1.1 Chapter 1 focusses on some intractable issues that, if addressed, could help Parliament respond to the challenge of balancing citizens' expectations with reduced fiscal manoeuvrability. Most of these long-standing issues have been well studied and solutions have been proposed. It is time to overcome the resistance in the political and bureaucratic culture to their implementation.

1.2 Opening up the budget process. Very few government documents have the potential to affect the lives of Canadians more profoundly than the budget. There is a compelling need to reconcile the convention of budget secrecy with open consultation and debate, to allow parliamentary input before final decisions are made.

1.3 Information for Parliament. Most of the time Parliament is not provided with adequate information on the results that departments and Crown corporations have achieved with billions of dollars of taxpayers' money.

1.4 Information to support ministerial decision making. Ministers, deputy ministers and senior managers often are not getting the financial and performance information they need for strategic and operational management. To address this situation, strong comptrollership within the government is not just something that would be nice to have, it is something that the government must have and that Canadians have a right to expect.

1.5 Program evaluation. The government will need to ensure that it has in place the requisite analytical capacity to deal with the tough questions on the effectiveness of government programs. The problem is that, based on the Office's government-wide findings, I am forced to report that the present evaluation regime is not working as intended to answer these questions.

1.6 Interdepartmental co-operation. An important challenge for government in the twenty-first century is the effective delivery of services that involve several departments. This could be improved by ensuring that lead departments bring forward clear accountability information on the achievements of all departments involved.

1.7 Administrative reform. Lessons learned from studying reform initiatives in other jurisdictions stress the need for a coherent approach. In Canada, there is a need to revitalize Public Service 2000 and put this important reform initiative in the broader context of any other initiative, such as plans to contain the deficit and to restructure and redefine the role of government in society.

Introduction

Challenges for a New Parliament

1.8 Each successive Parliament faces a new set of challenges and opportunities. Although many of the essential issues remain the same from one Parliament to the next, relative priorities may change, along with the sense of urgency that the government of the day attaches to them. This autumn brought Canadians a new Parliament. The adjustment that Canadians are having to make to new fiscal realities on the eve of the twenty-first century will affect Parliament's concerns and priorities. Canadians are concerned about preserving their standard of living, their quality of life, and their national institutions and values.

1.9 Today it is clearer than ever, to both public servants and parliamentarians, that Canadians expect them to demonstrate sound and prudent management rather than finding new ways to spend borrowed money. There is a growing consensus that the country must confront the deficit to maintain the integrity of our institutions. People are realizing that the more the country spends on servicing the debt, the less it has available to spend on services to the public.

1.10 I believe we are in a new era when it comes to both political behaviour and public expectations: an era when the current economic climate requires timely decisions to maintain our standard of living. Inaction or delay today can limit our choices in the future.

1.11 The government is entrusted with the role of addressing citizens' concerns. It must try to balance what is wanted with what is affordable. This arduous task of weighing the relative priority of national objectives requires proper information, and a proper forum for informed debate and dialogue.

1.12 Parliament's role is to approve or deny expenditures and authorize revenues and borrowings; currently, there are some intractable issues that constrain this role. Some of these issues have been on the agenda for decades. Solutions have been well researched. Addressing them could help Parliament respond to Canadians' uncertainties about the deficit, employment, the environment, international aid and other concerns.

Intractable Issues

1.13 In this context, an intractable issue is one that is not easily dealt with because it is complex and it challenges the status quo. Several such issues are raised, in one form or another, in this Chapter and throughout this Report:

reconciling the need for secrecy with the need to involve Parliament in the budget process;
encouraging departments and agencies to report in clear, global terms that would render a meaningful account of their stewardship by providing Parliament with results-oriented information on significant expenditures;
ensuring that program evaluation asks the tough questions and assesses significant expenditures;
encouraging departments to co-operate in delivering services that cross departmental boundaries;
providing ministers and their deputies with sound information needed to manage departments efficiently and effectively; and
effecting administrative and public service reform.

1.14 What is troubling about these issues is that most have been studied for decades, and recommendations have been made by senior public servants, politicians and outside experts. In many cases there is a broad consensus within the bureaucracy and the political sector on what needs to be fixed. Yet effecting reform in these areas has been elusive.

1.15 The need to open up the budget process is dealt with in the next section of this chapter. The need for better information for Parliament is addressed in sections of the chapter that deal with information on debt and deficit, statutory programs, program evaluation and a case study on the Canadian International Development Agency. These are followed by a section dealing with the need for departments to work together. The important issue of information to support departmental decision making is addressed in my comments on the restructuring of the Office of the Comptroller General, later in the chapter. And finally, the need for political leadership and support of public service reform is dealt with near the end of the chapter.

Producing Relevant Information on the Debt and the Deficit Is Only Half the Battle

"The budget of today is a major event. . . . it is a complex, far-reaching statement . . . with significant bearing on social policy."
The Honourable Michael H. Wilson, Minister of Finance, May 1985

The Importance of the Budget

1.16 A modern budget occupies a central place on a government's agenda. In the early part of this century, the budget served as a routine report of the government's fiscal position and policy, occasioning little public interest and much less excitement. The budget of today is a major event, commanding both national and international attention. The annual budget affects individual Canadians - it sets levels of taxation for the coming year and sometimes signals changes in social programs. Externally, international lenders, investors and other governments have a keen interest in the budget. It can affect the value of the Canadian dollar.

1.17 The importance of an effective budget process is difficult to overstate. It is vital to a government's ability to function efficiently and effectively and to serve the people responsibly. One of the constraints on parliamentary consideration of the budget is the convention of secrecy. Historically, in the Canadian and British systems, secrecy has been invoked to prevent individuals or specific groups from taking advantage of privileged information about the contents of a budget. This is one element of a broader, long-standing convention that members of Parliament are not privy to classified information routinely available to ministers. In my opinion, there is a compelling need to reconcile the convention of budget secrecy with open consultation and debate, so Parliament can fully play its role in responsible government.

Few opportunities to involve parliamentarians in the budget process

1.18 To understand further why it is difficult for parliamentarians to be involved in the budget process, it is critical to understand the annual budget cycle. An overall fiscal plan, with a forecast of the next and future years' revenues and expenditures, is tabled with the annual budget, usually in February. The timing of the budget is subject to some uncertainty, although in 1986 the government opted for the January-February period. Exhibit 1.1 assumes such timing. To establish the relationship between spending and revenue, an effort has been made to introduce the budget just prior to the tabling of Main Estimates, which is required by the rules of the House to be prior to March 1.

1.19 Today's budget is used to announce significant changes in spending, and in the pre-budget phase, crucial decisions are made on these, as well as on new tax issues and new program initiatives. During this phase, the critical work is done by the Department of Finance in consultation with Cabinet, but given the constraints of secrecy, consultation with Parliament is limited.

1.20 As stated in Chapter 5, "Information for Parliament, Understanding Deficits and Debt", deficits and debt are created when governments respond to demands by society for services. Accordingly, Canadians need to participate in discussions on the debt and deficit with their members of Parliament. Because the fiscal plan is usually not available in the pre-budget consultation phase, there is limited opportunity for parliamentarians to discuss the overall level of debt and the deficit and its components during this phase of the budget process. This is not to imply that parliamentarians do not have an influence under the present system. The government of the day knows that its budget will be challenged. The point is that providing opportunities for greater input earlier in the process, during the pre-budget phase, would enhance the role of parliamentarians.

1.21 The Main Estimates provide a detailed list of the upcoming expenditures for departmental programs. These are referred to the appropriate standing committees for review. There is no longer a single committee - it was once a committee of the whole House sitting together - that reviews the overall picture of expenditures. However, the House of Commons Standing Committee on Finance could be a logical focal point for receiving and discussing these questions by focussing discussion on the government's fiscal plan, the annual financial report and the indicators of affordability described in Chapter 5.

1.22 Next in the budget cycle, from March through May, standing committees have an opportunity to examine the Main Estimates in detail, before reporting them back to the House for concurrence and swift passage in Appropriation Acts. However, committees are spending less and less time on the Estimates. One major reason for this apparent lack of interest lies in the impact of the confidence convention, which, as currently interpreted, makes any motion to change a vote in the Estimates a potential test of the House's confidence in the government. Because failure to win a confidence vote leads to the resignation of the government, no changes can be made in the Estimates, even though committees have the power - at least in theory - to reduce or reject Estimates votes. The last time a voted expenditure was changed was in the minority Parliament of 1972-74.

Reconciling Secrecy with the Need to Involve Parliamentarians

1.23 The need to improve the budget process has been widely recognized for at least 30 years. Successive ministers of Finance have publicly expressed concerns about the budget process and particularly about the constraints that budget secrecy imposes on their preparation. In the 1960s, the Honourable Walter Gordon observed that "the old established tradition - according to which budgets are prepared in the Department of Finance, without consultation or discussion with other officials or outside experts, and without informing the Cabinet of what is going to be proposed until a few hours before presentation to the House - is out of date. . . ."

1.24 In his budget speech of May 1976, the Honourable Donald MacDonald said: "Two aspects of the budgetary process require particular study. The first is the strict rule of secrecy that applies to the budget prior to its introduction. The second is the procedure for consideration of the budget proposals following their introduction in Parliament."

1.25 In 1979 the Royal Commission on Financial Management and Accountability (Lambert Commission) recommended that, each year, the Minister of Finance present to Parliament a five-year fiscal plan that provides estimates of revenues, expenditures and the expected surplus or deficit. The Commission proposed that this be presented in late October, well before the submission of the annual Estimates and the tabling of the budget. This would provide an opportunity for debate focussed on the broad aspects of fiscal planning, which could deal with the government's priorities, how it proposed to fund them, and whether the appropriate balance had been struck between expenditures and revenues. Although fiscal plans have since been presented, none was tabled early enough to allow for the kind of thorough debate the Commission envisioned.

1.26 In 1982, the Honourable Allan J. MacEachen observed that "the extreme interpretation of budget secrecy does not take account of the broad economic and social role which modern budgets must play. . . . In this context, the concept of budget secrecy must be defined in a manner consistent with modern budget realities. . . . " A precondition for more meaningful pre-budget consultations is a redefinition of the tradition of budget secrecy.

1.27 The Honourable Michael H. Wilson stated in 1985 that ". . . it is clear that Canada's system for developing budgetary proposals and implementing budgetary measures has failed to keep pace with the needs of a complex government and a complex economy. . . . The government recommends that the convention of budget secrecy be examined and recommendations developed that will establish a reasonable interpretation of budget secrecy reflecting contemporary budget needs and realities."

1.28 In 1988, the Public Accounts Committee expressed concerns about the adequacy of Parliament's scrutiny of the Estimates. The Committee Chair noted that "the Public Accounts Committee examines government spending after the fact but parliamentary scrutiny before expenditures are made is not effective . . . since estimates of each department are examined separately and by different standing committees there is no overview of total government spending at that stage." The Committee recommended to the House that a new "budget committee" be set up to remedy these deficiencies, and that "the Government not consider a reduction in the Estimates as a matter of non-confidence."

1.29 The 1993 Report of the Liaison Committee on Committee Effectiveness favoured an approach that "would have ministers and senior officials discuss in committee in the early autumn proposed expenditures for the following year so as to make it possible for committees to offer views as to the spending priorities that the government could take into account in preparing its final estimates." The Committee observed in its report that standing committees see "little point in committing precious time to reviewing estimates that will not be modified as long as the government has a majority." The Committee regretted that it is "virtually impossible for members to carry out effectively their responsibility for scrutinizing government expenditure."

1.30 Making Government Work (Public Policy Forum, 1993) said that the "government's annual expenditure plan should be made public at a sufficiently early stage in the cycle to permit Parliament and the public to express views before final decisions are made."

1.31 A recommendation in April 1993 by the Standing Committee on House Management dealt with the convention of confidence. It stated that "with few exceptions, motions proposed by the government should be considered as motions of confidence only when clearly identified as such by government." The Committee felt that this, together with deleting some references to confidence in the rules of procedure, could help in opening up the budget process.

The Need for a Parliamentary Forum for Discussion of the Overall Picture of Debt and Deficit

1.32 In August 1993 the Honourable Gilles Loiselle, Minister of Finance, proposed changes to the budget process to make it more open and to permit more public input. These recommendations reaffirm the continued relevance of three decades of comments by ministers of Finance and by parliamentary committees.

1.33 This Office strongly supports any action that encourages members of Parliament to take an active and constructive approach to the financial affairs of our nation. Opening up the budget process and providing Parliament with more complete information in the autumn, including broad-based spending information, would allow for more informed debate and greater input from Parliament and the public. However, better information is only half the battle.

1.34 There needs to be a parliamentary forum for a rational discussion of the national finances and overall questions of debt and deficit. Chapter 5 suggests a framework for developing objective, understandable indicators of the nation's financial health. It notes the need for information on the longer-term implications of today's spending decisions and calls for a forum for discussion of that information.

1.35 To achieve this objective will require a reform of the budget process itself. There is an urgent need to re-think the rules and conventions regarding budget secrecy, what constitute matters of confidence, the need for parliamentary committees to look at the whole picture of revenues and expenditures and a new approach to reviewing statutory programs. The House of Commons Standing Committee on Finance could become an effective focal point for discussion of the overall debt and deficit. This matter is of such importance that it merits early and systematic attention.

Understanding the Impact of Statutory Programs on Fiscal Manoeuvrability

Each New Government Finds a Sizable Portion of Incoming Dollars Already Committed for Future Years, by Past Parliaments

1.36 Of the total net expenditures of approximately $157 billion for the 1991-92 fiscal year, 70 percent were for ongoing commitments authorized previously through statutes. These statutory expenditures (approximately $110 billion) include such things as public debt charges (which comprise just over one third of statutory expenditures), unemployment insurance benefits, pensions for seniors, and transfer payments to the provinces. Statutory expenditures are presented in the Estimates "for information only" and are not voted on annually by Parliament.

1.37 As illustrated in Exhibit 1.2 , "Statutory and Non-statutory Expenditures as a Percent of Total Net Budgetary Expenditures", statutory expenditures have almost doubled in the past 40 years: from approximately 37 percent of total government expenditures in 1952-53 to 70 percent in 1991-92. The implication for fiscal manoeuvrability is that these statutory payments effectively are seen as immutable and beyond the routine annual scrutiny of Parliament. This is compounded by the fact that Canadians have come to view some statutory payments as "entitlements". Clearly, the review process is incomplete if Parliament does not conduct in-depth cyclical reviews of 70 percent of government spending. Such reviews are essential for ensuring the sustainability of programs and the long-term financial health of the federal government for future generations of Canadians.

1.38 Manoeuvrability may be further reduced by other contractual obligations that reflect past commitments. For example, annual expenditures made under various obligations of the Canada Mortgage and Housing Corporation for Social Housing Programs amount to almost $2 billion, as reported in the Public Accounts for 1991-92. The Public Accounts for the same year estimate annual payments of approximately $2 billion for the next five years under these continuing contractual obligations. In addition, they report contingent liabilities of just over $26 billion to cover guarantees by the federal government for borrowing by Crown corporations or for other explicit guarantees, such as those made for the Hibernia energy megaproject. Obviously, not all of these will come due; however, any that did would further reduce manoeuvrability by reducing the discretionary funds available. Discretionary funds are further reduced by expenditures that reflect the government's past political commitments to aboriginal peoples, environmental protection, regional economic development, and research, to name but a few.

1.39 The government has recognized the need to increase future manoeuvrability by limiting expenditures today. For example, it has introduced the Spending Control Act , which has the objective of ensuring that program spending through to the 1995-96 fiscal year will not, with certain exceptions, exceed predefined limits. However, in my view there is a need to find ways to improve the system for Parliament's review of statutory expenditures. As discussed in the next section, the Lambert Commission focussed on methods to improve Parliament's review of these expenditures.

The Need to Support Cyclical Reviews of Statutory Programs

1.40 The Lambert Commission recommended in 1979 that "legislation for all new statutory programs, except those relative to interest on the public debt, require that funding lapse automatically at the end of the fifth year following introduction, and that renewal of such funding be authorized only after parliamentary review of the current and projected costs and benefits of such programs. . . ." The recommendations also called for existing statutory programs to be reviewed on a five-year basis, with a report on all reviews to be tabled in Parliament. These reviews would be referred to the appropriate standing committees for their consideration and recommendations. Chapter 8 in this Report, "The Case for Program Evaluation", recommends that the government do a better job of evaluating large statutory expenditure programs. My concern is that Parliament is not being provided with the information that would enable it to assess the desirability and affordability of sustaining these programs at their present levels, within the context of other commitments.

When parliamentarians see the long-term projections, they are concerned

1.41 Chapter 6 of last year's Report, on information for Parliament, noted the need for a reporting that reflects the broader duties and obligations of government. Parliamentary committees and government departments alike would be better served by cyclical, in-depth reviews of departmental "global stewardship", as part of the current system of annual parliamentary approval of the Estimates. There is an even greater need for this type of information on significant statutory programs, which are not voted through annual expenditure review. Part III of the Estimates currently provides Parliament with only limited information on a timely basis about, for example, income security for seniors. The current consolidated costs of these programs and their projected future costs, together with information on their effectiveness, are not provided to Parliament in one convenient and accessible document. In using this as an example, the Office's intent is not to suggest the need to alter any of these programs but only to illustrate how the review system could be improved.

1.42 As noted in Chapter 18, "Programs for Seniors", seniors today are one of the fastest-growing segments of Canada's population. The population over 65 years of age in 1991 stood at 3.2 million (12 percent of the Canadian population) and is expected to rise to 18 percent by the year 2021. For 1992-93, the total federal expenditure on programs for seniors was approximately $30 billion. In addition, tax incentives to those preparing for retirement represent an estimated $12 billion a year in deferred and partially foregone revenue.

Parliament is not getting information on the future costs and the effects of programs for seniors

1.43 Society is faced with tough decisions on some extremely complex issues. These decisions will have long-term implications for millions of Canadians. Parliamentarians need information that will help them see total costs in the context of the nation's overall fiscal situation. Parliament needs a combination of information - information on intended and unintended effects of programs, and information on present and future costs. For example, future costs of the Old Age Security Program are projected to double by the year 2006, from the present level of approximately $15 billion. Good financial information is required on an annual basis. However, on a cyclical basis, ideally every five years, Parliament needs analytical information, which would include the results of program effectiveness studies. Only when Parliament is provided with this type of information will it be in a position to assess the long-term implications and sustainability of statutory programs.

Government Needs a Strong Analytical Ability to Manage Intelligently and Humanely

Informed Judgments Combine Political Insight with Independent Assessment of Past Results

1.44 Last year's Report presented the Office's vision of departmental reporting to Parliament. The suggested reporting format addressed the need for stewardship information on the broader duties and obligations of government to preserve, maintain and foster the public enterprise. This stewardship information would be one aspect of the full disclosure necessary to maintain the confidence of Parliament; the other components are financial information and operational information. This year, three chapters in the Report focus on an important part of the content of departmental reporting: Chapter 8, "The Case for Program Evaluation", states the case for measuring results; Chapter 9, "Program Evaluation in Departments", describes the extent to which expectations of early proponents have been realized; Chapter 10, "Program Evaluation - Making It Work", addresses some fundamental stumbling blocks to providing Parliament with information on results.

1.45 Since the 1960s, the results that program managers have tended to focus on have been outputs, such as the number of cheques issued for income support, rather than the previous input-oriented approach (i.e., the resources used in issuing the cheques). There is now a need for this focus to evolve further, to look at outcomes, such as whether income support may reduce the incentive to save for retirement. Obviously, it is technically more difficult to measure outcomes than outputs. The latter are largely internal numbers and are easy to identify; the former require careful measurement and analysis to draw correct conclusions. Although I recognize that it is intrinsically difficult to measure outcomes, I believe most of these difficulties can be overcome with skill, creativity and commitment. In government, there is predictable resistance to being measured on the basis of outcomes. We have to overcome this resistance, break the logjam, if parliamentarians are to be provided with the information they need to judge the success or failure of programs and policies.

1.46 Today, as government decides how and where to allocate ever scarcer resources, it is expected to make informed judgments that reflect policy commitments. To make these judgments, decision makers need information and independent analysis. This analysis should include reports on results, describing the outcomes achieved against objectives. Were program objectives for such things as unemployment insurance, international aid or income support achieved? Has the program outlived its usefulness? Were there negative side effects that offset the accomplishments? Can objectives be met by replacing existing services with others that are more efficient or effective to operate? Decision makers need a strong analytical capability if they are ever to begin to answer these kinds of questions. Further, this information should also be available to parliamentarians if they are to perform their scrutiny role effectively.

1.47 As summarized by A. W. Johnson in his Reflections on Administrative Reform in the Government of Canada 1962-1991 , for three decades reformers have been searching for the right analytical tools to support informed judgments. Program evaluation, one such analytical tool, is a disciplined assessment of the results of government programs and activities. It is based on independent, systematic measurement and analysis, carried out to meet expectations set in policy and standards, and publicly reported. The push for program evaluations began in 1962 with the recommendations of the Royal Commission on Government Organization (Glassco Commission). The concern of the Commission was to make programs the focus of all expenditure planning and accountability, rather than the previous focus on line items of expenditure such as travel, payroll and contract costs. In the years following, as this new approach evolved, efforts were made to link program results with program expenditures and to develop objective ways to evaluate those results.

Program evaluation should address tough issues such as unemployment insurance, international aid and income support

1.48 When Canadians go to a doctor, they do not expect that a new treatment will be prescribed before the doctor knows how successful similar treatments have been in the past. In the same way, Chapter 8 provides examples of evaluations that identified savings and supported better decision making. For example, the Department of Finance's evaluation of the Cape Breton Investment Tax Credit reported that much of the investment would have been made without that $2.1 billion tax credit. The results of the study contributed to the decision to discontinue the tax credit. Members of Parliament need this type of information about results, but most of the time they do not get it.

Program Evaluation Needs to Ask the Tough Questions and Assess Significant Expenditures

1.49 As described in Chapter 9, program evaluations in the federal government are currently directed at fine-tuning existing programs, rather than asking the tough questions about whether the programs are still needed and what they have achieved. The Office found that evaluation studies conducted over a seven-year period covered approximately a quarter of the government's total expenditures (excluding interest on the public debt) for 1991-92. At this rate, it would take almost 30 years to evaluate all programs in government. Generally, program evaluations have focussed on micro-management issues, rather than on the fundamental question of whether large programs are effective at meeting their own objectives as well as national objectives. They tend not to evaluate the issue of continued program relevance, even though this kind of analysis is essential to parliamentarians' scrutiny of expenditures in times of restraint.

1.50 There is also poor evaluation coverage of sectoral programs, programs that involve more than one department. These include search and rescue, immigration, aboriginal economic development, programs for seniors, environmental protection and many others.

1.51 In a 1983 government-wide audit of program evaluation, this Office noted that there was no real capability to evaluate programs involving more than one department. Since then, there has been no substantive progress in this area. For example, to provide parliamentarians with the information they need on the $30 billion spent annually on seniors' pensions, as well as the billions spent on related tax measures, would require a sectoral analysis of the programs as a whole, addressing such issues as the following:

whether programs continue to meet identified needs;
whether the tax measures, such as retirement savings plans, and the public pension programs are working in a complementary, supportive, and cost-effective way;
whether the programs are significantly increasing, in a cost-effective way, the ability of seniors to live independently; and
the future cost implications of changing the age at which seniors become eligible to receive pensions, as well as changing the amount of eligible RRSP contributions.

Evaluations have been completed for individual components of public pension programs, but not for all public pensions as a whole.

1.52 Considerable latitude is given to departments to set the scope of inquiry and to conduct program evaluations. The Office reports on whether or not this regime is working as intended to provide Parliament with information on results. Based on the Office's government-wide findings, I am forced to report that it is not. Given the imperative of making intelligent and statesmanlike decisions to preserve the essence of our national institutions, there has never been a more urgent need for the type of analytical information that evaluations of program effectiveness can provide.

1.53 One has to ask why effectiveness evaluation has not lived up to expectations. A. W. Johnson states that a fundamental problem with the effectiveness evaluation regime, as it has developed, is its compatibility with the parliamentary system into which it is implanted. Mr. Johnson concludes that "to ask ministers . . . to table in Parliament rigorous, and rigorously criticized, program evaluations is to ask them to commit a form of political hara-kiri, at least from their point of view." The obvious question is how to overcome this structural resistance. One approach would be to develop evaluation practices that, in addition to answering questions of an operational nature, would address those matters of interest to parliamentarians.

1.54 Another approach would be to consider who should do the strategic evaluations that deal with sectoral issues and issues of continued program relevance. Evaluators need to maintain a high degree of objectivity and independence, which is often difficult now because departments are evaluating their own programs.

Evaluators Should Be Independent of Departmental Operations yet Close to the Decisions that Count

1.55 It is important that evaluators be sufficiently distant from the day-to-day activities of the department (independent of departmental operations) to ask the tough questions, yet close enough to the central decisions to have a stake in ensuring that evaluations are relevant. Whatever group is charged with conducting strategic program evaluations must have the capability to look at the central issues from a broad perspective. Evaluation also needs to be close to where the key decisions are made that allocate resources among competing demands in departments and agencies.

1.56 This is not to say that departments do not have a role to play in program evaluation. Clearly, as demonstrated in several chapters in this Report, program evaluation is important to operational decisions. But there is a need for a distinction between evaluation that is critical to day-to-day management and evaluation that is critical to a strategic overview of broader and sectoral issues. Perhaps those doing the strategic evaluations could include experts from individual departments. They could be organized on an ad hoc basis to evaluate strategic policy issues.

1.57 The point is, the time has come to find workable solutions to resolve this intractable issue. As described in Chapter 6, the government has stated its intent to ask fundamental questions about the nature and role of government and the services it provides during its proposed restructuring. Any government committed to addressing these tough questions will need a strong analytical ability to manage intelligently and humanely. If the present approach to program evaluation cannot be made to work, Parliament may wish to consider the need for more radical solutions to obtain timely, relevant and reliable effectiveness information.

Accounting for Results: The Canadian International Development Agency (CIDA)

How to Put Accountability into Operation

1.58 Last year, Chapter 1 raised the urgent need for government departments to move beyond slogans, to define more precisely their goals and the tangible results the department or agency is accountable for achieving. It discussed the need for departments and agencies to tell their stories in clear and global terms. Since then, I have been asked by ministers, deputy ministers and other officials what I mean, specifically, by "putting accountability into operation".

1.59 What is needed is an accountability model that fits the circumstances of the individual agency or department. The model should reflect whether the department or agency is involved with direct delivery of services and whether there is more than one partner involved. While it is more difficult to establish accountability where there are two or more partners, it is important to do so because responsibilities may be diffused. Whatever program delivery mechanism is used, being accountable means that it is not sufficient to answer only for following the correct process.

1.60 Chapter 12 on the Canadian International Development Agency (CIDA), "Bilateral Economic and Social Development Programs", provides a good example of the opportunities, and challenges, in accounting for results.

Canada Has Been an Active Donor Nation for Over Forty Years

1.61 Canada was one of the founding members of the Colombo Plan, which was launched in the early 1950s. This was Canada's primary response to the demands for international aid in the post-war period. In the mid-1960s, Canada's role in international aid grew and CIDA was established in 1968. CIDA's objectives, which have not changed significantly in the past 25 years, are essentially to help the poorest countries and people in the world to improve their social and economic well-being through self-reliant development. Funding was based on a percentage of Canada's gross national product (GNP). Initially, CIDA focussed on discrete infrastructure projects such as building roads and dams.

1.62 Over time, the number of countries receiving Canadian aid grew to well over a hundred. Significant amounts of Canadian aid also came to be channelled through multilateral interventions. The scope and nature of CIDA's direct interventions expanded as well, to include human resource development, technical assistance and policy advice, and the increased use of the private sector and of other agencies to deliver projects. As CIDA's activities became more dispersed and complicated, with many different partners, accountability became more diffused. With the growth in the GNP, Canadian aid has grown to about $3 billion a year. CIDA's prime objective, as articulated in the policy document Sharing Our Future , is the alleviation of poverty through development that is sustainable.

1.63 Chapter 12 focusses on the effectiveness of CIDA's programs by examining its activities in a region where a significant portion of the world's poorest people live: Bangladesh, Pakistan and Sri Lanka. CIDA has been operating in these countries for 25 years and has invested upward of $3.8 billion. Bangladesh was one of the early recipients of Canadian aid under the Colombo Plan. Over time, Bangladesh has emerged as Canada's biggest aid recipient, with more than $2 billion in aid projects since the early fifties.

1.64 For 25 years, CIDA has sponsored projects in Bangladesh in water, agriculture, population control, health, rail transportation, energy, and food production aimed at alleviating poverty, particularly in rural areas. The Office expected that CIDA would have had a well-defined strategy for each recipient country, given the magnitude of Canadian involvement. A businesslike approach would have identified specific developmental objectives, with measurable results that CIDA wanted to achieve. Such a results-oriented approach unfortunately has not been put in place.

Taxpayers Want to Know whether Billions of Dollars in Aid Have Developed the Potential of the Poor

1.65 A fundamental question addressed in Chapter 12 is whether CIDA is learning from past results when it designs future programs. I recognize that development assistance is a difficult, complex area where results are difficult to evaluate. I have personally visited CIDA projects in other parts of the world to obtain a real appreciation of what Canadians are trying to accomplish. I was moved by the sincerity, dedication and hard work of these Canadians providing drought relief, and trying to alleviate the suffering caused by AIDS. At times the level of help available, compared to the level of human need, seems like a drop in the ocean. I believe that most Canadians are supportive of these efforts but are looking for some assurance that their tax dollars are indeed helping to develop the potential of the world's poor. I believe an analysis of past performance would be an important step to providing that assurance. CIDA should evaluate and report to Parliament whether its interventions have left behind something of significant value that is sustainable and that enables the poorest people to better manage their own development.

1.66 Putting accountability into operation means that CIDA would report to Parliament on the policies and objectives pursued and the results achieved with the more than $3.8 billion invested in Bangladesh, Pakistan and Sri Lanka over 25 years. Although the results of many projects will not be evident for many years, a practical first step would be to report on key indicators that are essential for project sustainability. For example, CIDA could measure the extent to which the technical, managerial and financial capability of its partners has been enhanced. It could report what it costs to administer the aid it delivers. In short, CIDA should have information on what works, what has been accomplished and what has been learned from its previous efforts.

1.67 The Office believes that this would be an important first step toward stewardship reporting that provides Parliament with better information on results, such as the extent to which self-reliant development has been achieved. This is what I mean by "putting accountability into operation".

Reconciling Departmental Autonomy with the Delivery of Sectoral Services

1.68 On 25 June 1993, the Prime Minister announced a downsizing and restructuring of government. The announcement stated that the number of departments would be reduced from 32 to 23. She also announced the appointment of a smaller Cabinet, a reduction in the number of Cabinet committees, and related measures aimed at streamlining government decision making. The Prime Minister indicated that the objective of these changes was to provide Canadians with leaner, more accessible and more efficient government.

Why Is It So Difficult for Departments to Work Together?

1.69 Clearly, the restructuring of government activities may permit the government to co-ordinate more effectively issues that, in the past, crossed departmental lines. However, there will still remain significant government issues that continue to cut across departmental lines. For example, implementing a federal water policy involves many different departments with major water interests.

1.70 Traditional department structures are essentially "vertical", conceived in simpler times when fields of activity such as agriculture, forestry, public works or transport could be considered fairly separate domains. Today, however, many of the major issues that affect Canadians involve more than one department. The problem, as past and current audits reveal, is that departments have difficulty working together on sectoral issues that cut across departmental lines.

1.71 In 1990, this Office's audit of the management of the immigration program revealed major challenges in formulating, managing and co-ordinating an integrated immigration program among the seven departments involved in delivering it. The same year, the Office's audit of drug enforcement revealed that the lack of co-ordination between the Royal Canadian Mounted Police and Canada Customs was adversely affecting drug enforcement efforts.

1.72 In this Report, two chapters in particular highlight the need to improve the co-ordination among government departments delivering sectoral programs. Chapter 11 on the Canadian Aboriginal Economic Development Strategy documents the difficulties of the departments of Indian Affairs and Northern Development, Industry, Science and Technology, and Employment and Immigration in implementing a new approach to creating economic opportunities for Canada's aboriginal peoples. Chapter 14, "Control and Clean-up of Freshwater Pollution", describes the difficulties in implementing a federal water policy, in large part caused by the failure of key federal departments to work together. What is particularly disturbing is that, in the latter case, an interdepartmental committee was set up to help resolve issues of common interest, yet it was rarely used.

Departments Need to Work Together to Create Jobs, Protect Inland Waters and Address Other National Issues

1.73 The current reorganization of the government may solve some problems of co-ordination. However, there will always be a need for some form of matrix organization to integrate major sectoral services for Canadians. There is no "perfect" organizational model that will eliminate the need to have senior officials and line managers co-ordinate their efforts to achieve national objectives.

1.74 Clearly, this is a very complex area where there will be few simple solutions. Co-ordination requires a firm commitment from senior management in all organizations to develop a sense of shared purpose and agreement. There is a need for a mutual understanding, and acceptance, of the basic roles and mandates of the agencies and departments involved. There is a need for a shared sense of urgency, political will and commitment. Whatever the structure or organizational arrangements chosen to deliver shared services, there is a critical need for clear accountability. To close the loop, there must be clear responsibility for reporting against this accountability - by departments for individual components and by a lead department for overall results - to facilitate Parliament's scrutiny of these programs.

1.75 The Office recognizes that it is inherently difficult to establish accountability for results in a multidepartmental program. However, if lead departments are given specific responsibilities for reporting meaningful information on their stewardship, Parliament will be better able to hold departments and agencies to account. Improving accountability for interdepartmental co-operation need not be an insurmountable challenge.

Integration of the Office of the Comptroller General into the Treasury Board Secretariat

1.76 As part of the restructuring that the government announced on 25 June 1993, the Office of the Comptroller General has been integrated into the Treasury Board Secretariat. The title and responsibilities of Comptroller General have been added to those of the Secretary of the Treasury Board. Accounting and costing policy, including responsibility for the government's annual financial statements, are now under the Deputy Secretary (Program Branch), and audit and evaluation have been assigned to the Deputy Secretary (Administrative Policy Branch). The former Comptroller General has been named Chief Informatics Officer within the Secretariat, with responsibility for government-wide information management, systems and technology.

Comptrollership Should Be an Integral Part of Government Decision Making

1.77 I have discussed these changes with the Secretary of the Treasury Board & Comptroller General, and he has assured me that he shares my view that comptrollership and financial management are an integral part of government decision making. I have also consulted with ministers, senior public servants and senior members of the accounting profession. Their consensus - and I think that of taxpayers - is that managing the financial situation we now face will require a strong, effective financial voice at the most senior levels within government.

1.78 My experience with very large business firms reinforces this view. My predecessors expressed strong concerns about the adequacy of financial expertise in the federal government, and recent audits have led me to believe that, although some improvements have been made, decision makers in government often still do not receive adequate information regularly. In addition, decision makers need advice from individuals able to interpret and analyze the ramifications, both short-term and long-term, of complicated financial transactions, which still occur regularly in government, despite trends toward downsizing. These elements are an essential part of comptrollership.

1.79 Comptrollership is a relatively straightforward term. In our personal lives, it means knowing what bills we have and ensuring that they are paid on time and in the right amount. It also means knowing what money we will receive and safeguarding it appropriately when it is received. Personal comptrollership also means assessing the financial implications of some of life's major decisions, such as buying a house, staying in school and getting married. In large and complex organizations such as business firms or governments, however, the practice of comptrollership is anything but straightforward. It is a critical function that must be led by professionals with the requisite background and training.

1.80 Over the first three years of my term as Auditor General, I have been very concerned with assessing the quality of comptrollership throughout the government. The impression I have developed is that, despite certain improvements, ministers and deputy ministers do not yet enjoy the level of support, in terms of expertise and information systems, that chief executive officers of our better-run private sector organizations have at their disposal.

1.81 Successive reports over the past decade have documented serious shortcomings in financial management and control. For example, departments and agencies often do not know what certain activities cost. This Office's 1990 government-wide study on efficiency noted that relevant cost and performance data were, for the most part, either unavailable or underutilized. Other audits have noted the absence of cost information to support billings or cost recovery by government programs handling hundreds of millions of dollars. There is a lack of information to support an informed analysis of the alternatives to replacing aging government infrastructure, in the form of buildings or other fixed assets. There also seems to be a lack of reliable information to compare costs across programs. And since 1978, the government's audited financial statements have received a clean bill of health from this Office on only two occasions, in 1990 and again last year. Successive Auditors General have questioned how ministers, and deputy ministers, can function without this basic financial information and analysis, and the accompanying expertise, that are an integral part of what I mean by comptrollership.

Successive Governments Have Demonstrated Less than a Full Commitment to the Concept

1.82 From its inception in 1978, the Office of the Comptroller General has never had a clear legislative mandate. The Financial Administration Act (FAA) merely established the position. Successive governments have failed to define a clear role and responsibilities. There has been less than a full commitment to the concept.

1.83 Today, the Government of Canada is undergoing the same types of stresses as many business firms, and for the same reasons - concerns about financial condition and the bottom line. Downsizing and restructuring are facts of life in both the private and public sectors. In the business world, strong comptrollership is seen as a key ingredient of managing organizational change. In the government, an effective comptrollership function would:

prepare, analyze and interpret financial reports used for decision making;
develop and revise standards for internal control and performance measurement;
provide objective financial advice to ministers and deputy ministers;
establish and maintain an integrated operating plan that is consistent with the government's short- and long-term goals; and
ensure that the comptrollership function is staffed with qualified professionals who possess appropriate expertise and experience.

1.84 It is within this context that I have some serious concerns about the government's decision to integrate the Office of the Comptroller General into the Treasury Board Secretariat. While it would have been the preference of our Office to have seen the Office of the Comptroller General maintained as a separate entity, and, indeed, strengthened along the lines originally advocated, the merger could be made to work. However, it is my view that the actions the government has taken may weaken the comptrollership function. Specifically, I am concerned that departments and agencies may perceive that the government is proposing to:

fragment the functions of comptrollership;
assign the various fragments to "part-time" comptrollers at the deputy secretary level who have little time to devote to added responsibilities and who may not have the requisite background or training; and
reconstitute one of these parts (accounting and costing policy) as the only role for the comptroller general function, implicitly under the leadership of an official at least two levels below the Secretary of the Treasury Board & Comptroller General.

Deputy heads may well see this as a reduction in emphasis on the importance of comptrollership and financial management, which may cause them to downgrade this function within their organizations at precisely the time it should be strengthened.

1.85 If the Office of the Comptroller General must be integrated into the Treasury Board Secretariat, there must be a clear focal point for comptrollership within the Secretariat at a high enough level to make a difference, with enough clout to influence important decisions and with sufficient scope to attract and retain top-calibre comptrollership expertise at a very senior level. I also believe that the authority and responsibilities of the Comptroller General should be set out in legislation, as other jurisdictions have done.

1.86 In this age of downsizing and restructuring, with concerns about deficits and debts, strong comptrollership in the Government of Canada is not just something that would be nice to have, it is something that the government must have and that Canadians have a right to expect. In the final analysis it is results that count and I intend to review the activities of the Comptroller General to see whether results are achieved.

Integrating Public Service Reform with the Government's Broader Agenda

The Urgent Need to Revitalize the Renewal Process

1.87 Since I took office in 1991, I have stressed the importance, in this period of economic and fiscal difficulty, of management reform and renewal in the public service. The government introduced an initiative in late 1989 aimed at improving human resource management and streamlining government structures, processes and systems, to make the public service less costly, more productive, more innovative, and more service-oriented. My Office supported the principles and objectives of this initiative, Public Service 2000 (PS 2000), from the outset.

1.88 Administrative reform is not new. Considerable attention has been paid, during the last several decades, to achieving greater cost-effectiveness in the administration of public affairs. A host of inquiries - royal commissions, task forces and internal studies - have been carried out, along with numerous initiatives. What is troubling is that, as noted in my 1991 Report, it has been necessary to revisit some questions over and over again. In part, this has been due to inadequacies in managing change.

1.89 My Office's study of public service reform, reported in Chapter 6, "Canada's Public Service Reform, and Lessons Learned from Selected Jurisdictions", indicates that PS 2000 is in danger of falling short of its potential and that, once again, this is due in significant measure to deficiencies in managing transition.

1.90 In the summer of 1993, the government announced a "restructuring initiative" involving the reorganization and streamlining of government departments and agencies. Subsequently, a re-examination of government programs and services was to be carried out. It is important that this initiative - and indeed, other new initiatives - not undermine PS 2000. The two have objectives in common and need not be in conflict, but focussed effort and clear communications will be required to ensure that they are aligned and mutually reinforcing.

1.91 To ensure that this is the case, and that the problems PS 2000 has sought to address are overcome, there is an urgent need for the government to revitalize the renewal process.

Reconciling the Goals of Public Service Reform with Fiscal Realities

1.92 A second issue also needs to be dealt with. PS 2000 has been plagued by perceptions of inconsistency and lack of coherence between the aims of renewal and other actions and initiatives of the government. Our study suggests that this has been due, in part, to failure to adequately reconcile some of the goals of PS 2000 with the increasing pressures of fiscal restraint.

1.93 Today, persistent deficits and growing debt are among the most important policy issues for government. As mentioned, a review of the affordability of government programs and services was planned as part of the restructuring initiative.

1.94 In this context of fundamental re-examination and change, some of the specific measures that PS 2000 has proposed may no longer be appropriate, or possible to implement. The current government will need to take stock to determine which elements of PS 2000 will take priority. A strategic approach is required: one that will ensure that the government's public service reform and renewal objectives are fully compatible and integrated with its broad policy objectives and its vision of the future role of the public service.

1.95 Regardless of the changes that may be forthcoming, the public service will continue to play a crucial role in advising ministers, delivering government services to Canadians and making our country more competitive. Accordingly, it is imperative that the principles and values that shape the government's approach to managing the public service be compatible with maintaining the ongoing health of this vital institution, while realistically reflecting Canada's changing circumstances.

1.96 Reform and renewal of the public service must succeed. As our study of reform in Canada, Australia, New Zealand and the United Kingdom has shown, for this to occur, visible and ongoing political leadership and commitment are vital. Canada's public service is a valuable asset that must be safeguarded and managed wisely.

Public Accounts and Other Parliamentary Committees

1.97 One of the distinguishing characteristics of this Report is that it will be the first Auditor General's Report to be considered by Canada's 35th Parliament. I am hopeful that the Public Accounts Committee and other standing committees of the House in this new Parliament will bring the same vigor to considering the work of my Office that has been developing over the past two Parliaments.

1.98 A quick look at the number of Public Accounts Committee hearings over the nine years of the 33rd and 34th Parliaments combined shows an increase of about 45 percent in the average annual volume of public hearings between the two Parliaments. At the same time, interest in the annual Report by committees other than Public Accounts has been growing. In fiscal year 1984-85, the first year of the 33rd Parliament, the Office might have been called once or twice by other standing committees of the House. Last year, fiscal year 1992-93, the Office appeared eight times before no less than five standing committees of the House in addition to Public Accounts, as well as one Senate committee. This level of parliamentary interest in the work of the Office is vital to our effectiveness, not because of any enhancement to our public presence but because it often takes a committee hearing, and the consequent public attention to the matter, to get an appropriate level of priority attached to corrective action.

1.99 Revisions to the Standing Orders of the House of Commons since the mid-eighties have paved the way for House standing committees other than Public Accounts to take an interest in, and deal with, the work of this Office. Of equal importance, however, has been the initiative, self-discipline and sense of responsibility demonstrated by the Public Accounts Committee through the latter half of the last Parliament in dealing with the matters raised in my annual Report, in a comprehensive and non-partisan fashion. The Committee's 1992-93 activity level of 27 public and 18 in camera meetings places it among the most active of the House standing committees. I am optimistic that this drive, which serves all Canadians well, will not be lost in the transition to a new Parliament.

The Need to Set Priorities to Preserve the Essence of Our Institutions

1.100 Historically, Parliament has had the responsibility of voting expenditures each year. Much of this chapter has examined Parliament's role in the budget process, and has suggested ways of making its involvement more effective. A common thread in this chapter is the need to restore, and improve, Parliament's role in federal finances, particularly at the macro level. A second thread is the need to improve the quality of decisions. The last thread is the need to make operational the accountability of departments to Parliament, without falling into micro- management. Dealing with these issues is essential to ensuring responsible government and the continuation of Canada's values and institutions.

1.101 Clearly, these are challenging times in public administration, as governments struggle to balance citizens' expectations with reduced fiscal manoeuvrability. Every nation is confronted by the challenge of maintaining its traditions and institutions while responding to economic and social change. In times of fiscal restraint the balance can come under considerable tension, as individuals want the security of existing programs and services along with new initiatives to meet the challenges of the day.

1.102 The Government of Canada has a political commitment to preserving the well-being of its citizens, and an international commitment to humanitarian goals. Sound financial stewardship is essential for Canada to fulfil its commitments. National objectives must acknowledge fiscal realities, but it is essential that policy direct the allocation of resources, rather than the pattern of past expenditures effectively dictating policy. I believe we can preserve the essence of our institutions and values that have been built up over the years, if Canadians are willing to differentiate between what is essential and what is nice to have.

1.103 Canada is ranked among the world's best places to live. However, we must take good care of our country. I believe the Auditor General's role can have a positive influence. This Office is committed to making a difference for the Canadian people by promoting, in all our work for Parliament, answerable, honest and productive government. To the extent that we are successful, this will be our contribution to making sure that Canada continues to be the best place in the world in which to live.

1993 Report of the Auditor General of Canada

Chapter 1—Matters of Special Importance and Interest