Quarterly Financial Report - For the period ending June 30, 2017

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 2017-18, as well as Budget 2017. 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 for the 2017-18 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 June 30, 2017, the RCMP had $2,889.5 million in total authorities available for use, as reflected in Annex A: Statement of Authorities. This amount includes the Main Estimates and $6.9 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 $124.0 million, when compared to the previous year, which includes a year-over-year increase of $52.5 million in Vote 1 – Operating expenditures, $80.7 million increase in Vote 5 – Capital expenditures and a $28.6 million increase in Vote 10 – Grants and contribution. These increases are partially offset by a decrease of $37.8 million in Budgetary statutory authorities. The overall increase is primarily related to the net increase of $123.2 million in the 2017-18 Main Estimates and an increase of $1.5 million in the proceeds collected from the disposal of Crown assets as the carry forward amount has increased in 2017-18 when compared to 2016-17. Part of this increase is offset by a minor decrease of $0.7 million related to the in-year statutory adjustments.

Graph 1: Comparison of Total Budgetary Authorities as of June 30, 2016 and June 30, 2017 (in millions of dollars)

Comparison of Total Budgetary Authorities as of June 30, 2016 and June 30, 2017 (in millions of dollars)
Comparison of Total Budgetary Authorities as of June 30, 2016 and June 30, 2017 (in millions of dollars)
2017-18 2016-17
Main Estimates $2,883 $2,759
In-year Statutory Adjustments $0 $1
Proceeds from Disposal of Crown Assets $7 $6
Totals $2,890 $2,766
2.1.1 Variance in Vote 1 – Net Operating expenditure authorities

The increase of $52.5 million in Vote 1 – Net Operating expenditures, reflected in Table 1: Authorities Available for Use, is attributable to the year-over-year increase in the 2017-18 Main Estimates as compared to the previous year. The increase is primarily related to funding for the settlement of class action lawsuits against the RCMP ($64.1 million) and funding for additional investigative resources to counter-terrorism ($7.2 million). These increases are partially offset by a reduction in Professional Services, Travel and Advertising ($8.1 million) as announced in Budget 2016, a vote transfer from Operating Expenditures to Capital Expenditures for the implementation of a common definition for the capital expenditure vote ($7.7 million), a sunset of funding to support security on Parliament Hill ($1.8 million) and a transfer to Treasury Board Secretariat to implement the new labour relations regime ($1.4 million).

2.1.2 Variance in Vote 5 – Capital expenditure authorities

Capital authorities have increased by $80.7 million when compared to the first quarter of 2016-17 as a result of an overall increase in the 2017-18 Main Estimates. The increase is primarily due to the $46.7 million in funding received to maintain and upgrade federal infrastructure assets, $29.2 million in funding to replace the RCMP National Forensic Laboratory Services facilities, $8.7 million increase resulting from two reprofile requests related to National Operation Center (NOC) and $7.7 million related to the implementation of common definition vote transfer. These increases are partially offset by a sunset of funding related to various projects of detachments in Quebec and Ontario (Federal Infrastructure).

2.1.3 Variance in Vote 10 – Grants and contributions

The increase of $28.6 million in Vote 10 – Grants and contributions is related to a year-over-year increase in the 2017-18 Main Estimates which is attributed 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 decrease in budgetary statutory authorities of $37.8 million is related to a decrease of $38.6 million in the 2017-18 Main Estimates and is primarily associated to the decrease in Employee Benefit Plan costs due to a change in the rate used to calculate Employee Benefit Plan costs government wide. The decrease is partially offset by a minor increase in the proceeds collected from the disposal of Crown assets.


Table 1: Authorities Available for use ( in thousands of dollars) Footnote 1
Authorities 2017-18 2016-17 Variance %
Vote 1 - Net Operating expenditures 1,888,011 1,835,514 52,497 3%
Vote 5 - Capital expenditures 327,466 246,781 80,685 33%
Vote 10 - Grants and contributions 223,573 194,973 28,600 15%
Budgetary statutory authorities 450,455 488,280 (37,824) (8%)
Total Authorities 2,889,506 2,765,548 123,958 4%

For more information on the authority changes impacting the RCMP we would direct the reader to our 2017-18 Main Estimates.

2.2 Statement of Departmental Budgetary Expenditures by Standard Object

The RCMP has spent approximately 31% of its authorities at the end of the first quarter, compared with 19% 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 that the net expenditures used during the first quarter of 2017-18 being 73% higher than the previous year; this is a result of revenue collection being significantly lower than 2016-17 as well as Personnel being higher in 2017-18. A year-to-date comparison of gross expenditures reflects an increase of $211.2 million or 21% in 2017-18 over 2016-17. 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, 2016 and June 30, 2017 (in millions of dollars and percentage)

Comparison of Total Budgetary Authorities and Net Expenditures as of June 30, 2016 and June 30, 2017 (in millions of dollars and percentage)
Comparison of Total Budgetary Authorities and Net Expenditures as of June 30, 2016 and June 30, 2017 (in millions of dollars and percentage)
2017-18 2016-17
Total Budgetary Authorities $2,890 $2,766
Net expenditures for the quarter $901 (31%) $521 (19%)
2.2.1 Variance by Revenue

Vote netted revenue collected in 2017-18 is lower by $169.1 million (or 35%) over the same period last year. The decrease is related to timing of invoice processing in Contract Policing Services. The final revenue collection for 2017-18 is anticipated to have a year-over-year increase of 3% as compared to 2016-17.

2.2.2 Variance by Personnel

Personnel expenditures are $163.5 million (or 22%) higher when compared to 2016-17. The increase is primarily due to the higher retroactive salary costs and higher employer contributions to pension and other employee benefits for regular members as a result of the recently approved regular member pay package. In addition, the RCMP has experienced an increase in overtime costs due to increased operational requirements.

2.2.3 Variance by Transportation

Transportation related costs have increased by $6.1 million (or 11%) as compared to the first quarter expenditures in 2016-17. An increase of $9.3 million in Travel Advances is partially offset by a decrease of $7.4 million in Relocation. The shift of expenditures is a result of relocation services being brought in house. In previous years, the relocation-related costs were directly posted to Relocation, whereas in the new process, the costs are coded to Travel Advances first and then tranferred to Relocation when actual expenditures incurred. The variance is partly due to timing of processing and clearing the claims, as well as improved data quality. It is also be explained in part by a recent major revision to the Relocation Directive, that saw some increased relocation benefits being approved for a retroactive application. In addition, travel costs have increased due to higher operational requirements related to national security and peacekeeping missions.

2.2.4 Variance by Professional and Special Services

Professional and Special Services have increased by $17.3 million (or 26%) when compared to 2016-17. The increase is largely due to an increase of $11.6 million in relation to the legal services. Of this, $11.3 million represents the first prepayment of legal costs to Department of Justice, the primary legal services provider to government departments and agencies. The increase is due to a timing difference as last year's first prepayment was made in the second quarter, whereas it was made in the first quarter this year. In addition, health costs for regular members and pensioners have gone up by $1.1 million which is due to standard growth and timing of payments. The balance of the increase is spread across the department.

2.2.5 Variance by Repair and Maintenance

Repair and Maintenance costs have increased by $2.1 million representing a year-over-year increase of 20%. The increase is primarily due to timing of payments related to various projects and ramp-up for projects which experienced delays in 2016-17 as a result of staffing issues.

2.2.6 Variance by Acquisition of Land, Buildings, and Works

Acquisitions of Land, Buildings and Works expenditures have decreased by $4.6 million (or 53%) when compared to 2016-17. A decrease of $3.6 million is due to timing issues associated with different phases of various construction projects, and a $1.0 million decrease is attributed to completion of a few projects.

2.2.7 Variance by Acquisition of machinery and equipment

The $2.2 million (or 11%) increase in expenditures is largely due to the purchase of car computer systems, as well as the timing of vehicle and fit up equipment purchases. Vehicles and fit up equipment are purchased as bulk orders and the purchases happen at different periods throughout the year.

2.2.8 Variance by Other subsidies and payments

Other subsidies and payments expenditures are $20.0 million higher in 2017-18 as compared to 2016-17. It is primarily due to an increase of $12.0 million in 2017-18 related to the class action lawsuit settlement payments. An increase of $6.7 million is due to the timing of items being cleared from suspense, and an increase of $2.0 million is the salary overpayments as a results of the Phoenix pay system.


Table 2: Expended by Standard Object at Quarter End (in thousands of dollars) Footnote 2 Footnote 3
Standard Objects 2017-18 2016-17 Variance %
Personnel 912,505 748,997 163,508 22%
Transportation and telecommunications 62,336 56,283 6,053 11%
Information 356 399 (43) (11%)
Professional and special services 82,957 65,620 17,337 26%
Rentals 20,032 20,626 (594) (3%)
Repair and maintenance 12,455 10,381 2,074 20%
Utilities, materials and supplies 28,038 26,851 1,187 4%
Acquisition of land, buildings and works 4,175 8,790 (4,615) (53%)
Acquisition of machinery and equipment 22,914 20,690 2,224 11%
Transfer payments 54,160 50,033 4,127 8%
Other subsidies and payments 21,642 1,679 19,963 1189%
Total gross budgetary expenditures 1,221,570 1,010,349 211,221 21%
Less: Vote Netted Revenue 320,443 489,585 (169,142) (35%)
Total net budgetary expenditures 900,127 520,764 380,363 73%

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, 2017.

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. It 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.

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) received Royal Assent on June 19, 2017. This Bill establishes a new labour relations framework for the RCMP; one that will allow the employer and any future RCMP member bargaining agent to engage in meaningful discussions in good faith on topics of importance to RCMP members and reservists. The amended Federal Public Sector Labour Relations Act (formerly known as the Public Service Labour Relations Act) provides a labour relations process unique to the RCMP to allow regular members, special constable members and reservists to be represented by an employee organization of their choice, independent of RCMP management, and a process to engage in collective bargaining. Bill C-7 did not include civilian members as they will be deemed to be appointed under the Public Service Employment Act (PSEA) on April 26, 2018. Upon deeming, civilian members will be included in occupational groups with employees in the core public administration who perform the same work as civilian members. The civilian members will become part of that group's existing bargaining unit, and will be represented by the employee organization that has been certified as their unit's bargaining agent.

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 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 settlement agreement was approved by the Federal Court on May 30, 2017. The 180-day claim period will begin on August 12, 2017 and the claim period will close on February 8, 2018. The assessment of claims will be the responsibility of an Independent Assessor appointed by the Federal Court. Compensation awards will be paid to successful claimants as claims are assessed and any unspent funding in this fiscal year will be carried over to the next fiscal year.

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 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. 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 Preparedness, a comprehensive resourcing review was undertaken by KPMG in fiscal year 2016-17, and a final report was completed in May 2017. The review findings are now being assessed and used by the RCMP to develop recommendations for the Minister's consideration. The RCMP will continue working with the central agencies to pursue a long-term solution to address its funding requirements.

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 2017-18.

4.2 Personnel

Commissioner Bob Paulson retired from the RCMP on June 30, 2017, after over 30 years of service. A selection process to identify a new RCMP Commissioner is currently underway. In the interim, Deputy Commissioner Daniel Dubeau is filling in the role of Acting Commissioner, in accordance with Section 15 of the Royal Canadian Mounted Police Act.

Dennis Watters, CPA, CA, CFE was appointed to the position of Chief Financial Administrative Officer (CFAO) in May 2017. Mr. Watters was previously appointed Associate CFAO in July 2015, and transitioned into the role of Acting CFAO in March 2016 when Deputy Commissioner, Alain Duplantie retired from the RCMP.

4.3 Programs

There has been no significant change in relation to programs in the first quarter of 2017-18.

Approved by Senior Officials

Approved by:

Original signed by

Kevin Brousseau, Deputy Commissioner
for
Daniel Dubeau, Acting Commissioner

Original signed by

Helene Filion, Director General
for
Dennis Watters, CPA, CA, CFE
Chief Financial and Administrative Officer

Ottawa, Canada

Date: August 17, 2017


Annex A: Statement of Authorities (unaudited)

Fiscal year 2017-2018 (In thousand of dollars) Footnote 4
Total available for use for the year ending
March 31, 2018 Footnote 5
Used during the quarter ended
June 30, 2017
Year to date used at quarter-end
Gross Operating expenditures 3,822,343 1,030,554 1,030,554
Less: Vote Netted Revenues 1,934,332 320,443 320,443
Vote 1 - Net Operating expenditures 1,888,011 710,111 710,111
Vote 5 - Capital expenditures 327,466 19,079 19,079
Vote 10 - Grants and contributions 223,573 52,054 52,054
Pensions and other employee benefits - Members of the Force 363,215 100,121 100,121
Contributions to employee benefit plans (public servants) 70,293 17,573 17,573
Pensions under the Royal Canadian Mounted Police Pension Continuation Act 10,000 2,106 2,106
Refunds of amounts credited to revenues in previous years 0 83 83
Proceeds from the Disposal of Crown Assets under the Surplus Crown Assets Act 6,947 0 0
Court Awards 0 0 0
Statutory Authorities 450,455 119,883 119,883
Total budgetary authorities 2,889,506 901,127 901,127
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 0
Statutory Authorities 488,280 106,915 106,915
Total budgetary authorities 2,765,548 520,764 520,764

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

Fiscal year 2017-2018 (In thousand of dollars) Footnote 6
Expenditures Planned expenditures for the year ending March 31, 2018 Expended during the quarter ended June 30, 2017 Year to date used at quarter-end
Personnel 3,194,707 912,505 912,505
Transportation and communications 173,265 62,336 62,336
Information 3,457 356 356
Professional and special services 402,982 82,957 82,957
Rentals 90,538 20,032 20,032
Repair and maintenance 91,963 12,455 12,455
Utilities, materials and supplies 121,479 28,038 28,038
Acquisition of land, buildings and works 88,262 4,175 4,175
Acquisition of machinery and equipment 265,735 22,914 22,914
Transfer payments 233,574 54,160 54,160
Other subsidies and payments 157,876 21,642 21,642
Total gross budgetary expenditures 4,823,838 1,221,570 1,221,570
Less Revenues netted against expenditures:
Vote Netted Revenues 1,934,332 320,443 320,443
Total Revenues netted against expenditures: 1,934,332 320,443 320,443
Total net budgetary expenditures 2,889,506 901,127 901,127
Fiscal year 2016-2017 (In thousand of dollars) Footnote 6
Expenditures Planned expenditures for the year ending March 31, 2017 Expended during the quarter ended June 30, 2016 Year to date used at quarter-end
Personnel 3,229,552 748,997 748,997
Transportation and communications 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
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