Opening Statement to the Committee on Public Accounts

Chapter 18 - The Financial Information Strategy: A Key Ingredient in Getting Government Right (September 1998 Report)

L. Denis Desautels, FCA
Auditor General Of Canada

Thank you Mr. Chairman. We are pleased to meet with the Committee to discuss our chapter on the government’s Financial Information Strategy, or FIS. We have recommended this chapter to you for two reasons. First, we want you to know about FIS and its importance in "Getting Government Right". Second, we really hope, given the strategic importance of this, that your Committee and other parliamentarians, will encourage implementation of FIS, by monitoring progress annually and by supporting the move to full accrual appropriations. We'll speak more about this later.

The Financial Information Strategy consists of three components: the introduction of full accrual or business like accounting; the implementation of new financial systems throughout government; and the integration of improved financial information into day-to-day decision making of departmental managers. The government plans to have FIS in place by 2001.

The need for improved financial information for decision making has been a common call for over 35 years. There was Glassco in 1962, Lambert in 1979, our Office in 1976 and again in 1987 and, most recently, the Comptrollership Panel in 1997. The Minister of Finance and the President of the Treasury Board have also indicated strong support for improved financial information for decision making.

The Financial Information Strategy was approved, initially, in 1989 but progress was slow until 1995. At that time, the Minister of Finance provided much-needed encouragement for the project by announcing the government’s intention to move to full accrual accounting. And, more recently, the Year 2000 issue is pushing departments and agencies to implement new financial systems that are Year 2000- compliant, and that support the new requirements for financial information that are set out in the Strategy.

These two "incentives" are helping the government implement the first two components of FIS that I mentioned earlier. The third component - the integration of financial information into day-to-day decision making - is critical and must be implemented on a timely basis for FIS to be considered a success. The government has linked achievement of this component to its longer-term comptrollership initiative. However, an incentive for more timely implementation of this component has not yet emerged.

In this regard, deputy minister buy-in is crucial. But as the government’s own FIS Training Framework reported, departmental commitment to FIS is not complete.

Central agencies have an important role to play in obtaining this commitment. The Strategy will impact on every department and agency of the Government of Canada and its success will depend largely on the active co-ordination and co-operation of all those involved. Strong leadership by the Treasury Board Secretariat, as overall project managers, will continue to be crucial. In this respect, we note that the Secretariat intends to require departments to prepare the financial information in their Reports on Plans and Priorities and their Performance Reports on a full accrual basis. The Privy Council Office also has a role to play in encouraging departmental commitment to FIS, as part of its responsibilities for the strategic management of senior personnel.

Parliament could also help obtain departmental commitment to FIS by changing the basis on which ministers and, through them, deputy ministers and their managers are held to account. Under present plans, four important accountability documents - the Budget, the Public Accounts, departmental Reports on Plans and Priorities and departmental Performance Reports - will each be prepared on a full accrual or businesslike basis. But present plans do not provide for appropriations to be prepared on this new basis.

The basic difference in appropriating amounts on a full accrual basis relates to the treatment of capital assets such as buildings, vehicles and equipment. At present, the cost of acquiring such assets is fully charged to departmental operations in the year acquired through what are called "budgetary" appropriations. In such an environment, departmental managers are not held to account for the cost of using capital assets in future years, even though such assets help provide goods and services to Canadians in those future years. Under a full accrual basis of appropriating funds, departmental operations would be charged with the costs of resources consumed in running a department or program, including the portion of capital asset costs used during the year (depreciation). If, for example, a capital-intensive department required information to recover costs of its services via user fees, these two approaches would likely produce widely different results.

As far back as 1962, the Glassco Commission noted that having access to information prepared on a full accrual basis would provide more consistent financial information, greater cost consciousness, better decision making and better evaluation of performance, all leading to better accountability.

The benefits of an accrual-based appropriation process, for both management and the legislature, have gained acceptance in Australia, New Zealand, the United Kingdom and in the Province of Alberta.

If appropriations are not prepared on this new basis, it could lead to a situation where there would essentially be "two sets of books" - one for managing (on the existing "resources acquired" basis) and one for reporting (on the new "resources consumed" basis). As departmental management understandably places a high priority on the demands of Parliament, the basis on which Parliament appropriates resources will heavily influence the way departmental management plans and manages its operations. In our view, efforts to integrate full accrual financial information into day-to-day management will likely fail unless ministers, deputy ministers and their managers are held to account by Parliament on this new basis through the appropriation process. We would like to see the Secretariat ask Parliament to grant appropriations on a full accrual basis in the not-too-distant future. Parliamentary control over capital acquisitions could easily be preserved through the use of new capital votes.

In summary, the Financial Information Strategy is designed to strengthen significantly the management of government and its accountability to Parliament. FIS will answer the common call over the past 35 years for improved financial information for decision making. In addition, ministers and deputy ministers will have access to better cost information about business lines and activities, a source of frustration at the present time.

I would hope that your Committee will encourage the government to implement FIS by monitoring progress annually and by pursuing the move to full accrual accounting for appropriations.

For our part, we intend to examine and report annually on the implementation of this important initiative.

Thank you Mr. Chairman. We would be pleased to answer any questions.