PACC Committee Report
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GOVERNMENT RESPONSE TO THE TWELFTH REPORT OF
THE STANDING COMMITTEE ON PUBLIC ACCOUNTS
That the Government of Canada complete without further delay, its internal review and public consultations concerning the premium rate-setting mechanism of the Employment Insurance Program, and submit a copy of its findings and recommendations to Parliament and, in particular, to the Public Accounts Committee.
RECOMMENDATION No. 2
That the Government of Canada provide clarification and disclose to Parliament and to the Public Accounts Committee what constitutes an adequate level of accumulated surplus in the Employment Insurance Account, the time required to reach that level, and the factors considered when setting the premium rates.
The Employment Insurance Act has two provisions on how to set the premium rate: revenues should be sufficient to cover program costs over an extended period of time; and premium rates should be kept stable over time. The Standing Committee on Finance recommended that the Government undertake a study in order to change the provisions. These provisions were suspended for 2002 and 2003.
In the 2003 Budget, the Government announced that the Department of Finance, in co-operation with Human Resources Development Canada, would provide Canadians with an opportunity to present their views on the rate setting process. Interested parties can provide submissions to the Government until June 30, 2003, either by mail or through the Human Resources Development and Finance Canada websites. In addition, senior officials of both departments will be meeting with key stakeholders, including the Commissioners of the Canada Employment Insurance Commission and the Chief Actuary of Insurance HRDC. The results of these consultations will be used in establishing a new-rate setting process, effective 2005, including the factors to be considered in setting premium rates and the role of the Employment Insurance Account.
The Government will prepare and make available a summary of the major recommendations applicable to the rate-setting process received during the consultation process. The Government will make available submissions from those individuals who indicate their approval to make their submissions public.
Further details on the premium rate-setting process were recently included in the Government’s response to the Second Report of the Standing Committee on Public Accounts.
RECOMMENDATION No. 3
That relevant officials from both the Office of the Auditor General and the Office of the Comptroller General participate in the Public Sector Accounting Board (PSAB) projects on clarifying the interpretation and application of the financial reporting requirements of government reporting entities and government transfers, to ensure a clearer and more consistent interpretation of the intent and requirements of the PSAB guidelines.
The Office of the Auditor General of Canada and the Treasury Board Secretariat are participating in the PSAB projects clarifying the interpretation and application of the financial reporting requirements of government reporting entities and government transfers. That being said, it might be useful to provide a brief outline of the standard-setting process followed by the PSAB.
The Public Sector Accounting Board is authorized by the Board of Directors of The Canadian Institute of Chartered Accountants (CICA) to issue Recommendations and guidance with respect to matters of accounting for federal, provincial, territorial and local governments. The PSAB issues such Recommendations and guidance to serve the public interest by strengthening accountability in the public sector through developing, recommending and gaining acceptance of accounting and financial reporting standards of good practice.
Officials from the Office of the Auditor General and Treasury Board Secretariat have the opportunity to participate in the development of accounting standards since it is the people who prepare, audit and use government financial statements and reports that develop the PSAB’s standards. Governments do not appoint members of the PSAB or its task forces; the PSAB recruits individuals. Furthermore, all the PSAB Board and task force volunteers serve as individuals and not as representatives of their governments or organizations - a policy which allows for a full and open debate on issues.
The PSAB has a network of associates who provide their views at each main stage in the development of its accounting standards. The network is representative of all regions of the country and of the views of users, preparers and auditors of government financial statements, reports and information. Generally, representatives from both the Office of the Auditor General and Treasury Board Secretariat participate as associates. However, as with members of the task force developing any standard, associates provide their views as individual professionals and not as the official representatives of the government, firm or organization with which they are associated.
As the last step before a final standard, a public Exposure Draft reflects consideration of the research conducted by the staff and outside consultants, input from the PSAB and its task force, and any previous due process feedback. It is at this stage that officials from Treasury Board Secretariat and the Office of the Auditor General can offer opinions as representatives of their organizations. Exposure Draft proposals will usually become the final standard unless consensus on them cannot be reached.
RECOMMENDATION No. 4
That both the Office of the Auditor General and the Office of the Comptroller General prepare an annual report detailing the progress achieved in clarifying the guidance of the PSAB concerning the accounting treatment for reporting entities and transfers to these entities, particularly regarding the accounting treatment of foundations, and that the first report be tabled in Parliament no later than 31 December 2003.
The standard-setting process of the PSAB, and the Government’s consideration of the standards in developing its own accounting policies, is an on-going process. As new standards are issued, they will be considered by the Government and opportunities for the engagement of parliamentarians and of the public provided through such means as the Budget and the tabling of the Public Accounts of Canada. The Office of the Auditor General provides periodic reports on these matters through its Observations on the Public Accounts of Canada and its regular reporting to Parliament.
RECOMMENDATION No. 5
That the Treasury Board Secretariat prepare an action plan together with a detailed implementation timetable, to finalize the verification and audit of the outstanding elements of information required to complete the implementation of full accrual accounting, thus enabling the federal government to produce full accrual-based summary financial statements. That the Treasury Board Secretariat prepare the action plan and detailed implementation schedule for tabling in Parliament no later than 31 December 2003.
RECOMMENDATION No. 6
That the Government of Canada begin presenting full accrual-based summary financial statements in the Public Accounts of Canada, 2002‑2003.
Since the release of the Public Accounts of Canada, 2001-2002, the Government of Canada and the Office of the Auditor General have been working very closely to finalize the verification and audit of the outstanding elements of information required to complete the implementation of full accrual accounting, thus enabling the federal government to produce full accrual-based summary financial statements.
This enabled the Minister of Finance to announce in Budget 2003 that the Government’s financial statements will be prepared on the full accrual basis of accounting. This will commence with Public Accounts of Canada, 2002-2003 which will also include a retroactive restatement of prior year results, due to this accounting policy change.
As in every year, the Treasury Board Secretariat, Department of Finance and Public Works and Government Services Canada will be working closely with the Office of the Auditor General to ensure a successful tabling of the Public Accounts of Canada.
RECOMMENDATION No. 7
That the Government of Canada convert the Canadian Expenditure Management System to full accrual-based budgeting and appropriations. That the government advise Parliament and the Public Accounts Committee when the decision has been made.
RECOMMENDATION No. 8
Once the decision has been made on full accrual-based budgeting and appropriations, that the Treasury Board Secretariat immediately prepare an action plan, together with an implementation timeframe, and table both documents to Parliament and the Public Accounts Committee.
Adopting the integration of full accrual-based budgeting and appropriations into the Expenditure Management System could have far reaching implications for government and for Parliament. For example, it could involve changing the form and content of the information presented to Parliament or what Parliament actually votes on. It involves issues of transparency and accountability to Parliament and there are questions on whether the changes would strengthen or weaken Parliament’s authority.
The extent to which the integration of accrual information into the Government’s Expenditure Management System could improve decision-making also has to be assessed. For example: what biases might it introduce; how could it change the roles of the key players; would additional controls and reporting be necessary? These are not easy questions to answer. The Government is not prepared, simply as a matter of principle, to agree to the concept of an accrual-based budgeting and appropriation framework.
Unlike accrual accounting, there is no international consensus on the adoption of accrual budgeting. Those countries that have implemented accrual budgeting have adopted tailored accrual tools to meet their specific needs as they implement much broader reforms. Moreover, where accrual budgeting has been implemented, it continues to evolve in light of lessons learned. We continue to take advantage of the experience of others.
Treasury Board Secretariat is committed to stakeholder consultations, which have been underway at the officials level since the spring of 2002. What is clear from these consultations, as well as from the experience of other jurisdictions, is that prudence is required and Treasury Board Secretariat is committed to assessing the various options, and their broader ramifications before taking a decision. The results of these consultations will be provided to Ministers and Parliament.
Parliamentarians are key stakeholders and Treasury Board Secretariat will be entering into consultations with them at the appropriate time. Once the government has taken a decision on accrual budgeting and appropriations, the Secretariat would be pleased to advise the Public Accounts Committee of the results. As an interim step, the Secretariat hopes to brief the Committee on the current status of the consultation process and the issues that have been raised in different forums.
When the decision is taken on each of accrual budgeting and appropriations, Treasury Board Secretariat will be in a position to assess the requirements and resources needed to make the specific changes and will develop an implementation plan including specific actions required and timeframes. When this is completed, the Secretariat would be pleased to share this information with the Public Accounts Committee and Parliament.
RECOMMENDATION No. 9
That the Treasury Board Secretariat, in collaboration with the Office of the Auditor General of Canada, explore ways of simplifying and streamlining the presentation of financial information contained in the Public Accounts of Canada and the Annual Financial Report. That the Treasury Board Secretariat and the Office of the Auditor General prepare a joint report describing possible areas for improvement in the presentation and explanation of the consolidated financial statements of the Government of Canada.
RECOMMENDATION No. 10
That the Treasury Board Secretariat, in collaboration with the Office of the Auditor General of Canada, develop a primer or elementary text to assist parliamentarians and the Canadian public in making sense of the information contained in the Public Accounts of Canada and the Annual Financial Report.
The Public Accounts is prepared under the joint direction of the President of the Treasury Board, the Minister of Finance and the Receiver General for Canada. The Annual Financial Report is the produced by the Minister of Finance, using information from the Public Accounts.
The contents of the Public Accounts have evolved as a result of legislative requirements, new accounting policies and requests from parliamentarians. Meeting all these requirements has resulted in an admittedly complex document. While the summary of significant accounting policies contained in the notes to the summary financial statements explains some of the concepts used in the preparation of the financial statements, it does assume a certain understanding of economic activities and accounting.
As part of the implementation of full accrual accounting, some changes are being proposed for the Public Accounts of Canada, 2002-2003, including the use of electronic links between sections. Further rationalization and streamlining is possible, but would be part of a longer term, more comprehensive project that considers all stakeholder and legislated information requirements and available technology.
Following previous suggestions by the Auditor General and working closely with her staff, substantial improvements have been made to the Annual Financial Report. The Annual Financial Report already includes the measures discussed in the CICA document, Indicators of Government Financial Condition, as well as comprehensive budgeted-to-actual comparison and analysis. The indicators are included in presentations to the Standing Committee on Public Accounts following the tabling of the Public Accounts of Canada. These presentations also provide an overview of the Public Accounts along with highlights of the key financial results and trends.
Treasury Board Secretariat and the Department of Finance will consult with parliamentarians, parliamentary committees and the Auditor General in the development of plans to improve the reporting of financial information. This will include the best means to assist parliamentarians and the public in understanding this information.