Public Accounts Committee on Feb. 26th, 2007

[The Chair, Liberal, Shawn Murphy]

I'd like to call the meeting to order and welcome everyone here. Bienvenue à tous.

Today the agenda is pursuant to Standing Order 108. We are talking about chapter 1, “Expenditure Management System at the Government Centre” of the November 2006 Report of the Auditor General of Canada; and chapter 2, “Expenditure Management System in Departments” of the November 2006 Report of the Auditor General of Canada. This is very much related to some of the work we were doing on the relationship between our committee and Treasury Board Secretariat in the fall last year. Today's meeting and this Wednesday's meeting are allotted to this item.

We had a very helpful and useful briefing session at noon today. I want to thank your staff, Mrs. Fraser, and your staff, Mr. Wouters. It was simply an excellent presentation and we appreciated it very much.

We have with us today our Auditor General, Sheila Fraser, accompanied by Doug Timmins, the Assistant Auditor General; Tom Wileman, principal; and Richard Domingue, director. From the Treasury Board Secretariat we have Wayne Wouters, secretary; and David Moloney, senior assistant secretary, expenditure management sector. Mr. Moloney, Mr. Timmins, Mr. Domingue, Mr. Wileman, and others were all here at noon for the excellent briefing.

I'm going to suspend this part of the meeting at approximately 5:15 to deal with Mr. Wrzesnewskyj's motion. I will allocate about 12 minutes for that, and we will adjourn by 5:30.

I call upon you, Mrs. Fraser, for your opening comments.

[Sheila Fraser, Auditor General of Canada, Office of the Auditor General of Canada]

Thank you, Mr. Chair. We thank you for this opportunity to meet with the committee to discuss three chapters from our November 2006 report.

The first chapter is an overview of the federal government's expenditure management system. The other two chapters are audits. Chapter 1 looked at the expenditure management system at the centre of government, and chapter 2 looked at the expenditure management system in departments.

As you mentioned, I am accompanied by Doug Timmins, Richard Domingue, and Tom Wileman, who are responsible for these audits.

Before I speak about these expenditure management system chapters, I should mention that we were unable to audit certain aspects of government operations managed by the Treasury Board Secretariat because we were denied access to information we needed. We attempted to determine whether the secretariat had adequately fulfilled its challenge and oversight responsibilities related to government spending. In the audit of the expenditure management system at the government centre, we were denied access to the analysis conducted by the secretariat, on the basis that they were cabinet confidences. I would like to inform the committee that since the completion of the audit, the Auditor General's access to this information has been clarified by a new order in council.

The Expenditure Management System is at the heart of government operations, because every government activity involves spending. Over the last six years, federal spending has grown from $162 billion a year to $209 billion.

An effective system to manage spending is essential to getting the results the government wants and to being accountable to Canadians for what is done on their behalf.

We found that there are two expenditure management processes: one for reviewing new spending initiatives and one for recommending ongoing funding for existing programs.

New spending proposals therefore are not normally assessed against existing programs. As a result, trade-offs and reallocation of funds between existing and new programs are not considered systematically.

Spending on existing programs essentially moves forward automatically through the Annual Reference Level Update exercise. The current system does not routinely challenge ongoing programs to determine whether they are still relevant, efficient and effective. The process is not designed to take into account past performance and results of programs.

I am concerned that the system focuses on challenging new spending proposals and, in effect, ignores ongoing spending, which accounts for the bulk of total spending.

Instead, existing programs are reviewed usually when a government wants to cut spending, yet the three departments we discussed in chapter 2, “Expenditure Management System in Departments”, have not developed the capacity to respond to reallocation requests from the centre of government.

In many cases, the amount of funding allocated to a program, the length of the funding period, and the distribution of funding over that period are not aligned with what is needed to deliver the program. This affects how programs are managed and delivered to Canadians.

Finally, we found that departments rely on supplementary estimates to get funding for items that could have been included in the main estimates, largely because of the timing of the budget decisions. This means that Parliament does not see the full range of proposed spending at one time. Little has been done to reduce this reliance on supplementary estimates, which has more than doubled in recent years to 10.5% of the total estimates from 1999 to 2005, as compared to 4.5% during the previous eight years.

Departments also start to spend, using existing appropriations, before the supplementary estimates are approved. This puts program spending at risk because Parliament could reduce or reject the supplementary estimates. It also undermines parliamentary control because money is spent before Parliament has examined and approved the spending proposal.

Late last year, the government announced a series of reforms to the Expenditure Management System. The proposed reforms appear generally consistent with the recommendations made in our audits for improvements to the present system. However, the government has not yet released the specific details. The committee might want to ask the witnesses for more information on these reforms, including the implementation plan, in order to assess the extent to which the plan to reform the Expenditure Management System addresses our observations.

Mr. Chairman, this concludes my opening statement. We would be pleased to answer the committee's questions.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mrs. Fraser.

Mr. Wouters, you have an opening statement.

[Wayne Wouters, Secretary, Treasury Board Secretariat]

Good afternoon. I thank you for your invitation to appear before your committee to discuss the Auditor General's findings on the government's expenditure management system.

As you pointed out, joining me today is Mr. David Moloney, Senior Assistant Secretary, Expenditure Management Sector, Treasury Board Secretariat.

While I understand that Mr. Moloney and staff from the Auditor General's office have had an opportunity to provide you with a background briefing regarding the expenditure management system, I would like to present to you today our response to chapter 1 and chapter 2 of the Auditor General's November 2006 report. I will not be making a presentation when I appear before you on Wednesday, but I will be happy to answer any questions you may have at that time.

We agree with the Auditor General's overall assessment of the existing expenditure management system, as well as most of the detailed findings. In fact, prior to her report we had already begun extensive efforts to address the issues she has raised. Treasury Board Secretariat is working closely with the Privy Council Office and the Department of Finance in support of these efforts.

Budget 2006 pointed to the need for a new ongoing approach to better manage overall spending. We want to ensure that all government programs are effective and efficient, focused on results, provide value for taxpayers' money, and are aligned with the government's priorities and responsibilities. To that end, the budget launched a review of the expenditure management system led by the President of the Treasury Board.

As a result of the considerable work undertaken during this review, the president was able to announce directions of a new expenditure management system in his response to the AG's November report. The Minister of Finance also provided some details in his Advantage Canada report. Simply put, our new approach to expenditure management will support managing for results, decision-making for results, and reporting for results.

Allow me to provide you with some details about each of these components.

Under the new approach, departments and agencies will be required to manage their programs with clearly defined objectives. Right across government, we will take a common approach to the integrated collection, management, and reporting of financial and non-financial information, including human resources and performance information.

To assess program performance against clearly defined objectives, departments will devote greater time to reviewing and evaluating direct program spending, building on the requirement of the Federal Accountability Act for the evaluation of all grants and contribution programs. This requirement will ensure that departments are focused on managing for results.

These reviews and evaluations will support decision-making for results by providing better information for cabinet to be able to review federal programs in order to ensure that they remain relevant, produce results, and provide value for money. It will permit a more rigorous and systematic examination of new spending, as well as existing spending, to ensure that all government programs deliver concrete results that align with the federal government's roles and Canadian priorities.

Our new approach will also support reporting for results. It will improve the way departments report on the results of their programs. It will also enhance reporting on the outcomes of government spending on a government-wide basis. This higher quality of departmental and government-wide information will also result in improved reporting to Parliament.

We believe these directions are very consistent with the Auditor General's recommendations. In fact, the Auditor General's assessment of the shortcomings of the existing expenditure management system echoed our own findings.

The changes we are proposing will not take place overnight. We need both new evaluation tools and more evaluators. We will need to work hard at defining and then measuring proper performance, capturing the necessary data and integrating it into management practices. Our goal is to make sure that every dollar spent is well spent, and then to make sure that Parliament has a transparent means of executing its oversight role to that end.

In conclusion, the approach I have described for you today will change the way government does business. However, the kind of significant change we are undertaking takes time. But it needs to happen. Putting this approach in place will further entrench a culture of sound management, of spending to deliver programs that achieve results for Canadians and maximize value for money.

Mr. Chair, that concludes my remarks. I would be pleased to answer any questions that committee members may have at this time.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Wouters.

We're now going to move to the first round of eight minutes each, beginning with Ms. Sgro.

[Judy Sgro, Liberal, York West, ON]

Thank you, Mr. Chairman.

It's irregular to see all of you folks here all the time. Welcome.

Mr. Wouters, how come the cost has escalated so much? It has gone from what was supposed to be $16 million to $53 million.

[Wayne Wouters]

I'm sorry, the cost of—?

[Judy Sgro, Liberal, York West, ON]

The cost of the project to develop the expenditure management information system, EMIS. It was initially tagged at $16.2 million, and it is now at $53 million.

[Wayne Wouters]

EMIS is essentially a system by which we are able to gather the information from departments, so that we're able to bring together the various pieces of financial information that go into the supplementary estimates and into the main estimates.

There are six or seven legacy systems that we have. These systems are very much outdated. We need to basically come forward with a new system. It's a significant expenditure for the government in order to modernize that. Our early estimates came in at a much lower cost. When we got into the program, we then realized that in order to bring in a new system to replace these seven legacy systems, it was going to cost significantly more than that.

[Judy Sgro, Liberal, York West, ON]

Why was it so underevaluated at the beginning? That's triple the amount of money that you initially thought it was going to cost to bring in the program.

[Wayne Wouters]

Again, that was part of our preliminary project approval, so it was in the very early days of the project. During that period of time, this was an estimate that we had.

As well, we did expand the project considerably when we moved to looking at how we need to bring in a new system. There was essentially a need not only to gather the information on spending, but also to be able to gather, collect, and report on results against the spending. We modified the overall project to allow us to be able to not only gather the financial information, but also to be able to gather financial and non-financial information and link it to results. That was a significant change in the overall project from its initial inception.

[Judy Sgro, Liberal, York West, ON]

Where do you see yourselves now with the kind of implementation plan that was recommended? With the recommendations from the Auditor General, where is the department now in meeting those requirements and those recommendations?

[Wayne Wouters]

We're quite far advanced, as I noted in my opening comments. In budget 2006, the government made a commitment to review the overall expenditure management system. That review is very far advanced. We have a set of proposals now that the minister is discussing with his cabinet colleagues, and we expect those proposals to go forward to cabinet in the weeks ahead. If cabinet approves that overall approach, we'll be rolling that out beginning this spring.

[Judy Sgro, Liberal, York West, ON]

How are you proposing to do a more effective job of monitoring the non-financial commitments?

[Wayne Wouters]

Under our new MRRS policy, each department is now basically required to align both financial and non-financial resources—HR resources, for example—to the various outcomes that they must identify for their department. First and foremost, they must outline the outcomes that they're going to achieve. Based on those outcomes, they must then outline how the various programs that they have in place are aligned to achieve those outcomes. Within every program, of course, there are all the resources that must be aligned, both financial and non-financial.

Again, this is a work in progress. It's been under way for the last year and a half now, from the perspective of a requirement that the departments must submit. Our view is that we're making good progress in this area.

[Judy Sgro, Liberal, York West, ON]

On the recommendations that the Auditor General made, is it your intent to fully implement all of them?

[Wayne Wouters]

I don't have every single recommendation before me, but I would argue that the majority of those recommendations are ones that we accept. We feel they are quite appropriate in terms of where we need to go.

[Judy Sgro, Liberal, York West, ON]

Ms. Fraser, does the secretariat have the resources to follow up on all of the things that you recommend need to be done?

[Sheila Fraser]

We would certainly do that as part of our normal policy on the follow-up of audits. This is such a significant one that we would go back and look at it at some point in the future. We would, though, first want to see the more detailed plan from the secretariat, as to how they would address this. We would then time our follow-up audit based on their own indication of when they believe some of these things will be put in place. But we will go back and do a follow-up at some point in the future.

[Judy Sgro, Liberal, York West, ON]

Do you have any concerns with the fact that the costs have escalated so much, from $16 million to $53 million, and it's still a work in progress?

[Sheila Fraser]

Members will know that in the audit we did on large IT projects, that was one of the systems we looked at. We were fairly critical of the criteria of management throughout. That could perhaps be something we would go back and look at in the future as well, to see if management of these large projects has improved or not.

[Judy Sgro, Liberal, York West, ON]

But when you're doing this work, you don't have a date already booked for when you're going to be checking back, six months, nine months, or twelve months later. You just wait until they're completed.

[Sheila Fraser]

Mr. Chair, it certainly would not be within a year. We would usually only go back two to three years after an initial audit, especially for something as complex as an expenditure management system. Quite honestly, I would expect it would probably take at least that, if not longer.

What we would expect is for the department to produce a plan, with their timeline of when they believe they can address these issues. We would then see if they have met those timelines. For us to go in earlier, of course, leaves us open to criticism that we're not being realistic and are not being appreciative of the complexity of the issues.

So we would much rather have it that the department sets the timeline. Based on that, we would then do the follow-up audit.

[Judy Sgro, Liberal, York West, ON]

So far, have they submitted a plan to you on how they are going to meet their obligations?

[Sheila Fraser]

No, they haven't, but I believe that was what Mr. Wouters was referring to when he talked about the documents going to cabinet. That's part of it.