from the Disposal of Crown Assets under the Surplus Crown Assets Act 5,473 0 0
Court Awards 0 0
Statutory Authorities 488,280 106,915 106,915
Total budgetary authorities 2,765,548 520,764 520,764

Fiscal year 2015-2016 (In thousand of dollars) Footnote 4
Total available for use for the year ending March 31, 2016 Footnote 5 Used during the quarter ended
June 30, 2015
Year to date used at quarter-end
Gross Operating expenditures 3,592,949 818,753 818,753
Less: Vote Netted Revenues 1,824,630 402,588 402,588
Vote 1 - Net Operating expenditures 1,768,319 416,165 416,165
Vote 5 - Capital expenditures 268,898 25,009 25,009
Vote 10 - Grants and contributions 180,352 40,193 40,193
Pensions and other employee benefits - Members of the Force 377,046 100,221 100,221
Contributions to employee benefit plans (public servants) 71,805 17,941 17,941
Pensions under the Royal Canadian Mounted Police Pension Continuation Act 13,000 2,700 2,700
Refunds of amounts credited to revenues in previous years 7 7
Proceeds from the Disposal of Crown Assets under the Surplus Crown Assets Act 7,187 733 733
Court Awards 0 0
Statutory Authorities 469,038 121,602 121,602
Total budgetary authorities 2,686,607 602,969 602,969

Annex B: Departmental budgetary expenditures by standard object (unaudited) - For the quarter ended June 30, 2016

Fiscal year 2016-2017 (In thousand of dollars) Footnote 6
Planned expenditures for the year ending March 31, 2017 Expended during the quarter ended June 30, 2016 Year to date used at quarter-end
Expenditures:
Personnel 3,229,552 748,997 748,997
Transportation and telecommunications 165,126 56,283 56,283
Information 2,956 399 399
Professional and special services 420,497 65,620 65,620
Rentals 90,687 20,626 20,626
Repair and maintenance 94,579 10,381 10,381
Utilities, materials and supplies 121,447 26,851 26,851
Acquisition of land, buildings and works 67,707 8,790 8,790
Acquisition of machinery and equipment 207,022 20,690 20,690
Transfer payments 205,973 50,033 50,033
Other subsidies and payments 93,233 1,679 1,679
Total gross budgetary expenditures 4,698,779 1,010,349 1,010,349
Less Revenues netted against expenditures:
Vote Netted Revenues 1,933,231 489,585 489,585
Total Revenues netted against expenditures: 1,933,231 489,585 489,585
Total net budgetary expenditures 2,765,548 520,764 520,764
Fiscal year 2015-2016 (In thousand of dollars) Footnote 6
Planned expenditures for the year ending March 31, 2016 Expended during the quarter ended June 30, 2015 Year to date used at quarter-end
Expenditures:
Personnel 3,120,269 764,104 764,104
Transportation and telecommunications 157,183 53,180 53,180
Information 3,187 302 302
Professional and special services 392,683 57,068 57,068
Rentals 80,618 13,573 13,573
Repair and maintenance 83,393 10,728 10,728
Utilities, materials and supplies 110,536 24,686 24,686
Acquisition of land, buildings and works 73,067 5,256 5,256
Acquisition of machinery and equipment 226,049 26,965 26,965
Transfer payments 193,352 45,193 45,193
Other subsidies and payments 70,900 4,502 4,502
Total gross budgetary expenditures 4,511,237 1,005,557 1,005,557
Less Revenues netted against expenditures:
Vote Netted Revenues 1,824,630 402,588 402,588
Total Revenues netted against expenditures: 1,824,630 402,588 402,588
Total net budgetary expenditures 2,686,607 602,969 602,969
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