Quarterly Financial Report - For the period ending December 31, 2019

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 2019-20, as well as Budget 2019. 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 2019-20 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, 2019, the RCMP has $3,974.1 million in total authorities available for use, as reflected in Annex A: Statement of Authorities. This amount includes the Main Estimates, RCMP Budget 2019 Implementation Votes, Supplementary Estimates (A), Operating Budget Carry Forward, Capital Budget Carry Forward, Reimbursement of Paylist Requirements, Compensation Adjustments, in-year statutory adjustments, transfers from Treasury Board (TB) central Vote 10 – Government-wide initiatives, and proceeds collected from the disposal of Crown assets, as displayed in Graph 1: Comparison of Total Budgetary Authorities below.

Total authorities have decreased by $83.1 million, when compared to the previous year, and is made up of a year-over-year decrease of $156.9 million in Vote 1 – Operating expenditures, a $48.1 million decrease in Vote 5 – Capital expenditures and a $13.0 million decrease in Budgetary statutory authorities. These decreases are partially offset by an increase of $134.9 million in Vote 10 – Grants and Contributions. The overall decrease is primarily related to the net decrease of $113.8 million in the 2019-20 Main Estimates, a decrease of $71.1 million in the Operating and Capital Budget Carry Forward, a decrease of $2.6 million in Paylist Requirements, a net decrease of $4.7 million related to Budget 2019 over Budget 2018 items received through Budget 2018 and 2019 Implementation Votes, and a decrease of $16.8 million in the proceeds collected from the disposal of Crown assets. Part of this decrease is offset by net increases of $110.7 million received through Supplementary Estimates (A), $6.7 million in Compensation Adjustments, $7.6 million related to in-year statutory adjustments and $1.0 million in Government-wide initiatives.

Graph 1: Comparison of Total Budgetary Authorities as of December 31, 2018 and December 31, 2019 (in millions of dollars)

For more information on the authority changes impacting the RCMP we would direct the reader to our 2019-20 Main Estimates.

2.1.1 Variance in Vote 1 – Net operating expenditure authorities

The decrease of $156.9 million in Vote 1 – Net Operating expenditures, reflected in Table 1: Authorities Available for Use is primarily related to sunsetting of the funding for the 2018 G7 Summit in Charlevoix, Quebec ($126.9 million), a net reduction in the Operating Budget Carry Forward ($65.7 million), a decrease in funding for a re-allocation of funds to Shared Services Canada to modernize and enhance the Government's digital services ($11.4 million), a net reduction of funding for International Peacekeeping and Peace Operations ($5.1 million), as well as sunsetting funding announced in prior years Budgets ($13.9 million). There are also decreases due to Budget 2018 items ($100.7 million) that had been transferred in-year to the RCMP. These decreases are partially offset by Budget 2019 initiatives such as funding for strengthening the RCMP frontlines operations ($78.4 million), Enhancing Integrity of Canada's Borders and Asylum System ($12.4 million), Delivering Better Service for Air Travel ($2.9 million) and Protecting Canada's National Security ($0.8 million). The decreases are also offset by a net increase in supplementary estimates (A) ($5.5 million), compensation adjustments ($6.7 million), funding for ensuring security and prosperity in the Digital age ($14.0 million), funding for additional investigative resources for counter terrorism ($6.4 million), funding to increase forensic toxicology capacity in support of the new drug-impaired driving regime ($5.6 million), funding to take action against gun & gang violence ($5.3 million), as well as, funding increases of initiatives announced in prior years' Budgets ($20.9 million).

2.1.2 Variance in Vote 5 – Capital expenditure authorities

Capital authorities have decreased by $48.1 million when compared to the third quarter of 2018-19. The decrease is mainly due to projects nearing completion including the new RCMP National Forensic Laboratory Services facilities ($23.1 million), a number of federal infrastructure assets ($20.0 million), the construction of a new National Operation Centre ($8.6 million) and a net reduction in the Capital Budget Carry Forward ($5.4 million) and Supplementary Estimates (A) ($1.7 million). These decreases are partially offset by an increase in funding for ensuring security and prosperity in the Digital age ($11.2 million) and in funding to increase forensic toxicology capacity in support of the new drug-impaired driving regime ($4.3 million).

2.1.3 Variance in Vote 10 – Grants and contributions

The increase of $134.9 million in Grants and contributions authorities is related to increases in 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 reassessment and indexation of disability pension benefits.

2.1.4 Variance in Budgetary statutory authorities

The net decrease in budgetary statutory authorities of $13.0 million is primarily related to an increase in the rate used to calculate Employee Benefit Plan costs ($8.7 million). There are also decreases related to funding for the Pension Continuation Act (PCA) statutory grant ($1.5 million) as there are fewer recipients and smaller proceeds collected from the disposal of Crown assets ($16.8 million). These decreases are offset by additional Employee Benefit Plan (EBP) funding received primarily for initiatives announced in Budget 2019 ($9.2 million) as well as net EBP funding received through Supplementary Estimates (A) ($4.7 million).

2.2 Statement of Departmental Budgetary Expenditures by Standard Object

The RCMP has spent approximately 72% of its authorities at the end of the third quarter. This increase in authorities spent is a combination of expenditures being higher, and authorities being lower than the same period last 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, 2018 and December 31, 2019 (in millions of dollars and percentage)

Table 2: Net Expenditures by standard objects at the end of the third quarter 2019-20 was at 3% or $87.9 million higher than the previous year. This variance is primarily the result of a combination of a decrease in revenues and increases in Personnel and Transfer payment expenditures. These increases are offset by decreases in multiple standard objects as a result of 2018-19 expenditures including G7 related security costs, as well as the completion of real property projects within 2019-20. A detailed review by standard object emphasizes some significant variances which are described below.

2.2.1 Variance by revenues and other reductions

Vote netted revenue collected by the end of the third quarter of 2019-20 decreased by $125.0 million (or 11%) compared to the same period last year. The decrease is related primarily to the implementation of the new funding model for Contract Policing. Revenues received in the first quarter of 2018-19 were recorded using the old funding model and treated certain indirect program costs as re-spendable revenue (VNR). Revenues collected in the first three quarters in 2019-20 have been split between those that are re-spendable and those that are required to be deposited to the Consolidated Revenue Fund.

2.2.2 Variance by Personnel

Personnel expenditures increased by $39.7 million (or 2%) over the same period last year. This increase is mainly related to a small increase in Full Time Equivalents (FTEs) within the Contract and Indigenous Policing core responsibility when compared to the same period last year. In addition, there were two additional days of pay expenditures in comparison to year to date expenditures at the end of the third quarter in 2018-19.

2.2.3 Variance by Rentals

Rentals have decreased by $26.2 million (or 21%) when compared to the third quarter of 2018-19. This decrease is largely due to one-time security costs related to the G7 summit held in 2018-19.

2.2.4 Variance by Acquisition of land, buildings and works

Acquisitions of Land, Buildings and Works expenditures have decreased by $13.3 million (or 21%) when compared to the same period in 2018-19. This decrease primarily relates to a reduction in expenditures for the construction of the new RCMP National Forensic Laboratory Services facilities, partially offset by increases in expenditures for the construction of the National Operations Centre, the Operational Communications Centre and maintenance and upkeep of the RCMP training facility (DEPOT).

2.2.5 Variance by Acquisition of machinery and equipment

Acquisition of machinery and equipment decreased by $54.4 million (or 31%) when compared to the same period in 2018-19 - which is primarily due to one-time expenditures for security costs related to the G7 Summit held in 2018-19. The remaining variance is largely as a result of timing differences in the acquisition of annual inventories, moveable assets replacements, information management and information technology invoices, and investigational aids.

2.2.6 Variance by Transfer payments

Increases of $32.4 million (or 13%) in 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 increase to the benefits paid to existing recipients as a result of worsening disabilities and increases due to the indexation of disability pension benefits.

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 and the Capital Budget Carry Forward, compensation adjustments, paylist expenditures reimbursement.

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 Deoxyribonucleic acid (DNA) analysis by the RCMP. The RCMP also has VNR authorities related to the provision of security services throughout the Parliamentary precinct and the grounds of Parliament Hill, by way of a Memorandum of Understanding with the Parliamentary Protective Service (PPS).

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 successful 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 and Budget 2019 identified funding to Strengthening RCMP Operations, the RCMP continues to face challenges to address all of its financial integrity issues and move forward its modernization agenda.

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

4.1 Operations

Due to the nature and overall magnitude of the G7 Summit held in 2018, the RCMP's expenditures, related to security measures saw increases in many Standard Objects in 2018-19, and as such the RCMP will see significant reductions in many of these areas throughout 2019-20.

4.2 Personnel

Subsequent to the end of the second quarter, the Prime Minister announced changes to the senior ranks of the department as follows, effective September 16, 2019:

• Mr. Kevin Stringer, previously Associate Deputy Minister of the Department of Fisheries and Oceans became Chief Administrative Officer of the Royal Canadian Mounted Police.
• Mrs. Gail Johnson, previously Assistant Deputy Minister of Employment and Social Development Canada became Chief Human Resources Officer of the Royal Canadian Mounted Police

4.3 Programs

There has been no significant change in relation to programs in the third quarter of 2019-20.

Approved by senior officials

Approved by:

Ottawa, Canada

Date: February 24, 2020

Annex A: Statement of Authorities (unaudited)

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

Date modified:

2020-02-26