Government Operations Committee on May 28th, 2013

[The Chair, NDP, Pat Martin]

Good morning, ladies and gentlemen. We'll convene our meeting. We're here today for a much-awaited and anticipated meeting. Before I introduce our witnesses on the subject of the meeting, I see that Linda Duncan is trying to get my attention.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Thank you, Mr. Chair.

I wonder if we could have an update on whether or not Minister Ambrose has made herself available to come in for the supplementary (A)s and plans and priorities. Do we know yet?

[The Chair, NDP, Pat Martin]

I can't answer that question, but perhaps the clerk will.

[The Clerk of the Committee, Mr. Marc-Olivier Girard]

Thank you for the question. I'm still waiting for a response from the Department of Public Works and also from the minister's office about that issue, so nothing is confirmed yet.

[The Chair, NDP, Pat Martin]

We will leave that because we're going to ask for five or ten minutes at the end of meeting to discuss planning anyway.

Carrying on then, I'm going to introduce our guests. Our witnesses today are from the Treasury Board Secretariat. We appreciate their being with us again today. I believe that Mr. Bill Matthews will be leading the delegation. I'll let him introduce the officials he has brought with him.

I would say at the outset that today's meeting is the culmination of a great deal of work that was triggered by the report this committee tabled called “Strengthening Parliamentary Scrutiny of Estimates and Supply”. I think committee members will agree that this is one of the most important pieces of work to come out of the 41st Parliament. We were gratified that in the government's response to the report they did see fit to agree with many of the recommendations.

Today we will be dealing with recommendations 1 and 2, which were answered by letter by the minister, I believe, on April 13. We received two letters from the minister dealing with these subjects. On recommendation 1, they find no compelling evidence to support a move to accrual appropriations, but recommendation number 2, that we deal with the program activity model of government departments, has led to the presentation that we're about to hear today.

We've had one in camera session dealing with some of these issues, which the analysts advised they were unable to put into the paper they produced for us, but committee members will probably remember some of the presentation. Mr. Matthews has advised that he won't be giving a full presentation to repeat much of that information, but he will make some opening remarks, and we'll have the luxury of time to ask any questions we like.

Having said that, by way of introduction, Mr. Matthews, please take the floor and give your opening remarks.

[Bill Matthews, Assistant Secretary, Expenditure Management Sector, Treasury Board Secretariat]

Thank you, Mr. Chair, for inviting us here today.

As you mentioned, we believe that after many months of study, the committee members are very familiar with this material, so we didn't want to waste members' time redoing an old presentation, but we will be happy to answer any questions.

In particular, we're here to speak to recommendations 1 and 2 of the government's response to the seventh report of the Standing Committee on Government Operations and Estimates.

As you already mentioned, I am accompanied by a few colleagues today. The members of the committee already know Ms. Thornton, but I am also joined by Mr. George Samiotis, a new member of my team, and Mr. Sylvain Michaud, from the Office of the Comptroller General, where he is responsible for government accounting policy and reporting.

There has been substantial progress in delivering on the government's commitments in the response to the committee's report, but as you know, when the government response was tabled in October 2012, the government did commit to provide additional information on recommendations 1 and 2.

Recommendation 1 was that the Treasury Board Secretariat complete its study of accrual appropriations and report back to the committee. That study has now been completed, and in short, for reasons outlined in the response in a study which has been tabled with the committee, the government is going to continue using the cash basis as its model for appropriations.

The second recommendation was that the estimates and related appropriation acts be transitioned to a program activity model. The government response committed to providing such a model, including cost estimates for these changes.

The government has provided an example of such a model for three departments to the committee, if I recall correctly, as well as the estimated costs for implementing such a change, along with the estimated timeline. Those numbers and timelines are based on consultations with departments.

We'd be happy to speak to both sets of material, either on accrual appropriations or on a potential change to the vote structure, as the committee sees fit. As well, if the committee members do have questions on the other aspects of the committee report on government progress that are related to those recommendations, we would be happy to take those questions as well.

With that, I'll turn it back to you, Mr. Chair.

[The Chair, NDP, Pat Martin]

Excellent. Thank you very much, Mr. Matthews. I know committee members are excited about this and are anxious to ask all kinds of questions.

We'll begin with the NDP, and Mr. Denis Blanchette for five minutes.

[Denis Blanchette, NDP, Louis-Hébert, QC]

Thank you, Mr. Chair.

I thank our witnesses for being here with us. I am always very pleased to meet them when they come to testify before the committee.

You are now adopting a results-based approach. You talk about a model with a vote structure by strategic outcome. There have been important changes since the last time we met. You have moved from a programs-based approach and accrual accounting to a strategic outcome approach.

What has happened in the meantime that caused you to decide to present the information in this way?

[Bill Matthews]

Thank you for that question.

There are two points I would like to mention in that regard.

The notion of a new vote structure based on some sort of program hierarchy is an interesting question, and it is a hierarchy we have to think about.

The top level of our program structure is strategic outcome. Below that you get into program activities and then you get into programs themselves.

One of the key considerations in deciding what a potential new model would look like is the number of votes themselves. By way of reference, under the current system, we have roughly 200 different votes in terms of categories of expenditure. We have under the current system of strategic outcomes about 290 strategic outcomes. So, it's roughly the same number of votes, but some more. If you go down below strategic outcome, you're dealing with a substantially large increase in the number of votes. That's one of the things we would have to think about if we were to propose a new model, that is, at what level do we get too detailed?

If you go one level below strategic outcome, you're into program activities. There are roughly 550 of those, so almost double the current number of votes. You go below that into programs. There are almost 2,000 programs—1,900—so again it's very detailed in terms of the number of votes on which parliamentarians would be asked to vote, and that has implications in terms of how departments manage.

The question of level of detail of vote and control is a key question. We have furnished today a model based on strategic outcomes, which we think is an appropriate level for consideration, but it's an interesting discussion to have as to what is the right level.

The second part of the question about accrual is a separate question. Regardless of whether you vote, as we currently do, on capital operating transfer payments or another model based on strategic outcomes, the other question is whether it is cash or is it accrual. The government has been asked to study this question of accrual appropriations for a number of years. We have now concluded that. Largely for reasons of understandability and some experience of other countries that went to accrual, we don't feel the accrual model for appropriations offers any value. We do feel quite strongly that with accrual numbers for the budgets and the financial statements of the Government of Canada, there's certainly good value there, but to change the appropriation model to that number doesn't help you.

[Denis Blanchette, NDP, Louis-Hébert, QC]

Regarding this so-called strategic approach, you are to some degree broadening your outcome-based management system. I think that is the basis. The consequence is that there will be fewer first level elements. I think that is one of your objectives. However, as parliamentarians, our objective is to fully understand where the government will be investing these amounts.

In light of that, I would like you to explain how this approach will allow members to have a better understanding of all of the investments included in a budget.

[Bill Matthews]

The question is again one of information versus control. We have put forward a model that says the vote could be on strategic outcome. That doesn't mean parliamentarians should not get additional information below that level to help them understand what is included in that. If you think about some of the other changes, it is one of the challenges that during the time this study has taken place, there have been substantial improvements to the estimates themselves, so we are dealing with a bit of a moving target. Information for parliamentarians on programs is now furnished as part of supplementary estimates. It's online, so there is now additional information to support what is actually in the strategic outcome approach.

[Denis Blanchette, NDP, Louis-Hébert, QC]

In the context of a so-called strategic approach, there will necessarily be more cases where funds will be allocated to various departments. So this is comparable to horizontal programs. Indeed, you will have to compile data in light of broad strategic policies the Canadian government will adopt.

How are you going to be able to follow these matters?

[Bill Matthews]

The structure that's put in place now is quite easy to do because the programs, by nature, have to add up to the level above, which is program activities, which then add up to strategic outcomes. You will see the detail.

It is acknowledged that during the year there may be changes in terms of what was forecasted at the program level to what actually gets spent. We're now using the reports on plans and priorities to articulate what a department plans to spend by program, as well as a historical analysis of what they have spent—that was a recommendation of this committee—as well as what they plan on spending in the future.

The key part of that story—again, a recommendation from this committee—is for the department to provide an analysis in writing, a narrative, about what's changed so that you can actually track how the planned spending has changed.

Parliamentarians now get information by program. That doesn't necessarily mean they have to vote by program. There certainly is a lot of detailed information to support the vote, if we were to go to a strategic outcome vote. That is an “if”. This is a model that's been put forward for discussion.

[The Chair, NDP, Pat Martin]

Thank you, Denis. That concludes your time.

Next, for the Conservatives, we have Bernard Trottier.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

Thank you, Mr. Chair.

Thank you, guests, for being here once again.

To follow through, as the chair mentioned, I think it's one of the more important studies we've taken on as a committee. It's been studied in the past, and it's actually encouraging to see there is finally some action being taken on some recommendations that were made in some previous studies from 10 and 20 years ago.

I have two sets of questions.

First of all, on cash versus accrual, you've given a reasonable explanation. Maybe for the benefit of other committee members and others who might be watching on television, could you explain the reason for cash when it comes to the estimates and supply process? For some people it's still jarring to think that when it comes to budgeting and reporting, it's on an accrual basis. For this other process of estimates and supply, why is it on a cash basis? What are the benefits of cash accounting?

[Bill Matthews]

I'll start by saying that it's not a question of accrual or cash. To have any sort of comprehensive financial reporting picture there are places for both.

As I've mentioned, accrual for the budget and financial statements makes perfect sense. The government has done it since 2003. When you're into the appropriations, one of the key questions is, does Parliament understand what is being spent? There's a lot of history as well as discussion.

The Australian government was the first national government I'm aware of that went to an accrual model. They went back to cash recently because they found that parliamentarians weren't understanding what they were approving.

Given the nature of the study this committee undertook, which was all about improving Parliament's scrutiny of the estimates, as well as understanding what members were approving, based on the experience of Australia and a few other countries, as well as some discussions with the OECD, there was enough evidence to say that accrual would further muddy the picture rather than clarify it. There is still a place for accrual information, absolutely.

When you are looking at the spending plans of a department, understanding the cash that will effectively go out the door is a good way to look at it. It's understandable; there's less judgment involved. Cash is cash; it goes out the door. When you're into accrual there's a lot of assumptions and projections. There is nothing wrong with that. But when you're asking Parliament to approve something, it was thought that the certainty cash provided both in terms of less judgment—cash is cash—as well as clarity for parliamentarians because they're not all accountants, and it's not reasonable to assume they will all be accountants, offered a greater benefit.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

To be clear, the main estimates are on a cash basis. The supplementary estimates are on a cash basis. The departmental performance reports also report cash transactions. As well, the reports on plans and priorities are cash.

[Bill Matthews]

All of the appropriation documents, including the estimates as well as the bills themselves, are cash-based.

When you're getting into the reports on plans and priorities and the departmental performance reports, you will see a mix. They will get back and show what they spent against their authorities, which is the vote, but in the departmental performance reports, for example, there is a link to accrual-based financial statements for each department.

You see both sets of numbers there, so you can see that depending on what your preference is and what the reason for your query is, you will get both sets.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

Thank you for that clarification.

The second set of questions is around the program activity model. We've been reviewing estimates in this committee, and we've been looking at programs and activities. We'll be looking at departmental performance reports and RPPs.

Ultimately, an accounting model is shaped around human behaviours. It's not purely numbers. I'm wondering what your sense of this is. What are the behaviours that are shaped by having this program activity model available when it comes to doing the estimates? How will this change the behaviours of parliamentarians when they are reviewing estimates? How would this change behaviours of other people who have access to this information, whether it's the media, whether it's concerned Canadians?

[Bill Matthews]

I would say two things. From a parliamentarian perspective and potentially even the media, although I shouldn't speak for them, when they think of departmental spending, they typically think in terms of programs in the strategic outcome structure. There's a stronger link to what would be voted on in terms of how they think of departments. Very few people think of departments in terms of capital upgrading and grants and contributions.

There's a stronger link there. There are reasons for wanting to know what departments spend in capital, operating, and grants and contributions, but you've strengthened the link between how people think of departmental spending and programs and what Parliament is voting.

The change in behaviour on the departmental side would be a change in how they actually control their spending, because we would now be asking them to basically control on a different basis. They would have to rethink their control structures. Instead of asking if they have the capital budget for that, because they can't exceed their capital vote, they would be asking what their spending looks like under the strategic outcome. They would have to change the way they think, plan, and budget. That was one of the key aspects of the discussions we had with departments.

I should say that when we surveyed departments, I believe 80 of them responded. They came back with information but also a lot of questions. They still have many questions as to what this might look like, with a lot of detailed questions that we haven't answered just yet. There's still some work to be done.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

In your view, are there any changes to legislation or to House regulations required to make sure we have that proper visibility on programs and activities?

[Bill Matthews]

If we were to change to strategic outcome—I'll let Sally chime in here, because there are some links to the Financial Administration Act—I'm not aware of any changes to legislation that would be required.

[Sally Thornton, Executive Director, Expenditure Strategies and Estimates, Expenditure Management Sector, Treasury Board Secretariat]

At the strategic outcome level, no. It's possible as we get down to a greater level of granularity, there could be potential implications, particularly when we're talking about organizations that have received special authorities through their existing legislation, being able to re-spend funds or things like that. We might have to modify that, but probably not at the higher level.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

Okay.

[The Chair, NDP, Pat Martin]

You're well over time, Bernard. Thank you very much.

Next, for the NDP, we have Linda Duncan.