Evidence of meeting #15 for Government Operations and Estimates in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cash.
A recording is available from Parliament.
Comptroller General of Canada, Office of the Comptroller General, Treasury Board of Canada Secretariat
My apologies; it's a buzzword. I'm sorry—point well taken.
As part of that reporting strategy for Parliament, how do you want to see the activities reported back to you? I think that should be part of the same exercise.
As for the significance of changes, no doubt there will be some technical issues, and there are going to be some policy issues, procedures, and systems. We have a PAYE directive, but PAYE only deals with the end of the year—PAYE means “payable at year-end”. If we're going to manage this on an accrual basis, maybe we'll have, say, payables at the end of the day. We'll make sure we capture all the liability on an ongoing basis, not only once at the end of the year, or at least on a quarterly basis, to make sure you have the information. Legislative changes will be called for, probably in the FAA, to adopt the proper basis of accounting to reflect this.
As for cultural change, I had that discussion. It's a bit like when we adopted metric measure in Canada—we went from fahrenheit to Celsius, or from miles to kilometres. Some of us remember that transition. It took a few years, and still sometimes we lapse back to pounds of meat. So it's going to take some time; it's something our minds will take some time to adapt to.
Liberal
The Chair Liberal Diane Marleau
Would it be possible for us to just say we'll concentrate on fixed assets, for starters, or...? If you think it's going to be so difficult, push one thing....
Comptroller General of Canada, Office of the Comptroller General, Treasury Board of Canada Secretariat
It's a mindset. We manage resources.
Comptroller General of Canada, Office of the Comptroller General, Treasury Board of Canada Secretariat
It's not a problem. That's the mindset we need to move to management resources, not only cash. So a loans portfolio is as important as a fixed asset. Cultural change is important, but it's not done overnight.
On the estimate of cost, when you talk to the consultant, it's a very high-level estimate. It could be $150 million. It's going to depend on the system we need, because we still need to track cash. We also need to track the accrual basis and we need to compare the numbers. It's going to take a lot of training and retraining some of our financial officers who have been used to managing cash. It's a new process with new routines that will need to be done. It's going to take some time. So $150 million is a high-level estimate.
On the timing, if we implement this approach, our recommendation is that we do it at the same time as we do the implementation of the other policies, on the results and structure and also the PAA to make sure we have changes at the same time, so it's comprehensive.
If you look at page 15, it gives you an idea in terms of the complexity and why it's so complex. If you do a little algebra, going back to your x and y axes, on the y axis you have six different approaches; on the x axis you have five different approaches. It's not something that has only one way. Different countries have used different approaches. Australia, for example, went to the sixth, full-cost appropriation, and then they retrenched back to something closer to the fourth. They experimented with something that was not right. We have to be careful in picking and choosing to find the winning solution.
If I were making a guess in terms of what would be the sweet spot for the Government of Canada over the long term, I would say probably 5.4 would not be a bad place to land, but it's going to take a bit of time. It would be government-wide, and it would be the accrual appropriation and financial statements. That would be a good place to land.
But you can see we have from one to six. These are different models. I'm sorry, I'd like to make it simpler, but these are the different approaches that are available on the market at the moment. They are available for different countries, different provinces. You can have from government-wide only to government-wide and all departments. I'm sorry, but it's not easy.
Moving to page 16, the notional implementation plan, we asked our consultants if they could give us an idea in terms of how much it would take and what major steps would be involved. They recommended that it would probably take something like 60 months to go to the full solution. There would be intermediate checkpoints to make sure we're on the right track and that parliamentarians feel comfortable with the information being presented. Again, page 15 tells us it is complex, and page 16 tells us it's going to take some time, and a bit of patience will be required from parliamentarians to move along to the solution.
On page 17, the study's conclusion, although the increasing use of accrual accounting is a technical accounting change, it could have a significant impact on people, process, and systems. Therefore, if we're going to go there, how we go there is also very important. It's important that you have the right information throughout the transformation.
We also need to know where you want to go in terms of what information will satisfy you to hold the government to account. I think it's a two-way street. We can give you some information, but we'll also be depending on you to provide us with some guidance in terms of what would be useful to you.
On page 18, the last point, what we will be proposing is a made-in-Canada design framework. We have some specific issues that we deal with in Canada that the provinces don't deal with to the same extent. I'm talking about environmental liability. When I was looking at the public accounts, I saw that we have something like $5 billion to $6 billion of environmental liability. Provinces normally do not have large amounts of environmental liability. I think it would be important for Parliament to recognize the liability, but also parliamentarians have to tell us the pace at which they want this liability to be discharged. We have to reconcile those two pieces of information.
I think I will conclude on this note.
Liberal
The Chair Liberal Diane Marleau
Thank you.
We have time for a few more questions.
I'll go to Mr. Alghabra.
Liberal
Omar Alghabra Liberal Mississauga—Erindale, ON
Thank you, Madam Chair.
Thank you, everybody, for coming here again to help us navigate through what appears to be a very complex situation, although I'm sensing there's a consensus here that the accrual type of accounting is a good thing.
If you're allowing Mr. St-Jean to summarize or reduce the three difficult challenges in moving forward with this, those would be procedural challenges, cash management, and cultural change. Would that be it?
Comptroller General of Canada, Office of the Comptroller General, Treasury Board of Canada Secretariat
To a large extent, that would be it.
Liberal
Omar Alghabra Liberal Mississauga—Erindale, ON
Madam Fraser, regarding the private sector--and there are a lot of corporations and organizations that are quite large, some of them representing a few of the larger economies in the world--what type of accounting systems do they use or what type of reporting mechanisms do they use, from your experience?
Auditor General of Canada, Office of the Auditor General of Canada
The private sector uses accrual accounting and has for decades. The difference, of course, with the private sector is that it doesn't have appropriations. So that's a major difference between it and the government and parliamentary sector.
The private sector will have budgets that will be on an accrual basis, but will also have things like cashflow statements, so they will be doing tracking. They will have several different tools available to them, which will give them a full base, so the cashflow, for example, is very important in the private sector.
Liberal
Omar Alghabra Liberal Mississauga—Erindale, ON
I was going to argue that they have, rather than appropriation in the same sense as we have it, a form of cashflow management and also appropriation of cash from their treasury or from their lenders.
Auditor General of Canada, Office of the Auditor General of Canada
Absolutely. The treasury function is often one of the most critical functions in any large corporation.
Senior Assistant Secretary, Expenditure Management Sector, Treasury Board of Canada Secretariat
There is one extra element, a fourth domain, I believe, and that is the domain of Parliament's control. How would Parliament like to see, overlook, and control spending?
If members wouldn't mind, there's a slide on page 44 that I think summarizes the particular example of the chair when she was talking about tangible capital assets. As the member has said, there's a strong consensus that we would get better financial decisions in terms of managing resources if departmental managers were able to take the accrual approach. That will require Parliament to change the nature of its votes.
On slide 44 we are looking at tangible capital assets. There are many other aspects. I'm sorry, I tried before to run quickly through what's on page 44. It is complicated; however, there are at least four models, and in fact there are more that are summarized in later pages.
Today you vote acquisition costs; that's the current model. You could vote only amortization and not vote the capital acquisition. How would you like to see and be aware of the $100,000 expenditure while you're voting the $10,000 year by year?
The third there is to set-up, and we refer here loosely to statutory. Another definition could be a multi-year appropriation. So in year one, you would essentially vote as Parliament that the amortizations could be appropriated for the following ten years, essentially without parliamentary review. That would be a significant departure. But you could still vote one time on the acquisition vote.
Or you could do what some jurisdictions do: you could vote both every year. That's what I was referring to doing in the month of June. Certain parliaments have found that rather confusing: we just voted on this; you want $100,000, and then you want $10,000? How do we keep track of that? Doing so is not beyond our ability.
We in the secretariat very much welcome your hearings and the fact that you're willing to devote the time, because we're going to have to have your very explicit instructions and acceptance to change the very nature of a lot of these votes, and it will take us some time to do. But that fourth dimension is--
Liberal
Omar Alghabra Liberal Mississauga—Erindale, ON
I appreciate that. Thank you, Mr. Moloney.
But if I go through the presentation made by the Comptroller General, the benefits listed are improved transparency, improved accountability, and improved management. So while I understand there will be some challenges and perhaps some changes in the mechanism for voting, the reality is that accrual accounting--and I think there is a consensus here--will improve transparency, accountability, and management.
As I asked the last time we met, isn't there a cost every year-end when we have to reconcile how we manage our cash and then how we report on accrual accounting? That would be eliminated if we adopted accrual accounting.
Comptroller General of Canada, Office of the Comptroller General, Treasury Board of Canada Secretariat
There are not only costs at the end of the year; there are also surprises. That's one aspect. But it's not only at the end of year. Because we have two bases, it makes life complex throughout the year. One always asks what the impact of the year-end balance will be, but it's not only at the end of the year; it's throughout the year.
Liberal
Omar Alghabra Liberal Mississauga—Erindale, ON
So it's a huge cost and it brings surprises. Do you agree that those would be somewhat minimized if we adopted accrual accounting in our management?
Comptroller General of Canada, Office of the Comptroller General, Treasury Board of Canada Secretariat
When people have been culturally acclimatized to the new way of doing business...and it's going to take some time. Let's not discount that.
Liberal
Omar Alghabra Liberal Mississauga—Erindale, ON
On the surplus that was just announced, is it accrual or cash?
Auditor General of Canada, Office of the Auditor General of Canada
It's accrual.
Bloc
Richard Nadeau Bloc Gatineau, QC
You used the example of the metric system. When we adopted the metric system, the culture of inches and feet still existed. The fact remains that we did move to a different system, although it took a certain amount of time.
On page 7 of the document you prepared for us, I see identical or similar information to what appeared in the previous presentation.
Is it possible that in the near future, in terms of the criteria that appear on the left side of the table, accrual accounting will be used across the board -- in other words, at both the aggregate and departmental levels?
Comptroller General of Canada, Office of the Comptroller General, Treasury Board of Canada Secretariat
Yes, eventually.