Government Operations Committee on June 13th, 2006

[Mike Wallace, Conservative, Burlington, ON]

Thank you for that.

[The Chair, Liberal, Diane Marleau]

Mr. Alghabra.

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

Thank you, Madam Chair.

I want to ask Mr. Moloney the question I asked Ms. Fraser earlier. I think I got some of it from the other discussions, but can you tell me, personally, your professional opinion, are we dealing with administrative inertia here or are there legitimate, genuine disagreements about the types of practices we want to implement?

[David Moloney]

I'm not an accountant, so I don't have a professional accounting opinion on this. I believe it's fair to say that it is not a case of administrative inertia. In fact, we've been talking about very large changes. Included in the long story here have been large investments required in departmental financial systems. That accounted for some of the delay. Are there legitimate disagreements? There are legitimate concerns. I think I would put it that way. We have taken it as.... I view it as incumbent on myself.... My colleagues certainly view it as incumbent on all of us to make sure we understand what the best practice is.

Since a very small number of countries have moved in this direction, we have wanted to talk to them. Certainly, their experiences have been mixed. It is also very important to note that even though they are parliamentary democracies, and Westminster-type parliaments, they have very different budgeting procedures, very different estimates and appropriation procedures, and a very different organization of their financial structures and so on.

We cannot simply take any one of those models and import it. It simply doesn't work. Nor are any of those three countries, at this point, of the view that they've got it quite right. As the Auditor General did note, we were an early mover in reporting for accounting purposes. These are still early days in terms of the public sector worldwide. We should try to be a leader. We want to be a leader. We want to do it right.

It's a question of legitimate concern as to how to get it done. The fact that we commissioned the study last summer was, in part, testimony to our commitment to make sure we were doing it right. We came forward with robust advice. That continues to be our view. It is now a definite priority in the Comptroller General's organization, and in my sector, to come forward with that advice.

We have a new government. Ministers have many new priorities. There are a great many issues that we have yet to brief the President of the Treasury Board on. This is only one on a long list, simply because it is a new government. This is on our priority list to take forward to the president. Equally, as I said before, the Minister of Finance and the Prime Minister will also have to be apprised of this before we go to parliamentarians. We are strongly committed to consultations with Parliament as well.

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

I assume that when the government of the day, in 2002, made a decision to go to accrual accounting, it had done a lot of the evaluation of the pros and cons and a decision had been made to move to accrual accounting. It seems to me that these studies are now coming after a decision had been made. Why is that?

[David Moloney]

If I could quote from the 1996 budget, “the government intends to move to full accrual accounting for budgeting and accounting purposes”. It did not mention appropriations, and it did not specify anything beyond that.

So somewhat belatedly, we did move on a reporting basis, and we did move on a budgeting basis overall. Where we have not moved is on some of the departmental level financial decisions and in terms of appropriations. Those are the two areas, which, as the Auditor General has quite correctly pointed out, go fully together.

We have moved beyond the 1996 commitment. The question now is how to move beyond that. There's not a specific announcement of an intention to do something beyond that.

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

Thank you.

I just want to clarify a point Mr. Wallace made.

If we follow the accrual accounting in appropriations, and a government changes, even though the previous commitment had been booked, the new government can cancel it, depending on the contract. They'll also have the option of cancelling that agreement and reclassifying those commitments, from an accounting perspective. Is that true? Is that an accurate statement?

[Charles-Antoine St-Jean]

The Parliament is supreme.

[The Chair, Liberal, Diane Marleau]

Madame Thibault.

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

Thank you, Madam Chair.

The more I listen to what's being said, the more convinced I am that it would be good for us to agree to study these matters in depth in the fall.

Mr. Moloney, you referred to exemplary practices. You mentioned a few countries, but, as regards Canada, you referred to provinces and territories. I say "you", but I mean your organization and your colleagues, of course. I don't mean you personally.

Did you speak to your colleagues from the other provinces? Did you ask them whether they had any success stories to tell you? I, of course, prefer success stories to accounts of failures. When people seek success, there's a chance a fire is burning within them and encouraging them to succeed. Moreover, even though I know that a government is still a government and is therefore different from a business, I'd like to know whether you discussed this matter with any large businesses and, if so, which ones.

I'd like you to answer very briefly, since I only have five minutes, and I'd also like to ask Ms. Fraser a question.

[David Moloney]

As regards your question on large businesses, the answer is no. We have direct access to private sector expertise. Last week, I attended a meeting of senior budget officials from the OECD which was held in Australia. This specific subject was addressed there. I had the opportunity to put questions to my counterparts from New Zealand, Australia and the United Kingdom.

The senior official from New Zealand said that parliamentarians in his country had found this system was too complex. For almost a decade now, if my memory serves me, the Treasury of the United Kingdom has been conducting a study. These people aren't satisfied with the way budgeting has been implemented at the departmental level. That representative was supposed to leave Australia to go to New Zealand in order to see in greater detail how it would be possible to do things better.

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

Did they mention the fact that that decision had been made and that direction taken?

[David Moloney]

For the moment, no, but they want to find a way to improve the system.

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

Ms. Fraser, I'm surprised by this reluctance, indeed this resistance. I know you're not expressing your personal opinion, but I'd like to know whether the audits you've conducted at the management level have enabled you to determine what's causing this reluctance or resistance.

Are we poorly informed? Are people reluctant at the novelty because they are too attached to their good old ways of doing things? We are often very comfortable in our old habits. Is there one reason that explains the reluctance to adopt this new system better than any others?

As for the reasons why you're in favour of it, I'd say that we can hardly be opposed to virtue. This is about Parliament, taxpayers, an improved system and so on. So how is that this doesn't result in something else than the present situation? This is a complex system—that's the way it is—but there are other complex things in life. We've managed to go to the moon, among other things. By that, I don't mean we should go back.

[Sheila Fraser]

The word "reluctance" is very appropriate. The adoption of accrual-based accounting has been a fairly complex operation requiring a sizeable effort. Among other things, all assets had to be inventoried, costs had to be stated and liability analyses had to be conducted. The departments had to work very hard to do that, and I think they should be congratulated on that. Canada was really a leader at the time.

Of course, the decision hasn't been made, but the fact is we're no longer seeing the same kind of commitment. We have to get the commitment of senior officials for a project like this to be moved forward. We sense there's a lot of reluctance

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

A little earlier, you referred to the fact that, when the Deputy Minister of Public Works came to testify, he was in favour of this. I'm aware of the fact that he felt the difficulties were less significant.

Let's talk about the senior public service. When you meet with these senior officials in the context of your audits, are the management committees generally in agreement on this? Are they in favour of this?

[Sheila Fraser]

I won't speak for senior management, but the managers who handle finance, the senior financial officers, have been telling us for years that managing two systems causes difficulties. They tell us they would like a decision to be made so that they could move forward. I believe the people who work in that area would like this to move forward. My comment might seem negative, but I would say that, if Mr. St-Jean and Mr. Marshall, who come from the private sector, are in agreement, I'm not sure the other senior executives—

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

Should we have them take the training course and an internship in the private sector so they can come back convinced?

[Sheila Fraser]

I'm not sure they're as sensitized to this issue. They may have other priorities. In any case, there's a genuine reluctance in this regard.

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

Mr. St-Jean, do you want to say anything?

[Charles-Antoine St-Jean]

I asked my New Zealand colleagues how much time it had taken for them to put their accrual-based accounting system in place. They answered that it had taken them 15 years to successfully change attitudes. In fact, it's a bit like switching from the imperial system of measurement to the metric system. It's another working model. It's not something that happens with a snap of the finger, even though we'd like it to have been done yesterday. You have to educate people.

The members should use multi-year appropriations. Perhaps less emphasis should be placed on money and more on resources. We'll all have to head in that direction. My colleagues always have reservations about money.

[The Chair, Liberal, Diane Marleau]

Mr. Albrecht, the floor is yours.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

Thank you, Madam Chair, and thank you again to all of you for being here.

One of the things that's become crystal clear to me is the complexity of this issue. In fact, one of my concerns is that I'm going to leave here with a complex.

I really appreciated this summary of accrual accounting. While it helps me a lot, I've got a long way to go, and I think we could say in general that members of Parliament are generalists; they're lay people who can't be expected to understand all the details and the complexity of accounting. That to me would underline the need you point out in paragraph 1.38 on page 30 of your report for the CEOs or the people in these management positions to have this professional accounting designation.

I respect the exceptions. There are always exceptions, people who can outperform someone who has those designations. Is there a reason we have been unable to attract this calibre of person? Have salary caps or some other issues made a barrier that makes it difficult for us as a government?

[Sheila Fraser]

I could start, and then Mr. St-Jean can talk more about his projects.

There was, for a certain time in government, a bit of an attitude in human resources that people should be generalists. You would move people around and they would do different positions. I don't think it was recognized that certain areas really required more specialized skill, be it human resources management, be it financial management, be it internal audit.

We saw a lot of people in these positions who maybe were good managers in programs but who really didn't have the knowledge and the skills--the base--to be able to do those specialized jobs. I think that is changing, and I think Mr. St-Jean is putting in more requirements for some of these positions. But there was a general idea that people who were generalists could do anything, and that was--

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

I may be jumping to conclusions, but I imagine some of the people with this designation could do far better in the private sector in terms of salary, so I want a clear answer on the salary. Is that an issue or isn't it? Is it a perceived one?