Journals of the Senate
56 Elizabeth II, A.D. 2007, Canada
Journals of the Senate
(Unrevised)
1st Session, 39th Parliament
Issue 104 - Appendix "B"
Wednesday, June 6, 2007
1:30 p.m.
The Honourable Noël A. Kinsella, Speaker
Wednesday, June 6, 2007
The Standing Senate Committee on National Finance has the honour to present its
SIXTEENTH REPORT
Your Committee, to which were referred the 2007-2008 Estimates, has, in obedience to the Order of Reference of Wednesday, February 28, 2007, examined the said Estimates and herewith presents its second interim report.
Respectfully submitted,
NANCY RUTH
Deputy Chair
SECOND INTERIM REPORT ON THE
2007-2008 ESTIMATES
Your Committee, to which were referred the 2007-2008 Estimates, has, in obedience to the Order of Reference of February 27, 2007, examined the said Estimates and herewith presents its second interim report.
INTRODUCTION
As is customary with this Committee, several meeting dates were set aside for the review of the 2007-2008 Estimates. The Committee's examination began on March 20, 2007, when the Honourable Vic Toews, the President of the Treasury Board of Canada appeared before the Senate Committee to testify on the 2007-2008 Estimates. He was accompanied by two officials from the Treasury Board Secretariat of Canada: David Moloney, Senior Assistant Secretary, Expenditure Management Sector; and Laura Danagher, Executive Director, Expenditure Operations and Estimates Directorate, Expenditure Management Sector. The President and his officials outlined and explained the main features of the 2007-2008 Estimates. They also answered several questions at that time, in addition to providing written responses at a later date. An interim report (the Committee's Thirteen) was tabled in the Senate on March 22, 2007. Since that date, the Committee has continued its examination of the 2007-2008 Estimates.
HEARINGS ON THE 2007-2008 ESTIMATES
Much of the Committee's time this spring was taken up by the study of the following legislation:
Bill S-217, An Act to amend the Financial Administration Act and the Bank of Canada Act (quarterly financial reports);
Bill S-215, An Act to amend the Income Tax Act in order to provide tax relief; and
Bill C-294, An Act to amend the Income Tax Act (sports and recreation programs).
As is customary, the Committee also heard from the Auditor General of Canada, who discussed the status of the Office of the Auditor General's budget, the May 2007 Report of the Auditor General of Canada, and various other areas of her Office's mandate of interest to the Committee.
In addition, pursuant to its order of reference of September 27, 2006, the Committee continued its examination of issues relating to the vertical and horizontal fiscal balances among the various orders of government in Canada. It intends to present its second interim report on this matter no later than June 30, 2007.
While the Committee conducted its work, Senators were able to elicit additional information on government spending and the 2007-2008 Estimates upon which we are now pleased to report. The Committee would like to highlight three areas in particular.
A. Financial Statement Reporting
An opportunity to examine the government's financial reporting requirements arose during the Committee's study of Bill S-217, An Act to amend the Financial Administration Act and the Bank of Canada Act (quarterly financial reports). Bill S-217 proposes changes to the Financial Administration Act and the Bank of Canada Act that would require most federal departments and organizations to disclose quarterly financial statements to both Houses of Parliament. In doing so, this Bill seeks to strengthen transparency and reassert parliamentary control over expenditures of the Crown.
Due to its interest in matters of government spending and the importance of public accountability to the Committee, it held several meetings to examine this bill. It began its hearings on Tuesday, January 30, 2007, when the Honourable Senator Hugh Segal, sponsor of the bill, appeared before the Committee to explain various aspects of Bill S-217. On Tuesday, February 6, 2007, the Committee heard from Charles-Antoine St-Jean, Comptroller General of Canada and Mr. David Moloney, Senior Assistant Secretary, Expenditure Management Sector, Treasury Board of Canada Secretariat. On Tuesday, February 20, 2007, the Committee heard from Ken Kember, Vice-President and Corporate Controller, Export Development Canada; Paul Buron, Vice-President and Chief Financial Officer, Finance, Systems and Technology, Treasury and Enterprise Risk Management and Stefano Lucarelli, Vice-President, Finance, from the Business Development Bank of Canada; John Wiersema, Deputy Auditor General and Doug Timmins, Assistant Auditor General, of the Office of the Auditor General of Canada; and Paul Jenkins, Senior Deputy Governor, of the Bank of Canada.
During the hearings, the Committee was able to develop an understanding of accrual budgeting and appropriations for the public sector, and the preparation and audit of individual departmental and Crown corporation financial statements.
The Comptroller General of Canada, Mr. St-Jean, began his testimony by providing some perspective on what is currently in place and what initiatives are underway. As he explained, with respect to financial statement reporting, the Government of Canada is recognized as a world leader with a solid record of unqualified audit opinions on its consolidated financial statements; moreover, Canada is the only G-8 country with audited consolidated financial statements. They are included with the Public Accounts of Canada, along with other financial information, and contain detailed information for every department and agency on their use of spending authorities as granted by Parliament. In addition, he explained that the federal budget and the summary financial statements of the Government of Canada are now prepared on a full accrual basis1.
In terms of current initiatives, he noted that the Government of Canada is undertaking many initiatives with the objective of improving accountability. As an example, the Federal Accountability Act and the related action plan have laid out a number of initiatives to strengthen financial management, accountability and transparency. These include clarifying roles and responsibilities, strengthening internal audit functions within departments, establishing independent audit committees, and certifying internal controls. He noted that although the government has determined that these initiatives should have top priority, given their scope and complexity, these initiatives will be implemented over a period of several years.
As Mr. St-Jean explained, currently, appropriations are not on the same basis as generally accepted accounting principles: at present, the Government of Canada has one basis of accounting for appropriations, which is near accrual or near cash and one for financial reporting, which is on a full accrual basis. Since departments are managing largely on a cash basis throughout the year, it would be difficult for them to prepare quarterly financial statements on an accrual basis. Mr. John Wiersema, Deputy Auditor General, Office of the Auditor General of Canada explained that although the government has been studying the issue of accrual accounting and appropriations since 1998, as yet there is no firm commitment from the government on this issue. He noted that the Auditor General of Canada found in her May 2006 Status Report that departments and agencies are not using accrual financial information effectively, primarily because their budgets and appropriations continue to be based largely based on the cash method2. Mr St- Jean observed that until the government introduces accrual budgeting and appropriations for departments, and until the government is able to produce annual departmental financial statements that are audited, it would remain difficult for departments to produce reliable quarterly financial reports.
Senators were pleased to learn that the government has announced that the 22 largest departments will be required to prepare annual financial statements ready for audit by March 31, 2009. These will account for 90 per cent of the spending by the Government of Canada. They shared the concerns of Mr. St-Jean, who observed that this is a major undertaking and it will be a challenge to achieve this deadline, in particular given the human resource issues involved with recruiting and training qualified financial professionals who specialize in auditing.
Senators also learned that since the early 1980s, Crown corporations have been required by legislation to produce their financial results in accordance with generally accepted accounting principals; several of the larger ones currently produce quarterly financial statements for use by senior management, their Boards of Directors, and their responsible Minister. While in many cases these statements are not made public, generally, the Crown corporations appearing before the Committee on Bill S-217 felt that it would not be a large undertaking to provide that information to Parliament if requested.
Senators appreciated the discussion as it not only addressed some of their concerns about accountability and transparency issues in regards to the government spending, but also gave them a clearer picture of the progress that the government is making in strengthening financial management, accountability and transparency.
B. The Auditor General of Canada
Another opportunity to examine government spending plans occurred during the Committee's meeting with the Auditor General. The Auditor General explained that as a legislative auditor, her Office provides objective information, advice and assurance that can be used by parliamentarians to scrutinize government spending and performance. Her Office conducts two types of legislative audits: financial audits that examine whether the government is presenting its financial information in accordance with accounting policies; and performance audits that examine whether government programs are managed with due regard to economy, efficiency and environmental impacts and whether measures are in place to determine program effectiveness.
The Auditor General informed the Committee that for the fiscal year 2007-2008, her Office received $80.6 million in appropriations through the Main Estimates and employs 625 full-time equivalents. The Committee noted that the Office of the Commissioner of the Environment and Sustainable Development, which resides within the Office of the Auditor General, employs 45 full time equivalent auditors who work specifically on environmental files and has an annual budget of approximately $4.5 million. The Committee was interested to learn that the Office of the Auditor General's February 2008 Status Report will consist entirely of follow-up reports on audits completed by the Commissioner of the Environment and Sustainable Development.
The Committee was interested in the Auditor General's May 2006 Status Report chapter on the management of grant and contribution programs. The Committee was surprised to learn that for the department of Indian and Northern Affairs Canada, 60,000 reports are due each year as a result of the requirements of the various grant and contribution programs it administers to the 630 First Nations in Canada. The Committee noted that the Blue Ribbon Panel on Grants and Contributions Programs recently made recommendations on this topic and it may examine this issue further at a later date.
The Auditor General noted in her May 2007 Status Report that the Department of Foreign Affairs and International Trade (DFAIT) has not been planning adequately to meet its upcoming human resources challenges. The Auditor General noted that over the next few years, more than half of the DFAIT's employees in the management category will be eligible to retire. Senators and the Auditor General discussed human resource planning in the federal government and how such inadequate planning is not limited to the DFAIT, but is a government-wide challenge. The Auditor General encouraged parliamentary committees to meet with the departments and agencies that are responsible for human resource management, such as the Canada Public Service Agency, to ask them about their plans to address these human resources challenges.
The Committee discussed the above and other matters, such as the critical follow-up audit in May 2007 of the Canada Coast Guard, the Advisory Panel into the Funding and Oversight of Officers of Parliament, and the compliance with employment equity policies among departments. The Committee expressed interest in exploring further these and other issues related to the various responsible departments at a later date. It recommends that the Auditor General examine the following: the transfer of lands and the Canada Lands Company; and the federal government's employment equity policies, including Canada's obligations under international conventions.
C. Additional Information on the 2007-2008 Main Estimates
The Committee was also able to elicit additional information from the Treasury Board of Canada with respect to the government's spending plans for the fiscal year 2007-2008. The Committee would like to mention two areas in particular: the ongoing implementation of the Expenditure Restraint Initiative announced in September 2006; and the government's response to the Independent Blue Ribbon Panel to Advise on Grants and Contributions Programs.
As the Committee learned during its examination of the 2007-2008 Estimates, government officials reported that they had secured $1 billion in savings to invest in new spending. At the time, Mr Moloney explained that $223 million of these savings, identified in previous Estimates documents, have already been realized; the remainder is reflected in reductions to the fiscal framework for the fiscal years 2006-2007 and 2007-2008. Further, funding had been set aside in the fiscal framework for certain programs that had previously received spending approval by Cabinet. Under the expenditure reduction initiative, a number of these programs are no longer being implemented. Thus, the savings are not, and will not, be included in these or forthcoming Estimates documents. At the time, Senators were concerned that this approach was not fully transparent and requested further information from the Treasury Board Secretariat.
In its response, the Treasury Board Secretariat noted that of the $1 billion in program savings, $228 million was frozen in departments' 2006-2007 reference levels, and $225 million was used to offset new supplementary spending requests and reflected in Supplementary Estimates for 2006-2007. An amount of $305 million was reduced from departments' reference levels and is reflected in the 2007-2008 Main Estimates. The balance of $465 million was reduced from planned spending earmarked in the fiscal framework and is no longer available to departments.
With respect to the action plan that the government is developing in response to the Independent Blue Ribbon Panel's report on Grants and Contributions programs3, the government has announced a series of immediate actions to improve how grant and contribution programs are managed. As the Treasury Board Secretariat explained, as a first step, it will work with selected departments to examine business processes to identify opportunities for improved service and efficiencies. Based on the results of this review, it is expected that departments will develop their own action plans to streamline internal practices and reduce administration burdens. In addition, the government will establish a centre of expertise on grants and contributions, to share best practices, and to promote innovation in program administration.
The Committee appreciates the information provided and looks forward to further updates as the implementation of the action plan progresses.
CONCLUDING COMMENTS
These and other matters were discussed during the Committee's examination of the 2007-2008 Estimates. In the coming months the Committee intends to return to some of these topics and other items in the current Estimates in order to more fully examine the government's spending plans for the 2007-2008 fiscal year and to report on this work at a future date.
The Standing Senate Committee of National Finance respectfully submits its Second Interim Report on the 2007- 2008 Estimates.
(1) There are a range of accounting systems currently in use for public sector finances. Cash accounting essentially reports cash transactions when cash is received or paid out by an organization. Therefore, financial statement items such as amounts owed to or by the government or other non-cash items are not recorded. At the other extreme, full accrual accounting recognizes transactions when they have been earned or incurred rather than when cash comes in or out. In between these two systems are hybrids like modified (or near) cash accounting that allows year-end adjustments to recognizing some non-cash items such as accounts receivable and payable. Alternatively, modified (or near) accrual follows full accrual principles with one significant departure: it does not recognize capital assets on the statement of financial position. Instead these assets are recognized fully as expenditures when bought.
(2) May 2006 Status Report of the Auditor General of Canada, Chapter 1. Available at http://www.oag-bvg.gc.ca/ domino/reports.nsf/html/20060501ac_e.html.
(3) The Panel's report, From Red Tape to Clear Results, is available on the Panel`s Web site at: http://www.brp-gde.ca/ en/report.cfm