OGGO Committee Report

CHAPTER SIX — IMPLEMENTATION: STRONG LEADERSHIP FOR INTRODUCING BETTER TOOLS FOR DECISION-MAKING

Full accrual is probably going to cost you more, especially initially, because of the information technology infrastructure investment you may need. You have to have some fairly good accounting skills. You've definitely got to do some upfront training to get everybody up to speed. But at the end of the day, I feel that you're going to get better information for decision-making.

Jim McCarter (Auditor General, Office of the Auditor General of Ontario), Thursday, October 26, 2006

The evidence provided by senior officials from Ontario and British Columbia confirmed the Committee's belief that the adoption of accrual accounting for budgeting and appropriations will be an undertaking that requires a great deal of determination, leadership and resources on the part of the government. However, the Committee considers that accounting reform is worth pursuing and that the government has already met more difficult challenges — bringing in the metric system, for instance, and introducing the Goods and Services Tax (GST).

A carefully planned implementation, which entails a realistic timeframe, adequate human and financial resources and periodic follow-up for tracking progress, is essential to the success of the reform process.

A) Statement of the government's intention

However, the Committee believes that the government must send a strong signal by clearly announcing its intention to move ahead with full accrual accounting. Furthermore, the Committee feels that the will to move forward must come from the Cabinet and be reflected in a bill making the necessary changes for the introduction of the new accounting system.

B) Project Implementation Office

To provide the momentum that will result in the changes required for accounting reform, and to ensure that efforts are coordinated and resources mobilized, the government should set up a Project Implementation Office (PIO), headed up by a highly visible and well respected person, who, without necessarily being an expert, is an excellent communicator and can sit down with assistant deputy ministers in the various departments, bring them together and win everyone over to the cause. As suggested in the PWC research report tabled with the
Committee by the Treasury Board Secretariat, the PIO should have the following responsibilities:

• Project Management — Being the focal co-ordination point of the project, providing momentum to the project, managing the implementation plan, identifying dependencies, providing risk management, coordinating reporting, managing project finances and providing administrative support;
• Change Management — Providing leadership and central direction of project activities to create the necessary changes required in processes, systems and people to accept the project deliverables;
• Communications — Developing and delivering planned communication of results to project stakeholders;
• Stakeholder management — Creating awareness and responsiveness in the people involved with the project or affected by the project; and,
• Training — Developing the training strategy to support delivery of the project.

Furthermore, in their evidence to the Committee, the senior officials from Ontario and British Columbia emphasized how important it was that the PIO be made up of people from a variety of different disciplines and who have a genuine interest in the estimates, their purpose and the reform process. They could be past legislators, academics, and so forth. Similarly, the Committee learned that, in its transition to accrual accounting, the government of British Columbia had set up an accounting policy advisory committee, comprised of respected professional accountants from the outside. The committee was set up by legislation and continues to provide the provincial government with advice on accounting matters.

The Committee agrees that striking an advisory committee and recruiting experts from outside the federal public service are good ideas, but it would prefer to give the government the flexibility it needs, so as not to place unnecessary constraints on the implementation process. Therefore, the Committee recommends:

RECOMMENDATION 9

That the government of Canada establish a Project Implementation Office with a clear mandate and responsibilities for implementing accrual accounting in budgeting and appropriations.

C) Human resources and training

The Canadian government's move to accrual budgeting and appropriations has a significant human dimension and will require the development of an extensive training plan for the entire public service. The Committee learned that, in Ontario, it was almost necessary to provide elementary accounting courses for some of its departmental financial officers. This training initiative was deemed vital to the success of the conversion.

The human resources aspect is even more important since accountants are in short supply across Canada; many of the government's financial officers do not have professional accounting certification and are not necessarily familiar with the latest developments in accounting standards. Moreover, this major change will likely meet with resistance from some public servants, and a major effort in terms of persuasion and communications will then be necessary. The PIO’s role will be decisive.

Finally, the Committee was particularly interested in the fact that training and communications must not be limited to employees in the departments’ financial services. The senior officials from Ontario and British Columbia told the Committee that, in order to maximize the advantages of this major accounting reform, it was desirable to ensure that those outside the financial services, particularly program managers, also had a good understanding of accrual accounting and reporting. The managers would have better information and they would thus be able to make better decisions. This view was well received by the members of the Committee because it is believed that the accounting reform provides an opportunity to government to bring about some necessary cultural changes in the federal public service.

RECOMMENDATION 10

That the government of Canada develop a training and communications plan for its financial officers and that it make its program managers aware of the new possibilities afforded by accrual accounting through an emphasis on the management of public resources, assets and liabilities.

The Committee believes that it may be necessary to provide some assistance to members of Parliament in order that they become familiar with the changes in budgetary and appropriations documents as accrual accounting is introduce. The Committee therefore recommends:

RECOMMENDATION 11

That the government of Canada organize information sessions for Members of Parliament so that they may become familiar with the general principles of accrual accounting and the changes it brings about in the budgetary and estimates documents.

D) Financial systems and resources

The adoption of accrual-based budgeting and appropriations will require additional financial resources. The PWC report put the estimated total cost of implementing the accounting reform somewhere between $40 million and $160 million. According to Charles-Antoine St-Jean, Comptroller General of Canada, $150 million is a realistic figure.¹⁷

The Committee believes that a more accurate estimate of the implementation costs will accompany the implementation plan to be prepared by the Project Implementation Office in the next few months.

That being said, the experience gained in Ontario and British Columbia shows that the final cost will depend primarily on the financial software systems chosen. The main costs of the conversion are in fact related to software costs, whether purchased new or upgraded. Human resources training will likely constitute only a small proportion of the total cost. (The PWC report puts training costs at about $6 million.)

The scope and complexity of the federal government, which has seven different financial software systems, will be the main challenge and it is likely therefore that the conversion to accrual-based accounting for budgeting and appropriations will probably take more time and be more difficult than in the provinces. British Columbia, for instance, which had only a single software system for all its departments and agencies from the very beginning.

In this regard, the Auditor General of Canada and the Comptroller General of Canada told the Committee at its meeting on November 7, 2006, that it was not necessarily a good idea for the federal government to completely change all of its financial software systems, given the fact that a major investment had been made in them just a few years ago. As long as the software systems are compatible and meet the new requirements, operating with more than one system would be likely to
keep the costs down and ensure that the government is not held hostage by a single software provider.

E) Timeframes and follow-up

The Committee is well aware of the magnitude of the task facing the government. Nevertheless, it is convinced that the project can be implemented within a reasonable timeframe. The roadmap in the PWC report should be seriously considered by the government. The Committee is of the opinion that a five-year timeframe should enable the government to complete the accounting reform, progressing at a rate that provides enough flexibility for correctly adapting the budget and expenditure cycle, training human resources and setting up new financial software systems.

Furthermore, the Committee believes the government must report on its rogress to the House of Commons every year.

RECOMMENDATION 12

That the government of Canada complete the implementation of accrual-based accounting for budgeting and appropriations within five years and report annually to the House of Commons on its progress and the costs involved.

F) User-friendliness of reports presented to Parliament

The move to accrual-based accounting for budgeting and appropriations means that reports to Parliament will contain richer and more complex information. In order to maintain and increase MPs' interest in the review of appropriations, the presentation of the government's assets, liabilities and amortization expenses should be such that they can take full advantage of the information. The Committee is of the view that the adoption of accrual-based accounting for budgeting and appropriations affords a unique opportunity to proceed with a fundamental redesign of the format and content of reports presented to Parliament. This is essential to facilitating their review by MPs. Although some progress has been made, the information in the estimates documents remains uninspired and the observations made by the Committee¹⁸ in 2003 are still valid:

It is essential that, in reports submitted to Parliament, the federal government enhance its ability to communicate clearly the information considered relevant by its clients — MPs and the Canadian public — and release it in an appropriate format. Like other economic or financial publications containing numerical data, beginning with estimates documents, for example, reports submitted to Parliament should make more intensive use of statistical tools such as trends and annual variations and present ideas and findings in tables and graphs; these tables and
graphs should be accompanied by brief texts with value added to substantiate the figures. Apart from basic information on the budget allocation, reports should highlight failures as well as successes of programs, departments and agencies, their causes and the corrective measures to be taken to reach the objectives.

The Committee considers it necessary to arrange the information into categories dealing with, for example, appropriations (to be voted or statutory) on the government's operating budgets, capital assets and now liabilities, in Part II of the Estimates. Therefore, the Committee recommends:

RECOMMENDATION 13

That the government of Canada develop, in consultation with members of Parliament, a format for presenting information about appropriations in the estimates documents.

CONCLUSIONS

The Committee’s work has confirmed its original impression, expressed in the motion of June 15, 2006, that the government of Canada must move ahead with the adoption of accrual-based accounting for budgeting and appropriations.

This reform of accounting practices, which the Committee strongly supports, will be an additional tool that the government may use to improve the management of its affairs.

The Committee firmly believes that this reform of government accounting practices is in the interests of Canadians and that it will offer a new perspective on the way in which public funds are used. Therefore, the Committee feels that the reform process should be carried out as quickly as possible in light of the recommendations made in this report.

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The Committee does not have at its disposal information that would allow it to ascertain precisely, the cost pof implementing accrual budgeting and appropriations. Similarly, it can not estimate the additional net operating costs associated with accrual budgeting and appropriations. However, the Committee is confident that the overall impact on government operations is positive.

Report 6 - Meaningful scrutiny: Practical improvements to the estimates process (adopted by the Committee on September 24, 2003; tabled in the House of Commons on September 25, 2003).