PACC Committee Report

Pursuant to Standing Order 108(3)(e), the Standing Committee on Public Accounts has the honour to present its

The Standing Committee on Public Accounts has considered Chapter 18 of the September 1998 Report of the Auditor General of Canada (The Financial Information Strategy: A Key Ingredient in Getting Government Right) and the Committee has agreed to report the following:

For 35 years, there has been a common call for improvements in financial information to support government decision making. Two Royal Commissions (Glassco and Lambert) in 1962 and 1979, two reports from the Auditor General’s Office (in 1976 and 1987) and the Independent Review Panel on the Modernisation of Comptrollership in the Government of Canada (1997), all concluded that current governmental accounting practices could not adequately support managerial decisions. Especially lacking were comprehensive accounting systems that would relate operational data with financial data in order to determine the costs of governmental programs and activities.

All Commissions, Reports and Reviews recommended that the federal government change its accounting standards and practices towards a full accrual basis. Full accrual accounting would provide more consistent financial information, greater cost consciousness, better decisions making and better evaluation of performance, all leading to better accountability.

The Financial Information Strategy (FIS) was approved, initially, in 1989 but progress was slow until 1995. At that time, the Minister of Finance provided much needed encouragement for the project by announcing the government’s intention to move to full accrual accounting. The government plans to have the FIS in place by 2001.

Because of the critical importance of having effective and efficient financial reporting systems in order to support governmental decisions and ensure better accountability to Parliament, the Committee decided to examine Chapter 18 of the Auditor General’s September 1998 Report. Accordingly, on 29 October 1998 the Committee met with Mr. Denis Desautels (Auditor General of Canada), Mr. Ron Thompson (Assistant Auditor General) and Mr. Douglas Timmins (Assistant Auditor General). Representing the Treasury Board of Canada – Secretariat were Mr. J. Colin Potts (Deputy Comptroller General, Comptrollership Branch) and Mr. Jim Libbey (Director, Financial Management Standards, Comptrollership Branch).

In his opening statement, the Auditor General of Canada, Mr. Denis Desautels, (1536) told the Committee that the Financial Information Strategy (FIS) consisted of three components: the introduction of full accrual or businesslike accounting; the implementation of new financial systems throughout the government; and the integration of improved financial information into day-to-day decision making by departmental managers.

The Auditor General indicated that the first two components were progressing well but expressed concern about the third component – the integration of financial information into day-to-day decision making. The Auditor General emphasised that the third component is the most critical and must be implemented on a timely basis for FIS to be considered a success. However, the Auditor General continued, incentives for more timely implementation of the third component have yet to emerge (1540).

Successful and complete implementation of the third component requires deputy minister participation or "buy-in" to FIS. However, the government’s own FIS Training Framework indicated that departmental commitment to FIS is not complete.

The Auditor General stated that the central agencies have an important role to play in securing commitment to FIS. The FIS will impact every aspect of operations in the Government of Canada and its successful implementation will depend on the active co-operation and co-ordination of all departments and agencies. The Auditor General emphasised that strong leadership by the Treasury Board Secretariat, as overall project manager, will continue to be crucial. The Auditor General noted that the Secretariat intends to require departments to prepare the financial information in their Reports on Plans and Priorities and their Performance Reports on a full accrual basis. The Auditor General went on further by stating that the Privy Council Office also had a role to play in encouraging departmental commitment to FIS, as part of its responsibilities for the strategic management of senior personnel.

The Auditor General suggested that Parliament could provide further impetus to the implementation of FIS by changing the basis on which appropriations are prepared. Four out of five accountability documents – the Budget, the Public Accounts, departmental Reports on Plans and Priorities and departmental Performance Reports – are planned to be prepared under full accrual basis. However for the fifth accountability document – the Main Estimates and the associated Appropriations – no plans have been announced to indicate that this important document will move towards a full accrual basis.

Given that departmental management places high priority on the demands of Parliament, the basis on which Parliament appropriates resources will heavily influence the way departmental management plans and manages its operations. The Auditor General believes that moving towards an accrual based appropriation process, where departmental operations would be charged according to the costs of resources consumed instead of resources acquired, would provide additional incentive to deputy minister "buy-in", change departmental culture and strengthen the prospects of full implementation of the FIS. As a result, the Auditor General would like to see the Treasury Board Secretariat request Parliament to grant appropriations on a full accrual basis in the not-too-distant future (1545).

In his statement to the Committee, the Deputy Comptroller General, Mr. J. Colin Potts, agreed with the Auditor General’s observations that the integration of the FIS into departmental management is critical as well as the necessity to obtain departmental buy-in at senior levels. In light of this, Mr. Potts reported to the Committee that departments across government are implementing new financial systems, and the central systems of government are being upgraded accordingly. The Treasury Board Secretariat official stated the first Departments are scheduled to be converted to the new central systems by April 1, 1999.

Mr. Potts also mentioned other current initiatives such as the 16 training modules have already been defined for the FIS, of which the first four are to be piloted in the fall of 1998. Mr. Potts agrees that integrating FIS to departmental management is critical and that the training courses will assist management. As for the department "buy-in" at the senior level, Mr. Potts believes that issue is being addressed, at least partially, through the Comptrollership Modernization Task Force consisting mainly of deputy ministers, the Comptrollership Council consisting of assistant deputy ministers, and other various communications vehicles (1550).

Treasury Board Secretariat is currently examining options as to how Parliament can provide full accrual based appropriations to departments and programs. Mr. Potts indicated to the Committee that Treasury Board Secretariat is consulting with various stakeholders as to find the best approach to introduce full accrual based appropriations.

The Committee pressed the witnesses as to how it could provide assistance and support to ensure the successful implementation of the FIS. Mr Potts answered that Parliament and, particularly, the Public Accounts Committee, could support the FIS by "creating the demand for results-based information" (1555). The Committee continued by asking the witness whether legislative amendments would be required to bring about the desired changes in the Appropriations process. Mr. Potts indicated that new legislation may be required but Treasury Board Secretariat is also exploring other possible procedural options to move the appropriations process to a full accrual basis.

Considering the above prompts, the Committee to recommend the following:

The Committee asked the witnesses about potential impediments to the full implementation of the FIS. The Auditor General stated that in order to be successful, the FIS requires that all departments and agencies to be fully capable to update and upgrade their systems within the stated deadlines. Failure by a major department to upgrade its systems in time will likely have serious repercussions on the rest of the accounts of Canada (1555). The Committee thus recommends:

The Committee also enquired about the total costs related to the implementation of the FIS. The Auditor General stated that there were presently no reliable estimates of the total implementation costs of the FIS. The amount would likely be substantial since the project started in 1989 and is scheduled to be completed by 2001 (1605). The Auditor General, without stating a total dollar amount, told the Committee that to arrive at an estimate of the total investment required to implement the FIS, one had to take into account the total amount spent by each individual departments and agencies in updating their current systems. One also must add the costs in updating the central systems.

The Deputy Comptroller General, Mr. Colin Potts, agreed with the Auditor General that it is difficult to accurately estimate the implementation costs of FIS. One has to take into account system hardware and software costs, training, staffing and other costs. The tallying of the cost is difficult at best under current systems and practices. However, the Deputy Comptroller General offered a tentative estimate of the overall implementation cost of between $400 and $500 million over the life of the initiative (1615).

The Committee therefore recommends:

Even as the Financial Information Strategy (FIS) is progressing, the audit identified risks that might prevent or at least delay the complete implementation towards full accrual accounting. The third component of the FIS, the integration of financial information to day-to-day decision making, will require the full co-operation from departments and agencies in order to be fulfilled. The witnesses told the Committee that the way of securing this co-operation from departments and agencies is for Parliament to change the appropriations process in such a way that departmental planning, managing and reporting will primarily be concerned on the use of resource to achieve results. The Committee feels that this option should be pursued with all diligence and speed given the potential benefits and improvements to government decision making and accountability to Parliament.

Pursuant to Standing Order 109, the Committee requests that the Government table a comprehensive response to this Report.

A copy of the relevant Minutes of Proceedings (Meetings Nos. 43 and 47) is tabled.

Respectfully submitted,

JOHN WILLIAMS