Quarterly Financial Report - For the period ending September 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, the Operating Budget Carry Forward and Capital Budget Carry Forward 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 September 30, 2016, the RCMP had $2,855.2 million in total authorities available for use, as reflected in Annex A: Statement of Authorities. This amount includes the Main Estimates, TB Vote 25 – Operating Budget Carry Forward, TB Vote 33 – Capital Budget Carry Forward, in-year statutory adjustments and $9.0 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 $68.2 million, when compared to the previous year, which includes a year-over-year decrease of $35.0 million in Vote 5 – Capital expenditures, $66.9 million increase in Vote 1 – Operating expenditures, $14.6 million increase in Vote 10 – Grants and contribution, together with a $21.7 million increase in Budgetary statutory authorities.

The overall increase is primarily related to the net increase of $129.3 million in the 2016-17 Main Estimates and minor increases in Proceeds from Disposal of Crown Assets ($1.0 million) and in-year statutory adjustments ($1.0 million), when compared to last year. These increases are partially 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, the total Operating and Capital Budget Carry Forward funding has decreased by $13.2 million in 2016-17 when compared to 2015-16.

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

Comparison of Total Budgetary Authorities as of September 30, 2015 and September 30, 2016 (in millions of dollars)
2016-17 2015-16
Main Estimates $2,759 $2,630
Supplementary Estimates (A) $0 $49
TB Vote 25 - Operating Budget Carry Forward $62 $62
TB Vote 33 - Capital Budget Carry Forward $24 $37
In-year Statutory Adjustments $1 $0
Proceeds from Disposal of Crown Assets $9 $8
2.1.1 Variance in Vote 1 – Net Operating expenditure authorities

The increase of $66.9 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 $35.0 million when compared to the second 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). The decrease is partially offset by funding received from various TB submissions. In addition, the Capital Budget Carry Forward amount has decreased by $12.9 million as compared to 2015-16. The decrease is primarily due to less carry forward funding requested by Contract Policing Program. 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 $21.7 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 1,897,309 1,830,397 66,912 4%
Vote 5 - Capital expenditures 271,116 306,136 (35,020) -11%
Vote 10 - Grants and contributions 194,973 180,352 14,621 8%
Budgetary statutory authorities 491,778 470,097 21,681 5%
Total Authorities 2,855,176 2,786,982 68,194 2%

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 44% of its authorities at the end of the second quarter, compared with 45% 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: The overall increase of expenditures in 2016-17 compared to 2015-16 is offset by the increase in revenue collection resulting a modest net increase of $0.4 million. 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 September 30, 2015 and September 30, 2016 (in millions of dollars and percentage)

Comparison of Total Budgetary Authorities and Net Expenditures as of September 30, 2015 and September 30, 2016 (in millions of dollars and percentage)
2016-17 2015-16
Total Budgetary Authorities $2,855 $2,786
Net expenditures for the quarter 1,254 (44%) $1,254 (45%)
2.2.1 Variance by Revenue

Vote netted revenue collected in 2016-17 is higher by $71.8 million (or 8%) over the same period last year, which is attributed to an increase of $73.1 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 Information

Information related costs have decreased by $0.9 million (or 53%) as compared to the second quarter expenditures in 2015-16. The decrease is primarily due to costs in regards to the Government advertising initiative for which a one-year funding of $6.0 million was approved in 2015-16.

2.2.3 Variance by Professional and Special Services

Professional and Special Services have increased by $36.4 million (or 23%) when compared to 2015-16. The increase is largely due to an increase of $12.7 million in Real Property Management to cover the costs for the WorkPlace 2.0 project and an increase of $10.8 million in legal services costs which is due to prepayment of Department of Justice (DoJ) invoices. A new directive from Treasury Board Secretariat (TBS) to prepay DoJ for their services in three instalments took effect as of April 2016. A year-over-year increase of $2.8 million is related to the timing of payment for the emergency dispatch services used in Pacific region. Expenditures related to Guards and Matrons is $1.4 million higher in 2016-17 which is also primarily due to timing of payments. In addition, health costs for regular members and pensioners have gone up by $3.6 million due to standard growth. Lastly, an increase of $1.3 million results from the increased use of specialized biology casework services. The balance of the increase is spread across the department.

2.2.4 Variance by Rentals

Rental costs have increased by $13.0 million representing a year-over-year increase of 40%. This variance is primarily due to timing issues in different areas. First, the rental costs have gone up by $3.1 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 $1.6 million in Manitoba and Nova Scotia is related to radio system. Third, an increase of $2.0 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. In addition, an increase of $2.2 million in rental of buildings in Ontario is a combination of rent increases and timing of payments; and an increase of $1.1 million in rental of computer equipment is a result of increased application licenses purchases. The remaining increases are spread across different divisions, and are not material in nature.

2.2.5 Variance by Acquisition of Land, Buildings, and Works

Acquisitions of Land, Buildings and Works expenditures have increased by $9.2 million (or 38%) 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.

2.2.6 Variance by Acquisition of Machinery & Equipment

Acquisitions of Machinery and Equipment expenditures have decreased by $9.4 million (or 15%) 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.

2.2.7 Variance by Transfer Payments

Transfer payment expenditures are $9.0 million (or 10%) higher in 2016-17 as compared to 2015-16. It is primarily due to an increase of $9.0 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.

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 1,547,173 1,538,769 8,404 1%
Transportation and telecommunications 107,682 103,912 3,770 4%
Information 780 1,668 (889) -53%
Professional and special services 195,025 158,587 36,438 23%
Rentals 45,853 32,830 13,023 40%
Repair and maintenance 25,374 24,906 469 2%
Utilities, materials and supplies 58,360 53,391 4,969 9%
Acquisition of land, buildings and works 33,350 24,141 9,209 38%
Acquisition of machinery and equipment 53,015 62,392 (9,377) -15%
Transfer payments 97,377 88,350 9,027 10%
Other subsidies and payments 38,393 41,237 (2,844) -7%
Total gross budgetary expenditures 2,202,382 2,130,183 72,199 3%
Less: Vote Netted Revenue 948,368 876,539 71,829 8%
Total net budgetary expenditures 1,254,014 1,253,644 370 0%

3. Risks and Uncertainties

The Departmental QFR reflects the results of the current fiscal period in relation to the Main Estimates, the Operating Budget Carry Forward and the Capital Budget Carry Forward.

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 for consideration of proposed amendments.

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. To address the current financial challenges, a Resourcing Review was launched in August 2016 following award of the consulting contract through a competitive process to KPMG. The purpose of the Review is to 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. A final report is expected to be completed by mid-December 2016.

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 second 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 second quarter of 2016-17.

Approved by:

Bob Paulson,
Commissioner
(Ottawa, Canada)
Date Signed: November 28, 2016

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

Annex A: Statement of Authorities (unaudited)

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 September 30, 2016 Year to date used at quarter-end
Gross Operating expenditures 3,830,540 1,003,139 1,841,111
Less: Vote Netted Revenues 1,933,231 458,783 948,368
Vote 1 - Net Operating expenditures 1,897,309 544,356 892,743
Vote 5 - Capital expenditures 271,116 41,270 62,145
Vote 10 - Grants and contributions 194,973 44,965 89,552
Pensions and other employee benefits - Members of the Force 395,891 78,425 164,035
Contributions to employee benefit plans (public servants) 75,916 18,846 37,692
Pensions under the Royal Canadian Mounted Police Pension Continuation Act 11,000 2,379 4,826
Refunds of amounts credited to revenues in previous years 1,052 1,064
Proceeds from the Disposal of Crown Assets under the Surplus Crown Assets Act 8,971 1,957 1,957
Court Awards 0 0
Statutory Authorities 491,778 102,659 209,574
Total budgetary authorities 2,855,176 733,250 1,254,014

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
September 30, 2016
Year to date used at quarter-end
Gross Operating expenditures 3,655,026 932,546 1,751,300
Less: Vote Netted Revenues 1,824,630 473,952 876,539
Vote 1 - Net Operating expenditures 1,830,397 458,594 874,761
Vote 5 - Capital expenditures 306,136 49,217 74,226
Vote 10 - Grants and contributions 180,352 40,525 80,718
Pensions and other employee benefits - Members of the Force 377,047 80,585 180,806
Contributions to employee benefit plans (public servants) 71,805 17,941 35,881
Pensions under the Royal Canadian Mounted Police Pension Continuation Act 13,000 2,632 5,332
Refunds of amounts credited to revenues in previous years 122 129
Proceeds from the Disposal of Crown Assets under the Surplus Crown Assets Act 8,245 1,059 1,791
Court Awards 0 0
Statutory Authorities 470,097 102,339 223,939
Total budgetary authorities 2,786,982 650,675 1,253,644

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

Fiscal year 2016-2017 (In thousand of dollars) Footnote 6
Planned expenditures for the year ending March 31, 2017 Expended during the quarter ended September 30, 2016 Year to date used at quarter-end
Expenditures:
Personnel 3,229,553 798,176 1,547,173
Transportation and telecommunications 175,109 51,399 107,682
Information 3,135 381 780
Professional and special services 445,919 129,405 195,025
Rentals 96,169 25,227 45,853
Repair and maintenance 100,297 14,993 25,374
Utilities, materials and supplies 128,789 31,509 58,360
Acquisition of land, buildings and works 74,699 24,560 33,350
Acquisition of machinery and equipment 226,727 32,325 53,015
Transfer payments 205,973 47,344 97,377
Other subsidies and payments 102,037 36,714 38,393
Total gross budgetary expenditures 4,788,407 1,192,033 2,202,382
Less Revenues netted against expenditures:
Vote Netted Revenues 1,933,231 458,783 948,368
Total Revenues netted against expenditures: 1,933,231 458,783 948,368
Total net budgetary expenditures 2,855,176 733,250 1,254,014
Fiscal year 2015-2016 (In thousand of dollars) Footnote 6
Planned expenditures for the year ending March 31, 2016 Expended during the quarter ended September 30, 2015 Year to date used at quarter-end
Expenditures:
Personnel 3,120,269 774,664 1,538,769
Transportation and telecommunications 166,355 50,732 103,912
Information 3,373 1,366 1,668
Professional and special services 415,596 101,519 158,587
Rentals 85,322 19,258 32,830
Repair and maintenance 88,259 14,178 24,906
Utilities, materials and supplies 116,986 28,706 53,391
Acquisition of land, buildings and works 86,003 18,885 24,141
Acquisition of machinery and equipment 261,060 35,427 62,392
Transfer payments 193,352 43,157 88,350
Other subsidies and payments 75,037 36,735 41,237
Total gross budgetary expenditures 4,611,611 1,124,627 2,130,183
Less Revenues netted against expenditures:
Vote Netted Revenues 1,824,630 473,952 876,539
Total Revenues netted against expenditures: 1,824,630 473,952 876,539
Total net budgetary expenditures 2,786,982 650,675 1,253,644
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