PACC Committee Report

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

After considering Chapter 21 of the November 1999 Report of the Auditor General of Canada, entitled ''Financial Information Strategy: Departmental Readiness'', the Committee has agreed to report as follows.

For over 35 years, commissions, studies and reports have unanimously concluded that the federal government's accounting practices need to be modernised and improved since its financial systems have not linked between operational and financial data in a way that could establish program and other costs.

The purpose of the Financial Information Strategy (FIS) is to reform federal government accounting practices and financial systems by adopting full accrual accounting.

Approved in 1989, the FIS acquired momentum in 1995 when the Finance Minister announced the government's intention to adopt full accrual accounting. The government intends to implement the FIS by April 1, 2001.

In first examining the FIS in Chapter 18 of the September 1998 Report, the Auditor General noted broader related issues, including FIS project management by the Treasury Board Secretariat (TBS), the development of FIS central systems, and the need to move to full accrual accounting for parliamentary appropriations (accrual appropriations).

Chapter 21 of the November 1999 Report is the second in a series of chapters on the FIS, focusing on departmental preparedness for FIS implementation and FIS project management by the TBS.

Given the importance of accounting practices and financial systems in supporting decision-making and improving accountability to Parliament, the Committee decided to consider Chapter 21 of the November 1999 Report, and met on February 10, 2000 to do so. Denis Desautels, Auditor General of Canada; Ron Thompson, Assistant Auditor General; and Eric Anttila, Principal, Audit Operations, appeared as witnesses for the Office of the Auditor General (OAG). Richard Neville, Deputy Comptroller General; Jim Libbey, Senior Director, FIS Project; and John Morgan, Senior Director, Financial Management and Accounting Policy, appeared as witnesses for the TBS.

This report contains the Committee's observations and recommendations resulting from that meeting.

Given the rapid approach of the FIS target date, the Auditor General endeavoured to communicate to the Committee a sense of urgency about the FIS.

The Auditor General noted that the objectives of the FIS, which he fully supported, were to adopt full accrual accounting and new financial systems government-wide, and to integrate into day-to-day management the more businesslike financial information the FIS will provide.

Under the FIS, the Auditor General said, departments and agencies would be responsible for keeping their own accounts; the quality of the government's overall financial statements would greatly depend on the quality of the data produced by these entities; shortcomings in their systems affecting the accuracy of the Public Accounts of Canada would be embarrassing; and, in order to avoid this risk, the government must take appropriate steps, including proper contingency planning as new financial systems were brought on-line. (1535)

The FIS had been under way for some time, added the Auditor General, and all possible efforts must be exerted to implement it properly and on time. The Auditor General said he was worried about slow progress on the FIS; encouraged that during the previous year the government had set up the central systems to accept departmental FIS data; and pleased with the disciplined FIS project management by Public Works and Government Services Canada (PWGSC) and its main partners in implementing the central systems. (1535)

However, the Auditor General noted that some departments and agencies were just beginning FIS implementation.

Although most had set up new financial systems, much remained to be done to prepare these systems for the FIS and to adopt full accrual accounting.

The April 1, 2001 target date exerted considerable pressure on these departments and agencies and the central agencies; and that these entities must also ensure that they had the financial expertise required to carry out their increased FIS responsibilities properly. (1535)

The Auditor General noted that his observations on the FIS were based on audit work concluded in August 1999, adding that he believed that further positive action had been taken since.

The Auditor General pointed out that the move to accrual appropriations was still a major element of FIS implementation, adding that, under the FIS, using the same basis for accounting and for appropriations, including all major accountability documents and processes, would reduce or eliminate the need to reconcile two sets of records, one for day-to-day management and reporting and the other for accountability to Parliament. He stated that various accrual accounting methods could be used for appropriations, but stressed that these methods must be discussed as soon as possible.

According to the Auditor General, successful FIS implementation would go a long way toward providing managers with the financial data they need to provide public services to Canadians, and underpin the government's new management philosophy of disclosing all resources managed and consumed in achieving program objectives. He added that the FIS could be vital to related initiatives such as comptrollership, performance management, results management, and even managers' compensation. (1540)

The Auditor General said he believed that all was in readiness for successful FIS implementation, noting that the time was right for providing government Ministers, officials and managers the financial data they needed, and concluding that work must continue until FIS implementation was completed. (1540)

In his testimony before the Committee, Mr. Richard Neville provided an update on the FIS, noting, firstly, that major revised accounting policies had been issued some time ago; secondly, that departments and agencies were fully occupied in applying general policies to their specific entities and financial systems; thirdly, that the move to accrual appropriations was progressing more slowly than anticipated, and that the Treasury Board Secretariat was just about to send out a consultation paper to stakeholders; and, fourthly, that he was committed to providing members of the financial community with everything they needed to use the FIS by April 1, 2001. Mr. Neville added that managers would be familiar with the FIS and able to implement it by the target year of 2001-02. (1545)

Mr. Neville told the Committee that departments and agencies had thus far set up 17 FIS project teams, which considered subjects such as accounting policies, parliamentary appropriations, integration of financial and non-financial performance data, managers' commitment to the FIS, communication, and management of change.

The representatives met monthly in the FIS Forum to consider questions and options raised by member teams, share best practices and lessons learned, and make recommendations to Neville's central team. (1545)

Mr. Neville told the Committee that 14 entities were successfully connected to the central systems when the new PWGSC central systems were set up on April 1, 1999; that he planned to connect 23 more entities by April 1, 2000; and that some 60 entities would have to be connected by the April 1, 2001 deadline. He added that PWGSC was working hard to ensure that the project was well managed.

Mr. Neville admitted that much remained to be done by departments and agencies in ensuring that all their financial systems were FIS-compliant by April 1, 2001. He added that one important aspect of the FIS was these entities' obligation to adopt one of seven approved financial systems and to be part of a cluster with other entities sharing that system. Mr. Neville said that the clusters were largely completed and had reduced the number of financial systems used by the government from over 30 in 1996 to seven at present. Mr. Neville added that he thought the work done on departmental financial systems would be completed on time. (1545)

Mr. Neville listed three risks being managed government-wide:

• the fact that departmental preparedness was challenging;

• the significant workload involved in connecting some 60 entities to the central systems by April 1, 2001; and

• the fact that government employees had much to do if they were to be prepared for FIS implementation by April 1, 2001.

Mr. Neville told the Committee that, despite the challenges remaining, there were at present no risks that would jeopardize the FIS implementation target date. (1545)

Mr. Neville said that there had been much discussions about the cost of implementing the FIS and that he would provide further details on this point. He added that the TBS would explore FIS repercussions in order to assist managers and be able to monitor these repercussions. (1545)

Mr. Neville concluded by stating that, despite the risks, he believed the FIS would be implemented by April 1, 2001.

One objective of the FIS is to move to accrual appropriations. The Committee's previous report recommended that the government complete its consultations with departments and agencies as soon as possible and determine how best to move to accrual appropriations.

At its February 10, 2000 meeting, the Committee was very much concerned to learn that these consultations had not yet been completed.

Questioned on this point, Mr. Neville admitted that the consultation process was progressing much more slowly than anticipated. He told the Committee that he had only just signed the consultation paper to be sent out shortly to all stakeholders, and added that he had asked these entities to respond to by March 10, 2000 and would make his own recommendations to the government in two or three months. He pointed out that, ultimately, the federal government was responsible for deciding whether to move to accrual appropriations.

The Committee asked to be informed of the Treasury Board Secretariat final recommendation on moving to accrual appropriations. Mr. Neville said that he would share with the Committee the action plan developed in order to move the process along. (1710)

The Committee was very much concerned by the scarcity of public information on progress in FIS implementation, wondering how many departments and agencies were participating, what progress FIS implementation had made in each one, and what risks were associated with FIS implementation. The Committee asked the witnesses from the TBS whether they were considering taking action to offset this scarcity of public information.

Mr. Neville took this opportunity to present to the Committee a document entitled ''FIS Plan and Status Report'', which each department and agency was to complete before receiving additional financial assistance or support from the TBS.

The Committee asked to receive monthly information on progress in the government-wide FIS implementation. (1650)

In response, Mr. Neville promised to consider the possibility of producing a summary statistical indicator, something like a barometer, that would be adjusted monthly and would indicate progress in the government-wide implementation of the FIS. (1650)

The Committee also asked whether the TBS could publish this information on the FIS Internet site, which Mr. Neville committed to do. (1700)

The Committee expressed concern about what it saw as a lack of commitment to and participation in FIS by departmental senior executives and program managers.

The Auditor General said that he thought some departments attached little importance to the FIS, not out of lack of interest or bad faith, but because they had many priorities, among which administrative matters sometimes took second place. He added that, if the FIS was to be given high priority, Deputy Ministers would have to be convinced that it would improve overall departmental management, and that convincing Deputy Ministers and program managers of the benefits of the FIS would still require conviction and promotion.

The Auditor General emphasized that, with the year 2000 changeover now a thing of the past, Deputy Ministers could pay more attention to FIS implementation and take concrete action to give it high priority by making public commitments in their Reports on Plans and Priorities.

The Committee expressed some worry about the workload involved in connecting new departmental systems to the central systems. It was noted that 14 departments and agencies were connected on April 1, 1999; an anticipated 23 more entities would be connected on April 1, 2000; and nearly 60 entities would have to be connected by the target date of April 1, 2001. Apprehension was expressed that this significant workload might jeopardize timely FIS implementation as well as connection quality.

Mr. Neville admitted that the schedule for connecting departmental systems was very ambitious, but emphasized that to date no major problem had been identified that might jeopardize it. (1555)

Mr. Neville added that the 14 entities that had been connected on April 1, 1999 made up the two largest clusters among the seven shared financial systems; that the 23 entities to be connected by April 1, 2000 would make up two other clusters; and that these four groupings accounted for 60% of all shared financial systems. (1545)

Mr. Neville pointed out that the third wave of connections, to be completed by April 1, 2001, would be less work than the previous ones, since most entities in this third wave used shared financial systems that had already been converted. He added he was closely following departments' and agencies' progress, in co-operation with PWGSC, and anticipated no major problems with the third wave of connections. (1645)

Accounting for military assets can cause problems in government financial statements that use full accrual accounting. In wartime, acquisition or destruction of military assets such as equipment, buildings, ships and airplanes and other armour significantly affects the government's financial statements, especially the Statement of Assets and Liabilities not to mention long term costs of caring for and rehabilitation of the wounded. At the Committee's February 10, 2000 meeting, Department of National Defence participation in the FIS was discussed. Mr. Neville pointed out the Department of National Defence decision to adopt full accrual accounting and to capitalize its military assets. (1700) The Committee hailed this decision by Department of National Defence.

This report has considered departmental preparedness for FIS implementation. The Committee recognizes the vast effort and progress made to date by all stakeholders, but notes that much remains to be done, with little more than a year to go before the April 1, 2001 target date. The Committee's main concern is the slow pace of consultations on moving to accrual appropriations. The government must take a clear position on this issue and enforce its position promptly; otherwise vagueness may jeopardize FIS implementation overall. The Committee considers that moving to accrual appropriations is the best way to make the new accounting practices part of departmental management and decision-making processes.

The workload is daunting, and the deadline is tight. All stakeholders must recognize the urgency of the situation and maintain momentum, since there is still a high risk of incomplete FIS implementation. The Committee is convinced that FIS implementation is important in improving government decision-making, accountability, and organizational performance. The FIS opportunity must be taken; otherwise the repercussions will be far-reaching.

In accordance with Standing Order 109, the Committee requests a comprehensive government response to this report.

A copy of the relevant Minutes of Proceedings (Meetings nos 11 and 17) is tabled.

Respectfully submitted,

JOHN WILLIAMS
Chair