This policy takes effect on July 1, 2000 and replaces the version dated October 1, 1994.
This outlines the policy for net voting and revolving funds, two special revenue respending authorities from Parliament that allow departments to use certain of their revenues to finance their directly related expenditures. While both of these authorities reduce dependence on appropriations from general revenues, they differ significantly in purpose and in application.
Revolving funds are generally appropriate for large, distinct, self-sustaining activities that provide client-oriented services. Materiality is an important criterion when considering the establishment of a new revolving fund because of the significant costs associated with setting up and managing it. Revolving funds provide a multi-year focus for revenues and expenditures. While surpluses or deficits may occur from year-to-year, these are expected to balance out over a business cycle. Revolving funds are funded through non-lapsing appropriations, providing the flexibility needed to deal with changes in level and timing of receipts, expenditures, and net income and to manage substantial investments in inventory and capital. In light of the importance of non-cash transactions in these investments, a full accrual basis of accounting is used to prepare financial statements.
Net voted operations may or may not be self-sustaining and usually the scale of operations is less significant than is the case for revolving funds. Under this mechanism, there is normally a well-established core level of activity funded through appropriations. The net-voting authority is provided to fund fluctuating special demands from user groups which, while consistent with program objectives, would otherwise jeopardize the relatively stable "core" budget of the department. Net voting is not meant to enable unfettered growth. Any variances from the recoverable expenditures forecast in the Estimates must be reviewed with Treasury Board Secretariat.
Revolving fund and net voting authorities may be appropriate for activities having a stable mandate, identifiable client groups, and operations financed in whole or in part from user fees or from other sources of revenue internal or external to the government. Revenues and expenditures must be closely related. This means that if demands are unexpectedly high, higher service levels and expenditures will be financed through increased revenues. The reverse is also true: a decline in demand is expected to reduce expenditures and revenues. Accordingly, these two authorities should not be viewed as a means to secure spending rights or to supplement available resources that would not otherwise be forthcoming.
There are two fundamental differences between these mechanisms:
To provide flexibility to departments to meet volume level fluctuations and to conduct business effectively using the non-tax revenue received from the conduct of such operations to fund the activities.
It is government policy to provide special revenue spending authority when appropriate, through the establishment and periodic renewal of net-voting and revolving fund authority.
This policy applies to all organizations considered to be departments within the meaning of Section 2 of the Financial Administration Act.
1. Departments seeking a special revenue spending authority must ensure that:
2. Departments with a special revenue respending authority for net voting must establish policies and procedures to ensure that:
3. Departments seeking a special revenue spending authority for a revolving fund must:
4. Departments with a special revenue spending authority for a revolving fund must establish policies and procedures to ensure that:
5. Departments with a special revenue spending authority for a revolving fund must:
The Treasury Board Secretariat will establish a frozen allotment for the drawdown authority in excess of the approved ARLU forecast]
The legal basis of this policy is section 7 (c) and section 29.1 of the Financial Administration Act.
Inquiries concerning this policy should be directed to your departmental headquarters. For interpretation of this policy, departmental headquarters should contact:Financial Management and Accounting Policy Division
The information required in a submission to Treasury Board seeking approval to establish and use net voting will vary according to the nature of the operation. Generally, the following information will be submitted:
Treasury Board shall determine the extent to which revenue and expenses shall be equalized, i.e. the degree to which operations will be subsidized through appropriations. Treasury Board shall specify the maximum amount of revenue that may be spent.
Authority to operate net voting must be obtained from Parliament on an annual basis. This authority may be obtained by requesting Treasury Board approval to include additional wording within the appropriate vote of an Appropriation Act. The vote wording should reflect the following:
Vote No., Name of organization, Program expenditures and, pursuant to Section 29.1(2)(a) of the Financial Administration Act, authority to expend revenues received to offset related expenditures incurred in the fiscal year arising from the provision of services.
Rates should be set in accordance with TB policies on cost recovery and charging.
Treasury Board shall approve annually, as part of the annual reference level update, the rates or the basis for setting the rates to be charged in the next fiscal year.
The internal accounting system must be designed to meet the requirements and needs of managers, the Treasury Board, the Receiver General and Parliament.
Expenditure and revenue accounting for net voting must comply with Treasury Board policy on the classification of financial transactions including the annual amendment to the Chart of Accounts.
Amounts expended from the Consolidated Revenue Fund for operational expenditures shall be recorded as budgetary expenditures in the fiscal year in which they occur. Amounts received in respect of a net-voted service are credited to the appropriation in the year of receipt, to offset related expenditures for that year. The difference (net annual amount expended) shall be presented in the Public Accounts in a manner similar to expenditures of other lapsing appropriations. Year-end procedures in the Accounts of Canada shall be the same as for all other budgetary appropriations, except that accrued revenues are not credited to the vote until actually received.
The Expenditure Operations and Estimates Division of the Treasury Board Secretariat annually issues instructions as to how net voting shall be presented in the Estimates. Presentation in the Public Accounts shall comply with the directives issued by the Receiver General for Canada.
Authorizations to create or to use a new revolving fund, to amend the aims and limits of the fund's authority, to write-off accumulated deficits, or to terminate operations, may be obtained through an annual Appropriation Act. Authorizations may also be obtained under a special act or be incorporated in a departmental act. The authority to charge a fee to users is approved separately and should be approved prior to the request to establish a revolving fund.
The information required in a submission to Treasury Board seeking approval to establish and operate a revolving fund will vary according to the nature of the operation. In addition to the specific items set out in the policy requirements, the following general requirements are to be submitted:
Departments should be guided by the following criteria:
Authority to establish and operate a Revolving Fund must be obtained from Parliament. This authority may be obtained through a special Act of Parliament or by including a specific vote within an Appropriation Act. When authority to establish a Revolving Fund is provided through a special Act of Parliament, that portion of the Act dealing with the Revolving Fund should contain a provision to allow amendments to the Revolving Fund authority to be included in an Appropriation Act. In the situation whereby an authority is obtained through an Appropriation Act the vote wording should include, as a minimum, the following:
Vote no., Name of Revolving Fund, pursuant to Section 29.1(2)(b) of the Financial Administration Act, to authorize the Minister of (Ministry) to make expenditures out of the Consolidated Revenue Fund, in accordance with terms and conditions approved by the Treasury Board, for the purpose of (short description of the purpose of the Revolving Fund) including: authority for the Minister to spend for the purposes of the fund any revenues received in respect of those purposes; and, the aggregate of expenditures made for the purposes of the fund shall not at any time exceed by more than (the amount of statutory drawdown authority) the revenues received in respect of the purposes of the fund.
Submissions to Treasury Board requesting changes in financial authority shall justify, by appropriate statements, the need for the changed funding requirement. Generally, a quarterly statement of operations and of the change in the financial situation for the past two years and a projection for the next three years will provide the required information. The vote wording should be consistent with the following:
Vote No., Name of Revolving Fund, to increase from $ (previous drawdown authority) to $ (new drawdown authority) the amount by which the aggregate of expenditures made for the purposes of the (Name of Revolving Fund), established by Vote xx, Appropriation Act No. x, 20xx-xy, may exceed the revenues,
Vote No., Name of Revolving Fund, in accordance with Section 12 of the Revolving Funds Act R.S.C. c R-8, to increase from $ (previous drawdown authority) to $ (new drawdown authority) the aggregate of expenditures made for the purpose of the fund by which the revenues referred to may be exceeded.
Other changes to Revolving Fund authorities, such as changing the scope of operations or purposes of a Revolving Fund, may be accomplished in the same manner. The appropriate Program Sector of the Treasury Board Secretariat should be consulted concerning information on specific proposals in this area.
Vote No., Name of the Revolving Fund, to authorize the Minister to delete from the accounts of the (Name of Revolving Fund) an amount of up to $xxxx representing (short description of amount to be deleted or adjusted).
When the authority to operate a Revolving Fund has been obtained from Parliament pursuant to the Revolving Funds Act, an Appropriation Act or other legislation, authority to discontinue operations of the fund may be obtained through an Appropriation Act in the first two cases and a similar authority should be included in the separate legislation when the fund is established.
If a decision is made to discontinue operations, departments shall first seek the approval of the Treasury Board to do so. A submission to Treasury Board shall disclose:
The required vote wording to terminate a revolving fund should reflect the following:
Vote No., Name of Revolving Fund, to terminate the operations of the (Name of Revolving Fund) and to repeal (Name of Ministry) Vote No. xx, Appropriation Act No. x, fiscal year as at March 31, 20xx,
Vote No., Name of Revolving Fund, in accordance with Section 12 of the Revolving Funds Act, 1985 R.S. c. R-8, to repeal Section x of the said Act, as of March 31, 20xx.
Rates should be set in accordance with TB policies on cost recovery and charging.
Fees and rates submitted for approval to Treasury Board shall take into consideration the accumulated deficit or surplus at the beginning of the fiscal year as well as the estimated surplus or deficit for the entire fiscal year. In certain cases, the estimated surpluses or deficits for a longer period will be considered. In situations where the setting of specific fees and rates is not practical, the revolving fund will propose for Treasury Board approval, the method by which costs will be recovered.
If a revolving fund expects to incur deficits that might prevent it from continuing operations within the dollar amount of its non-lapsing authorization, then either an increase in the dollar amount of the non-lapsing authorization would be required, or the deletion of all or part of the fund's accumulated deficit would need to be sought through Main or Supplementary Estimates. Such an action would require the identification of a source of funds.
If authority is granted to delete all or part of the accumulated deficit of the revolving fund, there shall be a corresponding reduction in the Accumulated Net Charge Against the Fund's Authority (the offsetting entry to the deletion is a debit to this account). Any submission to delete a deficit in the accounts of the fund should include the amount to be deleted and the reason for the deletion. Any additional funding required as a result of write-off of a deficit would also require the identification of a source of funds.
Treasury Board may direct that any operating or contributed surpluses that are not expected to be offset by future deficits be deleted from the accounts of the fund. Such deletion of a surplus would increase the Accumulated Net Charge Against the Fund's Authority (the offsetting entry to the deletion is a credit to this account) and thereby reduce the extent to which the revolving fund would be able to make new expenditures.
Any major change in the forecast operating surplus or deficit during the fiscal year should be reported to the appropriate program Sector of the Treasury Board Secretariat, as early as possible.
As a minimum, the accounting system must provide for:
The display and disclosure of assets and liabilities in financial statements, as well as the methods used to calculate the depreciation, shall conform to Generally Accepted Accounting Principles as modified by Treasury Board Accounting Policies and shall be consistent from year to year.
Departments and agencies shall account for the fund's operations separately, determine the cost of each product or service and establish a system of accounting and management that provides the information required by Treasury Board and Parliament so that the statements of operations and the financial situation accurately reflect the use made of the approved authority.
The internal accounts of the revolving fund shall include any surplus or deficit arising from the operation of the fund. Accumulated deficits shall remain in the accounts of the fund until disposition is approved by Treasury Board and by Parliament through an Appropriation Act.
Amounts expended from the Consolidated Revenue Fund for working capital, capital expenditures and temporary financing of deficits shall be recorded in a manner prescribed by the Receiver General for Canada and Government of Canada Accounting Policy. Amounts received shall be recorded as recoveries of budgetary expenditures and credited to the continuing authorization in the fiscal year in which they are received. The difference (net annual amount expended or received) will be reported as net use of the non-lapsing authorization in the Accounts of Canada on an annual basis. Year-end procedures in the Accounts of Canada shall be the same as for all other budgetary appropriations.
The Expenditure Operations and Estimates Division of the Treasury Board Secretariat annually issues instructions as to how revolving funds shall be presented in the Estimates. Accounting for revolving funds, presentation and disclosure in the Public Accounts shall comply with the directives issued by the Receiver General for Canada. Funds shall comply with all requirements concerning the display of authorities, programs, activities, standard objects of expenditure, the disclosure of full time equivalents and of capital expenditures.
Net voting is an alternative means of funding selected programs or activities wherein Parliament authorizes a department to apply revenues towards costs incurred and votes the net financial requirements (estimated total expenditures minus estimated revenues). Although Parliament votes only net cash requirements in a net-voting situation, total expenditures and estimated revenues are still disclosed to Parliament. Specific items of expenditures for which net voting will apply and limits on revenue respending will be approved by Treasury Board. It should be noted that net voting privileges are not extended to revenues generated by rights and privileges.
All resource allocation decisions must focus on an activity's net dependence on appropriations. Net voting explicitly links the revenue and expenditure sides of the ledgers in such a way that program managers must manage not only their expenditure budget but also the related revenues. With net voting, they cannot spend the monies they do not receive; thus it encourages management to take a more business-like approach.
Net voting formalizes the degree of self-sufficiency that program managers are expected to plan for and carry out and for which they will be held accountable to Parliament. Any residual dependence on appropriations is clearly set out and managers are held to it.
Net voting may, therefore, be appropriate when all or part of the cost of a program is to be financed from user fees or other source of revenue whether internal or external to the government.
Net voting permits the provision of services to fluctuate with demand. From a financial control perspective, the implication is that the level of service and the associated program expenditures will be expected to adjust to demand (and hence to revenues) so that the degree of self-sufficiency is preserved. It is recognized, however, that because of lags and inevitable delays, some bridge financing may be appropriate in some circumstances.
A revolving fund is a continuing or non-lapsing authorization by Parliament to make payments out of the Consolidated Revenue Fund for working capital, capital acquisitions and temporary financing of accumulated operating deficits. It is an authorization to draw on the Consolidated Revenue Fund, not a segregation of cash. A revolving fund is a means by which Parliament provides continuing authorization for an operation that is funded completely by users, or partly by users and partly by subsidization.
The purpose of a revolving fund is to be fully identified in the fund's charter document. Treasury Board establishes the minimum necessary requirements it deems appropriate for the orderly operation of the fund at the time of its approval and during susequent reviews.
Within the accounts of a revolving fund, departments maintain an account entitled "Accumulated Net Charge Against the Fund's Authority". This is a control account used to record the amount of its non-lapsing authority that the fund has used. At no time may the balance in this account exceed the amount of the non-lapsing authorization by Parliament for the fund. The account is used to record:
A separate account is to be used to record accumulated operating deficits or surpluses to the extent that authorization has not been obtained to delete them. Accumulated operating deficits will be charged to the Accumulated Net Charge Against the Fund's Authority account only after Treasury Board approval and parliamentary authority have been obtained to delete them.
Accumulated operating surpluses are to be credited to the Accumulated Net Charge Against the Fund's Authority account only after Treasury Board approval to delete them has been obtained. (It is not necessary to obtain parliamentary authority to delete accumulated surpluses because no increase in spending authority is created by such deletions.)