Government Operations Committee on Oct. 26th, 2006

[The Chair, Liberal, Diane Marleau]

We're going to go to Madame Thibault. She is a very experienced person, a public servant for many years before she ran for office.

Go to it.

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Madam Chair, don't laugh too much at the first session.

At the first meeting, I skipped my turn because I was still trying to understand what accrual accounting meant. Fortunately, my colleagues, and particularly our Chair, have a sense of humour.

Gentlemen, thank you for being here. I have several very practical questions to ask. I also want to leave enough time for my colleague.

My first question is to Mr. McCarter. In your presentation, you said the main purpose of accounting is to support decision-making. This seems obvious to me since information is the basis.

In the documentation our analysts gave us about appropriations and the appropriations framework, I noticed that Ontario and British Columbia do not have budget carry-overs. Any unused funds are thus sent back to the Consolidated Revenue Fund.

In connection with a proper decision-making process, wouldn't it be helpful to ask ministries, departments and agencies and their officials to start saving instead of going on a spending spree in March, when it's finally time to buy equipment and furniture? I don't know if you still have this situation but we used to have it in the past, and it was rather sad. Wouldn't it be better to save some percentage, say 10 or 15%, and to make good use of it the next year, even if it's to buy equipment, furniture and so on? I would like to have it a short answer explaining why you don't have any carry-overs.

[Jim McCarter]

I guess I'll keep my Auditor General's hat on.

What you're talking about is when four to six weeks before the end of the year you see a lot of computer trucks drive up to the door, and you get off the elevator and there are computers piled wall to wall because people are spending their year-end budget. If I understand what you're getting at, why wouldn't we consider perhaps having multi-year capital budgets so that you don't necessarily have to spend all your budget at the end of the year, and if you think you can make a more cost-effective decision, be able to carry it forward without losing the appropriation?

I think there's been some discussion of that in Ontario. I'd have to say from the perspective of the auditor, that's more a policy decision of the government of the day. Let's be honest, we have that issue in Ontario, where you're coming up to the end of the year and everybody has a pretty close look at their budgets. You may need to upgrade your PCs, and there is some year-end buying. We have looked at that from time to time in the audit office, but I'd have to say it's perhaps more a policy issue.

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you.

Mr. Bennett, in your presentation, you said that the implementation of accrual accounting lasted almost 10 years and that putting in the financial information system took two years.

Was this a conversion period—ten years is a long time—or was it used to develop technological and other tools, or both?

In short, why did it take you ten years to finally get to your present situation, which is almost perfect?

[Bruce Bennett]

I thank you for the comment on being almost perfect, but I would say we're still striving for that perfection.

From my point of view, when the decision was made in 2002 that we should move forward and implement it, that's when most of the technological efforts started. I think the conversion time would have been from then forward.

[Jim McCarter]

If I could jump in, I think the RFP was issued around 2000, and there were three main ERP vendors that they were considering. They put together a special office, a central office with an ADM in charge, to run the implementation across all the ministries and stage the various ministries in, because you didn't put 25 ministries on at once. They were staged in over a three-year period.

They started being staged in during 2001. They picked the system, they brought the consultants in. They had to make some hard decisions, because as I think somebody indicated, every different ministry came back and said they wanted to customize the system. They were very tough about saying no customization. The first ministry started going on around 2002, and it took about three years to get them all on.

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

There's something I find very important. That's the required legislative authority. During a previous briefing by federal officials, we were told that if accrual accounting is introduced, members would have to vote on many items. It was almost dramatic.

You gave us examples of situations requiring legislative authority. I know you're not legislators, but did you feel the legislative people considered this to be an advantage or disadvantage? I'm not talking about a huge cultural shock, but did the conversion take some time or was it easy and straightforward? Did legislators think the new system was helpful both in Ontario and British Columbia?

[Arn van Iersel]

Thank you for the question.

As I said in my introduction, the legislative impact was relatively small. I think part of the reason was that we were implementing a whole series of reforms to budgeting and reporting in British Columbia and there was a head of steam behind that particular initiative. As you heard me say, that was done over three years. That gave us an opportunity to educate not only the civil service but legislators as well in terms of what was coming.

I can be quite direct with you in saying that from my experience there was very little feedback.

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Iersel, did legislators see this as a real advantage, since one of our more important responsibilities, if not duties, as elected representatives of the people is to review appropriations and the use of taxpayers money in various programs? This requires training, or let's call it orientation because you don't “train” members of Parliament. Personally, I think I am badly in need of training and I don't mind saying so.

Legislators must have seen this as an advantage rather than a disadvantage. I don't want to put words in your mouth.

[Arn van Iersel]

No, I think I'll take those words.

I agree that my own Minister of Finance, who is a significant supporter, and the public accounts committee and other legislators, saw this as a positive step. In fact, based on our presentations to them and the fact that it didn't include these other commitments that were not in the appropriations, they were concerned about staying with cash accounting. It was a positive experience. Perhaps I was being too conservative.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you, Madam Chair.

I understand, from the accepted accounting principles used to introduce accrual accounting, that the purpose of this type of accounting is to improve decision-making relating to expenditures. I guess it also provides taxpayers with better information.

Recently, in Quebec, we were exposed to two very different visions: a political vision focusing on a surplus and an accounting or auditing vision focusing on a deficit. Would the system you implemented both in Ontario and British Columbia have prevented such a situation?

[Arn van Iersel]

If I may speak for British Columbia, one of the features of our new system is that generally accepted accounting principles apply to the budget and to the public accounts. It is law in British Columbia that we follow the Canadian Institute of Chartered Accountants' guidance.

Whether that's absolutely necessary for all jurisdictions, I wouldn't suggest it is. I think in our particular case it makes it impossible to vary from generally accepted accounting principles--recognizing that in Canadian GAAP there are always judgments--unless you wish to break the law. Those are the debates and discussions that happen between my former office and now with me as the public accounts are prepared.

We are required to audit against GAAP. There is a fit in regard to our legislation that says B.C. must prepare budgets and public accounts on GAAP. And we audit against GAAP. The implication of not doing so is that you break the law, or you get a qualification.

[The Chair, Liberal, Diane Marleau]

Does anyone else want to tackle that? I wasn't aware of that situation in Quebec. I hadn't heard of it.

[Bruce Bennett]

Just with respect to Ontario, we are not legislated to follow the public sector accounting standards, but we have chosen to follow them. We have been in compliance with those standards for a number of years.

We believe that the independent standards provide a basis of consistency, a cross-comparison of governments, and that they are a transparent basis of presenting our accounts.

Once again, I'm not familiar with the circumstances in Quebec. I can't comment on Quebec.

[The Chair, Liberal, Diane Marleau]

Merci.

Mr. Kramp.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you, Madam Chair.

Welcome, gentlemen.

I'll maybe preface my remarks with a brief statement.

I was privileged to sit on the public accounts committee in the last session of Parliament, when we unanimously and vigorously put forward a presentation that suggested the implementation of full accrual accounting for our government. Regretfully, it didn't happen.

I am hopeful that within this committee we could be an added voice through government operations. I believe we will have either a solid majority or, possibly and hopefully, unanimity to recognize that when we do the balance sheet on this per se, the positives far outweigh the negatives, particularly the level of accountability to the public that taxpayers' money is being well spent and intelligent decisions are being made based on proper information.

I am very confident this committee will come forward with a recommendation.

I can assure you that the insight you bring here today is valuable. I thank you very kindly for your presentations.

It gives us more and more ammunition so that when we propose our motion, in going forward, we can do so in a better-informed way. Hopefully, we'll present a case to the government and/or the following government that will influence the rest of our legislators in the House to move on this file.

That having been stated, as we progress, I'm looking at the difficulties of implementing this. How do you go from one system to another, with the inherent challenges that would bring?

Obviously, we need an advisory panel on implementation. You classified it, and there are other people who have classified it, as a budget process review panel; in other words, a team through which we'd be able to say we're going to do this.

I'm only asking for your personal thoughts on the composition of this. Should it simply be bean counters? Should we have some legislators involved in this? Should there be legal people? Should it be a potpourri of the entire complex?

In other words, if we're going to get through this process and take a recommendation from the committee and folks like yourself, parliamentarians are not going to steer this through. We are going to need to have a well-assembled panel. What would you suggest as a composition for that panel?

[Arn van Iersel]

In British Columbia, as I said, the budget process review panel came out of a particular issue. In that case, it was headed by a fairly significant chartered accountant, a fellow by the name of Doug Enns. But to my recollection, because it has been some time now, the rest of the members were not all accountants.

My personal view would be that you need a mixture of individuals. You need some accountants, but I think you need other individuals as well, representing different kinds of interests. They could be past legislators, academics, and so forth. You need a combination of folks who have a genuine interest in the estimates, and what they're intended to do, and in the reform process. It worked well within that committee.

I should also say they had a very strong consultant that worked with them in regard to preparing the report, bringing the issues to their attention, and having them resolve it.

Independent of that, in B.C. we also had the accounting policy advisory committee, which, as I said, continues to this day. Once the direction was set by the Enns panel, the committee, which was made up of accountants from three different professional organizations, helped to answer the specific accounting and budgetary issues. Today they advise the government on other accounting questions.

Again, my strongest advice would be that you need a mixture of individuals and you need a multi-year plan. It's not something that's easily done; therefore, you need to think about all the things that have to be done and how best they can be resolved.

In our plan, it was three years, and that worked out fine.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Okay.

[Jim McCarter]

From a materials perspective, I know—I was an ADM involved somewhat in the early stages—that the difficult part was getting the departments onside. There was a tremendous resistance: “I've been using Walker”, or “I've been using GEAC”, or “I'm content with my system”, or “Oh, here we go—another centre-driven activity.” There was significant resistance from some of the ministries.

A key thing to get there was to have a successful person, perhaps someone even at an assistant deputy minister level, doing what I would call “leading the charge” and bringing everybody together. It's very important that you get, at the very top—i.e., Clerk of the Privy Council, as you would call him here—someone at that senior level of support saying to the deputy ministers, “This is going ahead. Like it or not, we made the decision. You have to get onboard.”

That message was given, but they had two or three different people who were put in charge before they actually got the right person. In a sense, you need someone very outgoing, very communicative—not necessarily a technical person, but a person who can sit down with the ADMs and the various ministries to bring everybody together and get people onside, saying, “Like it or not, we're going down this path. How can we do it, and how can we do it cost-effectively?” That was the first thing--to get the departments onside and get everybody saying, “Like it or not, we're buying in.”

The second part is the implementation of a whole ERP system. When you're putting in a new ERP system across something as large as the government of Ontario, it is a significant challenge to do it. As Arn indicated, they had program people involved, outside consultants involved, but you also need a fairly high level of expertise within, because—I don't say this too loudly any more, but I used to be with Arthur Anderson—you don't want your consultants basically driving the bus.

I would say in Ontario the biggest challenge early on was getting the departments to buy in.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Another question I might ask is, I suppose, relative to scale. We're talking about the federal government and the multiple levels of departments and complexities relative to provincial administrations. In terms of cost effectiveness, we go all the way from talking about $70 million or $100 million to all of a sudden talking about a federal demand that deals in two hundred and some billion rather than a few million dollars.

Should the cost be expected to be relative to scale as well, or should we be able to have a system in place and the system itself be outside the actual relative scale of cost implementation, other than for staffing requirements?

[Jim McCarter]

To some extent I think you're getting at a systems-based question. I just don't know enough about your systems right now, whether you have fairly sophisticated ERP systems, where you have some departments using Oracle and some using SAP—maybe it's a matter that you already have a pretty good system and just need what's called middleware to link them up to integrate them—or whether you need to basically go with the whole, full-blown....

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

This might be then a question we might ask our Comptroller General and our Treasury Board officials. There has been some resistance, through successive governments, down to the Treasury Board file...the people who actually have to do the work. In other words, we can theorize and can come up with this and say wouldn't it be wonderful, but then, going along with a situation where there is someone like Mr. Bennett, who obviously is involved with directly making this happen, is a different thing.

An idea is one thing, but effecting the change is where the resistance comes in. Is that what you feel?

[Bruce Bennett]

Yes. Just to comment, one of the things the Government of Ontario had to look at was what the most cost-effective way of implementing it was. With the multitude of systems, and the upgrade that would be required to each system and the ongoing maintenance, from just a value-for-money perspective, it certainly made more sense to have one system. That was a critical part of the decision.

There were a lot of other benefits as well that we sought tangentially. It isn't absolutely necessary that you have one system across all the organization, but I think it's an implementation issue that has clearly to be addressed and a decision made on.

As with all changes, I think it's the cultural and people changes that are the bigger issues, beyond the question of the system. Implementing a big system is a challenge, and you have to do it right. I think getting, as Jim said, the right change management in place to get the ministries onboard, and then once that's achieved to support them in implementing it, is a key direction.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Mr. van Iersel mentioned that he'd anticipated, obviously, heated resistance and/or problems, as naturally every time there's a change.... Yet it actually did turn out to be a little more reasonable process than what you had anticipated.

That stated, my concern, as I think has been expressed by my colleague Mr. Bains, was in the availability of professional staff, professional administrators, professionally designated individuals with the capacity and capability to effect this monstrous change--in other words, human resources.

You obviously succeeded, but now we're on to a grander scale, a national scale. In your humble opinion, would you consider that we might run into a human resources problem in trying to administer a totally revamped system like this?

[Arn van Iersel]

In British Columbia we are seeing some difficulties in recruiting accounting professionals, and my colleague alluded to it as well. I think that's a Canadian phenomenon. I would hope, however, that in your system, as in ours, we have sufficient talent that can be supplemented by others. Again, it's not something that can be done all internally; you will need some outside advice and expertise.

I just want to come back for a second to how you make sure this happens. I want to echo the words of my colleagues here, which is that to make it a success, you need that champion. That was our big factor in British Columbia. There was great momentum, based on the Doug Enns review and the Auditor General's report. Something had to change, and that change imperative then drove the system. While there were certainly lots of issues regarding people who were used to cash and didn't want to switch to accrual, they could see, in effect, the writing on the wall to the effect that it's going to change, so we might as well get on board and make it a success. To me, that's the biggest issue you need to have resolved, that there's momentum behind the change, there's support, and you won't be varied from your agenda.

I think the resource issue is an important one, but if you have a multi-year plan where you bite off chunks of the problem as opposed to trying to solve it in a big-bang way, which is what we tried to do, that is another factor in guaranteeing some success here.