The Standing Senate Committee on National Finance

has the honour to present its

SEVENTEENTH REPORT

Your Committee, to which were referred the 2002-2003 Estimates, has in obedience to the Order of Reference of March 6, 2002, examined the said estimates, more specifically, the Government Contingencies Vote - Treasury Board Vote 5 and herewith presents its third interim report. 

Respectfully submitted,

Chairman
Lowell Murray

INTRODUCTION

In preparing a budget it is virtually impossible to accurately forecast all future requirements.  Therefore, a sound budget will contain an allowance for unforeseen expenditures.  The Government of Canada has seen fit to include such provisions in the Appropriations Act since the fiscal year 1876-1877.  The wording of this Vote has changed over the years to reflect the concerns of Parliament and the needs of the government of the day.  The current form of the Vote in the Treasury Board Estimates, known as Government Contingencies–Vote 5, was established in the fiscal year 1964-1965.  Since that time the Auditor General and both Houses of Parliament have on occasion expressed concerns regarding the use and the scope of the activities funded through the Contingency Fund.

The manner in which contingency funds are used has been a recurring concern for this Committee, which last examined the issue in the late 1980s.  In its December 16, 1986 Report on Supplementary Estimates (A) 1986-1987 the Committee found two different explanations of the purpose for Vote 5.  In one instance the stated purpose, in part, was “for urgent expenditures of a miscellaneous character which cannot be foreseen when Estimates are drawn up.”  In another instance the Committee noted that the stated purpose of to vote was “to provide for miscellaneous minor and unforeseen expenses.”  The Committee recommended that the Treasury Board provide a clarification between “unforeseen expenses” and “urgent expenses.”  In response the Treasury Board adopted the current definition, which contains no reference to “urgent expenditures.”

Elsewhere in its 1986 Report, the Committee observed that there was ambiguity in the allotment of Vote 5 funds for non-paylist items.  Consequently, it recommended that the Treasury Board draw up a set of guidelines to assist the Treasury Board Secretariat in assessing the merits of requests for funds to cover non-paylist expenses.

In its November 29, 1989 Report on Supplementary Estimates (B) 1988-1989 the Committee noted that; 

“In cases of urgency, and where the Treasury Board is satisfied that the authority can normally be sought through an Appropriation Act, the Contingences Vote is often used to pay for new grants not listed in the Estimates, or to defray additional operating expenditures of new programs, program activities, boards and agencies whose budgets are typically (and deliberately) underestimated in the Main Estimates” (page 3). 

                        The same report also noted that the Treasury Board felt that: 

“The current Vote wording of the Government Contingencies Vote provides the government with broad flexibility to provide funding not only for paylist shortfalls but to meet unforeseen expenses and to provide for specific payment authorities.  The operating principles under which the Vote is operated, however, limit the use of the authority provided and ensure that an appropriate level of Parliamentary control exists”(page 3).

The Committee noted that an appropriate level of Parliamentary control exists only as long as the current operating principles continue to be followed.

More recently, in its June 12, 2001 Report, the Committee expressed concern about the creation of alternative delivery systems for government programs that relied on the authority of Vote 5 for their funding.  Finally, on April 23, 2002 the Committee began a new set of hearings on the use of the Treasury Board’s appropriations under Vote 5 to fund various government activities.  The Committee heard from Sheila Fraser, the Auditor General whose audit of the use of Vote 5 funds is discussed in her report to the House of Commons in April 2002.  On May 1, Mr. Richard Neville, Deputy Comptroller General of the Treasury Board Secretariat and Mr. David Bickerton, Executive Director, Expenditures Operations Secretariat, answered questions on technical aspects surrounding the operations of the contingency account.  On May 8, Mr. Frank Claydon, Secretary of the Treasury Board and Comptroller General of Canada, along with Mr. Neville answered questions on the broader issues surrounding the use of this Vote.

GENERAL BACKGROUND

The Government supply process, the method by which departments receive authority to spend monies out of the Consolidated Revenue Fund, begins with the presentation of the Main Estimates in March.  In these documents the departments outline their planned spending for the upcoming fiscal year.  Unfortunately, departments cannot always anticipate all of their future requirements.  Hence, the supply process allows them to seek additional appropriations through the Supplementary Estimates, which are usually submitted to Parliament on three occasions during the fiscal year, June, December and March.

However, there are times when a department wants funding for an item after the presentation of the Main Estimates but before it can obtain approval from Parliament in the Supplementary Estimates.  For these occasions, the department may obtain funding from the Treasury Board’s Contingency Fund, established through its Vote 5 in the Main Estimate.  Vote 5 also allows the Board to provide permanent Parliamentary funding to departments, usually at year-end, for certain non-discretionary salary costs that cannot readily be forecast for inclusion in the Main Estimates.

Parliamentary authority for the use of contingency funds is stated in wording of the Treasury Board Vote 5 in the Appropriation Bills:

Subject to the approval of the Treasury Board, to supplement other appropriations for paylist and other requirements and to provide for miscellaneous, minor and unforeseen expenses not otherwise provided for, including awards under the Public Servants Inventions Act and authority to re-use any sums allotted for non-paylist requirements and repaid to this appropriation from other appropriations.

The Treasury Board must approve all departmental requests for use of the Contingency Fund.  All allocations, except for unforeseen salary costs, must be reimbursed to the Fund.  Any remaining balance lapses at year-end.  The Contingency Vote has historically lapsed most of its appropriation at the end of each fiscal year.  However, because departments are required to reimburse the Fund, it becomes in effect a revolving fund.  Typically, total annual expenditures from Vote 5 often surpass the original appropriation level obtained in the Main Estimates.

THE PROCESS

After Main Estimates are examined and the Supply Bill is approved, the Treasury Board has complete authority to use the Contingency Fund within the limitations of the Vote wording without further Parliamentary approval.  Applications by departments for contingency funds must conform to a set of guidelines set out by the Treasury Board.  The Treasury Board Secretariat reported these to the Committee in 1989: 

1.      As the authority for payments out of the Contingency Fund is contained in the Vote 5 wording, all such payments must be fully consistent with that wording itself (if necessary, they could be legitimate charges to Vote 5).

2.      As a general rule, permanent charges will not be made to the Vote for requirements other than paylist shortfalls or awards under the Public Service Inventions Act.  All other advances from the Contingencies Vote should be considered temporary advances to be covered by items included in subsequent Supplementary Estimates and reimbursed when the associated appropriation act is passed. 

3.      When cash advances are requested to meet a financial requirement, the Treasury Board must be assured that the payment is within the legal mandate of the department and that there is a valid cash requirement that must be met before Supplementary Estimates are approved.

4.      When making a transfer to provide authority for a payment, the Treasury Board must be satisfied that there is valid and sufficient reason why the payment must be made before normal parliamentary approval is received.  If the payment could reasonably be deferred until Supplementary Estimates are tabled and Parliamentary authority granted via an appropriation act, the contingency funding should not be provided to grant such authority. 

Later, the Treasury Board Secretariat added four more:

5.      Sufficient funds must be available within Treasury Board Vote 5.

6.      The department’s existing appropriated authority must be insufficient to cover existing requirements and those of the new initiative (excluding grant items) until the end of the current Supply period.

7.      There must be a sense of urgency related to the initiative such that the expenditure must be made prior to Parliament’s approval of the item in an appropriation act.

8.      There must be a valid, legally incorporated recipient in existence to whom the grant is to be paid.

These guidelines are in effect today, and the Secretariat uses them to assess each departmental request for access to Vote 5.  It then submits the request to the Treasury Board with its recommendation.  Of the eight guidelines used by Treasury Board Secretariat, Treasury Board ministers have approved only the first four as formal Treasury Board policy.  The others were developed internally, by the Secretariat, and have not yet received formal approval by the Board.

If the application is approved, the recipient department must list the amount it receives as a requirement in its Supplementary Estimates.  When the Supply Bill for the Supplementary Estimates is approved the department reimburses the Contingency Fund.

THE ISSUES

During the hearings, several issues concerning the use of the Government Contingency Fund were identified.  Most of the concerns revolve around the Government’s accountability to Parliament.

A.  The Vote Level

Every fiscal year the government presents Parliament with a request for a specific level of funding for contingencies.  For the fiscal year 2002-2003 the total Main Estimates are approximately $172 billion and the Vote 5 level is set at $750 million, which is 0.44% of Main Estimates.  As contingency funds are a voted budgetary item, as opposed to statutory expense, it might be better to examine the Vote 5 level in the context of the voted budgetary items.  Historically, the contingency vote level was set at approximately 1% of voted budgetary Main Estimates, although as is evident in Table I, the level has ranged between 0.85% and 1.7% since the fiscal year 1990-91.  Over the decades the actual Vote 5 level has steadily increased from $90 million in the fiscal year 1974-1975 to $750 million in the fiscal year 2002-2003. 

TABLE I

Contingency Vote 5 Level and

Share of Voted Budgetary Main Estimates