Government Operations Committee on June 14th, 2016

[Michael Sunderland]

It's Michael Sunderland again.

We first moved to accruals for both resource accounting and for the supply estimates in about 2001-02; however, I suppose the big alignment of both Treasury budget totals and parliamentary totals was implemented in 2011-12, and we've been running on that basis since.

The principles that underpinned it, or the aspiration, were first put forward and meted out, I think, in about 2007, as part of a wide range of reforms about the relationship between the executive and Parliament, and there were further proposals that were put by the government in a white paper in about 2009.

To move from quite firm proposals to implementation was the period between about 2009 and 2011-12.

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

Thank you. It is relatively recent.

Can you tell us of the challenges you encountered when you were in the transition? Since we would move the estimates part, we would have to be prepared for some. What were the challenges you faced in the process, and what was your department's relationship with other departments? Can you tell us a little bit about what kind of experience it was to shift?

[Michael Sunderland]

There were some significant challenges. There were some on the technical side around accounting frameworks. The budgets that the Treasury set tried to underpin the fiscal framework. Our fiscal measures for fiscal policy are typically based on what we call the national accounts, which are based upon macroeconomic statistics. The framework that we use at the moment is the European system of accounts; however, our financial reports were based essentially on IFRS, the international financial reporting standards. There are technical differences between these two frameworks. There was a process that we had to go through to try to align these as much as possible.

In addition to that, another key part of the reform that was challenging was that the budget boundary included all of the expenditure of the arm's-length bodies of departments. Implementing this reform meant that departments would have to produce a full consolidation of all those bodies into their financial reports, and in many cases that was quite a significant exercise.

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

Were you able to achieve this transition within existing, I would say, financial budget allowances for doing those exercises?

[Michael Sunderland]

I would say yes. I think as far as reforms go... I don't have any numbers, but it was not a hugely costly exercise.

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

Okay.

You mentioned some technical aspects. If we go into the political domain, has it helped? You mentioned it improved transparency. Did you see that the finance committee had to adjust? Did the fact that you changed have an impact on political discourse? Did politicians get a better understanding? Could you highlight some liabilities? Can you tell us a little bit about the political side of that change, from your perspective?

[The Chair, Conservative, Tom Lukiwski]

Gentlemen, I hate to interrupt, but I'll ask you, since our time is expired, if you can perhaps shelve that answer just for a moment, and perhaps we'll get back to it a little later in today's interventions.

We'll now to go Mr. Whalen for five minutes, please.

[Nick Whalen, Liberal, St. John's East, NL]

Thank you, Mr. Chair.

We have witnesses from Canada and from the United Kingdom. I will put my first questions to the witnesses from the United Kingdom.

Gentlemen, I'm actually going to follow up on the same question Mr. Blaney asked about your thoughts on the political aspect of votes that may be based on accrual-based accounting, and what level of authority parliamentarians in the U.K. have to vote their appropriations.

How do they approve the estimates that are presented before them, and what level of oversight do they have through the political process on the spending? Are they approving contingent liabilities? Are they only approving cash outlays? Can you explain to us a little bit about how that works?

[Michael Sunderland]

Under the current system, Parliament votes on a number of control totals in the estimates, and those control totals are largely aligned with budgetary controlled totals that the Treasury sets.

There is a total for capital expenditure and for resource expenditure. There is a subdivision total of administration costs, and there is a cash limit, called the net cash requirement. In the U.K.—and my colleagues will correct me if I'm wrong—there is a series of debates called “estimates days debates”. I think there are now three during the course of the year: one for the main estimates, and two for the supplementary estimates.

Under that process, something called the liaison committee, which is composed of the chairs of all the different select committees, chooses the estimates that they wish to debate, and they hold a debate on those. Then, typically, the remainder of the estimates are all approved, effectively kind of on the nod, without significant debate.

[Nick Whalen, Liberal, St. John's East, NL]

With respect to new initiatives that the government might be introducing, and with the estimates tabled much more closely in time with the budget than they would be in Canada, what sorts of documents would be prepared and be available, either to cabinet or to members of Parliament themselves, to scrutinize the cost of new initiatives in an individual budget?

[Michael Sunderland]

I think the process in the U.K. that makes the new proposals most transparent is actually through the process around the budget itself, and also through the role of the independent fiscal forecast institution called the Office for Budget Responsibility.

What essentially happens is that as part of the budget document that the Chancellor produces and the Treasury publishes, we have something within it called the scorecard. Essentially, for all the announcements and new proposals that the government has suggested that may increase expenditure, we have to indicate essentially where the funding for those is coming from, and those costings have to be approved by the independent fiscal forecaster, the Office for Budget Responsibility, and likewise for tax measures, so it becomes quite transparent at that time whether the overall budget is fiscally expansionary or contractionary, and it explains clearly how we are funding the new proposals that the government may have.

[Nick Whalen, Liberal, St. John's East, NL]

Very quickly, because we don't have much time, with respect to tax expenditure plans and those types of initiatives, would there be appropriations or votes by members of Parliament at the same level of scrutiny that non-tax expenditure measures would get through this process? By this I would mean tax deductions or various....

Go ahead and answer.

[Michael Sunderland]

I think that tax changes for the most part would be done through the finance bill rather than through the Supply and Appropriation Act. The finance bill has a series of debates and scrutiny around it, almost, one might say, more so than the appropriation act.

As for the extent of discretion of tax expenditures—and many countries have things like tax credits and the like—the decision is, I suppose, whether it's a tax measure or a spending measure. For us it's largely driven by the statistical treatment and whether it constitutes public expenditure under National Accounts or whether it's a form of tax reduction or a negative tax.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much, gentlemen.

We'll now go to Monsieur Godin. You have five minutes, please.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

Thank you, Mr. Chair.

I will turn to the witnesses from the United Kingdom. Thank you for being here at such a late hour for you.

There is no perfect system. There are probably some elements in your process you find irritating. Your system is probably a bit more efficient and more accurate than ours, but it likely has some shortcomings and inconveniences. We would really appreciate it if you could tell us about that.

[Michael Sunderland]

I would probably go back to the point that I made earlier, which is about trying to meet the different needs of different users, both in terms of financial reports and also in terms of the presentation of budgetary proposals or in the estimates, or whatever. Different users have different needs, and what might seem like very useful, granular, detailed information to some people becomes almost impenetrable to other people because it's far too detailed.

Also, the challenge we face in the U.K. is that some of these things are quite technical, so we need to be able to produce information in a way that is digestible for parliamentarians who may not have a financial background and are obviously very busy and have a multitude of demands upon their time and really want to get to the essence of what is trying to be communicated.

What I would say is that we produce a lot of information. We highly value trying to be as transparent as possible, but there is a risk that you could produce so much information that people can't see the wood for the trees, so we are forever trying to strike a balance correctly.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

Is that a communications problem? We have the same issue in Canada, as parliamentarians are also very busy. The amount of information we receive and the speed at which we receive it mean that we also have to proceed quickly. Should this be given some consideration? Shouldn't parliamentarians' understanding of those issues be facilitated in order to accelerate the process? The process may be technically correct, but perhaps we could look into the communication tools used.

[Michael Sunderland]

There is something to be said for that, and I think there have been relatively recent reforms that have tried to assist Parliament in undertaking financial scrutiny, for example, by creating a financial scrutiny unit that can provide assistance to parliamentarians. However, to a certain extent, when you have more officials providing advice and guidance and analysis, whether it be in Parliament or elsewhere, there will be an additional cost.

I think there is also something more that could be done in terms of education and training as well.

[The Chair, Conservative, Tom Lukiwski]

Please make it a very brief question.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

I really want to thank the witnesses from the United Kingdom.

To wrap up, I will turn to the Canadian witnesses.

Do you have the same problem in communications as the one the witnesses from the United Kingdom just talked about?

[Nicholas Leswick]

Frankly, our colleagues from the United Kingdom are bang on. We're struggling with how to make these estimates useful, which is the purpose of this discussion.

Although public sector accounting standards are different from IFRS, there is this accrual basis as to how we present the budget plan and there are some generally accepted accounting principles, but translating that into the ultimate cash authorities that go into the hands of departments and how that can be usable and understandable is this perpetual challenge, absolutely.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Our final intervenor will be Madam Shanahan. You have five minutes, please.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

Thank you very much, Chair, and thank you very much to our witnesses who are here with us today.

As a former commercial banker, what I'm seeing is the difference between the financial accounting that we need to have—the income statement, balance sheet, and so on—and what we used to look for, which was the cash flow. We wanted to know where the financing was coming from. Was it internal or were we putting through a loan?

To me, it's not that difficult to understand. I think when we're voting as parliamentarians on the appropriations, we want to know just how much cash we have to put into the system, if I'm summarizing it correctly.

I'm very interested by what our colleagues in the U.K. have said about costing, because I would never give a loan to a business owner who came to me to buy a truck or a piece of equipment without knowing how much it costs first. I might have something to say about whether I agreed with the cost, or get an independent evaluation, and so on. That makes a lot of sense to me.

What I would like to know—just following up on how you went through this transformation procedure—is what the learning curve was like for departmental officials to provide adequate costing. What was the learning curve like for the parliamentarians who were sitting on committees and who had to understand these different types of financial reporting documents?

[Michael Sunderland]

I think there has been a challenging learning curve over a very long period of time. I suppose you could almost see with that transition the development of the finance function within government and the agenda of professionalization we've had in the U.K. over quite a long period of time to ensure we have people with the right professional expertise.

I would also say that both for the business of government and in terms of costing proposals, this is not simply the work of accountants. In reality, many of these things are cross-disciplinary, requiring economic analysis, a lot of economists, statisticians, operational researchers, and so on. I think there is certainly an upscaling process that has gone on over time.

In terms of parliamentarians and upscaling there, I suppose one of the more recent innovations in the U.K. is the development of the independent fiscal forecaster. Also, we have a very powerful audit institution in the form of the National Audit Office. To some extent, parliamentarians will seek to do the analysis for themselves, versus relying on informed judgments that come from these independent institutions that are hopefully well resourced and have a significant amount of technical capability to be able to provide comment and challenge to the proposals.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

Thank you for that.

Ultimately, what we're trying to look at is the overall cost of the program or equipment that we're looking at buying. I wonder how you are able, within your system, to tie the cost of an overall program together, because either it can be departmentalized or you can have many costs feeding into one overall program.