Government Operations Committee on Oct. 26th, 2006

[Bruce Bennett]

There's no question cash is easier for most people to understand, because in their day-to-day living they understand cash. Part of it is just the move to accrual and understanding what it means and a little more complication in their lives, and people don't like to be more complicated; they like to keep it simple. It comes down to some basic things like that.

It's important from a financial management point of view. Government is a very complex business. In a lot of ways we're not choosing between accrual and cash, from a financial management point of view. When ministries and your departments are making decisions, they have to look at the implications on the expenditures and the budget, which is an important element, but the cash still has to be managed. And if, in essence, you want the most effective economic decision, to some degree critical cash elements are involved in the analysis of your choices between alternative programs.

From a budgeting point of view, you should have consistent budgeting, but it doesn't necessarily mean you don't have to manage the cash and the economic implications of your decisions as well.

It complicates their world a little more.

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

Okay. As a follow-up to that question, and given all those concerns that some jurisdictions had, or still have, and given that both jurisdictions have gone through it, have you found those fears are real? Or did you find, after you went through the process, that there are some challenges, but now it's much manageable, it's much more transparent, and it's much more effective?

Mr. van Iersel.

[Arn van Iersel]

Yes, I'm quite comfortable in terms of our progression to full accrual budgeting and reporting, and I would say from the perspectives of a professional accountant, the auditor, and the comptroller, the benefits have been there.

But I also want to be up front in saying that I don't think we've realized all the benefits that we are yet to get. I think the biggest challenge we see is taking it from the higher level down to the financial staff and into the program staff.

I would say one of the ongoing challenges with program people is that they need to better understand what information is available to them and how to use that information, not just for a year-by-year appropriation debate, but for a discussion in regard to long-term operating and capital commitments. That's the area where our province still needs to move to.

In regard to your question about whether there have been some problems, absolutely. We had some challenges on the systems front, not surprisingly. Training took a long time, and some people found it difficult, even despite training, to understand exactly where we were going.

But in the end, I think it's well accepted in B.C. now, and I think as new generations of public servants take over from those of us who have been there a little longer, it'll probably be easier yet.

[The Chair, Liberal, Diane Marleau]

Thank you.

We're going to take one or two more questions from Madam Thibault before we end the session, because we'd like to end around one o'clock, if at all possible.

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

Thank you, Madam Chair, particularly as I now have questions to ask.

First, I want to apologize to Mr. van Iersel. I called you Mr. Iersel. I didn't see the “van” and I apologize for it.

Mr. McCarter, I have two questions for you. I want to get back to what you told us about resistance. You said it was about buy-in. I understand very clearly how you did it, using someone who acted more like a cultural champion than a professional expert in order to implement this change.

I want to know what were initially the arguments of those who resisted. What were they opposed to, how did they argue that it wouldn't work, it wasn't a good idea and so on? What were their arguments based upon?

[Jim McCarter]

It was essentially, “The accounting we have now works well. We're able to make decisions with it. We're very busy. This is going to take time away from doing the business of government, from serving the taxpayers of this great province.”

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

So that was it, really? It's helpful to know this in advance because we will face the same situation.

[Jim McCarter]

It was a bit easier to sell, because the accounting systems that we had in place.... I mean, the decision had been made to go accrual, and going accrual in the estimates appropriation wasn't that big a challenge in Ontario. It was getting all the departments to go to full-blown accrual accounting that was the big issue. That's where there was a tremendous amount of resistance from a number of departments.

It was very important for a leader at the most senior level of government to come out and say, “This is going to be done.” And you have to set a timeframe, whether it's three years or four years or five years. It can't really be open-ended. That has to be set at the very top. But when that was done....

The other thing that's also very important is that we have performance contracts in Ontario. You get a bonus, and part of your bonus is based on whether you deliver on the deliverables in your performance contract. I remember telling the secretary of the management board when we were chatting about it that if the ADM in charge of corporate services in a ministry or the deputy minister had a performance contract, and they had ten things in it, the number one thing I would do is put success on the ERP system as one of the ten things. I basically said, “Talk is cheap, but if you do that, it's going to affect how much money they get at the end of the year.” And they did. They put it in their performance contracts for the senior individuals, and it communicated to the senior people that this wasn't a nit. This wasn't just some bookkeeping exercise. We considered this to be a strategic priority of the government.

Consequently, they put it in the performance contracts so there was an impact at the senior levels as to whether this thing got done and whether it got done on time.

That's a bit of a segue.

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

Yes, the carrot and the stick. It still works.

I want to ask you another question. You've been there since 2003. Did your predecessor play a role in this?

Not very long ago, we received the Auditor General's report. Chapter 7, which talked about buy versus lease decisions, showed how much—this was very well explained—some decisions were inappropriate. These decisions were made because the accounting, purchasing and use of funds were on a cash basis. This is only a small example. Of course, everyone is aware of Mrs. Fraser's role and excellent reputation.

Did someone at the Auditor General's Office in Ontario play a similar role by providing examples or by getting involved with this champion not only to explain and defend but also to promote implementation? Did the Auditor General's Office play that role to implement accrual accounting?

[Jim McCarter]

I would say yes in one case and no in one case. We certainly were beating the drum, in the sense that once you have your budget and your audited financial statements on the accrual basis, we feel it makes sense for your departmental accounting to be on the same basis of accounting.

We beat the drum every year in our annual report. Quite frankly, did that get any media attention? No, not really, but Finance is well aware of it.

Did we find a number of examples where poor decisions were made because of that? I have to be honest. No. Did we look for them? Probably not.

[The Chair, Liberal, Diane Marleau]

Thank you very much.

Thank you very much. You've been very good for our ongoing work. You've given us a lot of good thoughts and good examples. We will write a report as well and make recommendations to the government. I'm hopeful that when we write our report we can incorporate some of what you've given us today. I'm sure we will.

The meeting is adjourned.