Government Operations Committee on May 28th, 2013

[Bill Matthews]

No.

As I mentioned, this model is put forward for discussion. There has been no commitment made to implement this. This is for discussion purposes. The question was asked earlier that if you were to pursue such a model, how long it would take and what the cost would be. That's the reason we put that additional information in here. There have been ongoing discussions with departments about ways to maybe lower the costs and there have been ongoing discussions from departments. They have questions about how it might work, very detailed questions that we, to be frank, don't have answers for in all cases just yet. That work is continuing, but there's no project office itself.

[The Chair, NDP, Pat Martin]

Thank you, Dan. You're well over your time. It was almost seven minutes there.

Next is Linda Duncan.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

I served a very brief period of time in the federal government as the chief of enforcement at Environment Canada. I went through this process of having to explain your programs, strategic outcomes, blah, blah, blah. There's always new language that's used every year. It's a struggle.

One of the things that concerns me is, if you are pushing for the voting on the strategic outcomes, does that mean some programs are going to be off the table because they can't be quite fit in that way? If they can't be, if we are only voting in the order of strategic outcomes, does that also become a bit of a struggle?

[Bill Matthews]

It doesn't, because under the current structure, with the programs, it's a hierarchy. The programs roll up to program activities, which have to roll up to strategic outcomes. There's no stand-alone—

[Linda Duncan, NDP, Edmonton Strathcona, AB]

They're going to be lumped in somewhere.

[Bill Matthews]

They're already lumped in to some.... All programs can be tied with strategic outcomes. What I will say, and I believe it was Mr. Ravignat perhaps who raised at a previous meeting the notion that if you were to change the vote structure, it would only be fair to give departments time and space to rethink their structure to make sure it makes sense because maybe they would want to look at those.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

I don't want to belabour that, but it just occurred to me, having been in the middle of that in several orders of government.

One of the things that's troubling me is this. I think it was one of the many letters that were sent to us, and I think back from the Treasury Board to us. A strong argument against the shift from cash to accrual was that the shift would cost $600 million.

My question to you is several-fold. The previous Auditor General recommended shifting in that direction. One of the serious factors appeared to be...because then it would allow for a balancing of information on the resources, obligations or liabilities, and costs. Have you actually consulted with the Auditor General and given a rationale for why you're not going to do that shift? How are you actually addressing this issue of the outstanding liabilities?

[Bill Matthews]

You're right. That has been a very long-standing issue. When the Auditor General first made that recommendation, it was on the heels of Australia moving in that direction for accrual appropriations. The logic was that you've done it for your financial statements, your budget, so why not do it for accruals? Australia has done it. The public accounts committee has had an ongoing interest in this issue as well, because the Auditor General regularly provides an update on this.

At the time that recommendation was first made, there was not a great use of accrual information in decision-making in the government. If you think inside the government, memorandums to cabinet, Treasury Board submissions, those types of things have been augmented to include both cash and accrual information for decision-making, which is important. In addition, we augmented the reporting framework to include accrual-based financial statements for each department. That's been done.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

May I ask at what stage that occurs?

[Bill Matthews]

Which? Sorry, the....

[Linda Duncan, NDP, Edmonton Strathcona, AB]

You said that the government is now giving greater attention to....

[Bill Matthews]

That was several years back. When an investment decision is being made, like a business case, for instance, there are times when you want to understand both the accrual and cash bases. Because the budget is on accrual, finance needs to understand those planning numbers on accrual. There's a much greater use of accrual information than there was at that time. Since that recommendation, as I mentioned earlier, Australia has come full circle. They went back to cash because they had some issues with Parliament not understanding what they were approving.

We have shared with the Office of the Auditor General the study that the committee has done. There have been ongoing discussions on that issue. They're aware of our position.

Going from memory, which is dangerous for me, I think that of the witnesses you had here as part of this study on the question of cash versus accrual, all were in favour of cash, except the Auditor General, I believe, who was still on side with the accrual.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Could I give you a specific example of this? I may be way off base on this. A lot of my interest is in environmental protection and increasing our recurring liabilities, where you failed to attend to it. Let's say, for example, in northern Canada we have these contaminated sites that are on the books for year after year, and they're not being dealt with. Every year there's an announcement that okay, they're going to do two of the 500 sites, and so forth.

If you don't go to accrual in estimates—and I can understand there are lots of arguments for why you're saying it's simpler and so forth—do we have to wait for the performance report two years later to tell us how wise the decision was to spend only so much now on the cleanup, when we don't know what the higher liability might be if we delay the cleanup?

Is there not the danger to parliamentarians of not getting this additional information?

[Bill Matthews]

No. There are two pieces there. The size of the liability—and accrual is the way to measure the liability—and what the liability is today and what it will be five years from now if you don't do something are two separate questions. Our financial statements only show what the liability is today.

The key question for me is what you are planning to spend this year to clean it up. The cash is a far more relevant number from that perspective. You have a liability. So what? What are you going to do about it? If the answer is to put a fence around it, that's pretty cheap. If it's to actually take remedial action and clean it up, that's important to understand. This is a great example of where you need both. If you take this action, what's the liability going to be five years from now? If the answer is that it will be much bigger, that's an interesting discussion. The key to cleaning something up is spending money, not accrual numbers. I think cash is far more relevant on that perspective than the accrual number.

[The Chair, NDP, Pat Martin]

I'm afraid you're out of time, Linda.

Lindsay, our analyst, points out, Bill, that the testimony we heard was that the Australians didn't move back to cash because parliamentarians had difficulty understanding it; they moved back because some of the departments were overspending. The accrual was supposed to be time released over three to five years, or something, and they were spending the wad early on and running out of money.

[Bill Matthews]

It was twofold. It's a very different model in Australia. Departments have their own bank accounts; they actually get cash in a bank account. They were given cash for depreciation, the idea being they were supposed to hang on to it and when they needed to buy a new building, they'd have a nice little nest egg. What happened was they spent it on operations, so they didn't have money for a new building. The corollary was when parliamentarians found that out, they said, “We didn't know they could do that. We didn't know we were voting money for depreciation.”

[The Chair, NDP, Pat Martin]

I see your point.

[Bill Matthews]

It was a flaw in the model, and parliamentarians were quite surprised to find out what they had approved.

[The Chair, NDP, Pat Martin]

That's a useful clarification.

Thanks to both of you.

Mike Wallace wants to share time with Peter Braid.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair. I'll be as quick as possible.

To John's point, currently a committee can vote to approve, deny, or reduce an estimate, but it gets transferred into a vote in the appropriations bill as an amendment to it. Is that not correct?

[Sally Thornton]

Yes. You may call it what you will, but it's a reduction, such as in operating or in capital.

[Mike Wallace, Conservative, Burlington, ON]

The committee that does it is looking at the present system. The estimates are in front of us and we decide that, for example, the Governor General cannot spend that much money and we're taking it away. Is it up to the legal department to do the wording of the actual appropriations bill?

[Sally Thornton]

It's simply a reduction, in that case, of $25,000 in the operating vote.

[Mike Wallace, Conservative, Burlington, ON]

You're not recommending any changes to any of those opportunities for committees. Is that correct?

[Sally Thornton]

Right. In fact, our basic assumption in looking at the mock-ups and implementation was that Parliament would continue to vote at whatever that level of control is and they would continue to have those three options.