ARCHIVED - Government Response to the First Report of the Standing Committee on Public Accounts

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Recommendation 1

That the Comptroller General, along with the Office of the Auditor General, review all 15 major foundations and decide which, if any, are controlled or which, if any, operate at arm's length. The Comptroller General should report back to the Committee with the results of the study no later than 1 September 2006. In the report, the Comptroller General should indicate to Parliament whether the Auditor General agrees with its classifications of foundations as controlled or arm's length.

The Treasury Board Secretariat has completed its analysis of the 15 major foundations and determined which of these meet the definition of control for financial reporting purposes as defined in the revised accounting standard. Of the 15 major foundations noted in the Report of the Standing Committee on Public Accounts, the following nine were reviewed in depth.

• Canada Foundation for Innovation
• Genome Canada
• Canada Health Infoway
• Canada Millennium Scholarship Foundation
• Pierre Elliott Trudeau Foundation
• Federation of Canadian Municipalities - Green Municipal Investment Fund and Green Municipal Enabling Fund
• Canada Foundation for Sustainable Development Technology
• Canadian Health Services Research Foundation
• Aboriginal Healing Foundation

For the remaining six, there was agreement between the Treasury Board Secretariat and the Office of the Auditor General that they did not meet the definition of control for financial reporting purposes and no further analysis was required.

As a result of this review and agreed to by the Office of the Auditor General, it was concluded that four foundations would be included in the Government's financial statements for the 31 March 2006 year end. These entities are: Canada Foundation for Innovation, Canada Millennium Scholarship Foundation, Aboriginal Healing Foundation, and Canada Foundation for Sustainable Development Technology.

As announced in Budget 2006, the assets, liabilities, revenues, and expenses of these organizations will be included in the Government's financial statements in the Public Accounts of Canada 2005-2006. The financial statements of prior periods will be restated to reflect this change in accounting policy. Restating to add back amounts previously recognized as expenses, less amounts disbursed by the foundations will result in an estimated cumulative $5.2-billion decrease in the federal debt as at 31 March 2005. The effect of the policy change was reflected in the estimated budgetary balances shown in the 2006 Budget.

Recommendation 2

That the government extend full accrual accounting to budgeting and appropriations and set a firm timeline for its completion.

Accrual accounting has been implemented in elements of the budgeting process. The 2003 Budget and all subsequent Budgets have been prepared on an accrual basis. As well, with the fiscal framework (the multi-year framework of financial resources for the implementation and operation of government programs) now on an accrual basis, the Government has for some few years operated on an accrual budgeting basis for the purposes of all policy initiatives and all decisions that require Cabinet-level approval.

Increasing the use of accrual accounting in budgeting and appropriations is a complex issue. While there does now seem to be general acceptance internationally of the advantages of accrual accounting for reporting purposes, there is no international consensus when it comes to using accrual accounting for budgeting and appropriation purposes. To obtain the information needed to determine whether, and if so, how the use of accrual accounting should be increased in budgeting and appropriations, the Treasury Board Secretariat engaged a consulting firm in the summer of 2005 to study the issue.

The Secretariat has received the consultant's report and it concludes that there are possible advantages to increasing the use of accrual accounting in budgeting and appropriations, but that such a change will require significant investments in training and financial systems as well as the development of new processes. The questions of whether and how to increase the use of accrual information require careful consideration.

The Secretariat is analyzing the information contained in the report and, in conjunction with the department of Finance and Privy Council Office, is developing models of appropriations and Estimates documents, along with integrated departmental and government-wide budgeting system and processes, that introduce accrual concepts where appropriate but still allow for the management and control of cash. The main objectives of the models are to ensure the President of the Treasury Board can continue to present budget estimates and appropriations to Parliament in a form that is comprehensible, full, valid and useful to parliamentarians, and to allow for improved management of government finances. The extent of changes to existing processes and systems included in the model ultimately selected will determine the timeline required for implementation.

The Treasury Board Secretariat will actively participate as requested by the Standing Committee on Government Operations and Estimates in the Committee's proposed study of this issue. The Third Report of the Committee recommends, "the Committee's Fall agenda be set aside to extensively study the implementation of accrual accounting with view to make a recommendation to the House of Commons prior to December 2006."