Government Operations Committee on Nov. 7th, 2006

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

One concern voiced by our witnesses, as well as a number of the people here today, is the difficulty at the department level of implementing this. It's great to have a grand idea, but implementing it becomes a different matter. My concern is getting over that hump. My concern is whether we do it dribble by dribble by dribble, or we do the “big bang” approach. My concern is that if we do this little by little, department by department, it will never get done. It will get lost. It won't have the focus. It won't have, I suppose, the command. It won't have enough critical mass movement on itself to even be considered, and we'll never get the transformation process completed.

Personally, I'm a proponent. If we're going to do it, let's do it. Allocate the funds and get it done.

What are your thoughts on that?

[David Moloney]

I'll speak to that first. As we talked about with part IIIs, I can see some value in perhaps having a pilot department, or two or three. However, I don't want to bring you a mixed set of estimates--a bunch of departments on one system and a bunch of departments on the other. That won't serve you, and it will be a lot harder for us.

I mean, certainly if we're going to do this, we need to do it in a measured way, but measured in few years, not decades.

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

There were dollar figures thrown around: $100 million, $200 million, $700 million, whatever. I listened with great interest to both B.C. and Ontario and their cost estimates. Actually, I recall the one witness from B.C. saying that he thought it was going to be absolutely daunting. It didn't prove to be quite as demanding as they actually thought.

The size and scope of the federal government is a whole different matter. Do you anticipate the costs of implementation at the federal level would be relative to the cost of the provincial implementation, be it in proportion to population or departments? In other words, if we're 20 times larger, granted, in scale, would our costs go up 2,000%?

Do you understand where I'm coming from on this? Can you give me a quick response as far as capital outlay goes?

[Charles-Antoine St-Jean]

If I recall the presentation by our colleagues from B.C., they were making reference to $5 million for training, exclusive of system costs. When we look to see what the average system cost is for financial purposes in the federal government, it's in the neighbourhood of $300 million to $350 million per year currently. We have to take all this into consideration. We also made reference to the fact that we must invest every year to upgrade our system to bring in new functionalities, and so on, so I'm not uncomfortable with the number that was quoted by our colleagues from PricewaterhouseCoopers when they said it could be up to $150 million for the training and system costs. That would be the order of magnitude.

Our colleagues in B.C. didn't say $5 million, but they didn't tell us what the amount was for the systems. Also, they have one platform. We have a different scale. If I recall, the B.C. government is at about $30 billion, give or take. We're close to $220 billion, and then there's a quantum leap at some point, where the complexity is such that it's difficult to just extrapolate one on one.

But that would be in the zone, based on the $300 million per year that we spend already on systems.

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

Of course, it could be offset, as well. Reconciliation costs wouldn't maybe be as high once we've implemented this system, because we're not into multiple systems.

[Charles-Antoine St-Jean]

Yes, over time those costs should go down, so there should be a payback in having accrual.

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

I have very little time now, but in closing, I might thank the Treasury Board and our other witnesses from the Office of the Auditor General in advance for, to my mind, taking this issue very seriously for the first time.

The PricewaterhouseCoopers report was really well done. It was a great initiative on behalf of your departments, and it looks as though you've actually made a commitment to helping to steer us in this direction that has been the will of Parliament.

With your help, it's up to the committee members to now come up with a report that will hopefully sell this to the rest of Parliament, to demonstrate clearly that your work will not be in vain and that the concern of the Auditor General will not be in vain. We can now make a compelling case to go forward for the betterment of all Canadians.

Thank you very kindly.

[The Chair, Liberal, Diane Marleau]

Before we go forward, just to help in the drafting of our report, one of you said the government needed to send a clear message. It seems to me that Paul Martin, when he was finance minister, said in one of his statements that the government would move to full accrual. I don't know if he used that terminology, but I just recall the time. Things moved considerably for a while, and then they seemed to stall.

When you say “a clear message”, would you like us to recommend an actual timeframe? Would you like the government to come out, when it goes through cabinet or whatever, putting the real markers down so that it can be actually very specific?

I'm asking this question because I thought there had been clear statements, but maybe I'm wrong.

[Sheila Fraser]

Madam Chair, when Mr. Martin made that statement, I believe he did refer to accrual accounting, but only for budgets and financial reporting, the financial statements. The accrual appropriations weren't addressed at that point, and if I'm correct, he also put in a timeline. I think he said it was to come in by 2001 or 2002. Anyway, there was a timeline, and he had indicated five or six years. I think something like that would be good.

[The Chair, Liberal, Diane Marleau]

Would you like to answer that, Monsieur St-Jean or Monsieur Moloney?

[Charles-Antoine St-Jean]

I think we were going to say exactly the same thing. At the time, Prime Minister Martin made reference to budget and reporting, not the accrual appropriations.

[The Chair, Liberal, Diane Marleau]

For those of you who are listening, in my simple little mind, it was that we were moving to accrual, and I said, “Hallelujah, it's about time.” But let's just say that I wasn't following it as closely as I am now.

We will go to Madame Nash.

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

My thanks to all of the witnesses for coming yet again to help us through the minefield of accrual accounting.

I want to begin with Mr. Moloney and ask a question so that I am really clear about your presentation.

I understand that the explanation of accrual accounting seems to be clearest with the purchase of tangible assets. But if the government decides to spend money by investing in some national training program, apprenticeship program, or pharmacare program, some program where the expense is not on a capital asset but rather on a service, I assume one could argue that while it's not the asset one would have with a tangible physical structure, there is an asset in terms of the development of society or a service or benefit offered. Would the actual accounting for that be similar to the model you've shown, or are there significant differences under this system?

[David Moloney]

I believe they are in fact quite different, and it does come down to accounting standards. But I really should defer to the government's accountant, as well as Parliament's accountant.

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

Nice answer.

[Charles-Antoine St-Jean]

These are two different things. When we were talking about accrual for fixed assets, in this presentation we gave you an example of fixed assets. But there are also some other elements, like financial assets, like loans, and so on, that would also need to be included in the actual voting.

When you look at the third box on page 12 of the presentation, where we're talking about the cashflow, there are different things that we would see Parliament voting on in the future. One would be acquisitions, which is what we talked about in fixed assets. Some would be investment activities, like the loan portfolio, investments, and some of the financing activity. The government would be voting on those elements as well—not only the fixed asset but some other financial assets.

Today we just gave you a view with a simple example, but there are a few other elements on which we would expect Parliament to vote. These would be long-term assets, like the amortization of those loans or allowance for bad debt and the like. You would also be voting those through in the estimates.

I don't know if I'm helping.

[Sheila Fraser]

Madam Chair, can I just add that under accounting standards, we only record in the financial statements the assets that are owned by the federal government. Programs that benefit society generally are not considered as assets for the government. They are generally treated as expenses each year, and there would be a vote each year for those specific programs. Going to accrual appropriations wouldn't significantly change what is currently done for programs.

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

Is there anything that would be negative toward any kind of social spending or the initiation of new programs? It would be exactly what we are doing now.

[Sheila Fraser]

It would be essentially the same.

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

It's not a capital acquisition.

[Sheila Fraser]

It wouldn't change. The major changes would be for the capital assets and long-term liabilities. Environmental liabilities are an example that was given. Those are the kinds of elements that would change, but the ongoing programs that the government carries out would not be affected by this, by and large.

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

Great.

When we heard from the provincial representatives, they talked about there being a cultural change and the necessity for training. With your experience in new initiatives that the government has undertaken—for example, the change in computers that the government brought in in the year 2000—there is a cultural change, there is training that takes place. How could this committee make a recommendation that best facilitates a smooth transition, that the appropriate training takes place, and that people are motivated to want to move to this new system?

[Sheila Fraser]

I guess the only comment I can make is that any large change initiative requires a really solid plan to get there, clear assignment of responsibilities, and sufficient time and resources to actually move it there. So I would suggest that the committee might want to ask the government to develop the plan of implementation and clearly analyze the costs, so that they're ensured to have sufficient resources to be able to carry it out well.

Oftentimes projects don't go as well as they should, not because people don't want them to, but because they don't have the resources and the skill set necessary to be able to support the change initiative.

[Charles-Antoine St-Jean]

If I may, my experiences with large system change is that one of the errors we very often make is seeing it as a system change. We don't take into account the change of management, the people aspect. The people aspect is training, communications, and all the tools.

This is very often an investment. They say yes, we don't need it; let's go with the gizmo, and so on. No, we have to really focus on the people aspect—so communications, training, and retraining. Probably there is also some new capacity, new skill, that we will have to acquire, and this is not an easy part of it. But we should not shortchange ourselves on this.

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

I would think this would be part of our recommendation, and I would hope that the people part of the equation is a consideration.

If I have the time, Madam Chair, I have one last question in terms of the overall costs. As I understand it, regarding the two models we're looking at in the system, we will still be considering cash accounting. Obviously we will have to take this into account in the model we finally go with.

I hope I'm interpreting the remarks properly, but I did ask the provincial representatives if they thought that over time we might end up spending more money, or perhaps they had spent more money on their accounting budget per se, because of the accrual and the cash work, which was being undertaken. I believe their response was yes, perhaps, but that the clarity of the information was worth it because we were going to be making better decisions.

Would that be your sense of this change, that in fact we might end up spending a bit more money on the accounting process, but that it's a worthwhile expenditure?