Government Operations Committee on Sept. 26th, 2006

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

Then perhaps I could take that same question and ask Mr. Charles-Antoine St-Jean this. In your mind and in the minds of your predecessors, why have they not gone ahead? Why have they not either adopted or enacted, and what reasons have they given? Are there written responses, or is it just sitting in no man's land and blissfully being ignored?

[Charles-Antoine St-Jean]

I don't think it has been blissfully ignored. As the Auditor General has said, this is a complex issue. It's been under study for eight years, and so on.

There are different players around the table. If we prepare financial information for a certain purpose on a certain basis, it also must meet the needs of the users. If we go to the estimates on the accrual basis, it also means that Parliament will be focusing its attention on the use of resources and not only the use of cash. So far, to a large extent, the signal has been on the cash, or near-cash, or near-accrual. I do support the view that we are custodians of all the resources of the Government of Canada: cash, liabilities, the long-term and short-term assets—not only cash. It also means that members of Parliament have to focus their attention on the full use of the assets and liabilities of the Government of Canada.

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

You're saying then that obviously the accounting process is or should be an exact science. However, it has been influenced in either the decision or non-decision by political influence, for various reasons. Are you saying that?

[Charles-Antoine St-Jean]

No, I'm not saying it has been political influence. It's that when the decision-makers--parliamentarians--look at the estimates, you are looking at them from a cash or near-cash perspective. In the future, if you want to go to resource management, you also have to look at the assets and liabilities, look at the balance sheet.

At the moment, you are looking more at just the statement of operations of the Government of Canada. You don't look at the balance sheet. When you approve the estimates, you don't approve a balance sheet, or you don't ask for a balance sheet or a forecast balance sheet.

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

Right, so does the implementation of accrual remove some of the discretionary capacity of the departments and/or Parliament?

[Charles-Antoine St-Jean]

It would give better information to everybody.

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

Thank you.

[The Chair, Liberal, Diane Marleau]

I think Mr. Moloney wanted to add something.

[David Moloney, Senior Assistant Secretary, Expenditure Management Sector, Treasury Board of Canada Secretariat]

Thank you.

It's the Treasury Board Secretariat, working with the Comptroller General and the Office of the Comptroller General, that prepares the appropriations requests that the President of the Treasury Board tables in the supply bills that you actually vote on in Parliament.

I would like to speak to your question, if I could. There are three quick points I'd like to make in response to a couple of points. I think they're covered in the presentation that the Comptroller General will take us through, but I will just quickly review that.

The commitment in 1998 was that the government would move to accrual for budgeting and reporting. In fact, as the Auditor General stated, those were put in place four years ago--the government's reports and the government's annual budget.

Second, from the point of view of the most financially significant decisions, whether they are in respect of liabilities or assets, those that are large enough to require cabinet approval are in fact taken on an accrual basis. That took place four years ago, when the government switched its overall basis of accrual and reporting. For example, if a decision is made to purchase a building or any other sorts of assets that are large enough to require cabinet decisions, what we bring forward to Parliament in terms of our cash request for appropriations will reflect the one-time need that cabinet approved, but not the ongoing amortization that the accrual accounting would show.

That takes me to the third point. One of the members asked whether these other governments or other provinces in fact have sorted out how to deal with the need for Parliament--as the Comptroller General is saying--to see through to both the cost of delivering services and also the cash implications from year to year, because we cannot in fact leave it to financial managers inside the departments to check on whether there is enough cash.

That of course is important government-wide. Managers are accountable to manage to what you vote for them. But when we look across provinces and across other national governments, there are a variety of ways that parliaments in fact vote, control, and oversee spending under accrual budgeting and reporting at the departmental level.

If we think about the simple example of the $100,000 purchase, currently if a manager has $100,000 cash available in his appropriations, he has authority to spend that money, and we don't see the year-by-year consequences. The example showed that on a 10-year life example, under accrual accounting, it would be appropriate to reflect a cost of $10,000. Some parliaments vote the $100,000, as you do, and the $10,000 is not evident to you. Some parliaments vote the $10,000 only. Some parliaments vote the $100,000, and then automatically authorize a multi-year appropriation so that you will charge the $10,000 year by year.

This has not historically been an approach that the Parliament of Canada and parliamentarians have been comfortable with, to encumber the fiscal framework automatically with the--

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

Quite honestly, where you're going right now is just like ancient Egyptian hieroglyphics to me. You're losing me totally with your explanation. I understand what we started off with, but understand, you're speaking to laymen. We don't have an accounting designation.

I need something simpler in order to understand where you're going. I want it so simple as to say why it is advantageous to stay with the status quo and why we are not moving to the next process.

[The Chair, Liberal, Diane Marleau]

Mr. Kramp, perhaps we'll address that shortly. You are already way over your time.

I'll go to Mrs. Nash, and then I'll ask the Comptroller General to make his presentation so that perhaps he can explain some of these things in a clearer fashion.

Madame Nash.

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

Thank you, Madam Chair.

You know what they say about a little bit of information, especially when it comes to accounting information.

First of all, I want to thank you for your presentations. I also appreciated getting the information from the Library of Parliament. It was very helpful for someone like me who does not have an accounting background. We want to keep it simple.

It was helpful for me to understand, from the background notes we got, how accrual accounting could help with respect to real estate purchases and to making better decisions for the long as opposed to the short term. I thought that was helpful; I think I'm getting the examples you've offered here.

One question that comes to mind around liabilities of the government concerns the issue of pensions in the public service. Can you explain to us what the difference would be between how the pension obligations of the federal government for the public service are accounted for today and how they might be accounted for under accrual accounting?

[Sheila Fraser]

I'll start by saying that the Government of Canada uses accrual accounting for its pension obligations, and for the major pension obligations has done so for the last four years. Whether for the public service, for veterans, and so on, those are all recorded on the books of Canada.

The main difference with cash is that currently under accrual accounting, as public servants work each year, there is a calculation done of the cost related to the pension they will ultimately receive. There is an actuarial evaluation done periodically—I'll try to make it simple—so there is a calculation of the cost. That is done, and that's the amount that's recorded as an expense in the operations.

The amount that's actually paid into a pension fund could be a completely different amount. In many cases, in fact, there is no amount paid into a pension fund, but there is a recording of the amount that will ultimately be payable to the employees. It's actually showing the liability, the amount the government will owe for future pension costs, and that is being recorded year after year, as people work and earn those pension benefits.

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

But that's being done now?

[Sheila Fraser]

It's being done now.

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

So there would be no change.

[Sheila Fraser]

There would be no change. It's important to note that at the summary level, as we say on page 12, summary financial statements are on an accrual basis and have been for the last four years. The federal budget as well is on an accrual basis. The issues we're really talking about are at the departmental level. They are essentially working on a cash basis; they are not managing.... For example, they wouldn't have the pension benefits in their day-to-day operations; they'd only be worried about the cash.

Doug, did you want to add some more?

[Douglas Timmins]

Yes, let me add that the pension liabilities for the future would be recognized in the consolidated financial statements of the Government of Canada, but at the departmental level all they would be budgeting for is the amount of cash that would be paid to meet that obligation in the next year.

[Sheila Fraser]

The easier one to understand, I think, is the case of environmental liabilities, Doug's example. In the summary financial statements, the government goes through and assesses all of the sites—it has done studies—and says, we think the costs of remediation or whatever will be x billions of dollars, and we've recorded that as a liability, an amount that will eventually have to be paid to clean this up.

At the departmental level, all they're concerned with is how much cash they have in the year to clean up a site. This is probably putting it in simplistic terms, but they don't have that number for the overall future liability. They're not managing the future liability; they're managing the cash in their department.

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

I'll ask just one last question on that, so that I understand. If for example the government decided to bring in, we'll say, under an NDP government, a national child care program, and the decision was taken that over a ten-year period this would be the amount of money that would be spent, the accounting of it would not change from the way it is accounted for now, because we're already doing it on an accrual basis. But for departments, the accounting of spending on a yearly basis would change, and they would have to show more liability up front.

Does that...?

[Sheila Fraser]

This is going to get complicated. No, this is one of these expenses that, as Doug mentioned, we call current expenses. If there was a commitment for a child care program, the services would be done year after year and the amounts would probably be paid year after year. So the amount of consumption of resources is probably pretty much the same as cash.

It's not the same as if you said.... I'm trying to think of what it could be. The issues come into what we call long-term liability. For example, for people working over many years who have a pension benefit at the end, we say you should recognize their rights to that pension as they're working. So you record a bit of the expense each year.

For environmental sites, we recognize now that there's something that has to be cleaned up. So you say, okay, we have to clean it up. It may take us many years to actually do that. It's related to the event, whereas with providing child care--and most of the government operations, in fact--it is an event that would happen within the year. It wouldn't have longer-term implications.

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

Thank you for clarifying that.

[The Chair, Liberal, Diane Marleau]

Thank you.

I think we'll go to Mr. St-Jean now so that we can have the other side of the presentation.

[Charles-Antoine St-Jean]

It's a very similar side.

[The Chair, Liberal, Diane Marleau]

A very similar side, is it?

I often wonder whether we see a little bit of Yes, Minister going on here. I'm not sure.