Opening Statement to the Standing Committee on Government Operations and Estimates

Managing Government: Financial Information
(Chapter 1 - May 2006 Status Report of the Auditor General)

13 June 2006

Sheila Fraser, FCA
Auditor General of Canada

Madam Chair, thank you for the opportunity to discuss the contents of Chapter 1 of my May 2006 Report—Managing Government: Financial Information. I am accompanied by Mr. Doug Timmins, Assistant Auditor General and Mr. Clyde MacLellan, Principal who were responsible for this audit.

In our chapter, we noted that strong internal financial controls and complete financial information are vital if the government is to prudently manage its assets, liabilities, revenues, and expenses. And in today's environment, I think that it's crucial that financial information systems have adequate controls in place and that decisions be based on information that government knows is accurate and complete.

Effective financial controls also put federal departments and agencies in a better position to manage risks and exercise good stewardship over their resources.

We concluded that departments and agencies have been slow in taking action to remedy our previously reported internal financial control weaknesses. We have been assessing financial control systems and processes in federal government departments and agencies since 2001. I am obviously disappointed that departments and agencies have been slow in responding to these weaknesses and that I must repeat these messages every year.

We did note, however, that the government of Canada has made public commitments to strengthen financial management and control. We encourage the Committee to ask the Government exactly how it intends to do this. The government needs to ensure that Departments and Agencies address the weaknesses we previously reported in internal financial controls and continue to improve the quality of their financial information systems. The Committee might also wish to ask about the timeframe for doing so.

Another important message in our chapter, and of particular interest to this committee, has been the continued lack of progress in implementing accrual-based budgeting and appropriations. We emphasize how this inaction has impeded departments' integration of accrual-based financial information into their regular decision making.

Departments and agencies are not using accrual financial information effectively because their budgets and appropriations are largely based on the cash method of accounting. The government has responded by studying this issue since 1998 without ever establishing a clear position as to what direction it will take.

After having studied this issue for eight years, it is, in our opinion, time for the government to take a position on this matter. The Public Accounts Committee has recently urged the government to implement accrual-based budgeting and appropriations. The support of your Committee would help reinforce for the government that Parliamentarians have an interest in seeing this matter resolved.

The lack of progress in resolving this important issue and the weaknesses in internal controls are the chief reasons for the unsatisfactory progress in improving financial information in departments and agencies. I believe that this lack of progress also contributed to the choice of the less cost-effective option noted in paragraphs 7.24 and 7.25 of Chapter 7 on the Acquisition of Leased Office Space which we discussed with this committee at its meeting on June 8th.

In conclusion, I believe that considerable work remains to be done to improve the government's financial information. The government still has to address weaknesses in its financial systems, use accrual financial information in decision making, and resolve the issue of accrual-based budgeting and appropriations at the department level.

Madam Chair, I recognize that the concepts of accrual accounting and accrual based financial information can be difficult to understand. For that reason, we have provided the Committee with a copy of a previous presentation that we gave jointly with the Treasury Board Secretariat to Parliamentarians when government issued its first set of full accrual summary financial statements.

The presentation provides a brief illustration of accrual accounting, explains the benefits associated with this form of financial information and compares key differences between the government's previous method of accounting and accrual accounting. Should the Committee be interested, I would be happy to elaborate on any points included in the presentation or return at a later date to participate in a more complete discussion of the presentation.

Madam Chair, this concludes my opening statement and we welcome any questions that the Committee may have.