SIFS Committee Meeting

SUB-COMMITTEE ON INTERNATIONAL FINANCIAL REPORTING GUIDELINES AND STANDARDS FOR THE PUBLIC SECTOR OF THE STANDING COMMITTEE ON PUBLIC ACCOUNTS

SOUS-COMITÉ DES LIGNES DIRECTRICES ET NORMES INTERNATIONALES RELATIVEMENT AUX ÉTATS FINANCIERS DU SECTEUR PUBLIC DU COMITÉ PERMANENT DES COMPTES PUBLICS

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, March 25, 1999

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[English]

The Acting Chairman (Mr. Lynn Myers (Waterloo—Wellington, Lib.)): I call this meeting of the Sub-Committee on International Financial Reporting Guidelines and Standards for the Public Sector of the Standing Committee on Public Accounts to order.

The first order of the day is, pursuant to Standing Order 108(3)(e), the presentation of the report on the 1999 Australasian Council of Public Accounts Committees' fifth biennial conference. We have witnesses before us today: Mr. John Williams, who is well known to everyone; and of course the Auditor General of Canada, Mr. Denis Desautels; and with him is Maria Barrados, Assistant Auditor General.

Welcome to the committee.

It's quite nice, Mr. Williams, I have to say, to have you on that side of the table. I'm sure there will be tough questions all around, especially from the chair. We look forward to your comments and your report relative to what I consider this important and informative exchange you had. We'll ask you to proceed at this point.

Mr. John Williams (St. Albert, Ref.; Chairman, House of Commons Standing Committee on Public Accounts): Thank you, Mr. Chairman. I do note there isn't a gavel down here, so you'll have to make sure you keep good order, especially with my colleagues around the table. Make sure they don't grill me too much.

Mr. Chairman and members of the subcommittee, it gives me great pleasure to report to the subcommittee on financial reporting guidelines and standards on my recent trip to Australia and New Zealand.

I have with me Mr. Denis Desautels, the Auditor General of Canada, and Ms. Maria Barrados, who were with me on the trip down to Australia and New Zealand. Together we have prepared summary notes on the meeting of the Australasian Council of Public Accounts Committees and a joint report on our trip to Australia and New Zealand. Copies of these documents have been circulated to you. I think you will find them very interesting and particularly relevant to the work the subcommittee will be doing in the next few months.

I'm going to make a number of brief comments, and then Mr. Desautels and I are willing to answer any questions you may have.

Let me begin with an overview of the joint report before I talk about the Australasian Council of Public Accounts Committees conference. The report opens with a discussion of what we learned about the recent reforms in public sector management, accounting, and reporting in New Zealand and Australia. We spoke to a number of officials in both countries about these reforms. Their names are listed in appendix 3 of our report.

As many of you know, New Zealand and Australia are at the forefront of pioneering efforts to reinvigorate the way government works. There are lessons to be learned from their efforts as we here in Canada work to address similar challenges.

The changes taking place in both countries are designed to make government more businesslike, more efficient, and less costly in the way it manages its affairs. Because each country has approached this task somewhat differently, we'll look at each in turn, beginning with New Zealand, where some of the most innovative changes have occurred.

In New Zealand they have restructured the relationship between ministers and departments and the way in which their Parliament votes appropriations. Ministers purchase services from departments under purchase agreements with the deputy ministers. Parliament, for its part, provides the resources needed by ministers to purchase these services. Departments in turn have been given enhanced freedom in determining how to organize the way they do their business.

In making these changes, the need to maintain accountability has not been forgotten. I would refer you to the sections of our paper that deal with performance reporting and parliamentary oversight. We have listed eight features of the New Zealand system of parliamentary oversight that may be of interest to you. In particular you should be aware that a full accrual system that captures the full economic value and full utilization of government assets is a key feature.

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We conclude the section on New Zealand with a description of the context in which these reforms are taking place. We also describe some of the strengths of these reforms as well as several areas that officials indicated to us are in need of strengthening.

The paper then deals with the Australian experience, which, as mentioned, is not as far advanced as New Zealand's.

The Australians have taken a different approach to making government more businesslike, more efficient, and less costly. Their focus has been on market-testing government services under a national competition policy. This involves comparing the cost and efficiency of government services with similar services delivered by the private sector.

This has led to a blending of traditional government services and market-tested services, which in turn has resulted in a strong push to contract out services. It has also meant that managers have had to specify the results and the costs of government activities.

Australia has also conducted government-wide management reforms, improved performance reporting, and is now implementing accrual appropriations. We noted that while there is broad support for the objectives of competition policy and accrual accounting, Australians are concerned about issues such as transparency and accountability as the mechanisms for delivering government services change.

We sum up with a brief discussion of where these changes are headed.

In closing, I want to particularly draw your attention to the final section of our report, which lists a number of suggestions for the public accounts committee.

In my previous remarks, I indicated that the use of full accrual accounting is a key feature in making government more efficient and less costly in both New Zealand and Australia. As many of you are aware, the Government of Canada is moving towards full accrual accounting under the financial information system, or FIS. The Auditor General included a chapter in his 1998 report on the implementation of FIS, and the public accounts committee held a hearing on it last October. We issued a report in which we asked for stepped-up action to implement FIS and recommended that the government move toward an accrual-based appropriations or supply process.

I believe that as a result of our examination, we are all supportive of FIS and would like to do what we can as a committee to move the project forward. In this vein you will find a list of six ways in which the committee could make a contribution to the FIS process. I propose that we discuss these suggestions at the next PAC steering committee meeting and then come to the full committee with a suggested agenda.

Before I tell you about the ACPAC conference, I want to draw your attention to the appendices attached to the report. Appendix 1 lists the issues that were discussed at the conference, appendix 2 contains the names of those who attended the conference, and a third appendix tells you who we met on our trip.

I've also attached copies of two letters. One is from a minister to the chair of a public accounts committee complaining about the committee's choice of witnesses. The other is the chairman's reply. These letters are instructive and demonstrate the degree of independence exercised by the public accounts committee in question.

Now let me tell you about the meeting of the Australasian Council of Public Accounts Committees that I attended.

In Canada we have the Canadian Council of Public Accounts Committees, and all PAC committees belong to that council. The CCPAC meets each year and holds a number of joint sessions with Canada's legislative auditors.

In Australia there is a similar organization, the Australasian Council of Public Accounts Committees, or ACPAC. Mr. Max Trenorden, who is the chairman of the Western Australian Public Accounts and Expenditure Review Committee, has attended several of our CCPAC meetings. This year he invited me to attend ACPAC's fifth biennial conference, where I was asked to make a presentation on public accounts committees from a Canadian perspective. Copies of my presentation are available for those who are interested.

In my presentation I discussed our PACs, their evolution since Confederation, and their mandate and objectives, dealing with accountability, transparency, improved performance, and better information for Parliament and Canadians. I also spoke about some of our recent work on issues such as Y2K and the financial information system. I also said a few things about the way the government prepares its financial statements for the public accounts of Canada. And I concluded with a few thoughts about our hopes and aspirations for the future. I think I can safely say that when I spoke, I expressed the thoughts and beliefs of all who sit on the committee.

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In particular I stressed our common desire to make a constructive contribution so that all Canadians get proper value for money from the services provided by government and supported by their tax dollars. I also stressed our desire to keep partisanship on the committee to a minimum, focusing more on accountability rather than on policy development. I think you will agree with me when I say this is a hope that has been largely fulfilled.

Before I left, I reported to you on a proposal to create an international organization of public accounts committees. I informed you that the proposed creation of this committee was on the ACPAC agenda, and I indicated to you that I would report back to you on the outcome.

The proposal was greeted favourably by the conference delegates. They thought the idea was a good one and passed a resolution supporting the creation of the organization in principle. They decided further developmental work on the proposal should go forward.

We were agreed that the best approach would be to begin at the beginning and build a solid foundation. The elements are already in place. I have mentioned our own CCPAC and Australia's ACPAC. There are similar organizations elsewhere, in the Indian subcontinent, for example, where I attended a conference last year on combating bribery and corruption. These regional groups can act as a network to discuss the formation of an international organization and to move the idea forward.

There is already considerable interest in the concept of good governance by parliamentarians, and this is the concept that would provide the focus for the international organization. To promote this concept, the emphasis would be on the following areas: international accounting standards, which are fundamental to any system of accountability; support for and recognition of the independence of auditors general, or supreme audit organizations, as they are sometimes called; an understanding of the forces behind bribery and corruption; and the development of methodologies to attack same.

Everyone acknowledges that accountability, openness, and transparency are fundamental to any regime that wishes to enhance good governance and fight bribery and corruption. As former U.S. Supreme Court Justice Louis Brandeis once said, sunshine is the best disinfectant.

This committee may want to determine the most appropriate methodology to disseminate best practices. Some possibilities already exist. As I've noted, organizations are already in place, such as CCPAC, ACPAC, and the Parliamentary Centre, which hosts the Laurentian seminar each year. Also, a conference was recently held in Kampala, Uganda, which gave rise to a network of African parliamentarians—members of national and sub-national assemblies—whose aim is to attack bribery and corruption.

There are other opportunities for similar initiatives in other parts of the world. In my opinion, these opportunities should be fostered and encouraged. Eventually they will develop into one international organization for parliamentarians that is focused on good governance, openness, transparency, and accountability.

Assembling parliamentarians to fight bribery and corruption will benefit all humanity, but especially those who find themselves at the lower end of the economic scale.

Members of the subcommittee—colleagues—that concludes what I have to say. If you have any comments or questions, Mr. Desautels and I will answer them with the greatest of pleasure. Thank you very much.

The Acting Chairman (Mr. Lynn Myers): Thank you very much, Mr. Williams, for those comments. I think it's fair to say on behalf of all members of the committee that we appreciate your representing Canada in the way you did.

If I might just for a minute take the opportunity, I was especially struck by the point you made that we all on this committee want to make sure a constructive contribution is made. You also noted that we're all interested in value for tax dollars spent, and that we try to do it with minimum partisanship. That's important, and I'm glad that point was made.

Mr. Desautels, do you wish to make any opening comments at this time?

Mr. L. Denis Desautels (Auditor General of Canada): Yes, Mr. Chairman. I'll emphasize four points that are covered in our report and that came out of the meetings we had with representatives of the Australian Commonwealth government and the New Zealand government.

The first point I would note has to do with the speed of implementation of accrual accounting in those countries. New Zealand now has done this and has been doing it for quite a few years, and Australia is putting it in place in a matter of, I think, from beginning to end, three or four years. When we compare that to our own situation—particularly the Australian experience, which is a comparable government—if they're successful, they will have done it a lot faster than seems to be the case here in Canada. That's an interesting observation we made when we were down there.

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The second point is that accrual-based appropriations are possible. That's a question we were asking ourselves here. We encouraged Treasury Board Secretariat to, as they're implementing FIS, at the same time consider moving to accrual-based appropriations. By talking to the people down there, you get the firm conviction that it is possible. Not only is it possible, but it's a highly desirable thing to do.

A third thing that struck me—and this is really out of New Zealand—is the greater degree of precision in their appropriations. As our report states, they have a certain number of votes, maybe just two or three votes per department, but those votes are broken into about 800 appropriations in New Zealand, which are quite specific as to what is expected out of those appropriations. Maybe that sounds like a lot of detail to some, but it's a different approach from what we've been following in Canada, where we've consolidated huge expenditures into just a few votes in each department. In terms of parliamentary scrutiny and monitoring performance, certainly what they're doing in New Zealand offers some interesting possibilities that are worth exploring, as far as I'm concerned.

And the fourth point is that in both countries, when we talk about accrual accounting and accrual-based appropriations, it's really part of a total system for managing government programs. Those systems are, in a way, quite unique to those two countries. It would be interesting to hear from Canadian officials what their vision and their direction might be to achieve the same objectives.

This is why, on page 7 of our report, we make six recommendations to the committee, including inviting officials from the Treasury Board and Finance to come to the committee and explain their vision for achieving the same objectives that we're talking about with the Australian approach as well as the New Zealand approach. That's why I would like to draw the subcommittee's attention to those six recommendations that Mr. Williams and I are making.

Thank you, Mr. Chairman.

The Acting Chairman (Mr. Lynn Myers): Thank you very much, Mr. Desautels.

Ms. Barrados, did you wish to speak?

Ms. Maria Barrados (Assistant Auditor General, Office of the Auditor General of Canada): I don't have anything to add to those two reports.

The Acting Chairman (Mr. Lynn Myers): Thank you very much.

Mr. Mayfield.

Mr. Philip Mayfield (Cariboo—Chilcotin, Ref.): Thank you very much. Do I call you Mr. Chairman or Mr. Vice-Chairman, in view of the fact that our chairman is sitting at the other end of the table?

The Acting Chairman (Mr. Lynn Myers): I think “Chairman” will do.

Mr. Philip Mayfield: Thank you very much, Mr. Chairman. I'm certainly glad to do that.

I want to apologize for my inability to be here for your whole report, John. I'm sorry about that.

The question that occurred to me as you were speaking has to do with the New Zealand system of purchase agreements. I was wondering if you could describe in a bit more detail how that works, and particularly how accountability is maintained between the departments and the political leaders of the government.

Mr. John Williams: Yes. The ministers are the political people who determine what services the government wants to deliver to the people. Then each minister contracts with his department on the delivery of the services that he, as a politician, wants his department to deliver. He then enters into a very detailed contract with his deputy minister, who is called a chief executive.

Say in Transportation you want to build a new bridge. That chief executive says what it costs to build a new bridge, but then they build in the cost of their overhead and the office management and the supervisory personnel, so that they know not just the direct costs of building a bridge, or whatever service it may be, but also the total cost of what that is going to take. The minister can then say, “Okay, yes, I want to proceed, because I'm prepared to raise the taxes to provide that service”, or perhaps he may choose not to.

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During the year, if the minister decides he wants to add additional services, his chief executive will say to the minister, “Well, if you want me to deliver more of service A, which other service do you want me to cancel? Because I don't have any budget. Or will you allocate additional moneys to me?”

So there is very definitely a program-by-program, full accrual costing that brings out its overhead, its administration, its cost, and the money it has expended on behalf of that program, so that the minister, the department, and the public know exactly what each service is costing. That's the New Zealand methodology of measurement, analysis, and interaction with the senior civil service.

Australia seems to be going a different way. I can't remember exactly the little phrase they use, but it's something like competitive measurement. Everything can be broken down, measured, and analysed on a competitive basis.

One example they used was maintenance of military aircraft. How do you ensure you're getting value for money in maintenance of military aircraft? Well, there are comparables in the maintenance of civilian aircraft. So you take a look at the civilian aircraft costs by independent companies who are in the competitive world, and if the maintenance costs of the military aircraft are significantly different, then the question comes up, why?

Those are the two role models.

Mr. Desautels, you may want to add something there.

Mr. Denis Desautels: The basic difference is that over there, the appropriations are essentially based on the value of the outputs that the minister is purchasing from his own department or from another department.

Here what we are accustomed to is that the appropriations for a department are based on the resources consumed by the department: the number of people, the contributions it's paying out, the contracts it's giving out, the fixed assets it's buying and maintaining, and so on. This is how the budgets here are built.

Whereas over there, they try to start from the other end. They're buying those outputs from department X, and those should be worth a certain value, based on certain market tests—if they can achieve those, which is not always possible. But the intent is to try to cost out outputs and buy outputs. This determines the value of the appropriation. Once they agree, that becomes the basis of the contract between the minister and the department or agency that is supplying the services.

Mr. Philip Mayfield: That would mean accrual accounting would be essential for this type of planning and contracting, I would think. If that's not the case, then you would perhaps tell me about that.

Another thing that occurs to me is this. I think of some of the problems Australia has, similar to British Columbia's, where every few years there's an enormous, ballooning expense for fighting fires in the forests. Is there any special way of dealing with this, or do they just budget in the usual way?

Mr. Denis Desautels: That's one of the hiccups in their system: they end up having what may seem to be very rigid contracts between the minister and those supplying. If something happens, they may have a bit of a problem.

So they're trying to cope with that particular aspect of their system, and that's one of the areas they have to improve, so that if something unusual does happen, there's flexibility. The organization providing the services can't just say, “Sorry, Minister. This is not in my contract.” You obviously don't want that to happen.

I'm not quite sure how they do this. Maybe Mrs. Barrados or Mr. Williams has a better answer. But I suppose the minister can always have some other reserve somewhere so that he can enter into an additional contract if something like that happens.

Mr. Philip Mayfield: It's probably not an important part of the discussion for us at this particular point in any case, but did you have something to say, Mrs. Barrados?

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Ms. Maria Barrados: I just wanted to add that the purchase agreements provide a basis for specifying the resources that are going to be consumed and that you need the accrual systems for, but they also have to have the expected results. So you have a result and a cost, those two things together.

You were posing a question about the example of forest fires. The expectation of what that agency is to deliver is a level of protection of the forests. You're going to have more difficulty then with the costs, as Mr. Desautels said, because it doesn't quite fit the same way as if you're buying something you can visualize and that you are certain of.

But they are trying to use the same philosophy and principles to put rigour into their system for how they manage, for how Parliament votes money, and for how Parliament then holds the bureaucracy and the ministers accountable.

Mr. John Williams: I was just going to make the comment that they do base it on reality in New Zealand. For example, they actually budget for a certain number of prison escapes every year, because they know they do actually happen. We've never seen that type of reality in budgeting here.

Mr. Philip Mayfield: Mr. Chair, I don't know what the timelines are on this.

The Acting Chairman (Mr. Lynn Myers): Let's have a free-flowing discussion.

Mr. Philip Mayfield: I'm happy to let somebody else get in here. I'd like to get on a different tangent, but maybe you'd like someone else to get in on this.

The Acting Chairman (Mr. Lynn Myers): Go ahead. We'll go to Mr. Cardin in a minute, and then Mr. Grose.

Mr. Philip Mayfield: The tangent I want to go on for a bit is this. Last summer, when we were in Yellowknife together, there was some discussion about other countries, particularly in the Pacific region, that were looking at Australia, New Zealand, and perhaps Canada too for some kind of direction in developing their public account activities. I'm wondering if your conversations there had any of that content. Was there further exploration or discussion of this topic?

Mr. John Williams: We dealt with the international organization that we talked about in Yellowknife throughout the CCPAC conference last year. The issue was raised, and as I mentioned in my report, it was agreed to in principle by the Australasian Council of Public Accounts Committees.

We weren't able to define a real model of how that would come about, but as I mentioned in my report, it seems that around the world, various groups are spontaneously coming together. For example, when I was in Delhi last year in the subcontinent, India, Pakistan, Nepal, Sri Lanka, and Bangladesh all recognized that this is a serious problem and wanted to work in that direction.

Bob Miller, the executive director of the Parliamentary Centre, as I mentioned, was in Uganda a few weeks ago at a conference on bribery and corruption, and they spontaneously decided at that time to set up a network.

So the key is to bring in the best practices of good governance from public accounts committees such as Canada's, Australia's, New Zealand's, and others, because they are really starting to desire this type of discipline in a big way.

The Acting Chairman (Mr. Lynn Myers): Thank you, Mr. Mayfield.

Mr. Philip Mayfield: Thank you, Mr. Chairman. Maybe I can come back later.

The Acting Chairman (Mr. Lynn Myers): Yes, absolutely. We'll come back to you in a couple of minutes.

[Translation]

Do you have a question, Mr. Cardin?

Mr. Serge Cardin (Sherbrooke, BQ): First off, I'd like to thank the Auditor General and our Chairman for agreeing to give the committee this block of time from February 21 to March 2.

Unfortunately, I only received the briefing notes this morning and I haven't had time to read through all of the material. Judging from what I've heard this morning, financial information and accrual accounting also includes activity-based costing. When the government commits to certain activities, it must resort to the best possible way of costing these activities in order to monitor its performance. Undoubtedly, you have already discussed this. Our primary objective, of course, is financial information as well as monitoring and ensuring the accountability of those individuals who manage all this money.

During the course of your discussions and exchanges, have you had the impression that some individuals had better monitoring mechanisms in place to ensure effective accountability of public spending? Are other countries considerably further ahead of us in this area and would it be in our best interest to consult with them?

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Mr. Denis Desautels: Mr. Chairman, I will endeavour to answer that question and then I will call on Mr. Williams to add a few words.

As I was explaining earlier, we observed that certain countries, particularly New Zealand, use a comprehensive management system, one that is not limited solely to accounting and to the benefits of accrual accounting and to a budgeting system. Instead, they use a comprehensive system for overseeing government activities, a system which encompasses the entire cycle of managing government activities, from the moment and appropriation request is made to Parliament up to the time when each agency that has been awarded government programs reports on the results it has achieved. I'm intrigued by this comprehensive system and I think we would do well to take a fairly similar approach. Obviously, they have yet to resolve all of their technical problems, but they have made some noteworthy progress. Therefore, we would do well to maintain a dialogue with these two countries, at least for the time being, and to see which of their ideas we could use. However, it would be rather difficult to import their system in its entirety, because it is based on certain public management principles which differ somewhat from our own.

As Mr. Williams was saying, in Australia, among others, departments are subject to the provisions of competition legislation. All public services are market-tested for their competitiveness. Other similar concepts are key components of their systems and we don't necessarily have anything similar in place here.

Therefore, it would be interesting to hear from federal officials, in particular Treasury Board or Finance officials who are in charge of these activities, and to have them outline their vision to us. No doubt they are all familiar with the systems in use in Australia and New Zealand and could explain to us the Canadian way of doing things. It might be interesting to hear their explanations and how the Canadian system measures up overall.

Mr. Serge Cardin: It goes without saying that I share your view. Management is not just a matter of figures and financial statements. As you just said, it is also based on certain values which differ from country to country. It is based on such concepts as competition, purchase agreements between departments and so forth. The management system that a country adopts varies according to the objectives that country is striving to achieve, on the type of information that it collects, on the style of management that it adopts and on the values that it seeks to uphold. Obviously, it would not be a good idea to copy an existing model part and parcel. In devising a system, the first step is to determine exactly which objectives we wish to pursue and how we want to go about achieving them.

As accountants, when our clients ask us for financial information, we need to advise them based on the plans they have in mind. This enables us to help them achieve their stated objectives. In deciding which management system will best serve our needs, we must have a clear idea of the direction we wish to take.

[English]

Mr. John Williams: The point is that accrual accounting is a new basis on which to build a management model. Accrual accounting by itself is not going to do the job, but as you know, Serge, as an accountant, it gives management the tools to make intelligent, quantitative decisions on where they're going to go.

That's why I feel the government should be moving more quickly on the introduction of accrual accounting and the whole FIS project. As I mentioned, the Auditor General had a chapter on that last year. Once you have this groundwork of accounting information for management, then you can start developing focused government spending.

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I was very impressed with the analysis and the presentation by the central agency in New Zealand, as to how clear their thinking was and how they expected results and only the expected results. Therefore, if spending was too broad and covered more than was expected, that was considered as much a waste as anything else. They're into continuous evaluation.

I refer you to the report of the Sub-Committee on the Business of Supply of the Standing Committee on Procedure and House Affairs. It was tabled in the House of Commons back in December by the procedure and house affairs committee. We're waiting for the government's response, which is due by the end of April. The report basically asks four fundamental questions on program evaluation.

As you know, we, as members of Parliament, only vote on non-statutory spending, which is about $50 billion. There's $100 billion of statutory spending that is ongoing, allocated cash, because we passed legislation, in some cases 30, 40, or 50 years ago. The House has never debated that.

So the subcommittee's report was asking the government to look at ways to introduce four questions on program evaluation. One, what is the public policy of this program designed to do? Once you have determined the public policy, you can then ask, how well is it achieving what it set out to do? And you can ask the other questions: is it doing it efficiently, and can we achieve the same results in a better way?

Those are four simple questions we should be asking on a continuous basis. They are already asking these questions in Australia and New Zealand, where they keep spending focused on what the politicians say they want, and nothing else.

[Translation]

The Acting Chairman (Mr. Lynn Myers): Is that all, Mr. Cardin?

Mr. Serge Cardin: Yes, thank you.

The Acting Chairman (Mr. Lynn Myers): Thank you.

[English]

Mr. Grose, please.

Mr. Ivan Grose (Oshawa, Lib.): Thank you, Mr. Chairman.

I've been a bit out of touch with this committee lately. My attendance has been rather spotty. See, you go away and I don't attend. While you've been basking in the warmth of the sunshine and hospitality of your hosts in Australia and New Zealand, I've been inspecting prisons on both ends of our country—I hasten to add, on a visiting basis only.

What you say fascinates me. I sounds much as a real business would run its affairs, but it reminds of a thing I observed in the City of Toronto quite a few years ago. They decided their departments were going to compete with private enterprise. In other words, if a sewer line needed to be replaced, the thing went out to tender. The public works department tendered on it and so did private enterprise. In many cases private enterprise would get the contract.

I was doing contracting in the city at the time, and the strange and wonderful thing I observed was that the number of employees in the departments never changed, whether they got the contracts or not. So I don't know whether it was a good system.

I'm interested in running government as a business and allotting so much money and doing things rather on a contract basis. That's all very well for private business, which can pick and choose what they're going to do and avoid catastrophes, either by not getting involved in them or by having them covered by insurance. Governments can't do this. So how do they handle this? Suppose you get a flood that knocks down a dozen bridges. There's not much question about whether or not you're going to have the replace the bridges.

So at the end of the day, do you think they're really going to be that much better off under that system? Do they have any results yet? New Zealand is far ahead with it, apparently. What are the results?

Mr. John Williams: New Zealand of course went from being one of the most regulated countries in the free world, which hit the wall and basically was bankrupt, to having their finances in great shape, largely attributable to their management of their budget through this methodology.

There are three levels of hierarchy. They think that government, pure government, exists for the formation of public policy and maybe not much else. Underneath that, they have these contracts with their agencies, which we would call our public service, to deliver services in a monopoly type of environment, where business doesn't really get into it—for example, writing cheques for social insurance or unemployment insurance.

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Then for anything that is business, they let the business people do it—printing services, for example. Here in Canada we have privatized the Canada Communication Group, which was the government printer for many years. But why was government in the printing business when there are literally thousands of printers across this country that are perfectly capable of doing printing? Printing is printing.

So you recognize that, as some people have said, government has to do the things that business doesn't like to do. Using the analogy of the bridges being washed out, we know they have to be replaced, but why should government be in the business of bridge-building? There's certainly a policy of saying we have to replace the bridges and we will allocate the resources to do so, but let's get the tender from bridge-builders to see who can do it best, fastest, and cheapest.

We have to recognize the different roles of government policy, delivery of services that business doesn't want to do, and straightforward business that anybody can do, and let each area focus on its own objectives.

Mr. Ivan Grose: I'm fascinated by this thing that both you and the Auditor General said: what is done is what the minister decides he wants to do for the good of his constituents, or whatever his reason is. I have a bit of a problem with that. In other words, the minister decides whether or not a replacement bridge or a new bridge will be built, and then he proceeds with it, after getting the cost estimate and all those kinds of things.

Mr. John Williams: Using the bridge analogy, it likely wouldn't have been in his annual contract with his chief executive to build three bridges, because they hadn't been washed out and he wasn't anticipating it.

Mr. Ivan Grose: No, it's not the washed-out ones I'm talking about. It's deciding whether or not you need another bridge that hasn't been there before.

Mr. John Williams: If we're talking about the concept of needing another bridge, again, think of our own system. Parliament grants appropriations. It's the same there.

The minister goes to Parliament and says he would like to build a new bridge. Parliament approves and votes the appropriation. The minister then has the authority to enter into a contract with his CEO. The minister says, “I'm building a new bridge”, and the CEO says, “It's going to cost x, so give me the cash and I will get the job done for you.” Likely, if it's bridge-building, he would go out to tender too, because business does that kind of thing. That's the relationship.

Do you want to add anything, Mr. Desautels?

Mr. Denis Desautels: It's based on the premise that, first of all, you have to have parliamentary authority to do that. They get parliamentary authority, the same as we do here, and get the votes and appropriations approved. With that, the minister turns around and is able to contract with either his own department or other departments around, or with a private agency, but it's all for the goods and the outputs that he was authorized to buy through his appropriation.

Mr. Grose is asking a very valid question: Does this business approach really work in a government environment? That's a question we have to ask ourselves. The people in New Zealand and Australia are really convinced their system is sound and it works. We have to observe that with a reasonable level of skepticism and make sure we're convinced before we praise all of its virtues.

But already, certain useful things have come out of that, which we maybe haven't mentioned so far. For example, in order to allow individual departments to deliver what the minister is contracting for, they've given individual departments a lot more flexibility in the rules for hiring staff, contracting for staff, and contracting out, which makes it possible for a government organization to act with a little more speed and get things done a little more efficiently than in a traditional environment.

Mr. Ivan Grose: Backed by the inspection of an auditor general, naturally.

Mr. Denis Desautels: I was just coming to that. I was going to say that in their system, the accountability mechanisms can be strengthened in fact, because with this approach, as I said earlier, you have more precision in the whole system as to what you want departments to do. Therefore you can require more precise performance reports, and you can even base remuneration of deputy ministers on their performance that flows out of that.

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So we have to look at this with a certain amount of skepticism, but still with an open mind as to some of the benefits that already seem to be quite clear.

Mr. John Williams: It also allows you to focus on what you want to achieve by the policies and how you're going to achieve it.

One example they used in New Zealand is that back before they had their crisis, the post office had a mandate to basically deliver the mail fast and efficiently. But there was also a kind of unwritten policy that the post office was going to soak up the lesser-skilled people in people's ridings to reduce unemployment. As you can see, there's a bit of a conflict in these two policies.

Once they put down on paper that the post office's job was clearly and simply to deliver the mail as fast, as efficiently, and as cheaply as possible, with no under-the-table, unwritten policy as well, then all of a sudden they focused and were able to reduce costs very dramatically.

It caused an issue somewhere else—rising unemployment of unskilled people—but now it was out in the open and could be addressed, rather than keeping that hidden cost ongoing year after year.

The Acting Chairman (Mr. Lynn Myers): Ms. Barrados, did you wish to speak?

Ms. Maria Barrados: Yes.

I have a quick comment in reaction to your question, Mr. Grose.

The overall framework in the Westminster type of parliamentary system is still in place. So the role of the Minister of Finance's budget, the role of appropriations, the role of the supplementary estimates, and the reports that flow to Parliament are still all in place.

What has really changed here is how the public service is administered—the management and administration of the public service—and there's been quite a bit of change in the relationship between the senior bureaucrats and ministers, and then Parliament. That's the nature. It's a management-administration kind of change.

As Mr. Desautels said, both these countries were struggling with how to make their public service more efficient—how to make sure what they were doing was done efficiently and at a reasonable cost. They went to that competition kind of model. It certainly isn't the only model. We should be skeptical of that as a particular solution. But the problem is the same. We face the same kind of problem: wanting to make sure our public management is as efficient and effective as possible, at a reasonable cost.

Mr. Ivan Grose: At the end of the day, basically the same heads are on the chopping block if things go wrong. You haven't lost the ability to say this minister is not administering this department the way it should be administered.

Mr. John Williams: The minister is responsible for the political decisions. He is responsible for the concept, so he may have to resign. For the ongoing, detailed administration, it would be the chief executive who would get fired, because he hasn't delivered what he said he would deliver. The political part is the minister's responsibility.

And I'd say one more thing. Empire-building in New Zealand is discouraged, because a CEO has a five-year, non-renewable contract, but it can be extended by three years. So the maximum is eight years—that is it, no more. So the concept of empire-building is alleviated.

Mr. Ivan Grose: Thank you.

That's all I have to say.

The Acting Chairman (Mr. Lynn Myers): Thank you very much.

We have some further business that we need to discuss, and we need to go in camera, so unless there are any further questions, I'd ask Mr. Williams if he has any concluding remarks at this time.

Mr. John Williams: This demonstrates that we are not an island in Canada and that there's much for us to learn about best practices elsewhere. No doubt we have much to impart to others too. We should recognize that and always be cognizant that new ideas, ways, and methodologies are being tried and adopted.

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As Ms. Barrados said, in some areas we have to be skeptical. We don't have to endorse somebody else's idea because it's new and at first blush seems to be better. Let's look at it, and what we feel is good and should be adopted in Canada, we should think about adopting in Canada.

The Acting Chairman (Mr. Lynn Myers): Thank you.

Mr. Desautels.

Mr. Denis Desautels: I endorse those comments, Mr. Chairman.

The Acting Chairman (Mr. Lynn Myers): Okay.

Mr. Mayfield, you have a quick question?

Mr. Philip Mayfield: Yes, and I think it will be a quick answer too.

I'm aware that there's a movement in Australia to adopt a republican style of government. Do they see any changes coming out of that that would affect what we've been discussing today?

Mr. John Williams: No, they're not actually looking at going away from the Westminster model to a congressional style of government.

They are, as you are aware, looking at appointing their own head of state rather than the Queen. They haven't decided whether that person would be appointed by Parliament, appointed by a referendum, or elected by some kind of election process, but I think they are likely looking at a figurative head of state rather than someone with real power, such as the President of the United States, because that's a congressional system. They still have every intention of staying with the Westminster model.

Mr. Philip Mayfield: Well, I'd like to ask about the 800 votes and a number of other things, but we'll do that privately later.

Thank you, Mr. Chairman.

The Acting Chairman (Mr. Lynn Myers): Thank you very much.

I want to thank you, John, for what you presented today, as well as the Auditor General of course and the Assistant Auditor General. This was very informative and interesting. As you point out, there are things we can learn and carry forward perhaps here in Canada.

Having said that, we'll conclude this part of the meeting. I'll ask Mr. Williams to come up and chair the in camera part, on future business and other matters.

Thank you very much.

[Proceedings continue in camera]