Government Operations Committee on June 14th, 2016

[Michael Sunderland]

Essentially, in the U.K. we divide budgets into two halves, broadly. We have what we call departmental expenditure limits, which are set at the time of a spending review. These are multi-year budgets that cover the department's programs, over which we would expect them to have some control and some leverage. We also have annually managed expenditure, which is by nature much more volatile and potentially demand-driven. It might include things like pensions or social-security-type payments.

Essentially, for those large programs you're talking about, the way we allocate resources in the U.K. is through the spending review process, which factors in those intended plans and the possible programs the government wants to take. In the process of trading off the different options that people have, the government will take a decision on the levels that they're willing to accept for those departmental expenditure limits. Then it's broadly up to departments to live within those limits over the period.

In terms of monitoring specific programs, I suppose we have assurance processes around those. We have something called the Major Projects Authority, which looks at very large-scale programs and provides some challenge—

[The Chair, Conservative, Tom Lukiwski]

Excuse me, Mr. Sunderland. Thank you.

I know you could go on probably for several more minutes and it would be extremely interesting, but we do have a tight schedule. We have other witnesses before us this afternoon, so I'm going to have to cut it off there.

I do want to thank you, Mr. Sunderland, and Mr. Melbourne and Mr. Hansman, for taking the time to be with us. I know it's a lot later in the U.K. than it is here in Canada, so we do appreciate your attendance here. You've been very informative.

I also want to thank our officials from the Department of Finance, Mr. Leswick and Mr. Recker. Thank you so much. You've been very helpful.

We'll adjourn for a couple of minutes while we wait for our next witnesses.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Can we keep the witnesses from the Department of Finance in case we have questions?

[The Chair, Conservative, Tom Lukiwski]

Mr. Leswick and Mr. Recker, would you be able to stay while we conduct another hour?

I know it hasn't been part of your schedule. How much time would you have, if any?

[Erin Weir, NDP, Regina—Lewvan, SK]

Not even for the full hour, but given that we started a bit late—

[The Chair, Conservative, Tom Lukiwski]

How much time would you have?

[Nicholas Leswick]

I am supremely apologetic. I'm always available to this committee. However, I do have a child pickup.

I will come back at any moment to continue to testify and answer questions from this committee, but I do apologize.

[The Chair, Conservative, Tom Lukiwski]

It's family first. I think we all understand that.

[Nicholas Leswick]

My wife is travelling. I apologize.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

We are suspended for about two or three minutes while we get our next witnesses to the table.

Thank you so much.

[The Chair, Conservative, Tom Lukiwski]

Ladies and gentleman, I think we'll begin again if we can.

Before we commence with our questions to our witnesses, I will tell you that we will need probably less than 10 minutes for some very brief committee business at the end, so I will be suspending just before 5:30.

Now we have with us two officials from Treasury Board Secretariat of Ontario, Mr. Orencsak and Mr. Giannekos. Thank you both for being here.

I understand, Mr. Orencsak, you have roughly a 10-minute PowerPoint presentation to begin.

[Greg Orencsak, Deputy Minister, Treasury Board Secretariat of Ontario]

That is correct.

Thank you very much, Mr. Chair, for having us here today to share Ontario's approach to and experience with financial reporting, which may be of interest to your committee as you study the budget and estimates processes.

My name is Greg Orencsak. I am the deputy minister of the Treasury Board Secretariat and secretary of Ontario's Treasury Board and the management board of cabinet.

I am joined by Chris Giannekos, who, as of yesterday, is the associate deputy minister of the infrastructure plan at the Ministry of Infrastructure. Congratulations, Chris.

Prior to that, Chris was the assistant deputy minister for the office of the budget in Ontario's Ministry of Finance.

Our Ministry of Finance and Treasury Board Secretariat in Ontario have a long history of working together, either as two separate ministries and central agencies or combined as one. Together the ministries provide leadership for the development and implementation of the government's fiscal plan, including the expense and revenue components that feed into this plan and the basis on which the plans are communicated to the legislature, the public, and other key stakeholders.

We appreciate the committee's interest in the issue of aligning various financial reports and the role that accounting plays in this.

Ontario's fiscal and financial planning is underpinned by a strong commitment to transparency and accountability. This is best achieved when these issues are approached through a consistent lens when it comes to decision-makers, legislators, and the public as the key users of this information.

We understand that the committee is particularly interested in how Ontario aligns the budget and expenditure estimates, as well as some of the considerations regarding cash and accrual accounting. I will begin by providing an overview of the legislation that governs Ontario's budgeting and reporting and discussing how Ontario transitioned to reporting on a fully consolidated basis. My remarks will serve to highlight the key elements of the presentation we have provided to the committee. I will then turn it over to my colleague to speak about the financial reporting cycle in Ontario, and then I will conclude with observations about Ontario's experience with accounting and reporting changes. After that, we will, of course, be happy to take your questions.

There are two significant pieces of legislation that guide financial reporting in Ontario: the Fiscal Transparency and Accountability Act and the Financial Administration Act. Together, these two acts provide a framework for financial reporting by specifying the frequency and detail required for publicly communicating the government's financial plan and results.

The Fiscal Transparency and Accountability Act outlines a number of principles that govern how the government should approach fiscal planning, including responsibility, flexibility, equity, and transparency. All of these principles are vital to sound fiscal planning, but in the context of this discussion, I would like to highlight how transparency is fundamental to Ontario's financial reporting practices, in terms of both reporting regularly and doing so on a consistent basis.

From an accountability perspective, the Financial Administration Act establishes the process through which both statutory and voted appropriations are approved. It also limits public spending to these appropriations and requires that expenditures against an appropriation must be used for the purpose they were intended for.

As you are aware, in Ontario all fiscal reporting is on a fully consolidated basis. By publishing the budget expenditure estimates and public accounts all on the same basis, the government is able to clearly articulate not only plans, but also progress relative to these plans.

In order to ensure effective management of the province's finances, the powers required to do so are shared between the Minister of Finance and the President of the Treasury Board.

I will now turn it over to Chris to discuss our annual reporting cycle.

[Chris Giannekos, Associate Deputy Minister, Infrastructure Plan, Ministry of Infrastructure]

Very quickly, I just want to draw your attention to the fact that the fiscal cycle is based on three pillars.

The first one is the fact that the budget is typically released before the start of the year. That is followed by the tabling of the estimates 12 sessional days after the budget. Both of these documents are on the same basis in terms of the numbers, and you can cross-reference between the estimates and the budget quite easily. The third pillar is the public accounts, which provides what actually happened.

You have the planning document. You have the appropriations authority. Then you have the final step, showing what actually did occur as part of the public accounts.

The rest of the pieces on that diagram show you that throughout the year there are interim updates that are provided to Parliament in terms of finances. The first-quarter finances, which are basically a simple update and mirror the fiscal chapter in the budget, are provided by August 15. Then the third-quarter finances are released by February 15.

The last piece I want to draw your attention to is what we call the Ontario economic outlook and fiscal review. That, in some instances, can be almost a mini-budget, and it provides not only a financial update but also key policy updates that have fiscal implications. It's usually the mechanism by which the government may signal course corrections or changes in terms of its fiscal plan.

I want to end by underscoring the deputy's point that the synchronization between the estimates and the budget relies on a very in-depth collaboration between the two organizations, to the extent that we are present at Treasury Board meetings and follow throughout the whole process. It is very integrated. It is not a relay sort of arrangement, but an arrangement that takes place together throughout the whole year.

Thank you.

[Greg Orencsak]

A consistent approach to planning and reporting obviously didn't happen overnight. As I think you've heard from previous witnesses who appeared before this committee, it took almost a decade to prepare for and implement a full accrual accounting system in Ontario. Through that period, the government sought advice and consulted broadly to ensure an effective transition. It also meant focused work in terms of building capacity, training, and systems changes.

In the end, though, we believe this method of accounting is essential for transparency and accountability. It provides legislators with improved information and better understanding of the cost of programs, while allowing for a rigorous budget monitoring process. It ensures comparability between financial reports and it helps to better plan capital asset requirements.

Moving to accrual accounting was not without difficulties. I think you've already also heard about that. The additional complexity of accrual accounting posed challenges for operations and public understanding during the transition.

Today Ontario is considered a leader in financial reporting practices, so in our view it was well worth it. The C.D. Howe Institute consistently recognizes Ontario as one of the leading jurisdictions in Canada when it comes to fiscal transparency and accountability. Consistency in accounting is important for clear decision-making and understanding the long-term impacts of current policies on public finances.

We acknowledge this is an ongoing journey. Accountability and transparency is not an end state; it's something we are always looking to build on and improve to respond to the demands and requirements of the public and the legislature.

With that, I will conclude. We are happy to take any questions from committee members.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

We'll start with the government side. Monsieur Ayoub, you have seven minutes, please.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

Thank you, Mr. Chair.

I will be asking the questions in French, please.

I want to begin by thanking the witnesses for joining us.

Following the presentation by the United Kingdom representatives, we could now hear from the representatives of Ontario, where a system is already in place. It is appropriate to be able to go into a little more detail on these issues.

Mr. Orencsak, in your presentation, you provided a short history of the implementation of accounting practices. According to the documents, your system has been in place since 2003 or 2004.

What impact have changes in the accounting methods had on parliamentarians' ability to perform their duties, ask questions and stay on top of the issues? You talked about transparency, but what has this changed for parliamentarians in recent years? By extension, what would be the potential impact of all that on us?

[Greg Orencsak]

Thank you for that question.

As with any change of this magnitude, I think there were ample consultations and dialogue that helped inform the path forward. The Ontario Financial Review Commission first made recommendations to that effect and that, in and of itself, was a body that engaged in extensive consultations processes.

Ontario is also somewhat unique in Canada in that it has a dedicated estimates committee of the legislature, a standing committee on estimates. All that committee does is review estimates, so there are dedicated parliamentarian committee members whose mandate is devoted to reviewing estimates. As a result, there was a body of legislators who were available for consultation and ongoing dialogue over that process.

That dialogue took many forms. It took place with legislators, with the government, with the public, and some of that was reported through public documents, such as budgets and the public accounts. That was important in the context of getting Ontario ready, getting both the producers and the users of the information prepared for the changes that were coming.

I would, of course, be remiss if I didn't mention in that consultation process the provincial auditor, the Auditor General's Office. They played an important role in this journey as well in terms of ongoing dialogue whenever it comes to any kind of accounting or reporting change that is implemented in the province. They played an important role in that, and that's very important from the perspective of legislators, because legislators have a right and an ability to hear not only from government representatives but also from independent officers of the legislature.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

Thank you.

I assume that the transition happened over a period of time. Can you tell us about the training that has been provided? Has training been provided to public servants and parliamentarians during the transition period to bring them up to date on accounting practices?

[Greg Orencsak]

Yes, training was provided. I can't speak to the specifics as I was not around at the time in this role, or I was not involved at that time in terms of the rollout of the transition. I don't know, Chris, if you were personally involved.

What helps in terms of our financial planning, budgeting, and reporting practices is that they repeat every year, so subsequent planning and reporting cycles provided a good way of getting the system ready, if you will, for the changes that were being implemented, and as with any kind of change of this magnitude, there's always a certain amount of incrementality that is used in terms of rolling out these kinds of changes.

We didn't flick a switch all at once. We first started with the budget and the public accounts, and the estimates followed shortly thereafter.

What was also, I think, instrumental in terms of Ontario's transition, having talked to some of the people who were involved and having looked at the documentation in preparing for today's appearance, were the systems changes that were done as part of our financial management systems. They took that opportunity to implement a government-wide integrated financial information system, which helped with the transition.

As part of that, obviously, when you roll out a large financial management system, you have to train people to be able to use that system.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

How much more time?

[The Chair, Conservative, Tom Lukiwski]

Less than 30 seconds.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

How much time do you need to prepare your budget? Are we talking about weeks or months? How many people work on budget preparations to finalize the annual forecasts?

[The Chair, Conservative, Tom Lukiwski]

A very brief answer, gentlemen.

[Chris Giannekos]

Very briefly, about 250 people are immediately involved in it, usually within the Ministry of Finance and Treasury Board. In addition, line ministries will be brought, in depending on whether they are impacted by budget initiatives, but the core group is around 200 to 250.

How long does it take? Generally it takes about a month and a half, and that would be on the aggressive side.

[The Chair, Conservative, Tom Lukiwski]

Monsieur Blaney, you have seven minutes.