REPORT RAPPORT

DATE:	24 March 2014
TO/DEST:	Executive Director, Ottawa Police Services Board
FROM/EXP:	Chief of Police, Ottawa Police Service
SUBJECT/OBJET:	ANNUAL FINANCIAL REPORT: 2013

RECOMMENDATION

That the Ottawa Police Services Board receive this report for information.

BACKGROUND

The 2013 Fourth Quarter Financial Report presents the year-end financial position of the Ottawa Police Service (OPS) and outlines the operational issues that have affected the Service’s finances in 2013. These results are subject to external audit.

DISCUSSION

The OPS ended the 2013 fiscal year with an operating surplus of $104,000. This was offset by a $1.369 million deficit which has been allocated to the OPS from the City of Ottawa. This allocation is the OPS share of the deficit from the taxation accounts which are beyond the control of the Board. As a result, the combined operating and taxation deficit was $1.265 million for 2013.

As highlighted in the third quarter report, 2013 has seen significant pressures in the areas of indemnification costs and legal fees, along with overtime, WSIB and other compensation costs. A shortfall in the revenue from the sale of collision reports has also materialized, which had been included as a possible horizon issue in the third quarter report.  These significant pressures are more than offset by additional revenue from paid duty and various other revenue accounts along with the savings arising from the implementation of a spending freeze. Other additional savings came from fleet maintenance, fuel costs and police facility costs. Together these results produced an operating surplus of $104,000 (before taxation accounts) at year-end.  Each of these variances is summarized in Table 1 and discussed in more detail.

It should be noted that the outcome of the 2013 sworn and civilian collective agreement negotiations, which had been included in the horizon issues in the past quarterly reports, is still unresolved at year-end.  Staff has accrued an amount equal to the 2013 budget provision for the salary settlement to address the retroactive salary payments.

Table 1 - Ottawa Police Service 2013 Year End – Significant Variances
Pressures	($000)
Indemnification, Claims & Legal Fees	(1,400)
Overtime	(600)
Compensation Costs (WSIB, Benefits)	(500)
Revenue – CRC	(100)
Total Pressures	(2,600)
Solutions
Paid Duty & Other Revenue	1,300
Reduced Spending – Spending Freeze	800
Facilities – Operating Costs	300
Vehicle Maintenance	100
Fuel Costs	100
Alarm Revenue	100
Total Solutions	2,700
Projected  Surplus  (Deficit)	100

Identified Pressures & Solutions

a)      Indemnification, Claims & Legal Fees

The Ottawa Police Association collective agreement provides indemnification for officers in certain legal circumstances. During 2013, there were legal proceedings which required setting up provisions of $1.1 million to cover these type of costs. Also legal costs ended the year in a $190,000 deficit position and the insurance claims account registered a small deficit of $175,000. Steps were taken in the 2014 Budget to start increasing the provision for indemnification and claims.

b)      Overtime

Overtime ended the year with a deficit of $600,000. Project Anarchy and the call outs of our Emergency Services Unit placed significant pressure on the overtime budget. As well, staffing shortages contributed to the deficit although some of that pressure was offset through savings in compensation in areas such as the Communication Centre.

c)      Compensation Costs (Contract Settlement, WSIB and other costs)

Within the OPS compensation costs, there are several areas where variances occurred. Two of these have been discussed in previous quarterly reports; contract settlements and WSIB costs. The arbitrator’s award for the 2011 and 2012 contracts created a 2013 pressure in the range of $200,000. Also, as reported earlier, WSIB costs have been increasing in the past several years and have created a pressure in the range of $400,000 in 2013.  WSIB direct costs include wages, health care, pension, survivor benefits and administrative fees. A significant portion of costs are associated with permanent WSIB awards which occurred before amalgamation and these costs cannot be affected. Moving forward, OPS is taking measures through our Health Lifestyles and Safety section to minimize the frequency and severity of new workplace injuries to help reduce costs. In 2014, adjustments have been made to the base budgets in the range of $290,000 to help address these increases. The annual report on 2013 Workplace Injuries, Illness and Incidents submitted to the Board this month provides more information about the background to these costs.

Also within compensation costs, the OPS saw pressure in the cost of benefits for active members of approximately $100,000 that was offset by savings in retiree benefits and other compensation line items. The net pressure for all compensation items was $500,000.   

d)      Revenue – Collision Reporting Centers (CRC)

An issue related to CRC revenues was mentioned in the second and third quarter reports. The total revenue for CRC's in 2013 was $700,000 which was $500,000 more than 2012 revenue. However, it was still a shortfall of $100,000 compared to what had been budgeted for 2013. This shortfall was due to several factors, including a delay in the launch of the automatic purchase plan and a lower than expected number of purchased reports.

e)      Paid Duty & Other Revenue

Paid Duty revenue has provided surpluses in past years, and has continued to do so into 2013 in the amount of $700,000. In addition to this OPS had a surplus of $200,000 from records clearance checks, $200,000 from secondment revenue and an additional $200,000 in the other revenue, recovery and grant accounts, arising largely from timing adjustments on several provincial grants.

f)       Reduced Spending – Spending Freeze

During the third quarter directorate meetings with Superintendents and Directors, staff was informed of pending indemnification costs which could create over a $1.0 million budget pressure. On October 11, 2013, the Chief issued a discretionary spending freeze and staff was directed to limit spending to essential items and to assist in finding savings to offset this unexpected cost and to achieve a balance financial position at year end.  The reduced spending provided $800,000 in savings to help offset the $1.1 million unplanned indemnification and legal costs in 2013.

g)      Facility Operating Costs

Facility operating costs have provided a surplus in 2013.  The year ended with a net surplus of $300,000 in the various facility operating costs including the costs charged to the OPS by the City. A significant part of these savings are a result of the partial year cost for the Queensview lease.

h)      Vehicle Maintenance

Vehicle maintenance has provided surpluses in past years and has also provided a $100,000 surplus in 2013. This surplus is attributable to the Board-approved funding of the capital replacement plan, which continues to allow older vehicles to be replaced prior to incurring significant maintenance costs.

i)       Fuel Costs

The 2013 fuel budget was developed using a retail pump price of $1.28/litre.  This amount is reduced to an effective price of $1.10/litre, after accounting for tax exemptions and discounts through the fuel card program.  The budget of $3.1 million is based upon a consumption level of 2.8 million litres of fuel for 2013.

The average retail price for regular unleaded gasoline at Ottawa-area self-service filling stations is outlined in Table 2.  The average price for the year worked out to $1.259 per litre, which is lower than what was budgeted.

Table 2
Average Retail Price of Gasoline Per Litre – 2013
Month	Average Retail Price
January	$1.201
February	$1.283
March	$1.271
April	$1.233
May	$1.224
June	$1.269
July	$1.302
August	$1.299
September	$1.298
October	$1.239
November	$1.233
December	$1.258
Average	$1.259
Source: Statistics Canada (http://www.statcan.gc.ca/pub/CPI-Table 13)

The fuel account ended the year in a surplus of $100,000, mainly due to lower than expected consumption.  Total volume was lower than last year by 114,900 litres or a 4% reduction.  The average price, while lower than the budgeted pump price, did not contribute to the surplus as consumption was higher in those months with a higher price, thereby negating the advantage of a lower average price. 

j)        Alarm Revenue

A surplus of just under $100,000 in alarm revenue was as a result of the actual volume of false alarm calls compared to the estimate used in the budget.

Non- Departmental Tax Related Accounts

Police costs and revenues have been separated into a singular city-wide tax rate for many years. The tax rate reflects the costs which are under the Board’s control as well as those that are not, but are requested for non-departmental and tax-related functions. In 2013 a deficit of $1.369 million was recorded in these accounts outside the Boards control. The City will fund this deficit from the City- wide reserve fund.

The draft Disposition report to FEDCO on March 5, 2014 outlines this situation statement:

Police Services

The Police operations budget under the jurisdiction of the Ottawa Police Services Board   ended the year with a small surplus of $104,000.  This was offset by a deficit of $1.369 million in the non departmental tax related accounts.  As per the City’s past practice, the funding of any deficit or the retention of any surplus in the Police Services business area will either be funded from or contributed to the City Wide Reserve Fund.

       Below is a draft summary of the financials that the Disposition report is based on:

Quarterly Reporting Requirements

Section 2(e) of the Board’s Policy BC-2 on Monitoring Requirements requires the Chief to provide the Board with information on specific operational issues.  With respect to financial reporting, these requirements include:

§ Annex A, provides the 4th Quarter Financial Report – Summary by Directorate

In this report, the compensation in each directorate includes the adjustments for the 2011 and 2012 contract settlement along with the 2013 actual compensation costs. However, due to the difficult and time consuming process, the accrued provision for the contract settlement remains as a lump sum adjustment in Corporate Accounts rather than being distributed to each of the directorates.  This explains the large credit in Corporate Accounts and the negative variances for Compensation in the Directorates.

§ Annex B, provides a list of all contracts awarded under delegated authority by the Chief that exceed $25,000. Staff revised this Annex in 2013 to reflect a new classification of the purchase orders, similar to the classification used by the City. This report summarizes the transactions from October to December 2013.  In total, $1.4 million in purchase orders were issued in the Fourth Quarter. Goods & supplies, and information & technology contracts each account for 25% of the total amount. Professional services register 20%, while the remaining 30% is divided almost equally between   consulting services, fleet & equipment, and facilities & construction combined. Table Three below provides a summary of these expenditures by type. Expenditure definitions are included in Annex B for reference.

Table Three: Summary by Type of Contracts Under Delegated Authority for the fourth Quarter.

Type	Amount
Professional Services	285,502
Consulting Services	109,901
Goods & Supplies	376,315
Fleet & Equipment	150,621
Facilities & Construction	123,552
Information & Technology	355,167
Total	$1,401,058

§ Annex C, which provides a summary of the OPS capital budget works in progress.

As per the Financial Accountability Procedures Manual Section 3.1.3.4, the Director General may close capital projects by returning any remaining balance to the originating sources and fund any deficits.  Annex C indicates which projects are being closed and the money returned to source, or any deficits funded from same.

§ Annex D on Board Policy CR-8 - “The Acceptance of Donations, Gifts, Loans and Sponsorships”; Section 6 and 7 of the policy require that the Chief report to the Board all donations, gifts, loans and sponsorships valued at over $500 as part of the quarterly process and that all that are valued over $50 be properly documented.   This annex lists those items for the 2013 year. In 2013 a total of $148,410 was donated to the OPS. The majority ($143,910) was in support of the OPS Gala.

CONSULTATION

Not applicable.

FINANCIAL STATEMENT

The financial implications of this report are set out above.

CONCLUSION

The OPS generated a surplus on operations of $104,000 for 2013.  It was primarily due to increased revenue and recoveries, along with the impact of the spending freeze that more than offset the pressures for legal settlements, overtime, WSIB and compensation costs.

When the deficit of $1.369 million on the taxation accounts is taken into account there is a combined operating and taxation deficit of $1.265 million for the Police tax rate.  As per the City’s past practice, “the funding of any deficit or the retention of any surplus in the Police Services business area will either be funded from or contributed to the City Wide Reserve Fund."

At its meeting on 5 March 2014, City Council approved the Finance and Economic Development Committee recommendation that the City’s 2013 tax supported operating deficit (including the OPS surplus portion) be funded from City reserve funds.

(Original Signed by)

Charles Bordeleau

Chief of Police

Responsible for Report: Director General Debra Frazer

Attach (4):      Annex A:  4^th Quarter Financial Report – Summary by Directorate

Annex B:  Purchase Orders Issued Under Delegated Authority

Annex C:  Capital Budget Works in Progress

Annex D: Acceptance of Donations, Gifts, Loans and Sponsorships