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1989 Report of the Auditor General of Canada

Main Points

25.1 The agencies of the Treasury Board are encouraging departments to make improvements to their systems for financial management and control. They have yet to assess the extent of change as the result of their recent initiatives (paragraphs 25.10 to 25.56).

25.2 The initiative to increase ministerial authority and accountability (IMAA) has been moving forward. Progress in terms of signed agreements has been slower than first anticipated, but more are coming. We cannot comment on the end results until cost and performance information systems are further developed, more annual management reports are submitted, and accountability reviews take place. However, we remain concerned about accountability (25.14 to 25.34).

25.3 In general, departments have initiated action on the observations and recommendations of the 1987 Financial Management and Control Study. Slow improvement is indicated in some important areas and problems are recurring. Leadership is still required from central agencies to improve financial management, and departments need to be vigilant in applying internal controls (25.57 to 25.78).

Introduction

The Financial Management and Control Study (FMCS)

25.4 In 1987 the Office reported the results of its two-year study of financial management and control in departments and agencies. Chapter 4 of the 1987 Report to the House of Commons contains the full text of our findings and recommendations.

25.5 What the 1987 study found. After examining nine departments, the study concluded that there were significant deficiencies in financial management. It recommended improvement to systems for financial management and accountability and strengthening of the way resources are allocated and departmental operations are controlled. The study reported significant improvements in basic financial controls since our initial FMCS in 1975 but observed that problems still existed.

25.6 FMCS made recommendations to departments and to central agencies -- the Treasury Board Secretariat and the Office of the Comptroller General. Each department formally responded to the recommendations made to it. The central agencies did not disagree with the study and later responded during the proceedings of the Standing Committee for the Public Accounts (PAC).

25.7 After the 1987 study was published. Six departments and the central agencies appeared as witnesses before the PAC. Central agencies outlined initiatives to deal with the concerns raised in the study. Based on the hearings and information presented, the PAC made a report to the House of Commons in June 1988 giving further commentary and making specific recommendations to the government. The government had not tabled a response to this report prior to dissolution of the 33rd Parliament.

25.8 With a view to achieving productivity improvements, one suggestion the PAC made was that the government instruct all departments to implement productivity measurement plans and to report progress by 31 March 1989. We are informed that central agencies did not agree with this particular recommendation.

25.9 Follow-up scope and approach. In view of the study findings and the increasing pressure for departments to manage resources cost-effectively, we conducted a follow-up from November 1988 to April 1989 but have also considered information provided to us subsequent to this period. We approached it in three ways. First, we reviewed activities of central agencies; we focussed on the progress of the initiative called Increased Ministerial Authority and Accountability (IMAA) and on the activities of the Office of the Comptroller General. Second, we re-visited eight of the original study departments. Thirdly, we analyzed the results of our ongoing audits in terms of financial management and control issues. The result of our follow-up is reported under two headings: Activity at the Centre and Progress of Departments.

Activity at the Centre

The agencies of the Treasury Board are encouraging departments to make improvement to their systems for financial management and control. They have yet to assess the extent of change as the result of their recent initiatives.

Response to FMCS

25.10 Starting where the study ended. Given the extent of deficiencies, FMCS raised questions about the role of central agencies. These were:

  • How can sound resource allocation take place without reliable information on costs, efficiency and effectiveness of operations?
  • What is the dividing line between "letting the managers manage" and ensuring that departments are managed so as to meet the objectives set by government?
  • What is the centre's role in the delivery of financial information systems?
  • What mechanisms exist at the centre to detect problems in departments, and what can and should be done when problems are identified?
25.11 Central agencies' response. Central agencies have communicated to us responses to the above questions; they involve complex issues and interrelationships. These questions and answers relate more to reporting and accountability after resources are given to departments than to the processes that go on before resource allocation. We have abbreviated their answers to present the essence of the approach being taken by central agencies.

  • A complex and evolutionary process exists for making resource allocation decisions in an environment of fiscal constraint. While operational planning frameworks are of key importance, reliance also is, or will be, placed on many other systems for information. These include IMAA documents, internal audit and program evaluation reports, Part III Estimates, annual reports of departments, and ongoing communications with senior line managers and financial managers in departments. It was never expected that most results could be aggregated up to the level of program objectives; however, emphasis will continue on the need for performance indicators.
  • Reliance will be placed on reports and accountability reviews under IMAA, as well as the other sources of information outlined above, to assess whether government objectives are met.
  • Departments are responsible for their financial systems, while the central agencies set standards and best practices for departments to follow, provide advice, and monitor sources of information for compliance.
  • Monitoring and advising departments would be facilitated through the information sources mentioned above, as well as audit and evaluation reports, special studies, and exchange of information and advice through such means as the Interdepartmental Financial Management Advisory Committee of senior full-time financial officers. The central agencies would intervene in problems only as necessary. Departments are primarily responsible for corrective action.
25.12 IMAA, other initiatives, and ongoing work were considered to be a way of responding to the FMCS findings and recommendations. These were seen as essentially matters of compliance with existing requirements. Central agencies did not draw up a new plan of action but have considered the FMCS results in the course of their work. Similarly, central agencies did not establish a mechanism dedicated to monitoring, assessing or causing departments to take specific corrective action in response to FMCS recommendations.

25.13 Our follow-up considered this response. We reviewed the activities of the central agencies, taking into account their response. Exhibit 25.1 gives a basic summary of the results of our follow-up as related to FMCS recommendations directed specifically to the Treasury Board Secretariat and the Office of the Comptroller General. The remainder of this section elaborates on what we found.

(Exhibit not available)

Increased Ministerial Authority and Accountability (IMAA)

25.14 In June 1986 the Treasury Board introduced the IMAA concept following its decision in February 1986. This announced a change in the Board's approach to decision-making which, when fully implemented, would significantly increase the authority and accountability of departments and agencies. It has been described by the central agencies as a fundamental change in philosophy that could significantly alter the relationship with departments and the management culture of the federal government. This is being done gradually and we are informed that it might take from 5 to 10 years. It involves reduction of administrative requirements and authority changes for all departments, as well as increasing delegation of authority to specific departments. Departments are invited, on a voluntary basis, to sign a memorandum of understanding (MOU) under IMAA, which is a three-year agreement between a department and the Board involving submission by departments of an annual management report, and a formal accountability review at the conclusion of the MOU.

25.15 Since 1986 the central agencies have devoted much effort to implementing the IMAA concept on a government-wide and a department-by-department basis.

25.16 During our follow-up we noted that milestones or targets were not available as reference points from which to measure or predict the progress of IMAA and the transition in financial management and control. While much has been done, we could not say how results to date compare with what was planned or intended.

25.17 The progress of IMAA appears to have been slower than first anticipated. Three years have passed, with 3 of the approximately 30 major departments having signed an agreement to March 1989. These three account for about 8 percent of the total program expenditures of the federal government. As of May 1989, three more agreements had been signed, for a total of six, and we were told that seven more are well advanced. The first two annual reports were sent to the Treasury Board in 1988. The first accountability reviews are scheduled for spring 1990, the final year of the initial agreements.

25.18 However, numbers should not be considered as the sole criteria for judging the progress of IMAA.

25.19 An important result of the process is that dialogue has opened up between central agencies and departments, and information on IMAA is now widely available. Up to March 1989, 21 departments had entered into discussions with the Treasury Board Secretariat, with 6 having progressed to signing an MOU by May 1989 and others entering final stages of negotiation. An IMAA Handbook has been prepared, a progress report has been issued by the Board, and guidelines for the preparation of departmental reports have recently been drafted.

25.20 IMAA is to increase departmental authority. Increased delegation of authority is intended to provide greater flexibility in resource management and administration, and to reduce the involvement of central agencies. Authority will flow outward to departments, while the amount of reporting to central agencies will be reduced. This includes decreasing or removing constraints that have existed for some time and eliminating or reducing requirements for information on resource planning. IMAA is not intended as a vehicle for creating authority or returning it to the Treasury Board.

25.21 The shift in authorities. According to Treasury Board data, as of October 1988 some 114 authority changes had been proposed by six departments. Of these, 87 were submitted for Treasury Board approval and 36 were approved. Examples of those approved are: authority to set terms and conditions of grants and contributions; authority to use non-salary moneys to pay for part-time employees; ability to retain any internally generated savings; and ability to provide for multi-year resourcing. As other MOUs are signed, more delegations will be approved.

25.22 According to July 1989 data of the Board, 72 percent of authority proposals (for the six departments which have signed an MOU) were approved in whole or in part. This ratio includes items relating to government-wide policy reviews of the Board. Approved proposals were in the following areas:

  • delegation of certain departmental operations to the regional level;
  • job classification authority below the management level;
  • travel, conferences and memberships;
  • language training and development; and
  • increased limits for contracting.
25.23 The process of reviewing requests for authority changes has resulted in both departments and the Secretariat learning more about authorities and the need for change. This is beneficial in itself, in terms of achieving better understanding. We were informed that some proposals were withdrawn because sufficient authority was found to exist, other ways were found to overcome a constraint, an existing requirement was misunderstood in its application, or an authority requirement had already been changed. Consultation between the Board and departments apparently reduced the number of unworkable proposals.

25.24 It was not our purpose to determine which authority changes should or should not take place. Because of the few departments that have negotiated MOUs, and the number and nature of authority changes approved so far, we did not see an extensive shift in delegation of authority for financial management and control. A gradual approach is being taken so that a balance is maintained between authority and accountability, and central agencies can meet their responsibilities while providing greater freedom for departments.

Streamlining administration and relieving paper burden
25.25 In conjunction with authority delegation, the Treasury Board has been amending information and administrative policies as one way to increase productivity in administration.

25.26 When IMAA was announced in 1986 it was accompanied by measures for relaxing administrative requirements. These included increasing departmental limits for competitive contracts and eliminating the need for Board approval in certain administrative areas.

25.27 Reporting requirements have also been reduced. For example, departments need only submit information technology plans every three years instead of annually, multi-year human resource plans are to be provided every three years under IMAA with updates through an annual management report, and multi-year operating plans need not be updated as frequently. Further elimination of reporting requirements and directives is pending. In April 1989, the Board agreed to delete a further six reporting requirements and 174 directives.

25.28 We noted that submissions by departments to the Treasury Board for funding and other approvals continued to decline in number by about 23 percent over the past two years. A new Treasury Board submissions guide was distributed in draft form to all departments in June 1989.

25.29 The Board has also improved management guidance to departments by publishing the first edition of the "managers desk book", to communicate the essential elements of Treasury Board policies. The Board also intends to review all policies and rationalize them into a single series of manuals by 1991.

A concern for accountability
25.30 A primary aim of IMAA is to achieve increased accountability and to encourage productivity improvements. Two departments have submitted annual management reports so far. No department has yet undergone an accountability review. The first is scheduled for early 1990, when the first three-year MOUs are to be completed.

25.31 An MOU under IMAA involves parties agreeing on resource levels and the circumstances under which these might change. Attachments to the agreements feature accountability frameworks that set quantitative performance targets in some areas but in others only outline generic standards or expectations. MOUs do not incorporate specific economy or efficiency gains to be met by departments, although they include some performance measurements relating to efficiency and effectiveness. There is no central policy for economy or efficiency goals, which is consistent with the centre's view about productivity measurement plans as indicated in paragraph 25.8. If productivity is to be encouraged through MOUs, we are uncertain how it will work. It will be left to departments, with encouragement from the centre, including the possibility of retaining resources associated with any internally generated efficiencies.

25.32 Outside the IMAA process, however, departments make resource reductions as part of the constraint policy administered by the Board. According to information released by the Treasury Board, the five-year "downsizing" plan for the public service has produced a net reduction of 11,596 authorized person-years since 1985 (about 5 percent) across all departments and agencies. Other Board data show a net real reduction in annual salary and operating budgets of departments and agencies of approximately $369 million (5.7 percent) when 1987-88 is compared to 1984-85.

25.33 The three MOUs signed under IMAA contain a common understanding that adequate planning, monitoring, control, internal audit and program evaluation systems will be in place, or that an agreement will be reached to put them in place. They recognize that department officials and Treasury Board officers should work closely together to ensure that these systems are maintained and enhanced. And they recognize the need to identify and implement improved performance indicators. This is important, in view of the fact that our follow-up in departments concludes that meaningful cost and performance measurement data have yet to become a working reality. As noted in many studies going back to the 1970s, such information is important not only for the success of initiatives such as IMAA but also for better financial management and control within departments and for oversight by Parliament.

25.34 With respect to accountability, in our view IMAA is at a critical point. Further developments and experience in this area will come in future with the submission and review of reports, which will focus ministerial attention on the delivery of programs and Board policies. Based on this experience there will be a need for central agencies to:

  • consider where information should be expanded, eliminated, or focussed in annual management reports and performance reviews, consistent with ministerial accountability and the role of central agencies in this regard;
  • know whether departmental systems and practices are providing the relevant performance information in a reliable and timely manner; and
  • obtain information for assessing whether the anticipated productivity improvements in administrative functions are being achieved, without significant risks to the safeguarding of assets and their efficient use.
Operational Planning Frameworks of departments have been improving
25.35 Operational Planning Frameworks (OPFs) are essential to the IMAA process. They are equally important to financial management and control in departments and for reporting to Parliament.

25.36 As recommended by the 1987 FMCS, the policy for OPFs has been revised. At 31 March 1989 a draft was ready for inclusion in Chapter 5 of the Policy and Expenditure Management System Manual.

25.37 The Office of the Comptroller General has assessed the frameworks of 24 departments over the past two years on behalf of the Treasury Board Secretariat and IMAA. At the time of our follow-up, a documented summary of the results of the assessments was not available. However, we understand that an analysis of departmental OPFs formed the basis for the policy revision now in draft form.

25.38 Assessment of planning frameworks has been based on the judgment of Treasury Board officers and an OPF review panel. While no doubt this has helped to improve OPFs, the fact that there were no common assessment criteria or summary analysis prevents us from commenting on the consistency or completeness of this work. Without duplicating these assessments or conducting a detailed file review, we cannot report whether, on the whole, the objectives of programs are actually now sufficiently clear, multiple accountability has been appropriately defined, and resource use is related to results achieved where it is possible to do so. Generation of summary analysis of this type was not considered important by central agencies, given the specific focus on the OPF of each department and the uniqueness of each of these frameworks. In future audits we will assess the implementation of OPFs and the new policy when it is issued in final form.

25.39 We were told that the quality of frameworks ranged from some requiring extensive revision to others needing only minor modification. It is still common to find few meaningful performance indicators being generated. Further improvements in form and content might be possible if specific guidance were given to departments to augment the revised OPF policy. This could include where to avoid costly information gathering that produces data of only incremental value.

25.40 For more than five years, much effort on the part of many people has gone into the creation and development of OPFs. The task now is to make them work as an integral part of managing programs and accountability.

Conclusion

25.41 IMAA has been moving forward. However, we found that progress in terms of signed agreements was slower than anticipated, and the full benefits of IMAA may not be realized for some years to come. Both IMAA and planning frameworks were at a critical point of beginning to gain momentum in their implementation and achievement of accountability. Increased delegation of authority and accountability for individual departments under an MOU has, so far, been limited to a few but others are coming. We cannot comment on the end results until more annual management reports are submitted in accordance with guidelines, and accountability reviews take place.

25.42 We plan to review IMAA again, particularly as agreements are completed or renewed in each department. Their contribution to financial management and control will be assessed in each case.

The Office of the Comptroller General

25.43 The Office of the Comptroller General (OCG) is one of two entities serving the Treasury Board; the other is the Secretariat. The Comptroller General reports to the President of the Treasury Board and has the rank and power of a deputy head of a department. The Comptroller General also has a functional relationship to the Secretary of the Treasury Board in areas of joint interest such as OPFs.

25.44 We note that the responsibilities of the Comptroller General, as communicated in 1978 by the President of the Treasury Board, have not been updated by means of a formal Board policy and delegation of authority. Orders in Council have appointed succeeding Comptrollers General but have not been used as a means of defining OCG authority and accountability pursuant to the Financial Administration Act. Nonetheless, there is common understanding and reconfirmation of the role and responsibilities of the OCG through the annual submission of its Estimates and testimony before the Public Accounts Committee.

25.45 While the Part III submissions are not themselves authority documents, they serve to communicate the responsibilities of the Comptroller General and his Office. They have implied authority since they have been tabled by successive Presidents of the Treasury Board. The program objective of the OCG is currently stated as:

to see to the establishment and maintenance of sound management practices in the federal government.
developing policies and standards.....and promoting and monitoring improvements in the practice of financial and operational management, in departments and agencies.
25.46 The OCG has gone through a number of changes since July 1987. A new Comptroller General was appointed in June 1988. New directions have been taken, and the OCG has been reorganized. Closer working relations with the Treasury Board Secretariat have been developed, with the Comptroller General becoming an ex-officio member of the Secretariat's Executive Committee and his Office providing assistance for IMAA and supporting the policy centres of the Treasury Board. The basic mandate of the OCG has not changed; however, its activities and structure have changed in the following ways:

  • It no longer addresses broad management practices, but has begun to focus on financial management and controls, including the strengthening of internal audit and program evaluation functions.
  • A new branch was created in 1988 dedicated to financial management information and related systems.
  • The Management Practices Branch was replaced by the Audit and Review Branch, with increased emphasis to be given to audit activities across government, in particular the preparation of an annual Government Internal Audit Plan to provide feedback to other policy centres.
25.47 With the end of the Improvement in Management Practices and Control (IMPAC) program and the elimination of the Management Practices Branch that was involved in it, the OCG intends to re-emphasize the monitoring activity of remaining branches.

25.48 The OCG has issued new and revised materials for information and guidance (see photograph), including common criteria for evaluating financial systems, working standards for program evaluation, a guide to costing outputs, and the first government consolidation of the internal audit plans of departments. It has also served on departmental committees for system implementation, consulted with departments on the acquisition of ready-made software for financial systems and participated in groups made up of user departments.

(Photo not available)

25.49 In the 1975 FMCS and again in 1987, concerns were expressed about financial information systems. This included the lack of integration of financial and operating data, duplication of system development and data entry, and the lack of useful information. While the initiatives taken by the OCG have merit, their desired result seems to be delayed. There are some continuing problems related to data utility, poor project management, cost overruns and duplication of effort. These are reported further in paragraphs 25.73 and 25.74.

25.50 Streamlining financial controls. A number of projects to make financial controls more cost-effective are either in process or are planned for the future. For example, starting in 1989-90 the use of statistical sampling is to be encouraged for verifying accounts before making a payment. The initiative is intended to guide the level of work required, to improve the prevention or detection of errors and, in conjunction with other controls, to ensure adherence to Treasury Board payment regulations. This is only one of some 70 ongoing projects of the Accounting and Costing Policy Branch dealing with basic financial functions such as methods of payment, cash flows and forecasting, banking arrangements, revenue and receivable control and accounting.

25.51 Looking to the long term, the OCG issued a draft strategy in April 1989 for creating a new financial information and accounting infrastructure for all of government for the 1990s. This followed its 1987 survey to determine the financial information central agencies need to discharge their responsibilities, including IMAA.

25.52 The survey collected the views of senior officials about the kinds of information that were needed but not available. Some of those were: consolidated expenditure data on common functions, summary financial data on special initiatives and asset holdings, more timely information for performance monitoring and variance analysis, and expenditure information by economic or target groups. At present, these kinds of information are not readily available to central agencies or Parliament. They would be useful for identifying opportunities for economy and efficiency gains, improved financial management decision making, and enhancing the understanding of government spending. However, they have a cost.

25.53 If the strategy is approved, it could significantly influence the role of the Treasury Board Secretariat and the Office of the Comptroller General. It will be a major strategic initiative, with a series of main stages and supporting projects requiring effective project management and the upgrading of departmental capabilities. Improved capacity for financial information management will be important, judging by the deficiencies we have reported in departmental systems. Reliable cost figures for the project will not be available until priorities are established, system specifications have been defined, and the effects of upgrading or replacing systems are known, including the central accounting system of government. Total incremental costs have only been roughly estimated by the OCG at this stage; it expects more accurate numbers when it completes an impact analysis. The OCG indicates that some $600 million is now spent each year in financial information systems for departments and agencies of the federal government.

25.54 Meanwhile, work in a number of important areas is to be completed in the shorter term. For example:

  • An operational planning guide for departments is now scheduled for March 1990. This is to provide a reference document for managers on how to plan and budget in different types of operations.
  • A system for drawing on internal audits as an information source for monitoring and feedback to various policy groups of the Treasury Board is being developed, but is not yet complete. The internal audit function is to be assessed by the OCG for reliance by both central agencies and departmental management.
  • An inventory of financial systems, now two years old, is to be updated. (We noted that there had been little direct involvement or monitoring of the implementation of new financial systems.) Study of the quality of financial information is already under way.
  • The OCG intends to reassess financial function requirements and to develop common indicators for measuring performance results.
25.55 The OCG recognizes the need to develop and co-ordinate ways of anticipating financial management and control requirements, assessing the performance of the financial function, and acting on problems in a timely manner. If this is done, it should better answer the question relating to monitoring and the detection of problems in paragraph 25.10, as recommended by the 1987 FMCS.

Summary Conclusion

25.56 Central agencies have taken a number of initiatives to improve financial management and control. However, they do not yet have sufficient information to determine the impact of these initiatives. There are several important measures to be undertaken or completed.

Progress of Departments

In general, departments have initiated action on the observations and recommendations of the 1987 Financial Management and Control Study. Slow improvement is indicated in some important areas and problems are recurring. Leadership is still required from central agencies to improve financial management, and departments need to be vigilant in applying internal controls.

25.57 Exhibit 25.2 shows the progress on the main conclusions of the 1987 FMCS as they were considered to apply across all departments. Overall, this indicates reasonable progress to date in about half of the issues that we have been able to assess. The progress of each department included in the study and follow-up is reported in paragraphs 25.58 to 25.68.

(Exhibit not available)

25.58 Variable results. As might be expected, improvements in complex areas are taking the most time. Progress has been slower in resource planning and budgeting, cost-benefit analysis, and the implementation of costing and performance measurement systems.

25.59 Progress, or lack of it, varies from department to department and from subject to subject. This is apparent in the following paragraphs that summarize the results of follow-up in each department. More detail about most of these is provided in Chapter 26. The follow-up for the Department of Supply and Services is reported at more length in Chapter 21.

25.60 The Department of Agriculture has made progress in revising its planning framework and performance indicators, strengthening the role of the financial function, establishing a process to improve the management of information resources, reducing long outstanding accounts receivable, and introducing a new financial information system on or close to budget and ahead of schedule. These represent a considerable advancement in financial management and control. However, improvements to inventory and capital assets management were not substantially advanced at the time of our follow-up.

25.61 A planning framework is being implemented, with performance indicators to support planning, budgeting, and accountability. However, these indicators are not yet being systematically produced. This is to begin in 1989-90. Similarly, combining operational and financial information for analysis and performance assessment is a challenge for the Department of Agriculture in the future.

25.62 The Department of Supply and Services has commenced actions to improve productivity, most of which are in process. This involves strategic planning and the use of technology to do the work at less cost. The Department is evaluating alternative ways of delivering services, developing a new Public Service Compensation System at a cost of $55 million that is expected to reduce annual operating costs by up to $23 million, and continuing to rationalize and apply technology in computer operations where staff have been reduced by 65. It also intends to replace cheques with electronic payments direct to the banks of program recipients. It is implementing a new system that measures the performance of regions, and is beginning to report the full cost of its service lines. However, it is too early to determine the impact on the management of operations and controlling of costs. We did not expect immediate resolution of some of the more significant productivity issues reported in 1987; this will take time. However, progress has been made.

25.63 In Employment and Immigration we observed in 1987 that formal analysis had not been done of the probable financial effects of alternative approaches for the Canadian Jobs Strategy program. We also reported some weaknesses in the systems for financial management and control. Satisfactory progress has been made in the area of financial information systems. However, no policy on financial analysis for new programs has been put in place. Little progress has been made in the area of information for resource allocation and operations for the Canadian Jobs Strategy and the National Employment Service.

25.64 At Energy Mines and Resources, progress was satisfactory in financial management at the branch level, financial controls and management of the informatics function. Some progress has been made in corporate level information; however, we could not conclude that corporate management critically challenges the Department's resource base each year. There are still inconsistencies in the quality of information for planning, managing and reporting on new initiatives. The financial control system for accountability for assets needs revision.

25.65 External Affairs' progress in implementing major changes to processes and systems, which address concerns raised by us in 1987, has been slow. There are delays in the multi-million dollar COSICS on-line secure information and communication system, in the implementation of the FINEX financial accounting system -- particularly at posts abroad -- and in improvements to planning and monitoring of post operations and the PERNET personnel information system. Managing real properties abroad, and simplifying the Foreign Service Directives are other areas in which improved processes and systems have not been fully implemented. We remain concerned that the Internal Audit Division has not fulfilled its comprehensive audit mandate and that there have been few significant studies that measure the effectiveness of External Affairs program activities listed in Part III of the Estimates.

25.66 National Revenue - Customs and Excise has addressed most of the recommendations made in our 1987 Report. However, certain issues have not been fully resolved. The financial function is now playing a stronger role, and steps have been taken to improve the quality of financial analysis to support initiatives. Work has been undertaken to update the departmental accountability regime, including a revised operational planning framework. Some new program performance indicators have been developed and implemented; and program effectiveness indicators and qualitative performance indicators on the effects of facilitation initiatives and level of service are continuing to be developed and refined.

25.67 The Department of Veterans Affairs has enhanced the role of the financial function in resource allocation and budget preparation, and has improved financial controls. However, the new financial information system cannot, as yet, be relied on for management information or preparation of year-end accounts. The existing departmental reporting system had to be run in parallel longer than anticipated.

25.68 Transport Canada has made only limited progress in meeting the deadlines it established for implementing the major initiatives reported to Parliament as important to improving financial management and control (see Exhibit 25.3). Implementation of half of the initiatives has been delayed, in some cases by over three years. We were informed that the original target dates were overly optimistic and did not reflect the complexities, the necessary policy changes or the availability of resources. At present, it is not possible to assess the validity of the new target dates. We will have to follow this up again.

(Exhibit not available)

25.69 A continuing need for better financial management and control is illustrated by our audits since 1987. In our 1988 Report we identified various opportunities for better resource management, and in 1989, we continue to report items of concern related to financial management and control such as lack of cost analysis and information to guide resource allocation.

25.70 In addition to matters contained in our annual reports, analysis of our ongoing financial audits reveals that there are still deficiencies in basic functions such as recording, payment processing, compliance with authorities, reconciliations and the protection of assets. The items shown in Exhibit 25.4 came to our attention as we carried out audit tests primarily designed to reach an opinion on financial statements. The incidences reported in the exhibit should not be used to estimate the overall error or control deficiencies in financial systems across government. While these data are not sufficient to conclude on the adequacy of internal controls as a whole, the type and frequency of errors suggest that diligence is required in applying them. This need is demonstrated by the observations that follow.

(Exhibit not available)

Deficiencies in inventory management and control
25.71 Our 1987 audit of the materiel support system of the Department of National Defence reported, among other things, a number of deficiencies in the management of inventories. The Department is taking action on most of our recommendations. In a few cases, factors external to the Department constrain its ability to move as quickly as it would like in making needed changes. Given the longer-term nature of most of the departmental initiatives, such as the new Canadian Forces Supply System that will not be operational until the late 1990s, it is important that interim measures be taken so that problems do not persist until the major initiatives are completed. The Department has undertaken a number of initiatives of this type, although resources constrain the pace at which they can be pursued. It is important that these efforts be maintained and enhanced.

25.72 Inventory management and control are also of concern to the OCG. A government-wide study conducted on its behalf reported some unnecessarily high levels of materiel inventories. The study noted that inventory control was seriously deficient; there was a lack of policy and standards, purchasing and stocking practices were costly, record keeping was poor and the full cost of carrying inventories was not recognized. The study concluded that basic action was required before more advanced government practices could be introduced. Studies such as this are positive ways of giving Treasury Board useful information about existing conditions, especially where concerns have been expressed, and have revealed numerous opportunities to improve policies and practices. We will follow up on the action taken to address the study recommendations.

25.73 Continuing problems in computerized systems. In 1987 we reported a pattern of project failures, cost overruns, poor performance and duplication of effort. Since then, the Advisory Committee on Information Management (ACIM), which reports to the Treasury Board, has taken action. It has recommended substantially improved project management and systems development standards for use by departments. When these are approved and followed, progress can be expected in the management of these complex activities. In the meantime, while some departments have taken corrective action, others are still experiencing the same difficulties that we outlined in 1987. For example:

  • Veteran Affairs is significantly behind schedule in fully implementing its new financial information system. The existing system will have to run in parallel for another year since the new system cannot, as yet, produce financial data that management has confidence in.
  • As reported in Chapter 26, External Affairs is incurring considerable cost increases for its new secure information and communication system.
  • Our review of controls over selected systems development projects in the Department of Supply and Services revealed that while general guidance for project management was in place, procedures to implement them were still under development.
  • In several entities we found that reconciliations between departmental systems and the central accounts of Canada were incomplete or delayed (see Chapter 4, Audit Notes, paragraphs 4.110 to 4.116), raising the possibility of incomplete or unreliable financial information.
25.74 We believe these difficulties can be traced to some common problems that the central agencies could address. For example, many departments did not perform a full feasibility study, preferring to accept studies of alternatives already performed for other departments and on the understanding that the OCG had sanctioned or would be sanctioning the systems purchased. This created some confusion including ambiguous functional specifications and inaccurate forecasts of the computer resources required. Another condition that may have contributed to these problems was the lack of policies or systems for charging the costs of information to the users. Such a practice might create a stronger discipline in information management.

25.75 Performance appraisals and training. In 1987 we commented that performance in the areas of financial management and control were seldom reflected in the appraisals of program managers and that minimal training was provided. Our follow-up to the audit of the Management Category reveals that there is no clear perceived connection between the systems of performance appraisal and the granting of pay for performance. Therefore, it is necessary to look to other mechanisms for encouraging changes in management attitudes and practices. The Treasury Board Secretariat is currently reviewing the performance appraisal and pay for performance policy.

25.76 Follow-up at the Public Service Commission indicates that progress has been made in the training available for financial management.

25.77 In summary. On the basis of the results of this follow-up, we conclude that departments have responded positively to the 1987 Study. This is encouraging. However, progress has been uneven, and improvements in many areas have yet to be completed. Leadership is still required from central agencies to improve financial management, and departments need to be vigilant in applying internal controls.

25.78 We will examine the financial management and control practices of departments as part of the Office's ongoing audits. We will also conduct in-depth examinations from time to time that focus on specific areas such as financial information systems, cost recovery, non-tax revenues and receivables, inventory management, and financial practices in contracting.