REPORT RAPPORT

DATE:	28 July 2014
TO/DEST:	Executive Director, Ottawa Police Services Board
FROM/EXP:	Chief of Police, Ottawa Police Service
SUBJECT/OBJET:	FINANCIAL STATUS REPORT - SECOND QUARTER 2014, INCLUDING ASSET MANAGEMENT REPORT 2013

RECOMMENDATION

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

BACKGROUND

The quarterly financial report summarizes the current financial position of the Ottawa Police Service (OPS), outlines the operational issues affecting the OPS’ finances and presents the projected year-end financial position for the organization. The accuracy of this projection improves with each quarter as the OPS’ expense and revenue patterns become more certain.

Starting in 2013, the annual report required under Board Policy CR-4: Asset Management, is to be included with the second quarter report in the following year.  Accordingly the 2013 Asset Management report is submitted as part of this report.

DISCUSSION

Based on current information staff are identifying a balanced position by year-end for 2014.

There have been some changes in the pressures and solutions identified in the first quarter report, but the projection for a break even position is maintained. The information to date includes projected surpluses in paid duty and other revenue, along with a surplus from fleet maintenance and a small surplus from court time. Pressures from a projected shortfall in the revenue from the Collision Reporting Centers (CRC), WSIB claims, on-call overtime and fuel costs are also being identified.  Each of these significant variances is summarized in Table 1 and discussed in more detail below.

As always, the year-end position is still dependent on any changes in the various pressures and solutions that have been identified in the first two quarters of the year, as well as the impact of the horizon issues that are discussed below.

Table 1 - Ottawa Police Service 2014 Projected Year End – Significant Variances
Pressures	($000)
CRC Revenue	(450)
WSIB Claims	(200)
On Call Costs	(170)
Fuel Costs	(100)
Total Pressures	(920)
Solutions
Paid Duty & Other Revenue	500
Vehicle Maintenance	270
Facilities – Operating Costs	100
Court Time Costs	50
Total Solutions	920
Projected  Surplus  (Deficit)	0

Identified Pressures & Solutions

a)      Revenue – Collision Reporting Centers (CRC)

The revenue estimate for this program was increased in 2014 to $1.6 million from a budget of $800,000 in 2013 based on an expected increase in the revenue as the Automated Payment Program is expanded to more insurance companies. Although the revenue has grown and continues to grow, currently a shortfall is being projected for 2014 compared to budget. The main factor preventing the achievement of the OPS revenue goal is slower enrolment by insurance companies than expected. This has impacted the revenue in the first part of the year, and was flagged in the First Quarter report.  A shortfall in the amount of $450,000 is being projected for 2014.

b)      WSIB Claims

As reported to the Board in March in the 2013 Workplace Accidents & Injuries Annual Report, the costs in this area have increased significantly over the past several years. WSIB direct costs arising from work place injury claims 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.  But moving forward, OPS is taking measures to minimize the frequency and severity of new workplace injuries to help reduce costs. 

The budget for claims was increased by $290,000 in 2014 which was based on the projected shortfall at the time of the budget preparation. However based on the 2013 year-end shortfall of $400,000 and the trends to date we are projecting a 2014 shortfall of $200,000.

c)      Overtime, Court Overtime Costs and On-Call

On-call costs will end the year in a deficit position, while overtime and court overtime are currently expected to end the year with a small surplus.

· On-Call payments are expected to result in a year-end pressure of $170,000.  Staff will be analysing this issue and developing a go-forward strategy.

· To date the trend in overtime has been a positive one due to a low number of major investigations and major events in the City.  As a result, a balanced position is being forecasted for overtime costs to year-end.

· A small surplus of $50,000 is projected for court overtime costs.

d)      Fuel Costs

The Ottawa Police Service’s 2014 fuel budget was developed using a retail pump price of $1.28/litre.  This amount was reduced to an effective price of $1.097/litre, after accounting for tax exemptions and discounts through the fuel card program.  This effective price also took into account $100,000 of reductions in the overall fuel budget related to the anticipated benefit of the more fuel efficient Ford Taurus model over the Ford Crown Victoria.

The total fuel budget of $3.0 million was based upon a consumption level of 2.7 million litres of fuel for 2014. The budgeted volume of fuel includes a reduction of over 90,000 litres from 2013 as it was anticipated that the more fuel efficient Ford Taurus will provide a reduction in fuel consumption. 2014 is the first year that these savings are expected to materialize as it is the first year that that the Taurus would be in use for a full year.

Based on actual pricing and volume consumption for the first five months of 2014, staff is anticipating a deficit in the fuel account of $100,000 for 2014.  This forecast contains an unfavourable variance in price of $150,000, partially offset by a favourable variance on volume of $50,000.  Although the current forecast is projecting an overall deficit, the volume variance is surpassing expectations which is helping to offset the higher fuel prices and reducing its impact on our overall fuel costs.

Table 2
Average Retail Price of Gasoline Per Litre - 2014
Month	Average Retail Price
January	$1.252
February	$1.287
March	$1.300
April	$1.332
May	Not Yet Available
Source: Statistics Canada (http:// http://www.statcan.gc.ca/pub/62-001-x/2014002/t047-eng.htm- Table 13)

The average retail price for regular unleaded gasoline at Ottawa-area self-service filling stations is outlined in Table 2.  Prices will remain high during the summer driving season, reflective of the higher demand for fuel.  As in prior years, the price is expected to decline in the fall and remain at a lower level for the remainder of the year.  Any unexpected geo-political or detrimental environmental effect could impact this pattern.  We will be watching the trend in gasoline prices very closely over the balance of the year and will continue to further refine the projection for the fuel account for 2014.  

e)      Paid Duty & Other Revenue

Staff projects a net surplus of approximately $500,000 in the various revenue and recovery accounts, arising largely from paid duty. The OPS has historically experienced a surplus in the paid duty revenue, largely due to City requests related to construction.

f)       Vehicle Maintenance

Vehicle maintenance activities have provided surpluses in past years and are projected to continue in 2014 providing a $270,000 surplus based on the May Fleet billing report actuals. 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.

g)      Facility Operating Costs

In past years facility operating costs have provided surpluses.  This year we are projecting a small net surplus of $100,000 in the various facility operating costs including the costs charged to the OPS by the City.

Horizon Issues

As reported on in the First Quarter Report, there are several issues on the horizon that may create pressures going forward in 2014. Mainly, they are the collective agreement negotiations/arbitration and potential legal claims.

Collective Agreement Arbitration – In April, submissions were made to the arbitrator regarding the 2013 sworn and civilian collective agreements.  The reply submissions were presented on June 27^t, after which the arbitrator will consider all the issues and release his award. Staff has accrued 2013 funds to address the retroactive salary payments resulting from the arbitration.  The 2013 and 2014 budget bases have also included an estimate for the salary settlement.  The impact of the arbitration settlement will be addressed in the relevant quarterly report.

Legal Claims - OPS is self insured for claims up to $3.0 million.  Currently there are over 90 claims outstanding. The result, magnitude and timing of these claims may have an impact on 2014 operating costs.  As settlements occur they are approved as required, reported to the Board and paid.

Staff will be monitoring these issues and any others that may develop, with an update in the next quarterly report.

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, which provides the 2nd Quarter Financial Report – Summary by Directorate.

§ Annex B, provides a list of all contracts awarded under delegated authority by the Chief that exceed $25,000 and summarizes the transactions from April to June 17th.  In total, $1.174 million in purchase orders were issued in the Second Quarter.  The breakdown of these purchase orders by category is shown in Table 3.  Expenditure definitions are included in Annex B for reference.

Table 3 Summary by Type Contracts Under Delegated Authority
Type	Amount	Percentage
Professional Services	220,297	19
Consulting Services	273,963	23
Goods & Supplies	220,686	19
Fleet & Equipment	89,152	8
Facilities & Construction	67,625	6
Information & Technology	302,248	25
Total	$1,173,971	100%

§ Annex C provides a summary of the OPS capital budget works in progress and indicates those which will be closed, in accordance with Section 3.1.3.4 of the Financial Accountability Procedures Manual.  It enables the Director General to close capital projects by returning any remaining balance to the originating sources and fund any deficits.

Annual Reporting Requirements

As well, Policy CR-4 of the Ottawa Police Services Board Policy Manual, on Asset Management, requires that, on a yearly basis, the Chief shall:

1. Provide a report to the Board listing the assets assigned to the OPS and their Net Book Value.

2. Report on one category of real assets on a rotational basis to include:

a. Value

b. Expected useful life

c. Annual maintenance cost

d. Replacement plan

e. Disposal options. 

The first requirement of the policy is satisfied in Annex D, entitled “Summary of Assets Assigned to Ottawa Police Service”.  This summarizes all the assets assigned to the OPS and the associated net book value for the five year period 2009 to 2013. The assets are divided into five categories and have a total net book value of $60.97 million at December 31, 2013, which is a decrease of $0.8 million from 2012.  This change is mainly a result of lower net book value of buildings and vehicles which was partially offset by an increased net book value of equipment.  The net book value of equipment increased because of asset additions made in 2013 including Communication Centre workstations, security equipment, information technology equipment such as servers and enterprise storage units and a bomb disposal robot.

Annex E meets the second requirement, to report on one category of assets on a rotational basis. This year Vehicle Assets was chosen.  Accordingly, Annex E provides a summary of the vehicles that are assigned to OPS.  It includes the net book value, average expected useful life, the annual maintenance cost and disposal options.  The net book value of these assets is $7.0 million at December 31, 2013 and mainly related to patrol cars and other marked and unmarked vans, SUVs, trucks and sedans.

Replacement of these vehicles is planned using an “ever-greening” program whereby OPS sets aside a specific amount of money – close to $3.0 m - to replace a portion of these assets each year in order to smooth out the purchase cost over multiple budget years. These funds are provided from the operating budget and transferred to the OPS’s annual capital plan, under the project heading of Fleet Program.

Additionally, the Chief is required, under Policy CR-4, to monitor and report on unusual risk management trends related to assets.  Continued use of the “ever-greening” program in this category will allow for the replacement of these assets in a systematic manner without unexpected budget increases.

In addition, $0.5M has been set aside in the Fleet Reserve Fund, starting in 2015 and every six years after that for the replacement of specialty vehicles such as the command post, armoured vehicle, vessels, as their large purchase prices make them difficult to afford in the regular replacement plan.

Also, emerging technological trends are considered in the development of the annual capital program for fleet replacement.  The vehicle plays the role of “the office” for most sworn members and in-car ergonomics and anti-idling capabilities are important to support employee needs and environmental sustainability.

CONSULTATION

Not applicable.

FINANCIAL STATEMENT

There are no financial implications.

CONCLUSION

The OPS is identifying several pressures and possible solutions in the second quarter report, based on the information that is known at this time. The analysis shows a projected breakeven position by year end.

In October, staff will present the OPS’ financial position as at 30 September 2014.  It will provide an update on the above-noted issues and identify new pressures or solutions that have emerged.  The year-end forecast will be adjusted accordingly.

(Original signed by)

Charles Bordeleau

Chief of Police

Attach (5):      Annex A:  2^nd Quarter Financial Report – Summary by Directorate

Annex B:  Purchase Orders Issued Under Delegated Authority

Annex C:  Capital Budget Works in Progress

Annex D:  Summary of Assets Assigned to Ottawa Police Service

Annex E:  Summary of Police Equipment Assigned to Ottawa Police Service