PACC Committee Meeting

STANDING COMMITTEE ON PUBLIC ACCOUNTS

COMITÉ PERMANENT DES COMPTES PUBLICS

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, February 10, 2000

• 1532

[English]

The Chair (Mr. John Williams (St. Albert, Ref.)): Good afternoon, ladies and gentlemen, and welcome to the first public accounts meeting of the new millennium.

I have two quick announcements before we start. One is that Jacques Lahaie is going to be leaving us. He has been with us a short time. He has made a great contribution to the public accounts committee, but he has been called to other duties because of his knowledge, expertise, competence, and so on.

Jacques, we'd like to thank you for the contribution you have made.

Bernard Fournier, who has been a clerk for many years, is going to be returning as our clerk.

The other point is that Mr. Desautels, the Auditor General, advises me that he has to leave at 5:15, so we'll try to wrap up the meeting at that time.

The orders of the day are pursuant to Standing Order 108(3)(e), consideration of chapter 21, “Financial Information Strategy—Departmental Readiness”, of the September and November 1999 report of the Auditor General of Canada.

Our witnesses today are Mr. Denis Desautels, the Auditor General of Canada, Mr. Ron Thompson, Assistant Auditor General, and Mr. Eric Anttila, the principal of the audit operations branch. From the Treasury Board we have Mr. Richard Neville.

By the way, Mr. Neville, our congratulations to you on your appointment as the assistant secretary and assistant comptroller general, which you have just taken up. This is your first time before the committee in that new role, right?

Mr. Richard Neville (Deputy Comptroller General, Financial Management Policy Sector and Expenditure Analysis and Operations Sector, Treasury Board Secretariat): Thank you very much, Mr. Chairman.

The Chair: So we welcome you and congratulate you on your appointment.

As I said, Mr. Neville is assistant secretary and assistant comptroller general, financial management policy sector and expenditure analysis and operations sector.

Mr. Richard Neville: Mr. Chairman, on a point of order, if I could, there has been a change. The position title is now deputy comptroller general.

The Chair: That's what I thought. I was just reading what was on here, but I was thinking you were the deputy comptroller general.

Mr. Richard Neville: I am. Thank you. So we'll leave it at deputy comptroller general.

The Chair: For the record, let that be noted.

We also have Mr. Jim Libbey, senior director, financial information strategy project, and Mr. John Morgan, senior director, financial management and accounting policy.

Without further ado, we'll turn it over to Mr. Desautels for his opening statement.

• 1535

Mr. L. Denis Desautels (Auditor General of Canada): Thank you very much, Mr. Chairman. My colleagues and I are pleased to meet with the committee today to discuss our recent chapter on the government's financial information strategy, or FIS.

With just over a year left to April 2001, I'd like to express to you a certain sense of urgency on meeting the deadline for FIS. But first let me tell you why I believe FIS is important.

We are seeing major changes in the way business and government are operating. The communications revolution, which includes the Internet, has resulted in an environment where citizens and consumers are demanding services to be delivered in more modern ways and where change is the only constant. Electronic commerce, online access to government, and new ways of delivering government programs are a few examples of such changes. Organizations, including government, need to position themselves to react quickly to the changing demands of those they serve, or risk being left behind.

Decision-makers require relevant and reliable information, including financial information on a timely basis, to manage in such an environment. FIS is designed to bring this financial information to the government.

The objectives of FIS, which I continue to support fully, are to implement full accrual accounting and new financial systems throughout government and to integrate into day-to-day management the more businesslike financial information that this will provide.

Under FIS, departments will have the responsibility of maintaining their own financial records. The quality of the government's overall financial statements will rely heavily on the quality of the information these departments will provide. A failure in departmental systems that could affect the accuracy of the public accounts of Canada would therefore be embarrassing. To avoid this risk, the government must take appropriate steps, including proper contingency planning as new financial systems are brought online.

[Translation]

Mr. Chairman, chapter 21 of last November's report is the second in a series of chapters on the government's implementation of FIS. Our first chapter in September 1998 reported on broader issues related to FIS, including project management by the Treasury Board Secretariat, the development of central systems and the need for accrual appropriations. This year's audit focussed primarily on the readiness of departments to implement FIS. It also continued our review of project management by the secretariat.

We are pleased to see your committee's ongoing interest in this important project, which will benefit both parliamentarians and government decision-makers alike.

FIS has been an active project for a long time. We should make every effort to implement it properly and without undue delays. I have previously expressed concerns on the slow progress. It was encouraging to see that, in the past year, the government has introduced the necessary central systems to receive departmental information under FIS. We were pleased with the project management discipline displayed by Public Works and Government Services Canada and its key partners in implementing these new central systems.

But we also found that departments were just beginning to focus on FIS. While most had implemented new financial systems, they still had a lot of work to do to prepare their systems for FIS and to implement accrual accounting. This is placing considerable pressure on both departments and central agencies to meet the April 2001 deadline. In addition, departments will need to ensure that they have the required financial expertise to properly exercise their increased responsibility under FIS.

[English]

This year's chapter was based on audit work completed in August. Since that time, we understand there has been a flurry of positive activity. The committee may wish to ask the secretariat for a summary of this activity, as well as a report on the FIS implementation status.

• 1540

We continue to believe that moving appropriations to an accrual basis at the same time as the accounting is critical to the successful implementation of FIS. This would place all of the key accountability documents and processes on the same basis of accounting, which would reduce or eliminate the need for reconciliations or two sets of records: one for parliamentary accountability and one for reporting and day-to-day management. There could be different options as to how to implement accrual-based appropriations, but these should be debated as soon as possible.

The successful implementation of FIS provides much more than modern accounting. More important, it will go a long way towards providing managers with the financial information they need to bring government to the people in this rapidly changing environment we're all facing today.

FIS supports a new management philosophy, one that discloses all of the resources being managed and consumed to achieve the goals of government programs. As such, FIS could be a linchpin for a number of related initiatives, such as comptrollership, performance management, results management, and even the remuneration of managers.

In conclusion, most of the right pieces are coming together to put FIS in place. For example, the year 2000 problem is behind us, there is interest on the political side, and additional funding has now been made available. We will never have a better opportunity to provide ministers, deputy ministers, and managers throughout government with the financial information they so desperately need. We simply have to get at it and keep at it until this job gets done. In this rapidly evolving world, the Government of Canada cannot afford to be left behind.

I thank you, Mr. Chairman. My colleagues and I would be pleased to answer the committee's questions.

The Chair: Thank you, Mr. Desautels.

Now we'll turn to Mr. Neville, the deputy comptroller general, for his opening statement.

Mr. Richard Neville: Thank you, Mr. Chairman, for this opportunity to provide an update on the financial information strategy to this committee. I'm very pleased to have with me today Mr. Jim Libbey, director of the financial information strategy project office, and Mr. John Morgan, director of the financial management and accounting policy division.

To provide some context for the committee's deliberations today, I would like to share with you the financial information strategy under the three pillars that have long been associated with the strategy—namely policy, people, and systems. I will also comment briefly on risk management, benefits realization, and cost.

We are all aware that recommendations to improve financial information in systems can be traced back as far as the Glassco royal commission in 1962. That commission recommended that departments adopt accrual accounting and design and maintain the accounting records necessary to meet their requirements.

In 1979 the Royal Commission on Financial Management and Accountability, chaired by Allen Lambert, in referring to the cash accounting approach, stated, and I quote:

This system fails to pay due regard to acceptable accounting principles, and it fails to generate the financial information best suited to proper management planning, budgeting, control and evaluation of results.

Clearly it has been a long, difficult struggle to break from the traditions that are now nearly 133 years old. But in 1996 the government set the direction and the timeline, and the implementation effort is well under way.

[Translation]

The important accounting policies required to support the FIS were issued some time ago. One announces that accrual accounting will be required across government effective April 1, 2001. Another provide detailed guidance on the major area of change for departments and agencies, namely accounting for capital assets. The general rule is that we follow the principles established by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. Where these do not fully meet our needs, we develop our own accounting policies. For example, work continues on policies related to tax revenue and environmental liabilities.

Departments and agencies are also fully engaged in adapting the broad policies to their specific entities and to their financial system cluster.

[English]

Accrual-based appropriations are a subject of great interest to all of us. On Tuesday of this week a consultation paper was approved by the operations committee of the Treasury Board Secretariat. It is our intent to send this consultation paper to all departments, as well as the Office of the Auditor General, for their comments, and then to make specific recommendations as required to Parliament affecting the parliamentary appropriation process.

• 1545

Our goals with respect to people can be summarized as follows.

[Translation]

We will have members of the finance community fully prepared to implement FIS by March 31, 2001. By that time, all other managers will have a good awareness of the strategy and will use the year 2001-02 as a development year. That said, I must point out that the materiel and asset management community and the real property community are already deeply engaged, to the point that they have developed their own training materials. These communities have come to understand the value of the FIS, including the contribution it will make to improved asset management and to managing costs.

Mr. Chairman, there is now a project team in each department and agency. The leaders of the FS project team comprise the FIS Forum. They meet monthly to review issues and opportunities that are raised by the 17 working groups that are associated with the forum. Mr. Chairman, this is a very powerful collaboration; it brings together professionals from all departments and agencies to share best practices, to learn and to make recommendations to my central team. The working groups are addressing issues such as: accounting policies and appropriations, integrating financial and non-financial performance information, engaging line managers in the strategy, and communications and change management.

[English]

Another pillar with respect to systems, the new central systems at PWGSC were successfully implemented on April 1, 1999, with 14 entities. We are optimistic that another 23 entities will begin using the new central systems on April 1, 2000. That leaves some 60 entities to complete that interface by April 1, 2001. PWGSC is working very hard with those entities to ensure that the workload is managed effectively.

At this point in time there remains much work to be done at the level of departments and agencies to ensure that all systems are fully FIS-compliant by April 1, 2001. An important aspect of the FIS is the requirement that each department and agency select one of seven approved financial systems and participate in that financial system cluster with other departments that use the same system. This clustering is substantially complete and has reduced the number of financial systems in use in government from more than thirty in 1996 to the current seven. The seventh system was selected by an open competition, which was won by SAP. Due largely to the focus achieved through clustering, we are cautiously optimistic that the systems work in departments and agencies will be completed on time, which brings us to the subject of risk management.

[Translation]

A formal approach to risk management worked very well on the project to develop and implement the new central systems. Similar concepts are being used at the cluster and department level and by us on a government-wide basis. Examples of the more important risks being managed government-wide are: departments and agencies are very challenged to be ready; the workload involved in connecting approximately 60 entities to the central systems as of April 1, 2001 is significant; people across government have much to do to be sufficiently ready for the FIS as of April 1, 2001.

Mr. Chairman, your committee asked us to report whether there are risks that seriously threatened our deadline. We have no risks in that category at this time.

[English]

Finally, there has been much discussion about the costs of implementing the financial information strategy. We will be providing more details on these costs, but I also want to emphasize that we'll be exploring the benefits of the FIS in greater detail in order to explain them better to managers and other stakeholders who are new to the concepts that underpin the FIS and to put us in a position to track the realization of the benefits.

• 1550

In summary, we have tremendous momentum behind the strategy at this time. While it is not without risk, we are optimistic that it will be implemented as of April 1, 2001. I look forward to exploring the concepts and issues related to the FIS with this committee and look forward to your questions.

[Translation]

Thank you.

[English]

The Chair: Thank you, Mr. Neville.

Before we turn it over to questions, you haven't mentioned accrual appropriations in your statement. What's the situation with that?

Mr. Richard Neville: I thought I had covered it by saying that as of Tuesday of this week, we had approval within the operations committee of the Treasury Board Secretariat to move this forward. Last evening I was looking at the document one more time, and we should be in a position to send it to departments and to the Office of the Auditor General in a formal state for consultation within the next week or two.

The Chair: My apologies. I did miss it in your opening remarks.

Mr. Richard Neville: Thank you.

The Chair: We'll turn it over to Mr. Konrad for eight minutes, for the first round.

Mr. Derrek Konrad (Prince Albert, Ref.): Thank you, Mr. Chairman.

Before I start, I'm only going to be able to talk on about half of what you have, because being from Saskatchewan, French isn't a second language with me. It is something I'm struggling to learn. So I won't be able to comment on half of what of you have presented here. Maybe another time when I come here—

The Chair: I have a complete English version. Did you get a complete English version?

Mr. Derrek Konrad: No, every other page of mine is in French.

My apologies. I was given the wrong one. I don't know where the right one would be. Mine doesn't look like yours.

Referring to your talk, in this multilingual version, on one point you say:

With respect to systems, the new central systems at PWGSC were successfully implemented on April 1, 1999 with 14 entities. We are optimistic that another 23 entities will begin using the new central systems on April 1, 2000.

I wonder if you could give me some specific reasons for your optimism.

Mr. Richard Neville: First, I would like to make a clarification. We have what is referred to as the central financial reporting system, CFMRS, which is run by the Department of Public Works and Government Services. It is the system that takes all the information from the departments. That system is new and was implemented on April 1, 1999, without a problem. It is now functioning.

That's the first piece of the puzzle that has been put in place. As a result, we're very pleased that we did not incur any problems that could have put us at risk for the balance of the project with that particular component. So there is the Public Works and Government Services central system, and that's what you're referring to about April 1, 1999.

Having said that, we have the other 97 entities that we are now in the midst of converting. In fact, 14 of those have converted at the same time as we put in place the essential system within PWGSC. So those 14 departments basically have done the conversion. They represent two of our seven clusters, two significant clusters within the seven. One of the two is the largest of the clusters, and the second is a significant one.

We were fortunate to have the 14 completely converted, again, with minor problems. With April 1, 2000 less than two months away, we have had a number of off-ramps where we could have said no, we will not proceed with the next wave, which is 23 departments and entities. We have waived the off-ramps. We are going ahead. They've all agreed to do so. So on April 1, 2000, we will have the 23 additional departments. I think that is very important, because that will mean that approximately 40% of the departments are FIS-compliant. That will leave us with the balance, the 60%, for wave three, which is April 1, 2001.

• 1555

In the 23 that are going to be converting on April 1, 2000, in less than two months, I think it's also important to note that we are picking up two other clusters, again two significant clusters. By April 1, 2000, we will have four of the seven clusters, which again is approximately 60% of the clusters. If I had to give it to you in real terms, it is by far the largest component, in terms of difficulties, with respect to the clusters in total.

So we're well on our way, if everything goes well on April 1, 2000, to having a good number of departments on board, and then a significant number of clusters already converted.

Mr. Derrek Konrad: I'm sure the minister of HRDC will be glad to hear when her department is in place.

When this report we're considering today was published, five of 24 departments surveyed had integrated teams in place, two had assessed risks, and one had a plan that considered changes. How much different are the statistics now? Can you say?

Mr. Richard Neville: Yes. I'm very pleased to state that there is a significant difference from when the audit took place. Bear in mind that the field work took place in April and May of last year, I believe, with a completion date of August 1999. The report, as you're aware, was tabled in November, since the House wasn't sitting earlier, and therefore you can appreciate that a significant amount of time has gone by.

To bring you up to date, I have asked the clerk if he could possibly share this particular document with you. It is a document we have asked the departments to complete and send back to us. It's in a broader context, but to give you some numbers, I'll talk to it.

We have sent this out to 54 departments; 48 of them have complied. So we have 48 of the 54, which is what the target was for this point in time. If you want to do the mathematics, that is very close to 90%. We now have a FIS plan plus an agreed upon status report that is in play, signed off by the deputy minister of each department.

The idea there was that we have some additional funding. I believe the Auditor General referred to the additional funding having been provided, and in order to give the funding to each department, it was a requirement that they sign off on this particular plan. All departments have stated to us that they will sign off; otherwise we just won't transfer the money. As an example, the Office of the Auditor General, being one of the 54 departments, must also sign off on the FIS plan in order to receive their funding, which I understand has been done.

We're really pleased with the progress, and one has to put that in perspective. It's like building a house. If you're doing an audit of the building of a home or a house at the initial stages, obviously you're seeing progress, but you haven't seen the final product. We're now well into the exercise, and we've progressed from a year ago to the point where we now have these plans in play. They were not there last year, and we concur fully with the observation. However, we are now much further down the road.

• 1600

I would like to add another component. We have funding for next year as well that we are in the midst of allocating, and again, we use the same methodology. When we give the money, it will be only if the departments that receive it give us the plan, signed off by the deputy minister, that they will abide by the conditions under which we provide the funding. So we probably will be giving it to a number of other departments to bring ourselves up to a much higher percentage.

The Chair: Thank you, Mr. Konrad.

Mr. Sauvageau,

[Translation]

eight minutes, please.

Mr. Benoît Sauvageau (Repentigny, BQ): Thank you for being here gentlemen. I will begin by putting my first question to Mr. Desautels. Mr. Desautels, I will quote part of your closing remarks:

We will never have a better opportunity to provide ministers, deputy ministers and managers throughout government with the financial information they so desperately need.

According to your reports, according to what you have written and according to this quote, this system is essential for civil servants, managers and others. How can you explain that at the same time, you are saying in your report that your audit has noted a lack of commitment and participation by senior officials and program managers with respect to FIS, even though they are the ones who would benefit most from this initiative? Is it because they fail to understand that it will be clear or is it because they don't want it to be clear?

Mr. Denis Desautels: Mr. Chairman, we have been saying for some time now, that we would like the quality of financial management to truly resemble that which can be found in a good private sector company. We have said it on numerous occasions, and as I stated in my brief, I believe that the strategy will move us in that direction. We finally have what we need to do it.

However, in our chapter, we clearly stated that when we undertook our audit, senior management in the departments and all of the deputy ministers did not feel that this was one of their priorities. I believe that, in a way, Treasury Board is facing the same problem because the deputy ministers have a great number of priorities; in a way, administrative issues sometimes take second place. This more or less falls into that category. But, as you say and as I have stated in my brief, ministers and deputy ministers will be among the greatest beneficiaries of the new system that we are implementing.

Therefore, it will have to become a greater priority for the whole group of deputy ministers and they must be convinced that this will truly improve their departmental management capabilities; As parliamentarians, you can be of great assistance. We still have some educating to do so that this won't be seen as strictly an accounting exercise but rather a way to greatly improve the general quality of management within the government. We still have to promote the strategy and convince people of its usefulness.

Mr. Benoît Sauvageau: Since your report was published, do you think that the promoting and convincing has been undertaken in various departments and agencies or must these activities still be given priority? The implementation of the FIS is set for April 1, 2000 in 24 or 25 departments and agencies. There isn't much time left.

Mr. Denis Desautels: As Mr. Neville mentioned earlier, a great number of things have happened over the past few months, and we ourselves have noted some changes. We have admitted that the Y2K problem concerned a great number of people and required a fair amount of resources. Now that that is behind us, the deputy ministers can concentrate more fully on this new duty.

• 1605

In paragraph 57 of our report, we recommended that deputy ministers indicate, in their annual plans and priorities report, their progress in implementing the strategy. I believe that this will help us focus attention on this activity.

Mr. Benoît Sauvageau: Thank you.

Mr. Neville, at the very end of your statement, you say: “There has been much discussion about the costs of implementing the Financial Information Strategy.” However, in the following sentence, you state: “We will be providing more details on these costs.” However, as of April 1, 2000, many departments and agencies will have to abide by the Financial Information Strategy, the purpose of which is to clarify spending and programs and to justify related management. In my opinion, it is somewhat of a paradox that all this is taking place within a couple of months and yet you don't know how much it is going to cost and how much money is going to be saved. In my opinion, this is a paradox.

As Mr. Libbey mentioned, it seems to me that the first priority should be to find out the financial ramifications of such a program, in this case, the Financial Information Strategy.

Mr. Richard Neville: I believe you have asked two questions. First of all, as far as cost is concerned, we must not forget that one of the components of the FIS, the Financial Information Strategy, is to ensure that we will have new financial systems throughout the government and agencies. This is a very important component.

Furthermore, as a result of the Y2K bug, we had to contend with the challenge of implementing new systems that could meet the standards before January 1, 2000.

As a result, several departments chose to implement the strategy or to ensure that standards were met in order to avoid Y2K difficulties. Given this situation, it is very difficult to distinguish between FIS activities and Y2K activities.

Nevertheless, last evening, I approved a letter to be sent to all departments offering to provide them with additional resources to deal with the FIS in the year 2000-01. At the same time, we are asking that they provide us with information about the costs they incurred over the past five months. These details will enable us to do a more in-depth analysis and get back to you with this information. We are, therefore, very interested in finding out about the costs, but this is no easy task given that several interrelated initiatives were being undertaken and expenditures were shared between two projects.

Mr. Benoît Sauvageau: So it is possible that the costs may not have been blown out of proportion. The figures that have been suggested may be true, but you don't know.

Mr. Richard Neville: Well, we do have a general idea, but as accountants, we want to give you figures that are as accurate as possible. Therefore, we have asked—

Mr. Gilles-A. Perron (Rivière-des-Mille-Îles, BQ): Or evaluations that would serve the purpose.

Mr. Richard Neville: We would like to have figures that are much more accurate and we have taken steps to obtain them. As I said, we are in the process of drafting a letter—I have to sign it this week—that will enable us to obtain, I hope, the required information, that we could then send to you. I would prefer to give you accurate figures rather than approximate ones.

Mr. Benoît Sauvageau: Yes, $400 to $500 million, is that an overblown estimate?

Mr. Richard Neville: Let's say that these are figures which, I believe, are quite close to the reality, but there's a big difference between $400 million and $500 million. Consequently, I would like to be a lot more accurate, but I can tell you that we received approval from the Treasury Board to spend $60 million in order to help the departments and that many of them have told us that that accounted for between 5% and 10% of their total spending. If you do the math, you will see that we have, in all likelihood, spent this amount of between $400 and $500 million.

• 1610

We must not forget that the departments are responsible for implementing this initiative. Consequently, the costs are charged to each department. We are not talking about a situation where the costs are managed by the Treasury Board through its own budget. This strategy is truly being implemented within the departments and, in such a situation, the costs are obviously charged to the departments themselves. This is the information we're going to obtain.

[English]

The Chair: Mr. Libbey, did you have a comment?

Mr. Jim Libbey (Senior Director, Financial Information Strategy Project, Treasury Board Secretariat): Mr. Neville just said what I was going to say. Thanks very much. It is the deputy minister who manages the costs in the department. When we did put out a call, as we did last fall, for information on expenditures during the current year on FIS, we got answers back within the week. They know what their numbers are, recognizing that some of them of course are still forecasted numbers for the following year and the year after that.

The Chair: Okay.

Ms. Phinney, eight minutes, please.

Ms. Beth Phinney (Hamilton Mountain, Lib.): Thank you, Mr. Chairman.

I'd first of all like to congratulate the Treasury Board. This is a very complex management program, or whatever you want to call it. I've been reading your financial information strategy, and this is just a summary. Considering that a year ago I couldn't figure out what accrual accounting was, this is really stretching my mind. I congratulate you on how far you've gone.

I'd also like to congratulate you on the Auditor General's report. I'm sure a lot of departments right now would like to have a report like that from the Auditor General. He did say we have to get at it and keep at it, but the report on the whole is pretty good.

It has been suggested that in excess of 30,000 managers of all types will have to learn some new approaches to management and to making decisions under the financial information strategy. How will this be accomplished, and what will it do to the managers and their organizations?

Mr. Richard Neville: You're correct; we expect that this will touch approximately 30,000 line managers—that's apart from the 2,500 financial officers—and they'll have to learn some new approaches. That's what we are expecting as part of FIS.

What we're planning to do is have some classroom and some CD-ROM opportunities, which will allow them to have a better understanding and appreciate the benefits FIS will provide them. A lot of work has already gone into the planning for these sessions, and as you can appreciate, there's still a lot more work to be done. But if we had talked about it a year ago, we weren't there. We were still focusing mainly on the financial officers and trying to get them trained for April 1, 2000, because a significant number of them were going to be involved with this conversion, and we'd have two waves by then.

We're at the point where we have the training at least set up for the managers. We have our material embedded in their natural learning events. That's important. We are working with CCMD and the Public Service Commission as well to make sure that in the managers' normal training curriculum, we have introduced FIS training, and therefore it's part of their regular, ongoing career development training.

We've also encouraged a lot of on-the-job working together with the financial officers. It's only natural that there's a close affiliation between the financial officers in a department and the line managers, so we've put in place a mechanism that allows the managers to be learning from the financial officers. We're encouraging that, so that there is an impact of the financial officer being close to the line manager, and as a result, through osmosis, if you wish, there's a transfer of knowledge and an appreciation of the benefits.

We're also using real-life cases to show that where there are some benefits to be derived, you can bring it to your workplace using some approaches such as best of breed and best-case scenarios. So there are a number of initiatives that are underway, and we're hopeful they will give us the training.

• 1615

I don't want to leave you with the idea—and this is important—that this is a done deal. We are still at the point where we're focused mainly on getting the financial officers trained to put this into play. We're working through the mechanisms to train the line managers at the same time, but in terms of its evolving nature, I think we're a year or two away from getting that completely inculcated in departments.

The Chair: Here in the public accounts committee, we're trying to develop a culture of short, brief answers. If the witnesses can try to stick to that, it would be appreciated.

Carry on, Ms. Phinney.

Ms. Beth Phinney: We have several important initiatives going on, taking place at the same time. How do you relate the financial information strategy to the management board concept and the modern comptrollership?

Mr. Richard Neville: As you can appreciate, we have put the financial information strategy under the umbrella of getting government right. That is in fact a principle that has been enunciated by this government, and we have tried to focus it within that broader umbrella as best we can.

And trying to keep this brief, Mr. Chairman, modern management is made up of a number of components, including modern comptrollership, which includes FIS as well. So if you want to bring it down, it's getting government right, it's modern management, it's modern comptrollership, and one of the components is FIS. That would give you the umbrella you're looking for. That's the framework under which we're working.

Ms. Beth Phinney: Fine, thank you.

The Chair: Mr. Konrad.

Mr. Derrek Konrad: I'm up again?

The Chair: Yes, it's to you again. This is the second round, so it's four minutes this time.

Mr. Derrek Konrad: All right.

When I look at this document here, do you have one back from every department now?

Mr. Richard Neville: We have 48 out of 54, which I think is a very good percentage. The other six have promised to send theirs in shortly, but bear in mind that we will not be transferring any funding out of the $60 million until we get their sign-offs.

Mr. Derrek Konrad: But you get these back on a regular basis, do you, with the lines moving up as time goes along? Or is this simply a planning document? I just would like a little clarification on this.

Mr. Jim Libbey: This is the first time we've gotten this particular document and have asked deputy ministers to sign it off. We intend to start a regime of getting them every month and of creating a barometer—somebody requested that the other day—that will show progress similar to the kind of barometer that was used in the Y2K. The Auditor General has asked us to look at what they did by way of managing Y2K. We've done that, and we'll put that barometer together. If you look at the nine items on the side, it will basically track those nine items, although we're going to group a couple of them.

Mr. Derrek Konrad: I see. And this is made available to the deputy minister, the minister, and anybody else?

Mr. Richard Neville: Yes, it is. I would expect that the deputy minister would be sharing that with his or her management committee, and would therefore be in a position to share it with the minister as well.

If you wish, I could tell you a little bit about what we're doing for deputy ministers. Basically, we have gone to Treasury Board and have given them a presentation on FIS. They were quite pleased and very supportive, and in return they made some funding available.

More importantly for deputy ministers, the most senior deputy minister committee in government, which is called the Treasury Board Senior Advisory Committee and is chaired by the Secretary of the Treasury Board, had this particular item on their agenda. Jim and I attended and gave the presentation, and it was well received. As a result, the deputy minister cadre asked for a letter that would be sent by the secretary to every DM and head of agency across government—a letter covering the benefits of this—and a deck that they could use at their management committee. That is in fact being done, and it's my understanding that the majority of the departments are in fact acknowledging and respecting the request, and are in fact sharing that with their management committees.

Mr. Derrek Konrad: I just have one more question, although I seem to be running out of ideas here.

It appears that you've been wading in rather than jumping off the deep end of the dock, but I suspect there's a point at which you drop the old system when FIS is up and running. Is that all simultaneous?

• 1620

Mr. Richard Neville: Yes. In theory, on April 1, 2001, we would have every department up and running, what we call FIS compliant. At that point in time, the central financial reporting system of PWGSC would only accept general ledger information coming from departments and would therefore be dropping the old system.

Having said that, I think there's a contingency plan in place that if we absolutely had to, we would probably maintain the previous configuration.

Mr. Derrek Konrad: Do you have funding in place to keep that up and running? How's your contingency plan?

Mr. Richard Neville: As we get closer, we'll probably have to finalize it. At this point, we're still optimistic that we're going to meet the date.

The Chair: Thank you, Mr. Konrad.

[Translation]

Mr. Perron, please.

Mr. Gilles Perron: I will be brief. I hope that the Y2K excuse is over and done with and that we won't hear about it anymore.

I would like to know which departments are the most reluctant to adopt the FIS.

Mr. Richard Neville: In all honesty, I cannot tell you that I'm aware of any reluctance on the part of departments to accept FIS. I have regular meetings with the main financial officers, including the meeting held a few months ago in Cornwall and no department came out and said that it had reservations. Let's not forget that this is a government policy. It would, therefore, surprise me if a department were reluctant to implement it. I could perhaps say that some departments are tardy about submitting their documents, but I don't think that they are reluctant.

Mr. Gilles Perron: Are they late because of Y2K?

Mr. Richard Neville: No, I don't think so.

Mr. Gilles Perron: Which are the eight departments that have not handed in their documents?

Mr. Richard Neville: I think that this is merely an administrative issue. A few deputy ministers are out of the country and it may be difficult for them to sign the documents.

They have told us that they agree with the concept and the delay in sending the documents can be attributed to administrative difficulties.

Mr. Gilles Perron: According to Mr. Desautels and many other people, this new system is one of the most important initiatives to have been undertaken over the past 30 or 33 years. I am, therefore, surprised that more information is not available in general terms. With the exception of the Public Accounts Committee, of course, we simply don't hear about it.

Mr. Richard Neville: We have a website that is accessible to all Canadians as well as members of Parliament. If you are interested, I can give you the address. We have also distributed a great deal of information. Last year, we focussed a great deal on communication. This part of the job has now been completed: we have a detailed communication plan that is available. Perhaps we should simply be a little more aggressive in our communications.

That being said, I do think that if today you were to ask deputy ministers or assistant deputy ministers what we're talking about, most of them would know. It's now a matter of integrating this initiative within...

Mr. Gilles Perron: Perhaps the people at the top know about it, but what about the people at the bottom?

Mr. Richard Neville: I agree with you that we're going to have to work even harder in order to inform the people at the grassroots level. However, all this will happen. We must not forget that we still have another 14 months to go before April 1, 2001.

Mr. Gilles Perron: What makes me a little bit uncomfortable about this whole FIS implementation procedure is that we've been told, to date, 23 departments or agencies are in a good position and will be able to implement the strategy within a few days or weeks, but that elsewhere, namely, 60% of the agencies and departments, we don't know when they will be in a position to implement the FIS. You have said that you are getting ready and that there may be no risks. It looks as though you're already starting to protect yourself for the spring of 2001.

Mr. Richard Neville: I'm more optimistic than that. If I may, I'd like to point out that, last year, we implemented the FIS in 14 departments and agencies, there are 23 departments and agencies who will have completed the implementation process by April 1, 2000.

• 1625

As I said, we are eight weeks away from implementation and no department will be an exception. In addition, 60 departments and agencies will implement the FIS by April 1, 2001. As far as I know, none of these 60 departments or agencies have told us that they will be unable to make the transition by April 1, 2001.

Mr. Gilles Perron: I think that I have 30 seconds left and I would like to give my time to Mr. Sauvageau.

The Chair: Thirty seconds.

Mr. Benoît Sauvageau: In one of the last paragraphs of your statement, you say:

[...] your Committee asked us to report whether there are risks that seriously threatened our deadline. We have no risks in that category at this time.

However, in the last paragraph, you state:

While it is not without risk, we are optimistic that it will be implemented as of April 1, 2001.

Are there any risks, yes or no, and if so, are they big or small?

Mr. Richard Neville: To be very specific, if I recall correctly...

Mr. Benoît Sauvageau: You have 30 seconds.

Mr. Richard Neville: The Committee had clearly asked us to report whether there were any risks that seriously threatened our deadline. The word “seriously” is very important. The answer is that there are no risks at this time.

Nevertheless, we are not claiming that there are no risks. Obviously, there are some. With an initiative of this magnitude, there are always risks involved, and that concerns us. But the question was very clear: we were asked whether or not there were any serious risks. We do not believe that to be the case.

[English]

The Chair: Thank you.

Miss Jennings, please.

[Translation]

Mr. Richard Neville: Does that answer your question? Thank you.

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you, Mr. Chairman. Thank you, Mr. Desautels, for your presentation. I would also like to thank Mr. Neville. I must confess, Mr. Neville, that I will sleep a little bit more soundly this evening because of the answers you gave to Mr. Konrad of the Reform Party with respect to paragraphs 21.39, 21.40 and 21.41 which are all on page 21-13.

Nevertheless, from what I have read about this new strategy, if we really want to change the financial information management system, much more is involved than a simple accounting exercise.

We must also institutionalize policies and practices that will help program managers, who do not work in the accounting sector of a department or an agency, to really manage properly, to make good decisions on a daily basis, in both the medium and long term, and to help us, as parliamentarians, as we make decisions that pertain, for instance, to bills to create new programs. All of this will really help us get the information we need in order to decide whether or not a program is good. For example, should we privatize a certain service that has, up until now, been provided by the government?

First of all, I would like to have some reassurances from you that all of the work pertaining to the drafting of new practices and policies that will help program managers to use the system will be completed by April 1, 2001.

My second question is for Mr. Desautels. In paragraph 11 of your presentation, you mention that the Auditor General still believes, and I will quote from the only version that I have, which is in English:

[English]

[M]oving appropriations to an accrual basis at the same time as the accounting is critical to the successful implementation of FIS. This would place all the key accountability documents and processes on the same basis of accounting, which would reduce or eliminate the need for reconciliations or “two sets of records”, one for parliamentary accountability and one for reporting in day-to-day management.

• 1630

I'd like you to speak to us a little bit more about that, because I just automatically assumed, obviously wrongly, that when we were moving to accrual accounting it was going to encompass everything, so that there would no longer be two sets of accounts, one for parliamentary accountability and one for day-to-day management.

If Mr. Neville wishes to address that issue as well, I'd be pleased to hear him.

Mr. Richard Neville: I'll start with the first question, if I could, and then I'd be pleased to allow the Auditor General to continue. Then, if you wish, I'll respond as well.

In terms of the benefits for FIS, there are a number of them, but insofar as managers are concerned this will complete the balance sheet, for all intents and purposes. It will make the assets visible and will allow managers to manage costs.

I know it's a bit of a shock for some of you, but at this point in time we do not have assets on our balance sheet other than at $1. In any private sector enterprise you have your assets capitalized on the balance sheet and amortized in terms of depreciation. We do not have that in the federal government. All assets have been expensed at the time they were purchased, hence we are not in a situation in which I could say we are managing our assets as best we can. FIS certainly will change the culture and will require us to manage assets at all levels of an organization. So that's the first item I want to touch on.

The second thing is that we need better information for Canadians, and we want to ensure that we can link it to results. FIS is the vehicle that we want to use to allow that matching of cost with performance. Unless you have good cost information, you're not in a position to do the matching with performance unless you have the financial systems in place that give you that link. So that's the second part, and, again, it's good information for Canadians overall.

The third thing is that we want to be able to dialogue with industry on cost of services. You all are aware that our cost recovery programs have increased significantly over the last several years. That's a government decision, but in order to have cost recovery that is meaningful and understood by the clients, you need to have a good cost information system that allows you to have a dialogue with those most affected. Again, FIS will give us that capability.

And the last thing is that in terms of resource utilization, we want to make sure this is well managed, not just on a cash basis, which has been the traditional approach for 133 years, but on a resource utilization basis. Again, that would give us better meaningful information at all levels of the organization. So that's the fourth component, in terms of benefits, that I think would be derived from FIS.

Ms. Marlene Jennings: May I interrupt a second, Mr. Neville? I've read the documents, so I know those key elements are the benefits that are being expounded from the strategy. My question was—and perhaps I didn't explain myself very clearly—based on the idea that when one introduces a change in the way in which we deal with figures and the elements we put into that picture, and when we say part of it is going to assist program managers to make better day-to-day decisions, medium-term, over the month, over the year, or over three years, and when we maybe develop new programs, saying that this one will be better than that one, and be able to actually substantiate such a statement with hard figures, cost included, in order to do that, normally the organization develops new policies and practices for those managers to use that information.

So far, I haven't understood from you where each of those seven clusters—the individual ministries and agencies that have decided to use cluster one, or the ones who have decided to use cluster two—are in terms of developing their own policies and practices, which they will then use to train the managers not on the financial and accounting side, but on the program side. The program side is usually the one I have to deal with if there's an issue about a project, or some organization or company has this great idea for a project and they bring it in saying that if the government's not doing this, it should be doing so.

• 1635

The Chair: Let's see what he has to say to that.

Mr. Richard Neville: I'll try to be short, Mr. Chairman, but my understanding of the question is whether we are implementing new policies that will change that.

I think one of the policies we are implementing is accrual accounting. Accrual accounting will give managers a capability they do not have today. We have a policy that has gone out on accrual accounting.

We also have a policy that's out there in draft on preparation of financial statements. Again, as a general norm, managers do not have financial statements for their entities. Departments do not have financial statements. These are things we are traditionally used to seeing in a private sector environment, which is used to utilizing them as a tool to manage in a more effective manner. We're not using those in government today.

I would respond that we do have some policies that have been sent and distributed and shared with departments. With the consent with the Office of the Auditor General, that will change that mode of operation and give managers a better tool. I think that's what you're looking for, and I think it's what we're doing.

The Chair: Thank you. We may have a chance to come back to you.

Ms. Marlene Jennings: I hope you will let the Auditor General answer the question I had posed to him.

The Chair: Maybe we'll get it at the conclusion.

Ms. Marlene Jennings: I won't ask any more for now. You can put me down for another round if there is another round.

The Chair: Mr. Harb.

Ms. Marlene Jennings: We'll try to qualify.

Mr. Mac Harb (Ottawa Centre, Lib.): Thank you very much.

First, I think what has taken place here is absolutely excellent. I want to commend the Auditor General as well as Treasury Board.

Personally, I think I'll be a lot happier person when I see every department in the Government of Canada, on an annual basis, issue a financial statement that is audited and that has the opportunity to go to the Auditor General for final reviews, and when those statements are then tabled in the House of Commons or be released to the public. To do that, what I did was prepare a private member's bill in order to get it off my chest, off my mind, because I was so frustrated with the way the system works. I found the system exceptionally cumbersome. That was before this issue of the financial information system came about, by the way.

I tabled a bill in Parliament that requires every government department to have an audited financial statement every year. I wanted to get your views, and those of the Auditor General, on this. Once this is implemented as a first step, do you see that there is merit for the Government of Canada to move into a situation where we will have a system in which each department will have a financial statement that is audited and reviewed by the Auditor General before it's tabled or before it's released?

Mr. Richard Neville: First of all, the way we are operating today, it would not be really feasible to prepare a financial statement for each department in terms of the way in which the departments keep their records. For those departments that are not FIS-compliant, they send every transaction to Public Works and Government Services Canada, which in turn consolidates those transactions into the government-wide financial statement.

Under FIS, a principle of FIS is that each department must maintain its own records and prepare a general ledger, and then transfer the general ledger to Public Works and Government Services Canada. If you're familiar with accounting principles and practices, if you have a general ledger, it is not that difficult to prepare a financial statement. But you do need a general ledger to do that, so FIS will allow departments to prepare financial statements.

Our position at this point in time is that we would expect departments to prepare financial statements and that they be auditable, not audited. In that sense, it should withstand the scrutiny of an audit, but we are not requiring departments to actually have them audited by the Office of the Auditor General.

• 1640

If you follow our thinking, you go from where today there is no capability in departments to prepare financial statements to, under FIS, having that capability and a requirement to prepare, as a minimum, a general ledger. The next step, then, is obviously to have the financial statements, and we're saying they have to be auditable. That, I think, brings you a long way to where you were trying to see departments evolve to.

The Chair: Mr. Desautels.

Mr. Denis Desautels: Mr. Chairman, I think that's a very desirable direction in which to go. I think all government departments should be able to produce financial statements not just on an annual basis but on a quarterly or even monthly basis during the year, and that is a full set of financial statements, including full accounting for the assets under their management. We should move in that direction as quickly as possible.

Whether or not they should be actually audited for each department, and by whom, I think is a worthwhile question as well. Of course if we had to audit each one of them it would be a lot of work, but that's something we could talk about. There is merit to that. If that is what Parliament wants at the end of the day, that would be a worthwhile thing.

What's encouraging is that this is already happening, in the sense that certain departments have now been transformed into agencies, Revenue Canada being the latest one, and they have an obligation to produce their own financial statements on a GAAP basis as quickly as possible.

The requirement that you have in mind, Mr. Harb, is now happening in at least three agencies that have been set up, and those require that the statements be audited by the Auditor General as well.

Mr. Mac Harb: Mr. Chair, I have just another short one.

I would say that I am going to lobby for it, but if it isn't going to happen this term, when I become a prime minister I want to make sure it happens, so I will make sure you get the support in order to carry it out.

An hon. member: Are you throwing your hat in the ring? All right, Mac.

The Chair: I think you don't have time to get things in order, gentlemen.

Do you have any more questions, Mr. Harb?

Mr. Shepherd, four minutes, please.

Mr. Alex Shepherd (Durham, Lib.): Thank you.

Your comment was that there is no serious risk “at this time”. I'm always concerned about caveats like that, which seem to beg the question, can there be serious risk “at some time”? To add to that, on the sign-off of this form, the six that are missing do not include Public Works and DND, do they?

Mr. Richard Neville: DND signed off with a letter, and Public Works and Government Services has come in, I believe. I don't think it's a problem.

Mr. Jim Libbey: I'm not sure, but, again, it really is not an issue. It's just a matter of a few days here and there.

Mr. Alex Shepherd: Wait a minute. I don't understand. What do you mean you're not sure? You're not sure that the department—

Mr. Jim Libbey: Well, I haven't memorized the 54 or the six. We can look at our list here again, and if you want to look at it, you can.

Mr. Alex Shepherd: No, no, but you're saying that you don't know whether Public Works has signed this form...?

Mr. Richard Neville: I would be very surprised if Public Works and Government Services have not signed the form, but I didn't check to see specifically which ones of the 48 have come in. I just noticed 48 out of 54.

Mr. Alex Shepherd: That would be pretty significant, wouldn't it?

Mr. Richard Neville: For sure it would be significant, but let me just make sure that we put it in perspective. I do not think it's a problem, in the sense that if it isn't in from Public Works and Government Services—speaking to them on almost a weekly basis, if not twice a week—there isn't any indication from the senior financial officer that this is problematic.

Mr. Alex Shepherd: Okay. Let me ask you another question about the implementation process. Actually, you're talking about the need for a cultural change of line managers—

Mr. Richard Neville: Yes.

Mr. Alex Shepherd: —and yet we're implementing this change. There's a period in time in which the change has been implemented, yet line managers have not been fully educated or trained to use the information. It seems to me that looking down the road you have an element of risk as well. The Auditor General raised an issue in one of his former deliberations in the sense of the whole move to accrual accounting and the attitude that you could somehow expend on capital equipment because now the only thing you're going to incur in your budget is a depreciation, as opposed to the lump-sum payment.

• 1645

In other words, this is a cultural change. Here we have a line manager who suddenly says gee, this is great, and I can load up with 500 new computer systems because all I really have to account for is one year's depreciation. In other words, what I'm saying is that you are running into a risk element there of having people on this system who aren't cognizant of how to use it. What are you doing to protect the taxpayers regarding that?

Mr. Richard Neville: Well, it isn't just line managers who will be involved in this system. Financial officers will have a significant role to play in terms of the approach that will be taken within each department as to how to implement the actual workings of the system.

Maybe I could ask John to speak a bit about what we have in mind as a discussion paper to set out the parameters under which we would be voting the money and which, as a result, departments would be managing accordingly.

Mr. John Morgan (Senior Director, Financial Management and Accounting Policy, Treasury Board Secretariat): Certainly.

The biggest area of impact is with respect to capital assets and how these items are budgeted and controlled. With the move to accrual appropriations, what we would still envisage is a vote on the capital required for a given year, so there would still be limits and controls over that amount. Managers would still have to ensure that a depreciation can be accommodated within the overall fiscal plan, but there would be the same type of control over the upfront that we're proposing on the commitment side of capital.

Mr. Alex Shepherd: That's the essence of what I wanted to question.

The Chair: Mr. Konrad, did you have a question?

Mr. Derrek Konrad: Yes. It still concerns timeline.

In your report, Mr. Neville, you say that “the workload involved in connecting approximately 60 entities to the central systems as of April 1, 2001 is significant”. When I look at the other report I see before me, it says:

PWGSC believes that, given testing and other resource requirements, it can handle between 30 to 35 departments per year. If more than 35 departments try to connect in any one year, there is a higher risk of overload and a corresponding impact on the FIS-implementation schedule.

I would like the Auditor General to answer whether—and you as well—you really think you're going to get it done, given the two statements I just read.

The Chair: Mr. Neville.

Mr. Richard Neville: Let me just put that in perspective.

We have to understand that four of the seven clusters will have been converted by April 1, 2000. Those four clusters would represent probably close to—I'm going to use a percentage—80% of the departments concerned. The actual methodology would have already been developed for those clusters. Again, they are the four major clusters, so it should be easier for the third wave on April 1, 2001.

Yes, there are 60 departments, but again, they belong to clusters that for the most part have already been converted, so we're still optimistic. We have regular meetings on a monthly basis with PWGSC to assure ourselves that we're on the right track. I think it's fair to say that PWGSC, as of today, although there are risks, are still of the view that we can do it.

The Chair: Mr. Libbey, do you have a comment?

Mr. Jim Libbey: Yes, sir. I would just add that of the $60 million that was approved by Treasury Board back in December, I think $13 million or so is going to PWGSC. They estimate that from within their own appropriations they can handle about 30 entities in this coming wave. We've essentially doubled that amount so that they can now handle the 60. So they've had additional resources offered to them.

The Chair: Mr. Desautels.

Mr. Denis Desautels: I would like Mr. Anttila to comment, Mr. Chairman.

The Chair: Mr. Anttila.

Mr. Eric Anttila (Principal, Audit Operations, Office of the Auditor General of Canada): We concur that the additional funding that has been provided to PWGSC should help manage the risk, but we do believe that there is still a very high risk with connecting so many all at once.

In particular, a lot of the risk is being passed on to cluster groups. The question is, do they have the capacity and the ability to manage that risk? I think there still is a risk here.

The Chair: Thank you.

[Translation]

Mr. Sauvageau, please.

• 1650

Mr. Benoît Sauvageau: I'm very pleased that you are optimistic. I do not want to be negative, but I am skeptical. Given the fact that we are dealing with a fiscal year involving billions of dollars, I am not impressed at all. I've taught in high school. In marking papers to see whether a student had passed or reached the final objective, I had to mark little boxes. I have the feeling that corner store owners doing inventory have the same kind of system. If you had received 60 sheets out of 60, but not a single box had been marked, would you still tell me that every department had responded? That's my first question.

Second, do you have a document explaining points 1, 2 and 3? If I were a deputy minister and I received a million sheets of paper a day, including one like that, would I have an FIS team?

An Hon. Member: Yes.

Mr. Benoît Sauvageau: Is there an approval process carried out by a financial officer? I certainly hope so, because if there is a team, it has to be paid. Take that. What does it mean? Absolutely nothing. That's why I am skeptical.

Second, I know full well that if I ask you for those sheets, you will tell me that that is impossible because it regards government departments and because it is a political issue. However, would it be possible for the committee to receive a monthly update indicating how many departments responded, without naming names, as well as the number of marked boxes? For instance, one department may have marked 18 boxes, whereas another one may have marked six, and so on. We won't learn anything above what you have told us, but at least we will have some figures. Would that be possible? That's my question.

Mr. Richard Neville: I will answer your first question, if you don't mind. I see that as a starting point to obtaining much more information on each department. First, is there an FIS team in place? We were told yes, there is a team. So at least we will know that. But of course, we need much more information. Who is on this team? Who is managing it? Are there any assistant deputy ministers on the team? Is the team working on a single program? All we would know is that yes, there is a team in place, but we would need to know a lot more about the department. Of course, before anything was signed, they made sure that there were supporting documents and some kind of system in place.

Your second question dealt with the approval of the plan by senior financial officers. When the box is marked, it means that the department has a plan. We have not asked to see it. We may see it at some other point, but for now, all we're asking is whether they have a plan and if it has been approved by a senior officer.

Mr. Benoît Sauvageau: Does that mean we will also be told?

Mr. Richard Neville: Regarding the first question, in my view, it is only the first page of a fairly thick book on each department, a book which will provide many more details. Are we asking to see the entire book? No. All we are asking for is a summary. That was the first question.

Second, Mr. Libbey said that our government and our country were ready for Y2K. Each department told the others how prepared they were, in terms of percentages, for the year 2000. We're looking at a similar system for this case. That way, we would be able to tell you that we are at 57% for this month, that we will be at 60% the following month, and at 62% after that. I promise to seriously consider this type of system and hope that I will soon be able to tell you that we have adopted a method allowing us to give you the implementation rates of the strategy throughout government. That's the commitment I'm making today. Does that satisfy you?

Mr. Benoît Sauvageau: Yes. Thank you.

[English]

The Chair: Mr. Richardson, please.

Mr. John Richardson (Perth—Middlesex, Lib.): Thank you very much, Mr. Chairman. I'll try to be as brief as possible.

First of all, I want to congratulate you in the set-up of the book. I think there's a lot to be said about that, and it shows the thought processes that have gone into developing this, right from the very table of contents and throughout.

• 1655

One thing I did like very much was the context for FIS. The two paragraphs devoted to it were very clear, and I think that for those who are working with and read this, it this will be very clear where you're going with this. In terms of the back-up system, the training programs and the curriculum involved in that, that's probably the best handout I've seen for opening up a new program since I've been on the Hill. I want to congratulate you on that.

Mr. Richard Neville: May we quote you on that?

Mr. John Richardson: You may.

Mr. Mac Harb: Aside from the red book, right?

Mr. John Richardson: The red book? We won't get into that.

I certainly would like to say one other thing. I would like to ask a question on the clusters. I understand the concept of the clusters. They're powerful, they can handle more information, they can release more information that can be clear and that can be right on the table of the person the next morning so that they can make a decision. I like that idea. I think it's going to give those in the decision-making processes or those assisting in decision-making a great step forward if we can offer the speed and the accuracy that I see in this book. I'm really thrilled about it, basically.

This is my third meeting this week on FIS, so I want to thank the people who have seen me twice or three times this week for bearing with it. We're all looking forward to this. We think it's a good idea. It will help us all.

Mr. Richard Neville: Thank you very much. I appreciate those helpful comments.

The Chair: Thank you, Mr. Richardson. If this is your third meeting this week, you'll be out as a consultant soon.

Mr. John Richardson: They got it all clustered here.

The Chair: Mr. Finlay.

Mr. John Finlay (Oxford, Lib.): Thank you, Mr. Chairman.

I'm going to paragraph 11 of the Auditor General's statement, and I have the same question as my colleague Marlene. I'm going to ask that question, because the Auditor General didn't get a chance to reply.

You state:

...which would reduce or eliminate the need for reconciliations or “two sets of records”, one for parliamentary accountability and one for reporting and day-to-day management.

That suggests to me that there is something preventing parliamentary accountability from being the same as FIS and what we're trying to develop here. Am I right or wrong? What is the significance?

The Chair: Do you want Mr. Neville or Mr. Desautels to answer, Mr. Finlay?

Mr. John Finlay: Mr. Desautels, because it's in his statement.

Mr. Denis Desautels: Thank you, Mr. Chairman. I'm happy to answer the question.

Let me just go back a little bit in our recent history. When we first reported on FIS back in 1998, we first raised the question of the necessity of having both the accounting that's carried out in departments and the parliamentary appropriations on the same basis. The committee endorsed that position. In fact, it recommended that more work be done by Treasury Board Secretariat on developing approaches to that.

When FIS was first brought forward, there was no discussion of that, and it should not be taken for granted that if you change the accounting, you can change the appropriation basis. To change the basis of appropriation, there are some technical difficulties to overcome, and those may even require changes to the Financial Administration Act. The definition of “appropriation” may no longer fit when you move to accrual accounting, which includes depreciation, for instance, as part of your expenditures.

If you move in that direction toward accrual-based appropriations, as we've just heard, you also have to worry about how to manage capital acquisitions, and you also have to worry about how you manage and control the cash element. In some jurisdictions they go further. In the U.K. they're introducing special controls over debt levels. So there are technical difficulties in moving from one to the other, as well as opportunities to improve the amount of parliamentary control overall in the appropriation process. I think that requires a lot of thought. It's not that easy, and I'm looking forward to reading in detail the paper that we've been promised. But I think that has to be done.

• 1700

Now, if that's not done, if you appropriate funds on one basis and then have to reconcile from that basis to the actual accounting records of the department, obviously there could be a lot of danger of wasted energy. More importantly, you may find people manage more toward the appropriation or near-cash basis, as opposed to the full accrual basis, which was the intent in the first place. The intent was to go to that in order to improve the quality of management generally. If you don't do the same thing with the appropriations, I don't think you'll get the full benefit of moving to full accrual accounting.

So to reap the benefits of FIS, I think it is important to have the appropriations side on the same basis as quickly as possible, but it's not automatic. I think there could be even some changes needed to the FAA to be able to accomplish that.

Mr. John Finlay: Does that mean Mr. Harb will have to produce another private member's bill to get Parliament to change this?

The Chair: Essentially, the Prime Minister should....

Mr. Denis Desautels: Mr. Chairman, this is an important question. It has many facets to it. I think what the committee asked of Treasury Board was to study the question and to come back with some proposals as to how this may be done. I think we're just about there. As we've been told today, the paper is just about ready, and I think that's the right way to go. That way, we should be able to engage in a discussion on the various alternatives and options that are available.

The Chair: Thank you, Mr. Finlay.

Mr. John Finlay: Thank you.

The Chair: I have a few questions, Mr. Neville.

First of all, on this sheet that has taken quite a bit of discussion this afternoon, is there any possibility that it can be put on the website for FIS so that anybody and everybody can see which departments...? Either Mr. Perron was saying he doesn't know or Mr. Sauvageau was saying he doesn't know which departments are or are not filling them out. Put it on the website.

Mr. Richard Neville: Sold.

The Chair: Good. Wonderful. Isn't this easy?

Has there been any decision made regarding DND? I know some countries are contemplating that they're not going to put their national defence departments on accrual accounting because in the event of war, if you lose a warship that's going to take a hit on the balance sheet as well as the hit on the ship. Has a decision been made on that so far?

Mr. Richard Neville: The policy at this point in time requires DND to capitalize their military assets.

The Chair: Okay, good.

Following up on Mr. Finlay's point on the appropriations, I agree with Mr. Finlay and Mr. Desautels, the Auditor General, that we can't run two sets of books. You're just going to get too much political flak if you're on two sets of books. I think it's mandatory that we do the appropriations in a manner consistent with the accrual accounting. If that does require changes to the FAA, if that does require Parliament to rework even its Standing Orders—I don't know—I think it should be put in gear at this point in time. Would you agree?

Mr. Richard Neville: We have a paper that has been well thought out. It's very complex in its accounting, and we will share it with the departments and the Office of the Auditor General shortly. I'd like to see the comments from the departments and from the Office of the Auditor General before we come to Parliament with any firm recommendations.

I really think this is so significant that you must get the best consultations possible before you make recommendations or before you make a categorical statement. To do otherwise would be inappropriate.

The Chair: I hear your reticence there. It gives me a little concern, because I think the Auditor General has been fairly specific in saying we should get the job done.

Am I correct, Mr. Desautels?

Mr. Denis Desautels: I'm pushing hard, Mr. Chairman. Let me put it that way.

Some hon. members: Oh, oh!

The Chair: So he is being categorical in saying it should get done at the same time, I believe.

Mr. Richard Neville: We certainly have the same vision of getting there. It's a question of when we get there.

The Chair: Well, I'm concerned about the two sets of books. I know Parliament will be concerned about two sets of books, and maybe the media will be concerned about two sets. We know how things can get carried off in the media these days.

Mr. Richard Neville: In all fairness, though, Mr. Chairman, I also think we have a lot of knowledgeable individuals in departments and in the Office of the Auditor General. I certainly would appreciate receiving their wise advice and counsel before making a hard recommendation to Parliament.

The Chair: On your performance report—

Mr. Jim Libbey: Mr. Chair, may I make what I think is one very important observation?

The Chair: Yes.

• 1705

Mr. Jim Libbey: I personally have been trying to get this terminology, “two sets of books”, out of the parlance for some years now. The fact of the matter is that if you're running an SAP system or an Oracle system you have one database, one system, one set of books, and you can report from it in different ways to solve different problems. We really will not be running two sets of books under any circumstances. I want people to understand that.

The Chair: You're the bureaucrat, and I'm a politician.

Mr. Jim Libbey: Right.

The Chair: On the performance reports, this year you only have about three paragraphs on FIS. I would hope that when you bring down your performance report this coming fall we'll see a fairly detailed chapter on FIS. Is that possible?

Mr. Richard Neville: We'll certainly try to include a lot more information to share with parliamentarians in the next performance report.

The Chair: Okay.

Mr. Perron, you had a question.

[Translation]

Mr. Gilles Perron: Mr. Neville, I have a big problem with point number 5, where you talk about the history of real estate, amortization, inventory and other costs.

Mr. Richard Neville: What's the problem?

Mr. Gilles Perron: Well, it seems that you will have trouble finding specific information, since many departments just don't have it. For instance, Mr. Desautels told us that the Coast Guard twice lost a propeller and that both times it was found again. How do you keep track of propellers? In the armed forces, they don't even know how many trucks or tires they have. How can you calculate the amortization on trucks when you don't know whether there are any or how many there are? How can you be more specific over those which have gone missing?

Mr. Richard Neville: We have already raised this issue with the departments concerned. Obviously, this does not concern every department, since between 70 to 80% of our assets belong to only a handful of departments. We had fairly frank discussions. The departments believe they have the necessary internal expertise to tell us what the situation is or they are willing to hire someone from the outside. The $60 million we receive from Treasury Board will mostly help them find that information.

I also worry about whether they have the necessary internal systems to give us the real costs and to calculate the amortization, but they told us that between now and April 1, 2001, which is the deadline for financial statements for the year 2001- 2002, they will be able to provide us with the information which will allow us to go ahead. We hope that the Office of the Auditor General will have no problem with that.

We will therefore have to work in close co-operation with the Office of the Auditor General to ensure that the values attributed to the assets we want to account for on the statement are accurate. Until now, not a single department has told us it would not be able to provide us with this information.

Mr. Gilles Perron: I hope they will keep their...

[English]

The Chair: Madame Jennings, go ahead with your third attempt.

Ms. Marlene Jennings: Thank you, Mr. Chair.

To come back to the consultation paper on the issue of moving appropriations to accrual-based accounting, what is the actual action plan you have with regard to that consultation paper? You say it is your intent to send it to all departments and to the AG for comments. Do you have a timeline on when it's going to go out?

Mr. Richard Neville: Yes, we would like to see the responses back by March 10. I believe that was what was in the letter I signed off on last night. I think departments have known enough about the issue for some time. It will not be unreasonable for them to get back to us by March 10.

Ms. Marlene Jennings: Given the comments, recommendations, suggestions, critiques or whatever, when do you feel you will be on a basis to finalize Treasury Board's view of the issue in order to make recommendations to Parliament and possibly to this committee? Do you have an idea about that?

Mr. Richard Neville: In all fairness, I'd like to get the comments back from departments before I commit myself to a date. I'd like to see what they're going to state. If departments are going to say that this is an impossible task in the timeframes one would normally like to see, then we have to rethink our position. If they say it's a go and they're all onside, it won't be that difficult a recommendation to make to Parliament. But I certainly want to see the responses before I commit myself to a timeline.

• 1710

Ms. Marlene Jennings: I'm not asking you when you think it would go into place; I'm asking you how long you think it's going to take you to review those recommendations, suggestions, critiques or whatever, so that you have your mind made up as to whether is it a go or not. That's what I'm asking.

Mr. Richard Neville: I don't think it should take me more than two or three months to come up with a definitive position one way or the other.

The Chair: Is it possible, Mr. Neville, that you could write the public accounts committee a letter and tell us what your decision is, whether it's a go or not a go?

Mr. Richard Neville: I don't see why I couldn't do that—

Ms. Marlene Jennings: That's great. Thank you.

Mr. Richard Neville: —more in the context of a recommendation: that we have come up with the recommendation and what the action plan is to follow through with the recommendation. I think that would be appropriate.

The Chair: Is it a recommendation or a decision? Are you going to go for it or are you not going to go for it?

Mr. Richard Neville: The decision would be the government's decision. We make a recommendation to the government. That's what I meant.

The Chair: Okay. So you could perhaps advise us of your recommendation. Is that possible?

Mr. Richard Neville: We certainly would share with you what the action plan is to move the file forward. As to the recommendation, I'd have to think that through.

The Chair: Okay.

We have one very brief question by Mr. Shepherd, and then the wrap-up by Mr. Desautels, because he has to leave.

Mr. Alex Shepherd: The logical extension of moving to the accrual system is to make a similar offset to the deficit, is it not?

Mr. Richard Neville: The accumulated deficit. Are we clear?

Mr. Alex Shepherd: Yes.

Would you agree that there's a hidden bias in government to overstate their assets to show a reduction of the deficit?

Mr. Richard Neville: No, I don't think so.

The Chair: Thank you, Mr. Shepherd.

Mr. Denis Desautels: You have an auditor, Mr. Shepherd.

Some hon. members: Oh, oh!

The Chair: You are also an auditor, Mr. Shepherd.

We'll have some closing comments by Mr. Desautels.

Mr. Denis Desautels: Thank you, Mr. Chairman.

First, I'd like to say that it's important that we do not underestimate in any way the investment that has to be made in the human resources and the technical expertise that are going to be necessary to run this in the future. I think it's important, first of all on a technical basis, that we have enough people around who can run this kind of system—and it's not obvious. There will be challenges along those lines. People will have to interpret this information properly for deputy ministers or assistant deputy ministers. The technical side will be important. We'll have to resource that with people who understand this new way of managing.

Second, on a broader basis—and I think Ms. Jennings was referring to that earlier—it's important that people also understand how this fits within the overall management philosophy of a department or of government at large. We have to move away from the notion that this kind of accounting is an exercise on the side in order to meet some legal reporting requirements. It has to be seen as an integral part of the total management approach to an organization.

As I said earlier in my opening comments, it could be integrated to the point, for instance, of being used in determining certain results that end up affecting people's remuneration. That's what I mean by having it integrated into management processes. I think there is a lot of investment that has to be done in making sure people understand that, and we've made some recommendations in our chapter dealing with that.

I think we've talked enough today. I sense that everybody has recognized the importance of moving to appropriations on an accrual basis. My position on that is very clear: I think the sooner the better, but it's not going to be that easy, and we have to get on with deciding on how to handle some of the technical problems.

We have to work continuously on making sure we have good buy-in and commitment from deputy ministers. I think the plans and priorities documents that get tabled as part of the estimates process are a good way for them to demonstrate how they're handling the conversion or the movement to FIS. I think it would be a good thing for Treasury Board Secretariat, perhaps, to pass that message along so that there will be an expectation of reporting on that in the plans and priorities documents.

• 1715

Similarly, I think it might be useful—and of course it's up to the committee to decide that—to have one, two, or three departments, maybe, come and share with the committee how they're handling this and how they're going to be ready.

Finally, I would say that Treasury Board Secretariat should perhaps keep the committee informed generally on the level of preparedness of the government as a whole. I think you touched on that a bit yourself. There was good information eventually put out on the Y2K preparedness, so if the Treasury Board Secretariat provided the committee sometime a little later on this year with updated information on the state of preparedness, I think it would be useful.

Thank you.

The Chair: Thank you, Mr. Desautels.

The meeting is adjourned.