Government Operations Committee on Oct. 26th, 2006

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

That leads me to the next point, the big bang versus the dribble dribble, piece by piece by piece move on this. With the size and scope of the national government, I am concerned about the dribble dribble effect, and twenty years down the road we've moved in a small, small way towards it and really haven't secured the level of commitment to give us the information we want, that reliable consistency throughout.

Do you think it is possible--once again, in your opinion--to go the big-bang route, to pay the price to make that firm decision? We recognize that it's not going to be an easy decision, but is that something you would even contemplate from having gone through it at the provincial level?

[Arn van Iersel]

For me, it's hard to speak to that in your environment. I really would need to know it better, and I don't think I do. But again, that decision, that question, came up in British Columbia, and we purposely, based on our circumstances, said no, we need a three-year plan. I know at that time my auditor--now I am the auditor--said it should be faster, but in the end, for B.C., that was the right solution--but not a plan that was so long that it didn't seem to have the imperative. So it's a balance act. You need a plan that's challenging but that you can prove is realistic. Three years was good enough.

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

Did that plan come from the policy review budget committee, or did that come from you?

[Arn van Iersel]

We had a lot of guidance from the Doug Enns review and from the Auditor General's office, but the plan came at that time from the comptroller's office and from the Minister of Finance.

[The Chair, Liberal, Diane Marleau]

Thank you, Mr. Kramp.

It seems to me, and this is what we've been told, in New Zealand they had a crisis and that drove it, and I gather that drove it in B.C., although I don't know of a crisis in Ontario so much that drove it, and you are doing it. But we do have very much a bureaucratic push-back. That's my impression. It's very much a case of, “Yes, Minister, we're looking at it.”

We were told there is a consultant's report that has been presented to the minister--we think. We're not even sure of that, but we know there is one. We still don't know what it says or what it does. That's why we're trying to be a bit of that bang that pushes them forward. I hope we're successful, but it remains to be seen.

Madam Nash.

[Peggy Nash, NDP, Parkdale—High Park, ON]

First of all, good afternoon, and thank you for coming here and helping us understand in a practical way how you made this change to accrual accounting and accrual budgeting in your respective provinces. There's nothing like firsthand experience to help guide us in making our decision.

My first question is perhaps a clarification. I know you have all spoken about the importance of training, investment in training, and front-end planning. In some ministries there were concerns about what this would mean. None of us likes to think that the system with which we're comfortable, with all its flaws, is necessarily going to change. That can be a good change or a bad change, and you sometimes don't know ahead of time.

But am I understanding you correctly about not trying to bring in all senior staff in advance because you may not be able to allay their fears? Are you saying that if you believe it's the right decision, make the decision and have the right people leading the change to help people understand what it's going to mean for them afterwards?

Our decision federally has also been influenced by concern at some senior staff levels about what this will mean. You want to take into account people's concerns and views, but am I right in assuming that in your respective provinces you made that decision, even though there might have been some outstanding concerns? You worked it through and brought people on side who weren't already on side, through the implementation?

[Jim McCarter]

It's very important to get the people from the departments--the senior people, perhaps at the ADM level--sitting around a table like this and actually talking about it. Then you have to make it very clear that the decision has been made and you're going ahead. But at that point I'm not sure if you want the centre driving the decision and saying that transportation is going to do it this way and natural resources.... I think it's important to get that buy-in.

In Ontario, everybody sat around the table and there was a fair bit of discussion about who was going on it when and how we were going to do it. But at least you had everybody around the table making that decision. That's where you need a very strong person, and not a person who pounds the table. You need a collegial person who can pick up the phone after the meeting and say, “You know what, Bob? How are we going to work on this together? What can you do to help me out?” That was the sort of person they put in place in Ontario who essentially got the job done.

I also think it's very important, when you're deciding who should go on the advisory committee, to get some people from other jurisdictions who have been through this and have the battle scars on their backs.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you.

[Arn van Iersel]

In British Columbia there were some things that dictated our success. To emphasize the imperative, why does this have to happen and who's supporting it--it was clearly there.

Once you had that, you needed a realistic plan to share with people, but not a final plan. Similar to what Jim said, my past style has stood me in good stead. When you table a plan, make it one that can be criticized and added to, so you slowly bring others into it, recognizing that in any government, federal or provincial, this is going to involve a vast array of financial and other people. You need to have groups come together, look at the plan, amend it, suggest changes, and be conciliatory in some areas where you can.

At the same, knowing the imperative, you have to be pretty diligent in keeping the group on track and not allowing them to vary. So you need the champion, the very strong project manager. But that person has to be the right person, who is seen to have credibility and be reaching out to individuals. That was what made the difference in our jurisdiction.

It's not dissimilar to the way we operate today. One thing I didn't mention is that we have various groups. We have an executive financial officer group and a senior financial officer group. These people come together on a bi-weekly basis to talk through various issues. But when we were implementing this, we were integrally involved in developing the plan and testing it.

It's also useful to try to find a few champions within departments or ministries who want to be the pilots, lead the charge, and prove it to those in that community who may not be quite so convinced at that time.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you.

[Bruce Bennett]

I'll just reiterate, I think, what Jim and Arn have said. I think it's important that you get a plan in place.

With the complexity of it, it is a multi-year plan that does get buy-in, certainly, of the major critical ministries that are impacted by it. I think also what helped was that after there was a plan, the legislature had legislation that said that by a certain date in the future, you will move to this basis of accrual budgeting. So the question of whether or not we should go there was not being debated. The question was how we would best get there. I think that would certainly focus the attention better in Ontario.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you.

We know that there are obviously investments that have to be made in terms of the transition. It's a multi-year plan, it's new software, it's training, it's additional accounting staff, and so on. Would you say, over the long haul, once the transition is completed, that the accrual approach is more costly to run, that the accounting costs are higher than the cash accounting approach?

We're happy to keep accountants employed, I must say, but I'm just wondering, is it a more labour-intensive accounting approach, and does it take up more staff time than other approaches?

It's not a trick question.

[Arn van Iersel]

No. I understand. I see my colleagues pushing me to the fore here.

Accrual accounting will take resources, and I don't want to minimize that. But I think you can't just look at the cost side of things; you have to look at the benefits. As we've already talked about, when you get into accrual budgeting and reporting, it does allow for more transparency, better management of assets and liabilities, and so forth. So I would say, in my experience, that yes, it costs more. We invested money, some of which was one-time, some of which will go on. But it's a better system.

The other thing I mentioned to you earlier was that you will also get some benefits you don't realize. I pointed to the simple example of organizations that had now come on board doing quarterly financial statements, where they had never previously done that. So there are a lot of benefits in the reform process that aren't necessarily evident when you start it. I would say that yes, accrual accounting at the budget level does take some more resources, but I think the payback is more than worth it.

[Peggy Nash, NDP, Parkdale—High Park, ON]

You say it is more as an investment that has other payoffs, I guess.

[Arn van Iersel]

I do, and in B.C., again, another thing I want to emphasize is that we're one approach. There are other approaches that are valid. But we have more work to do. There are a lot of things that we haven't yet done that will help add benefits to what we've already received. The more you can go to an accrual approach I think the better you're going to be in terms of long-term management, as opposed to fiscal year-by-year management.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Can I just ask one other question before Mr. McCarter comes in?

My colleague Mr. Laforest's question kind of made me wonder. At year-end or in reports during the year when there are announcements about a surplus or a deficit—hopefully a surplus—in our funds, would that be affected by an accrual approach? Would you still see the same kinds of numbers if the government is taking in more funds than it had budgeted? Would we see that surplus in the same way?

[Arn van Iersel]

In British Columbia, as I told you, quarterly financial statements are another piece of our legislative framework, so they come out September 15, November 15, and then with the budget in February. They have to be prepared on an accrual basis. They're not audited, though. As the Auditor General, our office audits the summary financial statements at year-end. It isn't quite as onerous at the quarter as it is at year-end, so much more of the work is done based on materiality by the Ministry of Finance and the Office of the Comptroller General. So it doesn't necessarily mean that the ministries will do a year-end four times a year.

[The Chair, Liberal, Diane Marleau]

We'll go to Mr. Alghabra.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

Thank you, Madam Chair.

Good afternoon to all of you. Thank you very much for travelling to Ottawa and sharing your experiences with the committee.

Given the fact that both provinces have gone through the transition phase from mixed or cash accounting to full accrual accounting, I want to ask a direct question. I think the answer is obvious, but I still would like to hear it from you. Would you recommend that the federal government go to full accrual accounting?

[Arn van Iersel]

As a professional accountant, definitely yes, but I want to be fair to my federal colleagues, both the Minister of Finance and the Comptroller General's office, in terms of when and how that really needs them to lead the charge, in terms of preparing the plan, with some impetus from a government champion.

[Jim McCarter]

A key fiscal accountability measure is the budget deficit surplus, and the government comes out and says, “Here's our target”, at the start of the year. At the end of the year, you have an audit and you come out with a different number, and to some extent the public looks at that and says, “Here's how good a job you did from a fiscal accountability point of view.”

When all your internal accounting, your appropriations, your estimates are on a different basis of accounting, eventually you're probably going to get to where it's consistent, and my feeling is sooner rather than later. But don't underestimate it. It's a fairly major project. It's not getting the appropriations to the estimates to the accrual basis; that's not the challenge.

Somebody asked the question, was it a big impact on us as legislatures? I'd have to say in Ontario it was...there was no training for legislatures. It just wasn't a big issue. From the estimates point of view, it was not a deal breaker; it was not a big issue. The challenge is getting this into the working level at the department, and it is a challenge. But the answer to your question is yes.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

Thank you.

[Bruce Bennett]

From a professional accounting point of view, moving to an accrual accounting basis and consistency at the ministry levels, compared to the summary level, is certainly a preferred direction. The timing of how you get there and when you go and the complexities of doing that are more of the challenge. They have to be considered very thoroughly.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

Thank you all.

Given the fact that, from your professional point of view specifically, it was the right thing to do and is the right thing to do for other jurisdictions, and we've heard some of the reasons why it's a tough task, why do you think many are still reluctant to take on that challenge, given that we've seen some successes like yours?

[Jim McCarter]

When I read some of the literature, the U.S. has decided not to go. They're very concerned about losing the front-end control on the cash basis, on the appropriation basis. That's my sense of why they decided not to go that way; they don't feel there's a big enough advantage. A lot of the Commonwealth jurisdictions are going that way, but a number have decided not to.