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1999 September and November Report of the Auditor General of Canada

September and November 1999 Report—Chapter 21

Appendix A—Follow-up of the Recommendations in Chapter 3 of the April 1997 Report of the Auditor General to Parliament

Overall conclusion: The government is in the process of implementing the Financial Information Strategy (FIS), which, through its objectives, should address many of the recommendations made in Chapter 3 of the April 1997 Report of the Auditor General. Overall, however, we believe that the government needs to do more to address the chapter's recommendations. By doing so, it would be in a better position to ensure that the objectives of FIS will be achieved.

Recommendation

Action taken by the government

Assessment of action taken

The government should strengthen its capability to analyze and interpret government-wide financial information on an ongoing basis throughout the year. (paragraph 3.72)

The government established a process known as the Fiscal Monitor Committee to review the monthly analysis of tax revenues. On the expenditure side, an annual Letter of Protocol formalizes the ongoing recording of significant accruals and allowances. As a result, the Monthly Statement of Financial Operations and the Fiscal Monitor are now prepared following the same modified accrual accounting policies as are used for the annual financial statements. Financial reporting therefore provides a much more accurate representation of the results of financial operations throughout the year. In addition, a senior Spending Monitor Committee meets on a weekly basis to discuss emerging spending pressures and issues supported by ongoing staff meetings and contacts with departments.

Action taken by the government to date, specifically in the area of government-wide expenditure analysis, does not completely address the recommendation made in the chapter. However, some progress to date has been noted. We still believe that this capability is integral to the government's ability to prepare its annual Budget, monthly forecasts of expenditures and support other important resource allocation and evaluation processes.

To enhance usefulness and credibility, the government should review its strategy for publishing financial statements during the fiscal year. (paragraph 3.77)

The government concluded that it should continue the practice of producing monthly statements. In addition, the government commenced producing its monthly statements that include more accrual accounting information and an interim statement of assets and liabilities.

By reviewing its strategy and concluding that no change should be made regarding the frequency of the interim financial results, the government has addressed the recommendation.

To improve timeliness, the financial statements during the year should be published within no more than one month after the period end. Upon full implementation of FIS, the audited financial statements included in the Annual Financial Report of the Government of Canada should be published within no more than three months after the fiscal year end, with the Public Accounts of Canada tabled in Parliament as soon as possible thereafter. Annual and monthly reporting time frames should be made public in advance so that users can know when to expect financial information. (paragraph 3.79)

Significant improvements in the timeliness of reporting monthly and annual financial results will be realized once the Financial Information Strategy, including state-of-the-art departmental and central financial systems, is fully implemented in 2001-02. During the three-year transition period to full accrual accounting, parallel systems and policies will need to be maintained, making it extremely difficult to realize earlier reporting, particularly relating to monthly results.

The government is committed to following the IMF Manual of Fiscal Transparency, which recommends that monthly statements be produced no later than the 20th calendar day of the second month following.

The latest possible release dates for the monthly Fiscal Monitor are now made public.

While the government has established reporting time frames in advance, we believe that the timeliness of the monthly financial statements could improve even before FIS accounting systems have been implemented. Opportunities exist within the current framework to publish the financial reports earlier along with our audit of them.

The government could therefore be doing more to address this recommendation at this time.

The government should assess the capability of accounting groups within departments and agencies to implement new systems and accrual accounting, and should provide strong functional guidance to them, particularly during the period of transition. (paragraph 3.84)

The Treasury Board Secretariat has issued a number of accounting policies and carried out a number of general presentations and workshops for both accounting and non-accounting groups in departments and agencies. At the workshops, the Secretariat has obtained an inventory of skill sets of employees. The information was used to develop a FIS Learning Framework including a curriculum of courses for financial and non-financial staff. The initial phase of courses designed to bolster the skills of the finance community has been developed. Work on the next phases, focussed on finance for non-financial managers, is under way.

One of the steps in the FIS Readiness Checklist for departmental FIS implementation requires departments to perform a skills assessment on key functions, including accounting and systems. This assessment should allow departments to gauge the need for temporary engagement of private sector resources to assist in the implementation of FIS until departmental personnel have gained sufficient expertise.

Although the Treasury Board Secretariat has responded to the recommendation by developing a training strategy for existing employees, it is not clear whether that is the entire solution or if additional outside resources with the necessary expertise may be required. With the scarcity of accounting resources throughout government, the lead-time required and the cost of acquiring and training accounting personnel, the Treasury Board Secretariat should be doing more now to ensure that departments will be well positioned to operate in the new accrual accounting environment.

It continues to be our view that the government should amalgamate its central accounting function. The newly amalgamated function should be led by an individual with overall authority to address the significant challenges posed by the accounting changes now under way and address the other recommendations in this chapter (Chapter 3, April 1997). The individual should have appropriate resources and be clearly accountable and responsible for addressing these challenges in a timely manner. (paragraph 3.95)

The government disagreed with this recommendation and has opted to maintain its current organizational structure.

Although we recognize that the current arrangement is working, we continue to feel that it does not work as well as it could. Based upon the work we have performed to date, the slow pace of implementation of FIS in the departments, as well as the significant challenges still faced by the government to implement accrual accounting, we continue to recommend the amalgamation of the function.