Government Operations Committee on June 13th, 2006

[Charles-Antoine St-Jean]

There's no question it is. The compensation is an issue not only in terms of attracting the right people with the right skills, but also in terms of repositioning the financial officers in the senior management cadre of departments.

Coming from the private sector, normally the CFO will be number two, number three, number four in the organization. In departments, they're number five, number six, number seven, number eight...number ten. That's not exactly the right profile to attract high performers. So we have to rebalance the organizational design in the departments to give more profile to the financial officers and give them a richer role in terms of what they can do. It's a complex issue; we're working on it.

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

Thank you.

I'll share my time with my colleague, if there's still time left.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you.

Thank you for letting me be here. It's a pleasure to be able to sit in on this committee. I'm speaking in terms of having a business and moving to a new system. I understand the reluctance to do that, because it's often very difficult. It's going to take some time and effort.

A few things have popped into my mind. It's pretty hard to hide things in either the former or current system, and I think you've done a good job, Ms. Fraser, in finding some things that were hidden, but I'm suggesting it's more difficult in the accrual. In business there are rules and guidelines that accountants...for instance, we talk about statements, claim statements, statements that aren't.... In our business we always tried to make sure we had a good understanding, but is there a danger a government could tamper?

I know accountants are concerned with numbers, but businesses are more concerned with profit, and I think you can make the switch in government too. But is there a possible danger that we may start to see some things hidden, or the public doesn't understand because they're put into accruals or things of that sort?

[Sheila Fraser]

I've always felt accrual-based information is much better information. It gives you a more complete picture of assets and liabilities--for example, the fact that environmental liabilities and liabilities for veterans pensions are now being recorded. Those were never on the books of Canada before, all the fixed assets, the accounts receivable. We talked about the Canada Revenue Agency and its reported $18 billion of accounts receivable; those were never on the balance sheet. Now they are.

If they are on the balance sheet, people will manage them. They're more visible. Obviously, they're very big numbers, and things can go wrong and it is very difficult at times to make good estimates around things. Environmental liabilities are a good example. Government has gone through inventories and tried to make estimates. Will those be the actual numbers spent? In all likelihood not, but at least there's an attempt to quantify it.

So accrual information gives you much better information, and I think it gives parliamentarians and Canadians a more complete picture of the financial situation of government.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Last, is it possible that a government leaving office could tamper with things and leave a picture for the next government that isn't clear?

[Sheila Fraser]

I think it's more difficult now, because the financial accounting standards are more complete. There are very few areas left where government has a lot of discretion to report certain things. I would think the Comptroller General and the people working there should be adopting the same principles year after year, so I would think not.

Policy decisions could affect a financial situation if there are a lot of transfers or a lot of money is given, but those would be obvious in the financial statements.

[The Chair, Liberal, Diane Marleau]

I understand Treasury Board really keeps a running...almost does that budgeting. It doesn't put it out anywhere, but they have a very good idea of year-over-year needs for the next four or five years. That's my understanding, that they do have some--

[Sheila Fraser]

Budgets used to be presented on a five-year basis. I think recently it's been two years, but they were on a five-year basis.

[The Chair, Liberal, Diane Marleau]

But they were always known. There's a base. They have a good idea of where they're going; the bureaucracy will bring it forward, and you know those amounts are being thought of and they're there. So in a sense, you're almost there in many ways, I would think.

Mr. Bains.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Thank you very much, Madam Chair.

I have a very quick question in light of the discussion that's taking place. In the past, I indicated my strong desire for us to really accelerate the process and adopt accrual accounting, but I want to understand the other side of the equation.

We deal with a legislative mandate here, and it's a bit more complex than in the private sector. Are we aware of any companies or institutions that deal with the amount of money that we do in government, billions of dollars, that do not have accrual accounting? For curiosity's sake, I want to know if you're aware if they deal with that accounting.

[Sheila Fraser]

I could add that the private sector is essentially on accrual-based accounting--

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Okay, and with no exceptions.

[Sheila Fraser]

What is different in government is the appropriations, and that, of course, doesn't exist in the private sector. That's where we're saying this part of it needs to change. Many governments are still not on accrual accounting. Canada, as we said, is a world leader. There is a handful of countries around the world that have adopted accrual accounting for reporting purposes.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

I wanted to get at that, because I know the last time my comments were skewed one way. I wanted to get the balance and make sure there is an understanding that there is a legislative framework to deal with, and appropriations as well.

[Charles-Antoine St-Jean]

As my colleague, Mr. Moloney, said, there are essentially only three or four countries that do appropriations on an accrual basis. For everybody else, including our American friends, it's on a cash basis. Their financial reporting is on accrual, but the appropriations are in cash.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Thank you.

[The Chair, Liberal, Diane Marleau]

Mr. Alghabra, did you want to take up the rest of his place?

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

Thank you, Madam Chair.

I'd like to propose a motion to the committee. There's an apparent consensus on the issue of the direction for the accounting that the government should take. The motion, if I may read it, says that the committee report to the House that it calls on the government to implement accrual-based budgeting before 2009.

I know there is typically a 48-hour notice, but I'd like to ask for unanimous consent to waive it so that we can discuss this today.

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

I appreciate the spirit of the motion, and I agree with the general text of it. The difficulty I have right now with that motion is I don't believe it's complete enough, in that, of course, appropriations are not even mentioned in it, and this is a very serious dilemma. I also believe it's premature. I don't think it's inaccurate, and I do think we need it, but I think it is premature.

I really do believe we should take another motion at some particular point, maybe at the next meeting or whatever, that will deal with a process to put in a very stringent timeline for this committee to complete a separate, exhaustive study on this, with both pro and con forces here, so that we can come up with a conclusive direction after some very serious, in-depth study, and then put forth a motion that will be accurate, that will be complete, that will have factual data, and that will actually be something that Parliament would find very difficult not to accept.

The premise of your motion and where we are going with it is relatively harmless, but I don't think it's full, complete, and pertinent to this point.

[The Chair, Liberal, Diane Marleau]

From what I can see, we don't have unanimous consent to deal with that motion today. What I would suggest is perhaps you work with Mr. Kramp and see where we can go with this.

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

Then I will give notice of it and perhaps amendments can be made.

[The Chair, Liberal, Diane Marleau]

Mr. Warkentin wanted to ask a question.

[Chris Warkentin, Conservative, Peace River, AB]

We'll proceed with the witnesses, if that's all right.

Thank you very much for coming in. We appreciate all of the hard work that you have undertaken thus far in terms of moving the accounting system. I never went for my professional designation because I was so frustrated with accrual accounting. That may bring some light. I fully understand the complexities. However, having then moved into the business world in the business I took over, we very quickly moved to move everything into accrual accounting. I understand the benefits of it, and I think the entire committee would agree there are benefits.

There was an example of the $2 billion with regard to environmental allocation. My understanding is that there would be some way we could bring that number into the books, and then we could always change things. The books could be changed. My understanding is there wouldn't be a problem there, but it would be the best method within the accrual system to allocate that and that the possibilities are there that the money might be spent.

[Charles-Antoine St-Jean]

The example of that $2 billion is one I use with my colleagues very often to try to crystallize the issue here. It's in the books. We record it in the books as a statutory liability of the Government of Canada; however, as the Auditor General mentioned, the money to pay for it has not been allocated, because it's a decision of our parliamentarians to say this year we have $10 million for this, or $10 million for Afghanistan. This is your decision.

So if we were moving to accrual-based appropriations, the moment that liability now gets recorded against an appropriation, we don't need you, we have to pay it, which I don't think is where members of Parliament would like to go.

[Chris Warkentin, Conservative, Peace River, AB]

Okay. So what could we do with that, in a situation like that, within the accrual parameters? There has to be a mechanism to deal with that.