Government Operations Committee on June 13th, 2006

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

Thank you, Madam Chair. Thanks to you and your colleagues, Ms. Fraser, and to all colleagues from the Treasury Board.

Mr. Moloney, I agree with the comment you've just made. What I understood, despite the technical vocabulary—I know you're a specialist and you use that vocabulary correctly—is that there is no real will to do this. People are looking for reasons not to implement this recommendation finally and completely. In a previous life, I often heard comments like that. People talked about a lack of consensus. I don't doubt that you've done these audits, but I can't check them myself. It would take an enormous amount of time, and I wouldn't have enough in my parliamentary life, until we achieve sovereignty, to do it.

I read the Auditor General's document stating that things have been slow and progress unsatisfactory. The vocabulary is very polished. Why are you presenting the situation to us from that standpoint? As a parliamentarian, I would have expected a few sentences such as: there has been a decision; we are heading in that direction; to date, we have completed phases 1, 2 and 3; we're experiencing some problems, but we are well underway and hope to achieve it; we are determined, etc. I heard the contrary. So I'm asking you if people really want to do it. Before you answer, I'd like to ask the Auditor General a question.

Ms. Fraser, when you read an answer like the one given you in paragraph 1.30, on page 27, "Factors contributing to slow progress, that is "reorganization as a factor that had resulted in competing priorities," it's enough to make you fall off your chair. We've been told for decades that the reorganization of the federal government will be part of our everyday lives, that change is now the rule, and so on.

Do you believe people are really motivated to head in the direction you recommend, or do you perceive a will to prove that not only will this take years, but it's not necessarily the best thing to do?

[Sheila Fraser]

After eight years, I would have thought someone would at least have made the decision whether to adopt it or not. We recommend that it be adopted, but the government may not agree. It's up to it to decide. It's complex and implementation will take time, but first you have to make a decision, and it still hasn't been made.

[David Moloney]

As to whether there is a will to do it, first I'll tell you about my responsibilities, which, among other things, are to ensure that the president of the Treasury Board presents budget estimates and appropriations to Parliament in a form that is comprehensible, full, valid and useful to parliamentarians. I'm also responsible for offering government advice on conducting good, even better management of its finances.

As regards timeframes, these changes were clearly complex. The government took seven years, from 1996 to 2003, to implement reporting systems and to decide how to organize and present the data in the context of the public accounts. A decision was made, that it should proceed by stages in order to better understand how to present the data, on one hand, and, on the other hand, to decide whether it was appropriate to structure appropriations based on that other accounting process. From my part, I was not working at the Treasury Board Secretariat at that time.

We want to ensure that budgets and estimates are useful and well structured, even if basic questions still arise. I've been in my position for one year, and, like Mr. St-Jean, I have undertaken to ensure that the president of the Treasury Board is able to make a decision.

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

So the decision still hasn't been made?

[David Moloney]

We haven't given the president any specific advice—

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

Pardon me, Mr. Moloney. I'm going to rephrase my question.

Notwithstanding the fact that the government has changed, senior public servants are making recommendations based on a certain number of things. I'd like to know whether the decision has been made at the Treasury Board Secretariat to implement this system in this way.

[David Moloney]

In a specific way? No, not yet.

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

Point 1.17 of the report states that the Treasury Board Secretariat should complete its study on the subject.

The decision hasn't been made—so be it—but is the study the Auditor General refers to in her report finished?

[David Moloney]

The consultants' study is complete. Now we're examining the recommendations. We're developing our own recommendations to submit them to the president.

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

Could you tell me who conducted the study?

[David Moloney]

It was PricewaterhouseCoopers.

[The Chair, Liberal, Diane Marleau]

Merci, Madame.

Mr. Kramp.

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

Thank you, Madam Chair.

Good day to all.

This is a bit disturbing to me. It's a simple situation. I sat on the public accounts committee last term when we made the recommendation unanimously in committee to accept and endorse the principles and the progress of accrual accounting.

Once again, with no disrespect to Mr. Moloney, this almost reminds me of a Mark Twain quote: “There are three kinds of lies: lies, damned lies, and then there's statistics.”

No personal reflection, sir, but you seemed to be drawing out reasons why not to implement accrual accounting. And I ask myself where this is coming from. Is this a Treasury Board decision not to implement it? Is this a decision from Mr. Charles-Antoine St-Jean not to push or focus on this, or is this simply, within the bureaucracy, a reluctance and a hesitation to move forward?

Which of those three areas would accept the main focus of my question?

[Charles-Antoine St-Jean]

Thank you very much for your question.

Personally, I will declare that I am biased in favour of the accrual basis of appropriation. There is no question about it. But I also remember that in one of my first discussions with the former chair of the public accounts committee, I told him that if we are moving to the accrual basis of appropriation, that probably means we will have to move to multi-year appropriation. He looked me in the eye and said, “You know, Mr. St-Jean, here we vote money year to year.” I said, “You want accrual, but you don't want multi-year appropriation.”

We need to reconcile that with members of Parliament. If you move to an accrual basis of appropriation, it means you will also need to move to multi-year appropriation. That is one aspect.

The second aspect is that we also try to be extremely respectful of members of Parliament, and I'm going to give you an example to explain what I mean by this.

Last year we booked a liability in the public accounts related to AECL after a public debate or a public judgment that said that the liability for the environmental cleanup was going to be so many billions of dollars. So we booked it in the public accounts of the Government of Canada to show the financial situation. But Parliament has not yet decided if they will be paying that. This is where I say that we really need to be respectful of members of Parliament, because that $2 billion that was declared, members of Parliament haven't said they're going to pay. We're recognizing the liabilities. We're telling it like it is, but you have not given the government the authority to pay that $2 billion, and I would not want to see an accountant making that decision for you.

So that is the dilemma.

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

I understand that. There are ongoing dilemmas. There are pros and cons, and we recognize that, but the difficulty I'm having with this is that when you're stuck in never-never land, and you don't have either system--you have a combination of both--you effectively are creating much more work, potential duplication, and obvious oversights, as we've seen from many, many situations, such as Place Victoria, and so on.

I note here the statement in the Auditor General's report that says, “The lack of progress in resolving this important issue and the weaknesses in internal controls are the chief reasons for the unsatisfactory progress in improving financial information...”. This is a very definitive statement to me, and I just don't think we can ignore this. I don't think there is a more important issue before Parliament than the process we're going to use to evaluate our financial information.

Well, if we cannot have accurate information, we cannot make intelligent decisions. We have to get to a system. Now whether it is good, bad, or indifferent, of course, you gentlemen will bear ultimate responsibility for giving us that information. Mr. Moloney mentioned that it has taken seven years to organize data. Excuse me, but there's either an unbelievable level of incompetence or a total lack of decision-making. How can you take seven years to come up with a particular information package on a particular component of the financial structure? That just blows my mind.

Either I totally underestimate the duty and the responsibilities and the complexities--and I certainly wouldn't want to have your job, because I recognize how difficult that is.... What I am suggesting is that nothing will happen unless there's a decision, and to me--and I agree with all my colleagues around this table who have spoken before me--there does not appear to have been a conclusive decision reached by the government and/or the bureaucracy to implement accrual accounting to its fullest degree.

People say that maybe we could, but we should do another study. Study means only one thing to me: delay.

We have a great deal of expertise in-house--Mr. Moloney, Mr. St-Jean, Mr. Matthews, Mr. Timmins--and around the table. We have a tremendous wealth of talent in-house, and, gentlemen and ladies, you have a job to do. To my mind, it's your job to bring forth those recommendations and bring them to us so we can, in our own small way, at least have some input.

If nothing else, we have the vote of public opinion, which in most cases we represent a little closer tie to than you do. We generally have a better feel for what the public is thinking, because that's our domain, and that's very important too. We have to be cognizant of the mood of the country and the direction the country wants to go.

So I think our input is valid, but from a technical perspective, we need you to provide us with the information, and we seem to be stuck. We're stuck. Madam Fraser has put forth a very clear, presentable package on why we should implement accrual accounting. It has been done for years, since back in 2001, and we're still stuck. We're making incremental progress. To me, that is just not acceptable.

[Charles-Antoine St-Jean]

Thank you very much for the directives from this committee on that point. It will help us shape our thinking in recommendations to the government.

I really want to reiterate a point. One of the fundamental issues I'm trying to wrestle with is how to respect the will of Parliament. In the case of the $2 billion, I don't want accountants making that decision; I want Parliament to make that decision. But if we are doing this accrual-based budgeting, then we would be appropriating it.

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

Might I suggest, with all respect to my colleagues on all sides, that this issue is so important to the operation of Parliament that there should be a special committee meeting and/or a special set of committee meetings set aside so that we can discuss the pros and the cons and come up with a definitive direction so that we have a conclusive decision. Let's have all of our witnesses from the Auditor General's department and from the Treasury Board. Let's bring them in here. Let's convene a separate set of special meetings to deal with this issue so we can come out of this, and within this parliamentary process have a clearly defined road ahead for all of our officials, to be fair to them. They need direction as well, and they need to know that they have a government in support of their direction. So let's let them all make their case, and let's come up with a collective decision and make that recommendation to Parliament.

[The Chair, Liberal, Diane Marleau]

Thank you, Mr. Kramp.

Madam Fraser wanted to add something.

[Sheila Fraser]

Maybe it's telepathy, but I was just going to suggest that if the committee wanted to take on a special study in this, we would certainly be willing to support that. It might also be interesting for you to bring in representatives from other countries who have adopted it, or not adopted it, so we could hear from them first-hand how it works.

At times in the discussion we tend to make it overly complex, I think, and overly complicated. Other parliamentarians can say how they found this. So it might be worth structuring something, perhaps for the fall, to give a more comprehensive--

[The Chair, Liberal, Diane Marleau]

You did say that most, if not all, of the provinces have moved to this kind of accrual accounting.

[Sheila Fraser]

Yes--British Columbia; Manitoba, I believe; Saskatchewan; Quebec I think has announced that it's going to go there; the Northwest Territories has done it; Nunavut, I believe; Ontario.... The majority of them are either there or are moving there. So you could even bring in provincial colleagues if you don't want to bring in international ones.

[The Chair, Liberal, Diane Marleau]

I will go to Ms. Nash.

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

Thanks very much.

Welcome again, Madam Fraser, and to all of your colleagues. Thank you for coming.

As most people, I'm not an expert in accounting systems; we do rely on your expertise. I appreciate the passion of Mr. Kramp in arguing for clarity around the accounting system. I guess you've been through this discussion with this committee before. But I'm new to it, so I welcome the opportunity to learn what we can today.

I was interested in Mr. Moloney's comments. I read the documents ahead of time, and the indication seemed to be that moving to this new system was desirable but we just haven't gotten there yet. It was unclear why we haven't gotten there yet.

Mr. Moloney, I sensed from you that it wasn't just that we were delayed in getting there. It sounded to me as though you had actual concerns about the system and that you were looking at the experience of other countries that had begun to embark on this but had then decided not to. So it does sound as though there is more of a debate than I had thought there would be.

Could you maybe describe what the debate has been about in other countries and why they made the decision not to go forward?

[David Moloney]

Thank you for the question. I can provide the information I have, which is only partial. We may need to pursue it more afterwards.

What's important, and the point I'm trying to get across, is that in our view the question is how far through the system of budgeting and then into appropriations to recommend going. There's a clear commitment on the part of the government to use accrual accounting approaches to the maximum extent possible. It's also obviously important that we present consistent information to Parliament.

The balance that has been struck so far is that cabinet-level decisions—the larger financial decisions, if you like—are taken explicitly and completely on an accrual budgeting basis. The large biases against cash purchases, for example, that were implicit in a pure cash or even modified cash accounting such as we had in the past have been removed for the government's large decisions, those that feature in budgets or are large enough to require cabinet decisions. In terms of budgeting, we're talking, generally speaking, about the smaller departmental-level decisions.

The next step, though, is to ask how we can push it further and increase the consistency of what we present to Parliament. It is certainly true that the Minister of Finance comes to Parliament with a budget and a fiscal framework on an accruals basis, and yet parliamentarians are voting on something close to cash. That is not an ideal situation; we certainly recognize that.

What we are trying to make sure is that, when we come to Parliament to consult on how to improve the situation, we have very robust models to suggest to you and we are clear. As the Comptroller General has just mentioned, it is a practice in other countries, and I think likely to be the case, that we would need to consider carefully the possibility of moving to multi-year appropriations. It's certainly the experience in New Zealand, which is the pioneer in accrual appropriations, that in order to be able on the one hand to vote on amortization and on the other hand to allow managers to purchase assets, they would need access to future years' amortizations that in a sense have been voted through in initial cash but are still in future years' appropriations. That is a step the Parliament of Canada has not taken in the past.

We want to be able to come to Parliament and say with very considerable confidence, because we, or certainly I, view the robustness and quality of the main estimates as being a key deliverable for the President of the Treasury Board and for me—it's one of my key responsibilities. If we're going to change those, we need to be able to come to you and say that to make progress, we will need to change the estimates form and nature in the following ways.

We want to make sure it's a robust statement. So we've not taken the decision to go slow; we've taken the decision to come with confidence. I think all parts of the secretariat and the Comptroller General's Office are united in the desire to give you robust, reliable information.

Other countries have been concerned about the fact that by the very nature of things we will have to continue to look at both cash and accrual information. That is the view of all jurisdictions I've encountered, certainly, and it seems correct. It is inescapable. We would be looking at voting on an appropriations basis and yet keeping track of cash. Structuring that in a way that parliamentarians find useful is part of the equation as well.

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

Thank you.