Government Operations Committee on Sept. 26th, 2006

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

I'm not sure if you'll be able to answer this question. My intentions are completely straightforward here.

You've indicated that certain provinces have gone to accrual accounting, and there's been this discussion with respect to fiscal imbalance in terms of moneys being transferred from provinces to the federal government and back to the provinces. According to your understanding of what they've determined is the fiscal imbalance that exists, do they use accrual-based accounting to determine the number, or a cash basis? Could you answer that question, because this raises a good point when you're talking about reporting. This argument or discussion takes place in the public format, but to the average person, first of all, they don't even understand the accrual basis of accounting.

In terms of this gap that is talked about, how is this gap determined by the federal or provincial government in terms of the discussion? I'm not sure if you can answer it.

[Sheila Fraser]

I really can't answer it, Mr. Chair. I know that most of the provinces and the territories prepare their financial statements on accrual or some modification of accrual. I'm not sure that those are the numbers, though, that they use in this calculation of fiscal imbalance. I think it's more economic studies, in fact, and various other studies. So I'm not sure this has an influence on that.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

It is just a side question, because we were taking about accrual. It just came to my mind.

[The Chair, Liberal, Diane Marleau]

Thank you very much.

Before we go to the next speaker, there's an internal study you've been working on for some time. Has that been made public yet?

[Charles-Antoine St-Jean]

We're going to be referring to this study, which was done by an external consultant, in the presentation.

[The Chair, Liberal, Diane Marleau]

Yes, but we haven't seen a copy of that.

[Charles-Antoine St-Jean]

We'll be referring to it; it's in some of the information from the auditor.

[The Chair, Liberal, Diane Marleau]

Madame Thibault.

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

I have no questions. Like this gentleman, I'm having a devil of a time understanding what this is all about. However, that does not mean I won't have some in a few days. Thank you.

[The Chair, Liberal, Diane Marleau]

Mr. Nadeau has a question.

[Richard Nadeau, Bloc, Gatineau, QC]

I'm trying to assimilate some of this information in order to better understand the documents you've provided us and that I studied carefully. I have a couple of questions.

Let's take the example of the purchase of a building for $100,000, an amount that is not included in the budget, that does not appear under voted spending, and let's assume that the payments are spread over a ten-year period, on the basis of $10,000 annually. How exactly could the government purchase the building if it doesn't have the $100,000? I don't know if you see what I'm driving at here.

[Sheila Fraser]

Madam Chair, that is one of the challenges as regards parliamentary votes. Parliament must always approve the use of public funds.

One solution might be to have a $100,000 budget identified as capital, but on the results side, the departmental budget would only show $10,000 a year. It's important to find combinations that accurately reflect the cash amount, which is still significant. Of course, the cash position has to be monitored, but as regards operations, that must be done on the same basis as the summary financial statements at year-end. So, there could be a combination of the two.

[Richard Nadeau, Bloc, Gatineau, QC]

Fine. Thank you.

In the documents, the suggestion is to use accrual accounting. The government has already said that it would implement this within a certain timeframe.

Having said that, if I understood you correctly, a number of countries and provinces are already using this method. Consequently, they must already have answers to the question I've just asked you. I assume it's similar to what you have presented.

My question deals more with the historical aspect of this. You may not be the one to answer it, but it is really a general question.

For how many years has the government been saying it wants to implement accrual accounting?

[Sheila Fraser]

Accrual accounting has been in place for four years. Indeed, the Public Accounts should be tabled Thursday, and that will mark the fourth year the government is reporting its results on the basis of accrual accounting.

[Richard Nadeau, Bloc, Gatineau, QC]

Full accrual accounting? Not using a hybrid system?

[Sheila Fraser]

No.

[Richard Nadeau, Bloc, Gatineau, QC]

They are already doing that.

[Sheila Fraser]

Yes.

[Richard Nadeau, Bloc, Gatineau, QC]

I see. That's good news.

Mr. St-Jean, you said that in some countries -- you referred to New Zealand -- it took about 10 years to change the culture or, at least, the system.

Is that what we're looking at here in Canada? Are we on the right track?

[Charles-Antoine St-Jean]

At this stage, since we have already completed that part of the financial reporting that represents 50% of the work, we are already well advanced. Will it take 10 years? No. We are thinking it may be more like five years, but that is what it will take.

[Sheila Fraser]

I would just like to add that the government has not announced publicly -- unless Mr. St-Jean is doing that today -- that it intends to move to the next step. The government has always said that the financial statements would be prepared using accrual accounting, but it has never actually made an announcement or a formal commitment along those lines.

That's why we are saying that after so many years of study, a decision is needed.

[Richard Nadeau, Bloc, Gatineau, QC]

Fine. Thank you.

Thank you, Madam Chair.

[The Chair, Liberal, Diane Marleau]

Thank you.

Mr. Kramp.

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

I have two or three overview points, but first I would like to commend our research department for helping us be prepared for this by spending their summer compiling a tonne of information for us to peruse and supposedly know a little more than we did going in.

It's going to be a challenging process, but I and many committee members believe that we have to get to a point where decisions are made. You have echoed the concern that it's been eight years with still no decision. I really believe we have to get to a point where we have a decision, regardless of what that decision is. There has to be some kind of consistency in operation. So I'm hopeful that the information will come from witnesses like you and others who will be called to at least lead us in a definitive direction. That's just a bit of an overview statement.

I don't know if you're allowed to say, but obviously all of your recommendations have not been accepted by the government. I can recall sitting on the public accounts committee as well, where recommendations were made and the government didn't take them, or it accepted them in part. Have you had any direct communication where reasons were given for rejection, or reasons were given to your departments as to why it would not be preferable to go along this line? Have you even had communication with the different levels of government, the agencies and/or the departments, expressing any reservations about the accrual process?

[Sheila Fraser]

I would say that the major discussions have been held with the Treasury Board Secretariat and the Comptroller General's office over the years. I don't know that we've ever had any explicit reasons as to why. The difficulty comes back to the fact that there is no decision. Government has consistently said over years that it is a complex question, and we're studying it and looking at it.

We're saying that now the time is to make a decision either to move ahead—and obviously there will be many issues that will have to be addressed, it will take time, and this will not be a simple matter that can be brought in overnight—or we say no, and then there has to be some way within departments that they manage more than cash. I think there has to be a decision.

There has never actually been a rejection of the recommendation. It's more a question of studying it.