Quarterly Financial Report - For the period ending September 30, 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, the Operating Budget Carry Forward and Capital Budget Carry Forward 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 September 30, 2018, the RCMP had $3,715.9 million in total authorities available for use, as reflected in Annex A: Statement of Authorities. This amount includes the Main Estimates, transfer from Treasury Board (TB) Central Vote 40 - Budget 2018 implementation, Operating Budget Carry Forward, Capital Budget Carry Forward 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 $648.1 million, when compared to the previous year, which includes a year-over-year increase of $612.7 million in Vote 1 – Operating expenditures, a $30.1 million increase in Vote 10 – Grants and contribution and a $24.6 million increase in Budgetary statutory authorities. These increases are partially offset by a decrease of $19.3 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 $10.0 million related to Budget 2018 item received through a transfer from TB Central Vote 40 and an increase of $1.5 million in the proceeds collected from the disposal of Crown assets. Part of this increase is offset by a decrease of $21.0 million in Operating and Capital Budget Carry Forward.

Graph 1: Comparison of Total Budgetary Authorities as of September 30, 2017 and September 30, 2018 (in millions of dollars)

  • Comparison of Total Budgetary Authorities as of September 30, 2017 and September 30, 2018 (in millions of dollars)
    Comparison of Total Budgetary Authorities as of September 30, 2017 and September 30, 2018 (in millions of dollars)
    2018-19 2017-18
    Main Estimates $3,541 $2,883
    TB Vote 40 – Budget Implementation $10 $0
    TB Vote 25 – Operating Budget Carry Forward $100 $140
    TB Vote 33 – Capital Budget Carry Forward $56 $37
    Proceeds from Disposal of Crown Assets $9 $8
    Totals $3,716 $3,068

Table 1: Authorities Available for use ( in thousands of dollars) Footnote 1
Authorities 2018-19 2017-18 Variance %
Vote 1 - Net Operating expenditures 2,640,617 2,027,954 612,664 30%
Vote 5 - Capital expenditures 345,781 365,073 (19,293) (5%)
Vote 10 - Grants and contributions 253,673 223,573 30,100 13%
Budgetary statutory authorities 475,923 451,345 24,578 5%
Total Authorities 3,715,994 3,067,945 648,049 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 $612.7 million in Vote 1 – Net Operating expenditures, reflected in Table 1: Authorities Available for Use, is due to a year-over-year increase in the 2018-19 Main Estimates as compared to the previous year and is partially offset by a decrease in Operating Budget Carry Forward. 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) and Canada's Migrant Smuggling Enforcement Strategy ($3.7 million). The decrease in Operating Budget Carry Forward is related to the fact that the organization in 2018-19 as apposed to 2017-18 did not seek to carry forward lapsed funding in both the regular allotment and Contract Policing program.

2.1.2 Variance in Vote 5 – Capital expenditure authorities

Capital authorities have decreased by $19.3 million when compared to the second 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. The decrease is primarily due to six reduction 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 to implement and administer a federal framework to legalize and regulate Cannabis ($2.5 million).

2.1.3 Variance in Vote 10 – Grants and contributions

The increase of $30.1 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 $24.6 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 in the proceeds collected from the disposal of Crown assets ($1.5 million). These increases are offset by reduction 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 52% of its authorities at the end of the second quarter, compared with 56% 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 September 30, 2017 and September 30, 2018 (in millions of dollars and percentage)

  • Comparison of Total Budgetary Authorities and Net Expenditures as of September 30, 2017 and September 30, 2018 (in millions of dollars and percentage)
    Comparison of Total Budgetary Authorities and Net Expenditures as of September 30, 2017 and September 30, 2018 (in millions of dollars and percentage)
    2018-19 2017-18
    Total Budgetary Authorities $3,716 $3,068
    Net expenditures as at September 30 $1,934 (52%) $1,721 (56%)

Table 2: Net Expenditures by standard objects at the end of the second quarter 2018-19 was at 12% or $212.9 million higher than the previous year. This variance is primarily the result of an increase in gross budgetary expenditures of $134.4 million (or 5%) from the previous, in addition to $78.5 million (or 10%) 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 1,683,735 1,783,084 (99,349) (6%)
Transportation and telecommunications 129,310 117,924 11,386 10%
Information 929 810 119 15%
Professional and special services 220,746 189,544 31,202 16%
Rentals 84,153 45,687 38,466 84%
Repair and maintenance 34,600 32,052 2,548 8%
Utilities, materials and supplies 74,627 61,026 13,601 22%
Acquisition of land, buildings and works 37,924 27,231 10,693 39%
Acquisition of machinery and equipment 110,031 75,288 34,743 46%
Transfer payments 183,348 112,636 70,712 63%
Public debt charges 375 - 375 0%
Other subsidies and payments 64,575 44,629 19,946 45%
Total gross budgetary expenditures 2,624,353 2,489,911 134,442 5%
Less: Vote Netted Revenue 690,825 769,278 (78,453) (10%)
Total net budgetary expenditures 1,933,528 1,720,633 212,895 12%
2.2.1 Variance by Revenue

Vote netted revenue collected by the end of the second quarter of 2018-19 decreased by $78.5 million (or 10%) 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 being re-spendable as reported in 2017-18.

2.2.2 Variance by Personnel

Personnel expenditures are $99.3 million (or 6%) 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 $19 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 Information

Information expenditures increased by $0.1 M (or 15%) over 2017-18 and is mainly due to differences in the timing of expenditures and increased production of Police Community Relations publications.

2.2.4 Variance by Professional and special services

Professional and Special Services have increased by $31.2 million (or 16%) when compared to 2017-18. The increase is primarily due to an increase $7.8 million in expenditures related to the G7 Summit, increased expenditures of $5 million for Information Management and Information Technology projects as well as $3.7 million due to timing and billing of radio services. Additionally health costs for regular members and pensioners have increased by $3.3 million. The remaining increases can be attributed to invoicing timing differences, as well as incremental professional services in support of the administration of the Merlo-Davidson class action settlement agreement.

2.2.5 Variance by Rentals

Rentals have increased by $38.5 million (or 84%) when compared to 2017-18. This increase is primarily due to increased costs incurred for security costs related to the G7 Summit.

2.2.6 Variance by Utilities, materials and supplies

Utilities, Materials and Supplies have increased by $13.6 million (or 22%) in comparison to 2017-18. This is mainly due to increased costs of $6.2 million incurred for security related to the G7 Summit, and increased fuel expenditures of $5.3 million. The remaining variance is attributed for the most part to timing differences of invoices throughout the organization.

2.2.7 Variance by Acquisition of machinery and equipment

Acquisitions of Land, Buildings and Works expenditures have increased by $10.7 million (or 39%) when compared to 2017-18. This increase primarily relates to $8.5 million for the construction of the new Vancouver laboratory. The remaining variance is largely related to various construction projects.

2.2.8 Variance by Acquisition of machinery and equipment

Increased expenditures for the acquisition of machinery and equipment of $34.7 million (or 46%) in comparison to 2017-18 is primarily due to $23.5 million in security costs related to security costs for the G7 Summit, $7.4 million related to the timing of radio purchases, and $3.5 million for the purchase of a rotary winged aircraft. 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.

2.2.9 Variance by Transfer payments

Increases of $70.7 million (or 63%) 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.

2.2.10 Variance by Public debt charges

The $0.4 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.

2.2.11 Variance by Other subsidies and payments

Other subsidies and payments have increased by $19.9 million (or 45%) in comparison to 2017-18. This is mainly due to increased payouts of claims as part of the Merlo-Davidson class action settlement agreement.

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. 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 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 will be returning to Government with a fulsome Departmental Review in the fall of 2018, with the expectation that longer term options related to addressing the resourcing issues will be presented.

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 2018-19.

4.2 Personnel

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

4.3 Programs

There has been no significant change in relation to operations in the second 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: November 29, 2018


Annex A: Statement of Authorities (unaudited)

Fiscal year 2018-2019 (In thousand of dollars)
Total available for use for the year ending
March 31, 2019 Footnote 4
Used during the quarter ended
September 30, 2018
Year to date used at quarter-end
Gross Operating expenditures 4,340,605 1,134,171 2,138,488
Less: Vote Netted Revenues 1,699,988 282,970 690,825
Vote 1 - Net Operating expenditures 2,640,617 851,201 1,447,663
Vote 5 - Capital expenditures 345,781 70,730 104,263
Vote 10 - Grants and contributions 253,673 120,275 179,811
Pensions and other employee benefits - Members of the Force 398,850 79,666 164,705
Contributions to employee benefit plans (public servants) 59,526 14,871 29,743
Pensions under the Royal Canadian Mounted Police Pension Continuation Act 8,250 1,791 3,537
Refunds of amounts credited to revenues in previous years 0 174 693
Proceeds from the Disposal of Crown Assets under the Surplus Crown Assets Act 9,297 3,111 3,113
Court Awards 0 0 0
Statutory Authorities 475,923 99,613 201,791
Total budgetary authorities 3,715,994 1,141,819 1,933,528

Fiscal year 2017-2018 (In thousand of dollars)
Total available for use for the year ending March 31, 2018 Footnote 4 Used during the quarter ended September 30, 2017 Year to date used at quarter-end
Gross Operating expenditures 4,012,668 1,054,761 2,085,315
Less: Vote Netted Revenues 1,984,714 448,835 769,278
Vote 1 - Net Operating expenditures 2,027,954 605,926 1,316,037
Vote 5 - Capital expenditures 365,073 61,732 80,811
Vote 10 - Grants and contributions 223,573 52,727 104,781
Pensions and other employee benefits - Members of the Force 363,215 78,429 178,550
Contributions to employee benefit plans (public servants) 70,294 17,573 35,146
Pensions under the Royal Canadian Mounted Police Pension Continuation Act 10,000 1,949 4,055
Refunds of amounts credited to revenues in previous years 0 96 179
Proceeds from the Disposal of Crown Assets under the Surplus Crown Assets Act 7,836 1,074 1,074
Court Awards 0 0 0
Statutory Authorities 451,345 99,121 219,004
Total budgetary authorities 3,067,945 819,506 1,720,633

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

Fiscal year 2018-2019 (In thousand of dollars)
Planned expenditures for the year ending March 31, 2019 Expended during the quarter ended September 30, 2018 Year to date used at quarter-end
Expenditures:
Personnel 3,472,759 873,024 1,683,735
Transportation and communications 213,982 61,769 129,310
Information 4,420 592 929
Professional and special services 476,993 124,920 220,746
Rentals 123,145 50,703 84,153
Repair and maintenance 103,525 21,227 34,600
Utilities, materials and supplies 144,048 39,308 74,627
Acquisition of land, buildings and works 116,855 28,115 37,924
Acquisition of machinery and equipment 276,536 61,102 110,031
Transfer payments 261,924 63,166 183,348
Public debt charges 375 187 375
Other subsidies and payments 221,420 100,676 64,575
Total gross budgetary expenditures 5,415,982 1,424,789 2,624,353
Less Revenues netted against expenditures:
Vote Netted Revenues 1,699,988 282,970 690,825
Total Revenues netted against expenditures: 1,699,988 282,970 690,825
Total net budgetary expenditures 3,715,994 1,141,819 1,933,528

Fiscal year 2017-2018 (In thousand of dollars)
Planned expenditures for the year ending March 31, 2018 Expended during the quarter ended September 30, 2017 Year to date used at quarter-end
Expenditures:
Personnel 3,245,090 870,579 1,783,084
Transportation and communications 187,553 55,588 117,924
Information 3,742 454 810
Professional and special services 436,214 106,587 189,544
Rentals 98,004 25,655 45,687
Repair and maintenance 99,547 19,597 32,052
Utilities, materials and supplies 131,496 32,988 61,026
Acquisition of land, buildings and works 98,754 23,056 27,231
Acquisition of machinery and equipment 295,953 52,374 75,288
Transfer payments 233,573 58,476 112,636
Public debt charges 0 0 0
Other subsidies and payments 222,733 22,987 44,629
Total gross budgetary expenditures 5,052,659 1,268,341 2,489,911
Less Revenues netted against expenditures:
Vote Netted Revenues 1,984,714 448,835 769,278
Total Revenues netted against expenditures: 1,984,714 448,835 769,278
Total net budgetary expenditures 3,067,945 819,506 1,720,633
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