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Strengthening Financial Management and Accountability in the Federal Public Sector - Presentation at CICA's First Public Sector Reporting Conference

Strengthening Financial Management and
Accountability in the Federal Public Sector
Presentation at CICA's First
Public Sector Reporting Conference
Toronto
September 11, 2006

Check Against Delivery

Good morning, everyone.
I'm glad to join you today for CICA's very first conference on public sector financial reporting.
I'm glad because this is a major event for all of us who work in the world of public sector finance.
There's so much change taking in place in public sector comptrollership that we need a conference like this one.
We need a conference dedicated solely to the public sector's unique challenges.
Thank you CICA.
This is a great chance to share ideas and to learn about new trends and best practices.
It's an exciting time to work in public sector financial management, and we are making progress.
I understand that many of you work at the municipal or provincial level.
I'm very interested in hearing about the changes in your organizations.
So I'd like to leave a time for comments, questions and discussion.
But first, I'd like to talk about what's happening in comptrollership at the federal level.
I'll start by talking about three factors driving change.
Then I'll discuss five initiatives my office is working on to strengthen financial management and accountability across government.
So let's start by looking at three factors driving the current changes.
They are:
- The need to build public trust;
- The need to produce better information; and third,
- The need to tackle capacity challenges.
I'll begin with building public trust.
When you talk about trust, you have to talk about accountability.
It's a cornerstone of trust.
We just heard some very interesting remarks on accountability from Mr. Denis Desautels.
Mr. Desautels contributed a great deal to building accountability during his ten years as Auditor General of Canada.
It would be hard to exaggerate the focus on accountability in the Government of Canada.
We're seeing the same trends internationally.
The new government made the Federal Accountability Act its first piece of legislation when it took office last April.
And the Prime Minister has talked about creating "a culture of accountability," for everyone – ministers, parliamentarians, public servants and recipients of government funding.
And my Minister, the President of the Treasury Board, has emphasized the need to "rebuild the confidence and trust of Canadians."
One of the ways we can build trust is through being more open and providing better information.
This is the second driver of change – the need to produce better information and improve reporting.
Information is an essential element in accountability.
People need to know:
- what the government is responsible for;
- how they do it; and
- how well they are doing it.
But the answer is not simply to provide more data.
Parliament receives literally hundreds of statutory reports from over 200 government organizations.
Just the list of these reports is over 100 pages.
So we need to think less about providing data, and more about providing meaningful information.
Another challenge we face is that we don't have a consistent basis of accounting.
We use full accrual accounting for the Public Accounts of Canada.
But the spending authorities voted to departments by Parliament are on a partial accrual basis of accounting.
Naturally, this is a complex and sometimes confusing system.
Then, as you know, there are the differences between the accounting standards of the federal government and other levels of government.
Which causes still more confusion, for example, when it comes to transfer payments.
So we still have a lot of work to do to make our financial reporting more consistent, meaningful and easier to understand.
I'm pleased to see there are some sessions on exactly these subjects later in the conference.
The third change factor is on the people side of our business.
We are facing what I'd call a perfect storm.
More and more baby-boomers are reaching retirement age.
So we'll lose a lot of experienced people in the coming years.
For example approximately 5% of our financial officers were eligible to retire in 2005.
But for 2009, the figure is 16%, or almost 600 financial officers.
These skilled people will be retiring just when demands on the financial community are greater than ever.
And as the government environment has become more complex, we need more professionals who have their certification.
The problem is that it's a sellers' market for accountants these days.
They are in high demand in both the private and public sectors.
So that's a brief overview of three main factors driving change in comptrollership at the federal level:
- building trust;
- responding to the demands for better financial information;
- and dealing with capacity challenges.
Now I'd like to switch gears and talk about how we are responding to the need for change.
To do that, I'd like to give you a brief overview of five initiatives.
I'll start with the Chief Financial Officer model my office has developed for the position of departmental comptroller…because transformation of the finance function has to begin at the top.
Our CFO model uses a three-tier approach according to the size and complexity of the department.
I'd like to focus primarily on the model for the large departments.
First of all, we've made sure that roles and responsibilities are clearly defined and that processes are transparent.
The model proposes that the CFO have a university degree and an accounting designation.
In general terms, the CFO would play a departmental oversight and challenge role.
One new responsibility for the CFO is sign-off on all non-routine material departmental transactions.
Sign-off is a written attestation and recommendation to the deputy on all financial, risk and performance aspects of the proposal.
And the CFO is responsible for monitoring and reporting on these new initiatives.
We also want to raise the standing of the finance function.
In the model we've developed, the CFO will be at the Assistant Deputy Minister level in all large and mid-sized departments and report directly to the deputy head.
We want to make sure financial management gets the attention it needs.
Raising the level of the finance function also makes sense from a recruitment perspective.
If we want to attract new people to public sector finance, we have to be able to offer them a rewarding career path and the possibility of reaching the top levels of the public service.
As I'll explain in a moment, our CFO model is currently under discussion.
One key accomplishment this year was the coming into force of the new Policy on Internal Audit.
The new policy allows us to achieve four main aims.
First, it helps strengthen and professionalize the function.
For example, we are developing the professional credentials for departmental Chief Audit Executives, which will include certification.
We will also support certification and training for employees across the internal audit community.
In fact, internal auditors at all levels are required to take training to develop and maintain their skills.
Second, the policy brings greater independence to the audit function.
Like the CFO proposal, it ensures that the Chief Audit Executive in each department is independent from line management and operations.
Chief Audit Executives will report directly to the deputy minister or deputy head.
The policy also requires that a majority of audit committee members come from outside the public service.
By bringing external members onto the committee, we can make government more open and more accountable to Canadians – and build trust.
Third, the policy makes internal audit more consistent across government.
We'll be implementing a common platform for all departments and agencies to deliver internal audit services.
This will include audit working paper software and common audit procedures.
To monitor progress, there will be practice inspections and assessments of departments and agencies by independent, qualified professionals.
And for issues that involve more than one department – contracting for example – my office will be responsible for directing audit services.
Fourth and last, the policy enhances oversight, monitoring, assurance, and reporting.
It gets internal audit back to the basics of overseeing compliance and providing assurance to stakeholders.
Chief Audit Executives will provide an annual opinion to their Deputy Head on the adequacy of controls, processes and measures to mitigate risks.
And I'll be reporting annually to Treasury Board on the state of controls, processes and measures to mitigate risks in place across the federal government.
We'll also ensure that final internal audit reports are made available to the public.
While I'm on the subject of internal audit, I should mention another audit-related project – the audit of departmental financial statements by the Office of the Auditor General.
Right now, we're helping departments prepare for an external assessment of their readiness to sustain a relatively efficient audit.
We're making good progress preparing the 22 large federal departments that will have their statements audited.
These 22, together with the departments that already produce audited statements, represent over 95% of departmental spending.
In fact, readiness assessments are currently being completed for eight departments.
And twelve more departments are scheduled to begin the assessment this fiscal year.
Another major initiative I'd like to mention is the review of Treasury Board financial policies.
The review is being carried out by a senior committee of government and non-government experts.
And both the Secretary of the Treasury Board and I are members of the committee.
We have a challenging task.
It's difficult to strike the right balance when we're trying to strengthen accountability.
We need effective controls and checks and balances.
But we also have to makes sure we don't stifle creativity and informed risk-taking.
Our job is to determine whether the financial policies and regulations contribute to effective control, accountability and transparency.
And whether they contain any unnecessary or unproductive requirements.
As part of this exercise, we'll be looking at the Chief Financial Officer model that I discussed earlier.
Our aim is to report to the President of the Treasury Board by no later than December 2006.
The last area I'd like to discuss is capacity building in our professional communities.
Despite the perfect storm conditions, there is some good news ahead.
One very positive factor is the fact the finance and internal audit functions have a higher profile than in the past.
This makes the public sector a more attractive career choice for financial management professionals.
And by ensuring that the CFO and the Chief Audit Executive serve at the assistant deputy minister level, we can offer a career path that reaches the top levels of the public service.
However, we still need to change the way we recruit into government and put more emphasis on finding people with the skills we're looking for.
For example, we've revised the requirements of one of our main recruitment programs in order to attract candidates who are committed to pursuing a professional accounting designation.
I'm particularly pleased to be able to report that we're now working with CICA on a program that would allow CA students to be trained in the federal government.
That's a few words on the recruitment side. We also have to think about retention.
How do we encourage people to stay in the public service?
Providing training and development opportunities for both existing and new employees is key.
Right now, the Canada School of Public Service is working to identify core training for all financial officers and internal auditors.
We want training that ensures consistent skills and competencies at each level and across all departments.
And we are looking at the possibility of adapting a number of existing government development programs to help meet our needs at the executive level.
Looking ahead, I think we will have to be more flexible if we want to attract future generations to the public service.
We know that younger generations have different expectations when it comes to work and career.
They may want to be able to move back and forth more easily between the public and private sectors – rather than seeing the public service as a lifetime career.
We know we'll have to offer employees a range of choices to allow them to maintain a work-life balance that fits them.
In this very competitive environment, we will have to keep evolving as a workplace in order to successfully compete for – and keep – talented people.
I'd like to wrap up here so that we have time for questions.
Before I do that, there is one issue I was asked to discuss that I haven't mentioned yet.
That question was: how would a change in the political landscape influence the current directions in comptrollership?
My answer is simple. I don't think it would change the path we are on.
As I mentioned earlier, the push for accountability is happening across governments at all levels, and we're seeing similar trends internationally.
This is one issue that seems to have all-party support.
Everyone agrees on the need to:
- build trust,
- to produce better information,
- and to ensure we have the resources to manage taxpayers' funds effectively, responsibly and wisely.
And I think that's something that all of us here today can agree on as well.
Those are some of my thoughts on how the comptrollership function is changing.
Now, I'd appreciate an opportunity to hear from you.