Quarterly Financial Report - For the period ending June 30, 2019

Introduction
Highlights of fiscal quarter and fiscal year-to-date (YTD) results
Risks and uncertainties
Significant changes in relation to operations, personnel and programs
Annex A: Statement of Authorities (unaudited)
Annex B: Budgetary Expenditures by Standard Object (unaudited)

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 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 June 30, 2019, the RCMP had $3,540.3 million in total authorities available for use, as reflected in Annex A: Statement of Authorities. This amount includes the Main Estimates, transfer from RCMP Budget 2019 implementation Votes and $5.6 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 decreased by $16.5 million, when compared to the previous year, which includes a year-over-year decrease of $9.8 million in Vote 1 – Operating expenditures, a $38.1 million decrease in Vote 5 – Capital expenditures and a $1.4 million decrease in Budgetary statutory authorities. These decreases are partially offset by an increase of $32.8 million in Vote 10 – Grants and contribution. The overall decrease is primarily related to the net decrease of $113.8 million in the 2019-20 Main Estimates, a decrease of $9.5 million related to Budget 2018 item received through a transfer from TB Central Vote 40 and a minor decrease of $1.0 million of the proceeds collected from the disposal of Crown assets. Part of this decrease is offset by an increase of $107.8 million from RCMP Budget 2019 implementation Votes items.

Graph 1: Comparison of Total Budgetary Authorities as of June 30, 2018 and June 30, 2019 (in millions of dollars)

Comparison of Total Budgetary Authorities as of June 30, 2018 and June 30, 2019 (in millions of dollars)

Comparison of Total Budgetary Authorities as of June 30, 2018 and June 30, 2019 (in millions of dollars)
	2019-20	2018-19
Main estimates	$3,427	$3,541
TB Vote 40 – Budget 2018 implementation	$0	$9
RCMP Votes – Budget 2019 implementation	$108	$0
Proceeds from disposal of crown assets	$5	$7
Totals	$3,540	$3,557

2.1.1 Variance in Vote 1 – Net Operating expenditure authorities

The decrease of $9.8 million in Net Operating authorities, 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 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 the International Peacekeeping and Peace Operations ($5.1 million), as well as, some sunsetting of funding announced in prior years Budgets ($13.9 million). 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). They are also offset by funding for ensuring security and prosperity in the Digital age ($14.0 million), funding for additional investigative resources to 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 $38.1 million when compared to the first quarter of 2018-19. The decrease is 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) and the construction of a new National Operation Center ($8.6 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 $32.8 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 $1.4 million is primarily related to decrease 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 ($1.0 million). These decreases are offset by additional Employee Benefit Plan funding received primarily related to initiatives announced in Budget 2019 ($9.8 million).

Table 1: Authorities Available for use (in thousands of dollars) ^{Footnote 1}
Authorities	2019-20	2018-19	Variance	%
Vote 1 - Net Operating expenditures	2,530,551	2,540,328	(9,778)	0%
Vote 5 - Capital expenditures	251,408	289,536	(38,128)	(13%)
Vote 10 - Grants and contributions	286,473	253,673	32,800	13%
Budgetary statutory authorities	471,876	473,262	(1,386)	0%
Total Authorities	3,540,308	3,556,799	(16,492)	(0%)

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

2.2 Statement of Departmental Budgetary Expenditures by Standard Object

The RCMP has spent approximately 26% 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.

Graph 2: Comparison of Total Budgetary Authorities and Net Expenditures as of June 30, 2018 and June 30, 2019 (in millions of dollars and percentage)

Graph 2: Comparison of Total Budgetary Authorities and Net Expenditures as of June 30, 2018 and June 30, 2019 (in millions of dollars and percentage)
	2019-20	2018-19
Total Budgetary Authorities	$3,540	$3,557
Net expenditures as of June 30	$927 (26%)	$792 (22%)

Table 2: Net Expenditures by standard object at the end of the first quarter 2019-20 were 17% or $135.0 million higher than the previous year. This variance is primarily the result of a decrease in vote netted revenue. Additionally, there was a reduction in gross expenditures of $2.9 million (or 1%) from the previous year. 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}
Standard Objects	2019-20	2018-19	Variance	%
Personnel	820,519	810,711	9,808	1%
Transportation and communications	67,460	67,541	(81)	0%
Information	469	337	132	39%
Professional and special services	110,692	95,826	14,866	16%
Rentals	22,472	33,450	(10,978)	(33%)
Purchased repair and maintenance	15,970	13,373	2,597	19%
Utilities, materials and supplies	33,505	35,319	(1,814)	(5%)
Acquisition of land, buildings and works	8,126	9,809	(1,683)	(17%)
Acquisition of machinery and equipment	30,033	48,929	(18,896)	(39%)
Transfer payments	69,215	61,282	7,933	13%
Public debt charges	176	188	(12)	(7%)
Other subsidies and payments	18,053	22,799	(4,746)	(21%)
Total gross budgetary expenditures	1,196,690	1,199,564	(2,874)	0%
Less: Vote Netted Revenue	269,965	407,855	(137,890)	(34%)
Total net budgetary expenditures	926,725	791,709	135,016	17%

2.2.1 Variance by revenue

Vote netted revenue collected in the first quarter of 2019-20 decreased by $138 million (or 34%) 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 model and treated as respendable revenue (VNR). Revenues collected in the first quarter in 2019-20 have been split between those that are respendable and those that are required to be deposited to the Consolidated Revenue Fund.

2.2.2 Variance by information

Information increased by $0.1 million (or 39%) over the same period last year. This increase is related primarily to the timing of invoices and expenditures incurred earlier in the fiscal year compared to the previous year.

2.2.3 Variance by professional and special services

Professional and Special Services have increased by $14.9 million (or 16%) when compared to 2019-20. The increase is primarily due to legal services costs and radio systems costs, both of which can be attributed to a difference in the timing of the expenditures when compared to the previous fiscal year. In addition, there were incremental Health Costs for regular members and pensioners. These increases were partially offset by a decrease in expenditures related to the G7 Summit. The remaining increases can be attributed to invoicing timing differences.

2.2.4 Variance by rentals

Rentals have decreased by $11 million (or 33%) when compared to 2018-19, which are primarily due to the one-time expenditures for security costs related to the G7 Summit held in 2018-19.

2.2.5 Variance by purchased repair and maintenance

Purchased Repair and Maintenance increased by $2.6 million (or 19%) related to higher renovation costs of buildings within the Contract Policing program area.

2.2.6 Variance by acquisition of land, buildings and works

Acquisitions of Land, Buildings and Works expenditures have decreased by $1.7 million (or 17%) when compared to 2018-19. This decrease primarily relates to a reduction in expenditures for the construction of the new RCMP National Forensic Laboratory Services facilities.

2.2.7 Variance by acquisition of machinery and equipment

Acquisition of machinery and equipment decreased by $18.9 million (or 39%) in comparison to 2018-19 which is primarily due to 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, information management and information technology invoices, and investigational aids.

2.2.8 Variance by other subsidies and payments

Other subsidies and payments expenditures are $4.8 million (or 21%) lower in the first quarter of 2019-20 as compared to the first quarter of 2018-19. This decrease is primarily due to the timing of items being cleared from suspense accounts.

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 21, 2019.

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 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

In comparison to the first quarter of 2018-19, the RCMP has the conclusion of security measures in support of Canada Hosting the G7 Summit. Due to the nature, and overall magnitude of the G7 Summit, the RCMP's expenditures in many Standard Objects increased in 2018-19, the RCMP will see significant reductions in many of these areas throughout 2019-20.

4.2 Personnel

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

4.3 Programs

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

Approved by Senior Officials

Approved by:

Original signed by

Brian Brennan, Acting Commissioner