Just by way of background, the Ontario Auditor General's Office has about 100 staff--85 professionals. We're seldom at full complement because of the competition for accountants.
One thing I'd like to mention is that we don't comment on government policy. We have no involvement in the budget or the estimates process. We may have a comment if it's on the presentation, but the government would basically not come to us and discuss the budget or the estimates. It's considered a policy document.
The Auditor General's Office in Ontario is probably not a traditional auditor, where most of your work is doing accounting and financial auditing. We have a very active Standing Committee on Public Accounts that meets about thirty times a year. They basically indicated to me that, unlike this committee, they are not all that interested in financial statement auditing and accrual auditing. They want my focus to be on what we call performance or value-for-money auditing. We spend our time looking at the environment, drinking water, hospitals, universities, day care nurseries, road construction, and snow plowing. That's how we spend about 75% of our time, and about 25% of our time is spent doing the type of financial accounting we're talking about today.
We recently had our mandate expanded to allow us to do performance auditing in hospitals, universities, and children's aid societies, because they get about 50% of provincial expenditures that total $84 billion, of which about $45 billion or $50 billion goes out in grants.
There's another thing we do--and I suspect some of the government members might smile. The Auditor General of Ontario must approve every single advertisement that the Ontario government runs before it can be run. We approve all ads. So that is a bit of a change for an audit office. That's new; that came in about two years ago. It's certainly a new line of work for us.
We will also be reviewing for the first time a pre-election report, which the government will have to issue. We have fixed election dates in Ontario, so we'll be providing a reasonableness overview on a pre-election report--a sort of state of the nation.
Getting to the issue we're going to be talking about today, my understanding is that the committee is assessing whether to support the Auditor General's recommendation on using accrual accounting for estimates and appropriations.
On the next overhead I tried to summarize my understanding. You can see at the federal level the best way I can describe it is as a mixed bag between cash basis accounting and accrual basis accounting.
Certainly the budget surplus or deficit number would be the key fiscal accountability measure in Ontario. When the public looks at the government and asks what kind of a job we have done in managing the finances, they look at how close we came to that budget surplus or deficit number. That's on an accrual basis. However, in your estimates and your supply act, your departmental accounting is on a cash basis, which is a different basis of accounting. When I looked at the reconciliation, I would have to say that even as an accountant I found it tough sledding. It could be that I am not a very good accountant, but it was not the easiest thing to follow.
In Ontario we're on full accrual accounting. We also consolidate a number of crown agencies. Our departments are now on full accrual accounting, and our estimates and our supply act are on an accrual basis. So we've basically gone that route.
The next slide gives you a bit of a chronology about what was done when. When did Ontario take the action to do this? As you can see, our financial statements have been on an accrual accounting basis for over ten years now. Our budget is on accrual accounting. That's very important, because when you report your surplus or deficit, the key accountability measure is how that compares to what your budgeted number was. How good a job did you do in meeting that? So it's important. That's on an apples and apples basis. I think at the federal level that is the case right now. The issue is that the underlying estimates, supply act, and departmental accounting are on a different basis.
As you can see, we include about 90% of our capital assets now. Bruce will be talking about that. Our supply act and estimates are on a full accrual basis.
And our departments are on an accrual basis, but they were phased in over about a three-year period, just because it's a challenge getting your departments under the accrual basis. It was necessary for us to have a government-wide financial accounting system that could actually accept accrual accounting to be used consistently across 25 ministries. We use basically what's called an ERP Oracle Financials system, and the cost of that is not cheap. On the total all-in cost, we're probably looking at upwards of $150 million, maybe even as much as $200 million to put that system in. It certainly provides us with much better information for decision-making.
Turning to slide number 7, we did have in Ontario two independent financial review commissions comprised primarily of outside experts, and they weren't all accountants. They basically made a recommendation stating that they thought the government should be going to full accrual accounting for everything they do, and the Office of the Auditor General supported those recommendations. I think the governments of the day took those outside recommendations fairly seriously.
If we turn to overhead number 8...the next two overheads are basically just to give you an indication of how we present things. In the provincial budget, you'll see for education, on an accrual basis, that it's basically $12 billion. We break it down by the three areas.
If you go to the estimates or the Supply Act, on the next overhead, what I wanted to get across with this slide is that even though we're all accrual, it's apples to apples. As you can see when you look at slide number 9, you still need a reconciliation. It's still not, I'd have to say, crystal clear. I think it's clearer, but you still do need a reconciliation, because there are some consolidation adjustments and different things that you do have to put in there. Accrual accounting, as the deputy minister of finance has said, is not intuitive to the non-layman. So even if you do go to full accrual, you're still going to need some of these reconciliations to tie everything in.
Turning to overhead number 10, and this is maybe a bit of a personal philosophy, but I've always been a believer that the main purpose of accounting.... The financial statements are important and everything else, but at the end of the day, the main purpose of accounting, to me, is to provide good information so that the people making the business decisions can make the right business decision. To some extent, at the ministry level and the department level, you're driven by your bottom line, your budget, because that's the end goal as to how good a job we did managing the finances for the people of Ontario. The budget is on an accrual basis, that bottom line surplus or deficit number, but the internal accounting and so on is on a cash basis. To some extent, I think that can pose some risks. Do you get your internal decision-making driven by the accrual, or do you get it driven by internal systems or cash? I think it can create difficulties. I've also indicated that on slide number 11.
I wasn't quite sure how to put this, but I mentioned that full accrual reduces the ability to manage the numbers as opposed to the cash basis, and my colleagues will take any questions in that area.
I would mention, too, that the full cost of decisions on a cash basis are not always taken into consideration, although my understanding is that because the budget is at the accrual level when submissions are made to cabinet, even though at the departmental level it may be on the cash basis, there is basically a conversion. The two things are presented, so when it goes to cabinet to make the decision, the accrual impact is presented. You get the department..their internal stuff is at the cash basis. They have to make sure they pick up the accrual things--