1990 Report of the Auditor General of Canada
Chapter 8—Efficiency In Government: A Special Study
Responsibility for managing in the public sector with due regard to efficiency is shared by departments and central agencies
Departmental planning and accountability documents contain little relevant information on efficiency
Most managers do not use cost and performance data to assess and improve the efficiency of their operations
8.1 Managing with due regard to efficiency is an essential aspect of ensuring that the government is getting good value for money in the management of its operations (paragraphs 8.13 to 8.19).
8.2 Responsibility for managing with due regard to efficiency in the government is shared by central agencies and departments. Central agencies are responsible for establishing the framework for overall government operations, allocating resources, providing functional guidance and assessing government-wide opportunities to provide better service. Departments are responsible for delivering specific government programs or services with due regard to efficiency (8.24 to 8.27).
8.3 The types of problems identified in this chapter are not new. Variations on these themes have been reported before in both government-wide studies and value-for-money audits of departments. What is new, because of the government's financial constraints, is the urgency of addressing efficiency as one method to ensure that services are provided at least cost and maximum quality, while meeting the government's legislative obligations (8.11 and 8.12).
8.4 The government recently has taken a number of related initiatives designed to improve government performance, such as Increased Ministerial Authority and Accountability, and Public Service 2000. It is still too soon to review their impact on the efficiency of government operations (8.26 and 8.27).
8.5 Our study indicates that departments, using a variety of approaches, are attempting to improve efficiency. Such approaches have included changing departmental management philosophy, analysing operations, and implementing new technology. Nevertheless, many weaknesses in the way departments demonstrate that they manage with due regard to efficiency need to be addressed, by both central agencies and departments (8.60 to 8.69 and 8.82 to 8.98).
8.6 Most efficiency improvements in departments are ad hoc, without reference to a management plan. Some efficiency improvements have been achieved but information on them is not widely shared (8.79 to 8.98 and 8.47 to 8.56).
8.7 Departmental reporting and accountability documents used for overall government resource allocation contain little information on efficiency. Planning is largely driven by the budget process, without adequate information on managing with due regard to efficiency (8.32 to 8.46).
8.8 Recognition and reward systems to encourage employee performance need to be further improved. Opportunities to significantly improve efficiency will be missed unless the public service can instill management values and attitudes designed to encourage employees to work to their potential (8.70 to 8.78 and 8.57 to 8.59).
8.9 Relevant cost and performance data is, for the most part, unavailable or underutilized. Expenditures for administrative and support functions are inconsistently recorded and inadequately disclosed, making it difficult to formally assess how recent budgetary cutbacks have affected overhead costs and efficiency (8.99 to 8.107).
8.10 Any formal assessment of due regard to efficiency must rely on information related to costs and performance. Except for a few instances, the quality of information on efficiency has not improved since 1987, when we reported that it was poor (8.108).
8.11 Since 1977 the Auditor General has commented on efficiency in his reports on government-wide studies and value-for-money audits of departments. The first government-wide findings on "Measuring and Increasing Efficiency" were part of the 1978 Study of Procedures In Cost Effectiveness (SPICE) in which this Office reported that:
- in most operations we audited, management did not know the actual level of efficiency or how much it might be increased;
- most of the performance measurement systems reviewed did not play an important part in the program management process.
Efficiency in Government8.13 In the public service, due regard for efficiency is only one aspect of managing with due regard to value for money. And value for money is just one of many elements for which a manager must demonstrate due regard in making decisions. Others include equity, equality of access, regional development and other socio-economic objectives of the government.
8.14 Some of the problems facing the public service were addressed in the Prime Minister's announcement of Public Service 2000 on 12 December 1989:
"Over the years, the public service has been tasked to satisfy the demand for many new programs and services, and in recent years it has had to do so within a climate of increasing fiscal restraint and with a significant reduction in personnel. This task has been made even more difficult by traditional institutional structures and controls that do not encourage efficiency or improvements in service to the public.
"The complexity of the administrative regime governing the public service has been recognized as a serious problem for more than a decade. The need for simplification, greater devolution of authority and responsibility, and increased efficiency, is higher now than ever before.
"To equip public servants for the 21st century, and to enable them to function effectively in the context of continuing restraint, fundamental changes are required in the ways in which the public service is structured and managed."8.15 Our current study on management values, and an earlier one on constraints to productive management, have raised another dimension of managing for efficiency. For example, this year's chapter on Values, Service and Performance in the Public Service states that: "Improving performance in organizations is a function not only of systems and structures, but also of people and values. Values influence which tasks people will do with care, which they will do superficially, and which they will try to avoid. Yet the role of values in the improvement of performance has received little attention by most managers. Managers have tended to give more attention to systems and structures than to what employees value" (see paragraph 7.13).
8.16 Managing with due regard to efficiency includes considering all the variables that affect the relationship between results (output) and effort (input). Engineered work standards and measurement techniques are still valid in assessing efficiency, but the broader approach now embraces techniques for global management of resources designed to promote better performance by employees. Assessing efficiency also entails examining the methods used to identify and introduce new technology, which has had enormous impact on employee productivity. And there is widespread recognition that enhanced service -- "quality of outputs" -- is an important consideration in assessing operational efficiency.
8.17 Managing with due regard to efficiency places a continuing obligation on managers to collect and use productivity information to assess performance against a standard. Productivity is the ratio of the amount of goods or services produced (outputs) to the amount of resources used in producing them (inputs), and is usually expressed by such measures as cost or time per unit of output. Efficiency is the comparison of productivity (output to input) with a performance standard. Many standards of efficiency can be developed for any organization, and all standards are subject to change as a result of such things as new technology and changes in conditions of work or in the nature of the job.
8.18 Productivity comparisons are major tools for management to determine whether the organization is performing at an acceptable level of efficiency, and to assess the potential for improvement.
8.19 It is easier to develop a descriptive formula for efficiency that works in theory than it is to apply it to government operations. For some government departments, work outputs are immediately obvious -- cheques processed, for example, or inspections carried out or interviews held. In more complex programs, such as policy analysis, outputs are not easily measured. In all cases, however, it is essential that the indicators chosen to measure efficiency reflect work that employees or management can control.
Objective and Scope8.20 The objective of our study was to examine the government's procedures and practices for managing with due regard to efficiency (managing for efficiency). The study did not involve detailed assessments of the efficiency of particular government departments or programs.
8.21 We reviewed reporting of efficiency; use of information technology to achieve efficiency; dissemination of best practices; rewards and recognition; approaches to managing for efficiency; and the production and use of cost and performance data. We have selected case studies to illustrate the nature and types of issues we encountered.
8.22 Our study relied on the findings pertaining to efficiency reported in value-for-money audits by the Office in recent years. In addition, we selected for detailed review six departments which are representative of the broad range of the government's work, including operations oriented toward process, toward contact with clients and toward regulatory programs.
8.23 For purposes of comparison we reviewed research on managing for efficiency elsewhere in the public sector, nationally and internationally.
Responsibility For Efficiency
Responsibility for managing in the public sector with due regard to efficiency is shared by departments and central agencies8.24 Responsibility for managing with due regard to efficiency in the government is shared by central agencies and departments. Central agencies are responsible for establishing the framework for overall government operations, allocating resources, providing functional guidance and assessing government-wide opportunities to provide better service. Departments are responsible for delivering specific government programs or services with due regard to efficiency.
8.25 For both groups, efficiency in its simplest terms can be expressed in outputs and inputs, but management considerations at the level of departmental program operations differ from those at the government-wide level. A clear understanding of their respective roles and responsibilities is essential at both levels. These different levels of efficiency management were enunciated by the Office of the Comptroller General, in correspondence with the Auditor General in April 1989.
"At the highest level, improvement can be sought in societal and economic efficiency; that is, the allocation of resources between, say, the defence versus social sectors or between the public and private sectors or among federal and provincial jurisdictions. Decisions in this area are inherently political, despite their ramifications for efficiency. At this level, Treasury Board Secretariat and the Office of the Comptroller General have no management responsibilities, limiting their role to the provision of advice on the costs, planning and administration of government.
"One level down are efficiency considerations related to improving the government-wide framework. Efficiency improvement measures at this level could relate to reforms of the corporate culture, general incentives, changes to administrative rules affecting all programs, reduction of constraints, etc. Central agencies have a significant role to play here and a number of initiatives are now being taken.
"At the next lower level, efficiency enhancements could be sought through the improvement of government-wide structures. Issues here include, for example, reorganization of ministries and departments, reduction of duplication and overlap, and minimization of programs working at cross purposes. Decisions in this area are again inherently political in nature although, within that context, central agencies have a role in the provision of advice to ministers...
"As a fundamental principle, however, it is impossible to manage the efficiency of all the programs and activities in the government from the centre. It is more realistic to delegate the responsibility for individual program efficiency to departments while increasing accountability. Treasury Board Secretariat and the Office of the Comptroller General can monitor selectively, can act as a first step in the accountability process and can work with departments to solve particular problems.
"Thus, the appropriate role for Treasury Board Secretariat and the Office of the Comptroller General in the management of efficiency is to furnish administrative and policy frameworks which encourage efficiency while providing advice to the political level and general direction and assistance to the managerial level."8.26 The government states that it has been pursuing a co-ordinated strategy toward more productive management, based on appropriate delegation of authority and enhanced accountability. Measures to improve government performance include enhancing the quality of management information; changing the way services are delivered; and changing the management culture within the public service. Steps taken to improve efficiency in the context of broader changes in government operations include the following:
|Increased Ministerial Authority and Accountability||Introduced in 1986 to improve government management by reducing central administrative controls, give deputy ministers greater freedom to manage their departments, and clearer accountability for results. Examples of improvements include:|
|- authority for departments to retain savings from internal productivity gains.|
|- a significant reduction in reporting requirements and in the number of departmental submissions to Treasury Board.|
|- approval of savings to be carried forward into the next fiscal year: up to 3 percent of operating and maintenance budgets and 5 percent of capital budgets (to a maximum of $75 million).|
|Public Service 2000||A comprehensive review of all areas relating to public sector management is currently under way. The government's management regime will be modernized, and made less burdensome.|
|Restructured Government Service Delivery||The government has undertaken to develop innovative ways to encourage efficiency and improve program delivery. One example is Special Operating Agencies (SOAs), under which certain government functions will operate within the public sector but in an independent, business-oriented manner. The Passport Office and the Government Consulting Agency are the first SOAs to be established.|
|Real Property||Bureau of Real Property Management was established in 1986, with one of its objectives to develop an integrated approach to efficient management of real property.|
|Cost Recovery||A Treasury Board Policy was approved in 1989 to promote greater fairness and equity in government financing by shifting costs to users and other beneficiaries where appropriate. User fees promote greater efficiency by bringing market-type forces to bear on the demand for and supply of services.|
8.27 The government has indicated that improvements affecting efficiency are under way. Our review indicated that it is still too soon to review their effects, but other initiatives, such as improved cash management, have increased efficiency and produced corresponding savings in costs.
Case Study - Cash Management8.28 In 1984 the Auditor General reviewed cash management in the government and noted that improvements to existing deposit and payment practices, and changes in banking arrangements, could result in savings of at least $90 million annually. The government has subsequently made several efforts to improve cash management.
8.29 In 1985 a Cash Management Division was established in the Office of the Comptroller General. Numerous directives on cash management have been issued over the past six years. In 1988/89 the Office of the Comptroller General published a booklet entitled "Cash Management Principles in the Government of Canada."
8.30 The government has estimated that improved banking arrangements and more efficient cash management have resulted in savings of about $941 million since 1985. Examples of better practices include earlier collection of income tax, sales tax, and excise tax; faster billing and quicker collection of accounts receivable; elimination of non-interest-bearing bank accounts; use of credit cards and travellers cheques; halting of payments to Crown corporations in advance of need; paying of grants and contributions by instalment; and recovery of excess cash from Crown corporations.
8.31 The government is exploring other areas for improvement, such as inventory management, statutory payments, fines and penalties, credit management, loans and guarantees, and contracting.
Departmental planning and accountability documents contain little relevant information on efficiency8.32 All government departments are responsible for preparing planning documents to help them and central agencies in making decisions on resource allocation and expenditure control. Our study found that the planning and accountability documents required in the Policy and Expenditure Management System (PEMS) and under the new Increased Ministerial Authority and Accountability (IMAA) regime often did not contain information pertinent to managing for efficiency, even though it is required under existing guidelines.
8.33 The information in planning documents and internal management reports must contain performance indicators for work that is measurable and quantifiable. Otherwise, there is no basis for determining whether efficiency has improved or deteriorated, and by how much.
8.34 Our study examined the documents and reports produced by departments operating under the Policy and Expenditure Management System (PEMS) and under IMAA (a total of six government departments are currently participating in IMAA and a further seven departments are actively negotiating the terms of their participation). We also reviewed the Part IIIs of the Main Estimates. We concluded that some departments have made an effort to improve efficiency, but reporting has not advanced enough for us to comment on the extent of improvements. Departments whose operations involve repetitive processes with uniform outputs tend to have data more easily related to efficiency, and consequently place more emphasis on this information than departments whose activities relate to policy.
8.35 Our study found that departments design their planning information primarily to respond to the budget-driven process of resource allocation by central agencies. In most cases, this budget-oriented information is not related to managing for efficiency, and gives minimal consideration to integrating efficiency information with resourcing information as an essential component of planning and management.
8.36 Most planning documents focus on objectives that are not phrased in quantifiable terms, so that planned improvements in efficiency or productivity are not apparent as measurable targets. Current planning documents under PEMS and IMAA require performance indicators to be identified, but quantitative data on the measurement of results often is not reported.
8.37 Although some departmental plans contain information on efficiency improvements in particular operations, there are no established standards for reporting on the performance results of government operations that are comparable. Most information on program results is presented in narrative form as a qualitative assessment. Where supporting information is included in planning documents it is usually in aggregate numbers, which provide little or no information on how the ratio of program outputs to resource inputs may have changed over time or against plans.
8.38 Most departments do not present efficiency information in a form that would permit comparisons of plans and outputs from year to year. Performance information isolated from any context of comparison does not provide a valid basis for assessing efficiency.
8.39 Chapter 24 reports that the Department of National Revenue, Taxation does not use a consistent basis for accumulating and reporting program results in Part III of the Estimates. For instance, the amount of additional taxes assessed is a performance measure used to report the productivity of enforcement activities. However, we noted that the measure varies depending on the particular enforcement activity. In some cases, additional taxes assessed refers only to the federal portion, and in others to a combination of federal and provincial taxes.
8.40 Also, the Department does not account for the use of a large part of its resources allocated to enforcement. Of the 5,286 person-years allocated to the tax audits, Part III shows results for only 2,540 person-years, with no explanation of how the other 2,746 person-years were used or what results were obtained with them. In other words, when reporting performance, more than half of the resources allocated to audit are unaccounted for.
8.41 Chapter 28 on the Secretary of State reports that performance information for both Citizenship Registration and Citizenship Development is incomplete. For example, no results were given on productivity, promptness and quality of Citizenship Registration services, nor was there any information on the size of the backlog, which has greatly increased since 1986/87. Regarding Citizenship Development, the processing time for applications, although reported in the 1984/85 Part III, is no longer provided.
8.42 A further dimension of the problem is suggested in our follow-up chapter, where we report on the Department of Agriculture's response to a Public Accounts Committee recommendation that "the Department ensure that the 1990/91 and future Part IIIs of the Estimates contain accurate, clear, consistent and complete information, notably in relation to resource allocation and program results".
8.43 In our review of the Department of Agriculture's Part III documents for 1990/91, we could find little evidence that performance claims included in them had been checked to ensure that they were supported by appropriate and sufficient evidence. In some cases the evidence provided was incomplete. In a couple of instances the evidence suggested that, as presented, the performance claims were misleading.
8.44 We conclude that there are deficiencies in the systems and practices used in the Department of Agriculture for preparation and review of its Part III Estimates that are of concern to both us and the Department. The Department will need to make improvements to the systems and practices they employ in preparing the Part III if they are to have reasonable assurance that they can ensure that the Part III contains accurate, clear, consistent, and complete information.
8.45 As Exhibit 8.1 shows, and as we report in Chapter 24 on the Department of National Revenue, Taxation, Part III and other departmental planning and accountability documents would be more useful if they included more complete and quantified performance information, relating outputs to inputs. Efficiency information could include, for example, the number of internal audits and program evaluations completed on schedule, actual costs compared with budgets, and the number of recommendations and resulting savings. Other data might include the ratio of persons employed in administrative and support work to those in direct program delivery, or measurable workload to staff hours. Such information would help managers and others to judge performance by existing standards, or to assess improvements in efficiency over time.
Exhibit not available
8.46 In sum, such departmental planning documents are largely designed to satisfy the government budget process leading to the allocation of resources. They contain little relevant quantitative data on efficiency. The departmental process places minimal emphasis on reporting how efficiently resources have been used. Information that compares resources used to program results achieved is rarely provided in a form that would make it possible to identify overall changes in efficiency.
Information on efficiency improvements is poorly disseminated8.47 Improving operational efficiency often means dealing with technical and human complexities. It is therefore essential that managers be able to know about and draw on the experiences of others. Although there have been projects in some departments designed to improve the efficiency of operations, we found that information about them is not widely shared. Improvements are not well publicized within departments or throughout government. As a result, the knowledge gained by some public service managers is not generally available to others who may be involved in similar operations.
8.48 Some departments issue publications which include articles on efficiency improvements, but in others such discussion is informal -- committee meetings, for example, whose proceedings may not be recorded. There is little corporate memory in most departments of the experience or views of those who have participated in changes.
8.49 At present, a great deal of the published information on managing for efficiency is derived from experience and management perspective in the private sector, which many public service managers feel are not necessarily transferable to their environment. Recent government initiatives to internally publish and distribute articles on efficiency are designed to sensitize managers to public sector efficiency issues. For example, the Treasury Board now publishes a directory of innovations in human resource management. Such initiatives are important. More efficiency information based on public service experience would build on existing knowledge and promote the importance of efficiency in government.
8.50 An illustration of opportunities lost through failure to disseminate information on efficiency was noted in our 1989 chapter on the Canadian Coast Guard. Many innovations in technology had been implemented in one region but were not transferred to others doing similar work. Without a clear assignment of responsibility for monitoring and promoting efficiency, managers usually are not made aware of information that could help them improve the performance of their operations.
8.51 In most departments the management and accountability structure is not geared to reviewing and promoting efficiency improvements and their potential application to other activities. Although there is a government policy requiring that central agencies assess new information technology and its potential for departmental and government-wide application, its implementation is at an early stage. In our 1989 chapter on telecommunications in the federal government, we estimated that potential savings of between $30 million and $45 million could be achieved annually, by creating larger networks of data telecommunications to take advantage of existing tariff structures, by more efficient use of circuits, and by integrating voice and data communication services in departments. In the absence of central co- ordination and guidance, individual departments had acted separately to meet their own requirements, resulting in a proliferation of parallel networks across Canada.
8.52 Departments whose main activities are services to clients have made progress in analysing and improving efficiency, but the designated "centres of specialized expertise" to advise and assist other government departments have been put to limited use. For example, although the Treasury Board Secretariat has implemented a number of "Most Efficient Organization" studies, the fact that this initiative is not widely known is generally indicative of a problem with information dissemination in government.
Case Study - Most Efficient Organizations (MEOs)8.53 In 1986, the government began a new initiative to reduce the cost of delivering services to the Canadian public. This initiative, first known as "Make or Buy" and then, in 1988, as the Most Efficient Organization (MEO) approach, encourages senior managers to review their services and to consider options for improving in-house delivery of service, or for obtaining the same services at less cost from the private sector on contract. The Bureau for the Delivery of Government Services (BDGS) at Treasury Board Secretariat (TBS) issued a handbook to provide guidance on conducting these efficiency studies.
8.54 The MEO process involves a look at service delivery methods, levels of service and new delivery options to reduce costs. An MEO study can be conducted either in-house or by outside consultants. The MEO is promoted as a management tool available to all managers; the Treasury Board will share the cost of a study when joint funding is requested. In that event, the department keeps all resulting savings and retains ownership of the study findings. The BDGS, however, may use the studies to show what can be accomplished when it proposes MEO opportunities to other departments.
8.55 A department conducts an MEO study to benefit the organization, not to comply with a central agency requirement. BDGS reports that the jointly funded MEO studies have identified potential savings of more than $30 million and 220 person-years. This does not capture the full range of savings, however, as departments have conducted their own MEO studies without BDGS involvement.
8.56 The MEO approach is one way TBS has helped departments respond to resource constraints. It is a positive effort but its application has been limited, considering the range of government operations to which it could be applied. Though the distribution of the MEO handbook has given the approach some exposure, further action to promote the use of these studies is important. Although the BDGS could use the MEO study reports as examples to potential clients, as yet it has not widely publicized the successes. Implementation constraints, and the fact that its use by departments is voluntary, have inhibited a more widespread application of the MEO approach.
Well-developed management and technical skills are required in the pursuit of efficiency8.57 Achieving efficiency improvements requires an appropriate mix of well-developed skills in human resource management and strong technical skills. It also requires that time be dedicated to developing analytical processes, considering and selecting alternatives and implementing appropriate plans. Our review identified few professional development courses for managers in the public service on how to assess or improve operational efficiency and management decision making.
8.58 There are few rules or guidelines to help public service managers assess and improve the efficiency of their operations, whether across the department or within a small unit. Managers also receive little guidance on assessing the impact that changes in operational efficiency may have on labour management relations. Nor is there consensus among managers on what appropriate efficiency data comprises or on how to analyse or report it.
8.59 This year's Chapter 15, Immigration Control and Enforcement, reports that deficiencies observed in the training of customs officers, and a lack of maintenance courses, lead to reduced efficiency and inconsistent application of immigration policies and procedures at ports of entry.
Continuing opportunities to improve efficiency through technology - government computer centres8.60 Virtually all government programs use information technology, and computer workstations are a regular feature of the daily job of an estimated one in every three government employees. The use of technology entails constant updating to replace obsolete equipment and software, to keep skills current and to take advantage of new advances. New computer hardware and software permit the automation of more tasks, allowing organizations to move toward more efficient, cost-effective operations. The challenge in managing technology is to keep the investment as current and productive as possible.
8.61 We examined a number of federal government computer centres to see whether there were opportunities to improve efficiency by applying new technology or by changing management practices. Our review included comparing the cost of running the federal government computer centres with the average costs of a variety of other computer centres.
8.62 Many government computer centres have initiatives under way for improving productivity. Others have reduced their operating expenses by streamlining operations. Statistics Canada, for example, is completing a five-year plan for automation, expected to reduce operating staff at its data centres by almost half. This has been accomplished by introducing elements of modern technology, such as robotics; by streamlining operating methods; and by introducing a co-ordinated management/union plan which allowed for an efficient redeployment of personnel.
8.63 Our review of the computer centres indicated that they were processing data at costs comparable with those of data centres outside the federal government.
8.64 In the federal government, most departmental computer operations tend to operate in isolation, as "islands of technology", with separate management, software specialists, systems developers, production people and computer facilities. This arrangement does not take advantage of opportunities to consolidate various computer operations or to share expertise.
8.65 To some extent, the absence of co-ordinated effort to share facilities has been mitigated by the use of privately managed premises housing the computer operations of particular government departments. Under these arrangements, some departments share a private sector computing facility at a lower cost than they could have achieved separately. This practice, however, has not been extended to other areas of potentially common interest, such as sharing management, technical expertise or staff for systems development.
8.66 Government data bases present a significant opportunity to improve efficiency through the sharing of information. Although some progress has been made during the past decade, there are still major opportunities to establish shared government data bases. A policy on the management of government information was issued in August 1989, but the government does not have a current comprehensive inventory of its information holdings. Consequently, there is no efficient way for one department to determine what information exists elsewhere, assuming that it would be accessible through a government network.
8.67 Similar opportunities to improve efficiency were identified in our 1989 report on the integration of the government's data telecommunications networks. Further opportunities exist, such as rationalizing electronic mail into a homogeneous network, consistent with industry standards.
8.68 Other opportunities for using technology to improve efficiency are reported in this year's chapter on the Department of National Revenue, Taxation - Enforcing the Income Tax Act. The Department could reduce time-consuming manual operations by encouraging institutions to file information on magnetic media and by making greater use of computers in auditing taxpayers. And in Chapter 15, Immigration Control and Enforcement, we note that the Commission could carry out investigations more efficiently if it had direct access to the computer terminals of the Canadian Police Information Centre.
8.69 We believe the ability to access and exchange data is essential to achieving economies of scale in the government's information holdings, to lessening duplication of effort and to improving efficiency in the use of information. To take best advantage of new technology, it is essential for the government to weigh the relative costs and benefits of departmental independence against those of a more co-ordinated government-wide approach to information technology.
Recognition and Rewards
Use of recognition and rewards could be further improved to promote efficiency in government8.70 We concluded from our review that opportunities to significantly improve employee performance will continue to be missed, unless the public service can instill management values and attitudes that encourage employees to work to their potential. In our 1989 Report we commented on the government's centrally administered Incentive Award Plans. These comprise primarily Suggestion Award and Merit Award programs that only partly represent the government's efforts at recognition and reward -- which we had reported were not being used as much as they could be. Response to that report has been positive and improvements to these programs, including better rewards and more authority for new departmental programs, are now in progress.
8.71 Most departments have some form of basic system for rewarding employee performance. This review and others show that employees work more efficiently when management uses a comprehensive approach -- one that encourages them to provide better service by fostering their participation in, and commitment to, achieving organization goals.
8.72 Many government departments endorse the view that "people are our most important resource". But some times, their actions do not reflect this view. Recognizing what employees value is essential to tapping the "discretionary effort" of the work force. Discretionary effort is the effort an employee makes beyond meeting the minimum requirements of the job. The importance of discretionary effort is amply demonstrated by the way "work to rule" tactics can reduce productivity.
Good "people management" will promote efficiency8.73 Our review indicated that an organization's attempts to tap discretionary effort must embrace the entire range of management practices. They must also clearly demonstrate that the approach is genuine and not merely designed to exploit the good will of employees.
8.74 In our review we noted the following aspects of the relationship between each organization and its employees:
- acknowledgement of employees' contributions as important;
- delegation to the appropriate level of responsibility in program delivery;
- training programs for managers and staff, to encourage excellence, teamwork and sensitivity to client needs;
- recognition and appreciation of employees' performance, as well as monetary rewards;
- continuing commitment and action by managers to recognize and reward employee performance;
- ongoing publicity;
- timely feedback between employees and managers; and
- design, by local managers and staff, of mechanisms for recognition and rewards.
- team work was enhanced;
- red tape" was reduced;
- there was a common understanding of the department's mission;
- employee satisfaction reduced the rate of turnover;
- decisions were made more quickly; and
- employee suggestions for improvements increased in both quantity and quality.
8.77 Our review found that although efficiency has been shown to increase with incentives, most government departments have not paid enough attention to this aspect of employee performance. Demographic and attitudinal changes in the public service mean that management will have to find new ways to improve communication and to inspire commitment. The Public Service 2000 initiative now under way acknowledges the urgency of addressing employee performance and improving management practices.
Case Study - Employee Suggestions Can Save Millions8.78 Two employees from the Canada Employment and Immigration Commission Toronto office, Morris Donen (retired) and Nabil Macarios, were among 37 public servants recently honoured by the government's Incentive Award Plan. Donen's award was for a way to use an Employment and Immigration report to trace unemployment insurance debtors across the country, saving about $2.27 million each year. Macarios' idea was to use a computer program to compare one set of files against another to detect unemployment insurance frauds over $1,000, saving the government about $3.75 million in 1989.
Approaches To Efficiency
Most departments do not have a well-organized approach to managing with due regard to efficiency8.79 In our view, achieving commitment to managing with due regard to efficiency requires that responsibilities and accountability relationships be clear. It also requires the regular review of departmental operations, to evaluate current levels of performance and to assess opportunities for improvement. Any improvements in efficiency should be reviewed for their potential application elsewhere in the organization.
8.80 Our study indicates that departments are using a variety of approaches to improve their efficiency, such as changing the department's management philosophy, analysing operations and implementing new technology. However, most improvements have relied on ad hoc identification of opportunities to improve program efficiency. Both central agencies and departments need to address many weaknesses in the way departments demonstrate that they manage with due regard to efficiency.
8.81 All departments have internal audit and program evaluation groups, which can be used to monitor and evaluate efficiency and to identify opportunities to improve it. Program evaluation guidelines and internal audit standards include efficiency within the scope of their work, but the extent to which they address efficiency concerns is at the discretion of the departments.
8.82 We recognize that the nature of some departmental functions, such as policy analysis, makes it more difficult to assess their efficiency. However, it should be possible to identify program outputs and determine to what extent measures of efficiency could be applied to them. Most departments do not attempt to distinguish between measurable and non-measurable program outputs, although this is essential to assessing whether it would be beneficial to establish indicators of efficiency. The assessment of efficiency, where appropriate, requires a detailed analysis of such things as procedures, work flows, physical layout, roles and responsibilities, and the development of performance standards. This process is illustrated by the case of Customs and Excise - Long Room Project.
Case Study - Department of National Revenue, Customs and Excise
Customs "long room": a systematic review of efficiency8.83 Customs and Excise implemented the Customs Commercial System (CCS) on 1 January 1988. CCS is a large computer system designed to administer a new tariff system and to streamline Customs' commercial operations. After the system was implemented, the Department assessed its impact on Customs' "commercial long room operations." Long room operations include receiving and reviewing documents on cargo coming into Canada; releasing the importers' goods or referring them for examination; accounting for, receiving and depositing cash; and reviewing operational reports.
8.84 The Department determined that commercial long rooms at ports across the country shared problems, such as a lack of standards for and definitions of tasks, and inconsistent procedures. Headquarters also lacked the information necessary to identify resource requirements in particular regions.
8.85 In response to these problems, the Department initiated a project to design a model for commercial long room operations to develop standard operating procedures for clerical and customs inspection functions; document the procedures; establish performance standards; and more precisely define the functions and responsibilities of clerical staff and customs inspectors. The project entailed regrouping activities into jobs that integrated with CCS; eliminating unnecessary procedures; organizing work into work stations, jobs and tasks; developing Standard Operating Procedures (SOPs); and developing time standards. For each of the 750 clerical and customs inspection tasks a written description was developed. Headquarters is setting a level of resources for each port based on volumes, tasks and time allowed for them.
8.86 Customs long room operations are often limited by the facilities available at ports. The Department re-designed the layout of long room facilities to better utilize the available space at each port, and implemented a training program for clerical staff, customs inspectors, supervisors and managers at each port.
8.87 The Department is implementing the model long room at 40 automated ports across Canada, covering about 70 percent of commercial operations. Based on the reported results of the pilot project -- a 20 percent improvement in efficiency -- improvements are expected nation-wide when implementation is complete in the fall of 1990.
8.88 We have noted that departments with mostly repetitive operations and uniform outputs have a more developed approach to improving their efficiency. Often improvements result from changes generated by observations from line managers or field staff; by client feedback; by employee participation; and by clear definition of program outputs. For departments making significant investments in plant and equipment it is important to incorporate detailed knowledge about the nature of the work into plans. In departments with large volumes of work, and peak work periods which require a capacity to adjust to dramatic changes in the numbers of employees needed at a given time, there is a particular onus on management to design the workplace to match operational requirements as efficiently as possible -- as the case of National Revenue, Taxation illustrates.
Case Study - Department of National Revenue, Taxation
Designing for Efficiency8.89 Working conditions, layout, equipment and tools all have an impact on the efficiency of an operation.
8.90 Until the early 1970s, the Department's taxation system was highly centralized, processing all tax returns at the Ottawa Data Centre. Because of operational problems there, and as part of the government's decentralization program, a temporary data centre was opened in Winnipeg in 1976. This facility was in a conventional multi-story building similar to the Ottawa Data Centre, and certain similar operational inefficiencies became apparent. The Department responded by constructing six facilities custom-designed to handle the workflows at various stages of processing tax returns.
8.91 Workflow in a taxation centre is comparable to the sequential steps of an industrial assembly line. Mail enters at the loading dock and is sent for sorting to the adjacent mail room. The returns are placed in custom-designed plastic bins and carts to be transferred to other work areas. A freight elevator next to the mail room takes returns to a main work area, and from there they flow systematically through the respective work areas designed to accommodate each stage in processing.
8.92 Taxation centre operations are highly computerized, a process begun in the 1960s and expanded since then to improve efficiency. All basic jobs involving contact with taxpayers or the processing of tax information have been automated, streamlining the process and improving service to taxpayers.
8.93 To accommodate the mix of paper-oriented and data entry tasks, the taxation centres have a mix of furniture. Standard office furniture is used in the work areas handling paper, while those with computer terminals use ergonomically designed furniture, adjustable to ensure the comfort and minimize the fatigue of computer operators.
8.94 The interiors of the taxation centres were designed to accommodate up to 1,600 temporary employees at peak season and approximately 700 full-time staff. The facilities are open and well lighted, with plants and art work located throughout the building. Employee lounges are pleasant and situated close to work areas.
8.95 The open office design can accommodate the maximum number of employees in peak periods; portable screens provide flexibility. Hanging screens are also used, for visual relief of the large work areas and to create sound barriers. Pedestal flooring allows for easy installation of computer terminals to meet changing requirements.
8.96 By providing the appropriate equipment and tools, computerizing operations and designing the facilities to match operational requirements, the Department has been able to cite efficiency gains of 161 percent in processing tax returns, from 1975 to 1988. Most of these efficiency-related design improvements have been implemented in all but the Ottawa Taxation Centre.
8.97 Even departments that operate in a constantly changing socio-economic environment may find that they could significantly improve efficiency by establishing, and attempting to meet, norms of performance. One example is found in this year's Chapter 13 on foreign delivery of the immigration program by the Department of External Affairs. The chapter notes a number of opportunities to improve the efficiency of immigration operations at missions abroad, through such measures as automating the processing of applications at large-volume missions, reducing paper burden in the selection process, and increasing the use of locally engaged program staff. Norms of performance have not been specified. The Department has not established norms for waiting times or for the amount of resources used in processing visa applications.
8.98 Although we noted that many departments have implemented changes which have improved efficiency, most do not attempt to calculate the level or extent to which their overall operations might be further improved. Some improvements have occurred as a result of recent regulatory reform requiring departments to review their regulations, with a view to delivering programs more efficiently.
Cost and Performance Data
Most managers do not use cost and performance data to assess and improve the efficiency of their operations8.99 Cost and performance information is essential to departmental managers in identifying opportunities to improve the efficiency of their operations. By examining cost and performance data over time, or in comparison with similar data for other organizations doing comparable work, managers are better able to set performance standards, estimate the resources required for anticipated workloads, monitor results, and analyse variances, which helps in identifying potential improvements. Such information is critical to any accountability process where program managers are expected to provide an acceptable level of service at the lowest possible cost.
8.100 Our review indicated that most departmental information systems focus on summary cost information and non-quantified performance information, not on information relevant to analysing efficiency. Some departments with highly repetitive operations have devoted significant attention to the use of cost and performance data to assess efficiency, but this is not widespread. Our review indicates that there is an abundance of cost information within departments, but this information is generally not well organized or compared with quantitative data on outputs.
8.101 The absence of organized cost and performance information hampers managers' ability to make informed decisions. Several departments indicated that a reduction in resources would affect their ability to maintain core services or to meet client needs. However, without appropriate cost and performance data, they have been unable to determine how much these services would be affected. Last year, our chapter on the Canadian Coast Guard reported a number of such problems. For example, a Ship Activity Reporting System captured weekly information on the hours spent per ship on tending aids to navigation, icebreaking, or undergoing maintenance. From this data, the system produced monthly reports which showed the time each ship spent in service and in maintenance. However, we found that this information was not being analysed and used to its potential. Senior management was not given complete information for making decisions on ship deployment, replacement or modernization.
8.102 Many departments do not make use of appropriate efficiency data to justify their internal allocation of resources. Departmental performance information consists largely of narrative descriptions of program outputs, on the basis of which resources are allocated to achieve program objectives. In some cases, the efficiency information used to justify resource allocations is unreliable and inappropriate. For example, this year's chapter on the RCMP - Support Services to Canadian Law Enforcement Agencies notes that for the measurement of efficiency used to calculate future resource requirements, one branch used performance data based on inappropriate units of measurement. We make a similar observation in the chapter on the Department of External Affairs Immigration Service, where the lack of mission-specific efficiency norms makes it difficult to ensure the quality of immigration services and the appropriateness of the number and location of visa officers around the world. The inappropriate use of cost and performance data, or its absence, means that departments may be unable to identify and analyse opportunities to improve efficiency.
Administrative and Support Expenditures
Administrative and support expenditures are inconsistently recorded and inadequately disclosed8.103 An important element of cost control in determining overall levels of efficiency is the monitoring of departmental and program administrative and support costs. In an environment of financial constraint, there is sometimes a tendency to impose financial controls to offset the effects of unsatisfactory managerial practices, without due consideration to the cost of developing and maintaining such controls. This may increase administrative overhead at the expense of program delivery.
8.104 Our review indicated that information on administrative and support expenditures is inconsistently recorded, making it impossible to assess the impact of changes in these costs over time and in comparison with other government organizations.
8.105 Administrative and support costs in the federal government traditionally have been classified as either program overhead (related to program outputs) or corporate and administrative overhead. The 1989 Guide to the Costing of Outputs in the Government of Canada defines corporate and administrative overhead as "costs . . . incurred outside program branches, and includes costs of such functions as senior management, corporate communications, informatics, personnel, finance, administration, legal services, program evaluation, audit".
8.106 Administrative overhead accounts for a substantial portion of the total operating expenditures of government departments. In 1988/89, for example, authorized person-years for departmental administration (excluding the Department of National Defence and the RCMP) included in the Main Estimates cost over $1.5 billion.
8.107 Our study noted, however, that because of the lack of common definitions, program administration and support costs are inconsistently identified -- within and among departments. Consequently, their disclosure in the Main Estimates may be incomplete. At present it is impossible to identify these costs, for most individual departments and across government. Although the government has a commitment to restrain its operating costs, we found no analysis of the impact of recent budget cutbacks on program, administrative and support expenditures for most government operations.
Little Change In The Quality Of Information On Efficiency Since 19878.108 Government financial management and control initiatives have consistently emphasized the importance of collecting data on efficiency, as an essential component to departmental management. However, the translation of this obligation into specific action has been less than satisfactory. Consequently, although some action is under way, we found little evidence to justify changing the conclusions of our 1987 Financial Management and Control Study, which stated:
With few exceptions, information on efficiency of operations is inadequate to support resource allocation or to ensure the efficient management of available resources. The proportion of resources covered by performance measures is low. Most performance standards are based on historical data, with no assurance that these in fact represent efficient standards of performance.