To ensure that organizations do not exceed appropriation ceilings imposed by Parliament or allotment limits approved by Treasury Board.
It is government policy that departments enter only into contracts or other arrangements for which sufficient unencumbered balances are available in the relevant appropriation, item in the Estimates or Treasury Board-approved allotment ceiling to discharge any debts incurred under such commitments.
This policy applies to all organizations that have received commitment or payment authority under sections 32 or 33 of the Financial Administration Act with respect to an appropriation.
When departmental policy dictates that commitments should be independently authorized, approval is required from the persons who have been delegated the responsibility to control commitments. These commitment approvals must be in a form that allows for an adequate audit trail back to the originator.
Departmental internal audit groups should include in their annual audit plan, the review of commitments in accordance with this policy.
Financial Administration Act, section 32
This chapter cancels chapter 3-5 of the "Financial Management" volume dated April 1, 1992; and this policy supersedes Chapter 6 (section 6.2.3, 6.3.2-6.3.2.4, 6.8), Chapter 7 (section 7.2.1.3), Chapter 8 (sections 8.4 related to Commitment control and 8.4.2) and Chapter 9 (section 9.2.1.1(2)) of the Treasury Board Guide on Financial Administration, consolidated revision, April 1991, and Treasury Board circular no. 1984-42 (no. 794737).
Enquiries about this policy should be directed to your departmental headquarters. For interpretation of this policy, departmental headquarters should contact:
Financial and Contract Management Sector
Comptroller General Branch
Treasury Board Secretariat
L'Esplanade Laurier
300 Laurier Avenue West
Ottawa, Ontario
K1A 0R5
Telephone: (613) 957-7233
Facsimile: (613) 952-9613
All departments should prepare periodic forecasts of financial requirements to the end of the current year. The forecasts should be based on year-to-date net charges to appropriation, together with outstanding current-year commitments and forecast expenditures to year's end.
Commitment authority limits are as follows:
The project to cancel the Guide on Financial Administration (GFA) has been approved. The purpose of cancelling the Guide is to create a single source of reference for all financial management policies.
This section of the Comptrollership Volume consists of parts of the old Guide on Financial Administration. At the earliest opportunity, these policies will be re-written in the new Treasury Board Secretariat (TBS) policy format.
A comparison of the actual volume of output in relation to planned output provides managers with probably their most significant variance information. In order to determine and report the effect of changes in the volume of output, units of measurement must be defined, identified, and reported on an accurate and consistent basis for each reporting period. If planned output is not realized and financial resource consumption does not vary on a comparable basis, managers are alerted to the fact that their plans for meeting public needs may not be achieved within their budgets. Thus, they must reconsider their plans or take alternative courses of action.
There are two factors that can cause changes in the quantity of input to operations. The first directly relates to changes in the quantity of output and should not cause concern. The second relates to variations resulting from changes in efficiency, with more or fewer resources being required for a given volume of output. In this situation, it is critical that management know the reason. It may be because of changes in the quality of resources (both human and materiel), in productive methods, or in supervision. If the variances are unfavourable, corrective action should be initiated. It is easier to determine what action should be taken if standards based on careful study have been developed.
In most situations, no single factor will account for the variances, and there will be a combination of influences that interact. However, through the process of analysis, the various components can be determined and exposed so that appropriate corrective action can be taken on each component.
Budgetary control systems on a responsibility centre basis should provide for the following:
Such systems can take a variety of forms, but all must embody the following features:
The reporting system should be designed to highlight variances so that the attention of a manager will be directed only to pertinent matters. This may take a number of forms:
Systems for reporting on variance analysis can be designed in a variety of ways:
Responsibility Centre ______________________ As at__________________
Activity Element | Period to date | Variance (Unfavourable) | ||||
Budget | Actual | Net | Volume | Efficiency | Price | |
Volume of Output | 1000 | 500 | 50% | |||
Resource Inputs per unit of Output | 2 | 3 | (50%) | |||
Cost per Resource Unit | $5 | 6 | (20%) | |||
Total Cost | $10,000 | $9,000 | $1,000 | $5,000 | ($2,500) | ($1,500) |
Unit Cost of Output | $10 | $18 | $8 | ($5) | ($3) |
Note:
On the basis of simple budget analysis, the manager saved $1,000. However, this is not the whole story. The manager's output was 500 units less than budget; the time (or other resource input) per unit of output increased by 50 per cent; and the cost per unit increased by 20 per cent. As a result, there are three situations that must be investigated to explain why unit costs increased by $8.00 or 80 per cent; volume saving $5,000, loss of efficiency ($2,500), and higher prices ($1,500), for a net variance of $1,000.