PACP Committee Report

The Expenditure Management Information System (EMIS) is a new system by which the Treasury Board Secretariat will gather information from departments in order to bring together the various pieces of financial information that go into the Estimates documents.  The EMIS is actually a collection of systems, applications, databases and government-wide business processes that support the Secretariat in fulfilling its expenditure management role.  The outputs of the EMIS will include the Main and Supplementary Estimates.

The EMIS will function using the information provided to the Treasury Board Secretariat under the Management, Resources, and Results Structure (MRRS) policy which came into force in 2005.  Under this policy, each department is required to align both financial and non-financial resources to the various outcomes that they have identified for their department.  The MRRS policy is intended to provide departments, central agencies and parliamentarians with the framework needed to support results-based management practices across the federal government, demonstrate value for money, and provide key stakeholders with the information necessary to support decision-making.  The Treasury Board Secretariat’s goal is to have the EMIS be the common information database in which all information gathered under the MRRS policy will reside.  In addition, the new EMIS will be used as an information base for decision-making. 

The new EMIS will replace the seven existing legacy systems that are now outdated.  The original projected cost of the EMIS was $16 million: the cost currently stands at $53 million.  The increase in cost was due to TBS modifying the system to gather both financial and non-financial information and to link this to results. ^[8]

According to David Moloney of the Treasury Board Secretariat, the seven existing legacy systems are scheduled to be replaced by the new integrated system that will be in operation and fully tested by November 2007. ^[9]   The Secretariat still plans to maintain the legacy systems on a parallel basis for the balance of the next estimates year.  However, Mr. Moloney stated that the status of the legacy systems is precarious and the new EMIS will be used to produce the 2008-2009 Main Estimates documents. 

The Committee was pleased to hear that when the Treasury Board Secretariat puts the EMIS in place over a couple of years, the Secretariat will finally be able to align spending with performance information using the data that comes in under the MRRS policy. 

The Committee strongly believes that an Expenditure Management System can only be effective if it is uses the necessary information to base funding decisions.  However, given the problems in the implementation of the new EMIS, the Committee is concerned that the Treasury Board Secretariat will not be in a position to support a renewed Expenditure Management System.  To ensure that the Secretariat makes every effort possible to successfully implement the EMIS, the Committee recommends that

RECOMMENDATION 8

The Treasury Board Secretariat provide the Public Accounts Committee with an update on the implementation of the Expenditure Management Information System by 30 June 2008.

The Treasury Board may attach conditions to the approval of a funding submission.  One sort of condition that the Treasury Board can use is a special purpose allotment that restricts the use of a portion of funds to a specific purpose.  However, the Treasury Board Secretariat does not review the use of special purpose allotments to provide assurance to the Treasury Board that departments and agencies are using the funds for the specified purpose.  The Secretariat believes that departments are responsible for ensuring that the special purpose allotments are only used for their specified purpose.  At the end of the year, departments provide the Treasury Board with expenditure information that shows how they used the special purpose allotments which is published annually in the Public Accounts of Canada.

In some cases, funding is approved with non-financial conditions attached.  For example, departments may have to fulfill evaluation requirements or complete staff accommodation studies before they can access all of the funds being requested in the Treasury Board submission.  The Treasury Board can control how departments access funds by creating “frozen allotments” that limit the full spending authority provided by Parliament in a particular vote.  Frozen allotments can be set up pending a department’s fulfillment of outstanding conditions set by Treasury Board.  The Treasury Board Secretariat is responsible for ensuring that those conditions are met before they recommend that frozen allotments be released to the department or agency.  However, the Auditor General found that the Secretariat has a limited capacity to monitor departments’ compliance with the conditions they place on spending.

The Committee notes that the Auditor General found that departments have adequate procedures in place that allow them to comply with and track the compliance of Treasury Board conditions.  It is surprising, then, that the Treasury Board Secretariat itself does not have the capacity to track compliance.  The Committee believes that the Secretariat should follow the non-financial conditions it places on departments.  By doing so, the Secretariat would be in a better position to strengthen the Expenditure Management System.  The Management Accountability Framework affords an excellent opportunity to monitor departmental compliance with Treasury Board conditions, since it is an annual exercise that allows the Treasury Board Secretariat to assess departmental performance in key management areas.  Therefore, the Committee recommends that

RECOMMENDATION 9

The Treasury Board Secretariat ensure that it has the capacity to monitor departments’ use of special purpose allotments and compliance with non-financial conditions and improve this capacity if necessary; and

The Treasury Board Secretariat monitor departments’ use of special purpose allotments and compliance with non-financial conditions using the Management Accountability Framework beginning with the next round of assessments.

During the fiscal year, there is inevitably a need for public funds that were not anticipated when the Main Estimates were put together in the fall of the previous year.  The government seeks authority for these unanticipated funds through Supplementary Estimates, which are also used to transfer funds between votes and to write off debts or adjust loan guarantees.  Supplementary Estimates are usually tabled twice a year, in the late fall and in March, though they can be tabled more often if necessary. 

The traditional purpose of the Supplementary Estimates is to finance unanticipated spending by the government.  However, as the Auditor General has noted, these Estimates have now become a vehicle for new spending announced in Budgets.  The deadline for inclusion of items in the Main Estimates is usually months in advance of the Budget. 

In recent years, a rising proportion of spending has appeared in Supplementary Estimates, rather than Main Estimates.  This means that the Main Estimates show a less than complete picture of planned spending for the coming year.  The Auditor General noted that during the fiscal years from 1997-1998 to 2004-2005, the Supplementary Estimates appropriations averaged 10.5 percent of the total appropriations, up from an average 4.5 percent in the previous eight years.  Wayne Wouters confirmed for the Committee that the reason for the large increase in the percentage of appropriations from the Supplementary Estimates was because the government went from being in a deficit to a surplus position.  Mr. Wouters stated that though it is the desire of the Treasury Board Secretariat to have as much planned spending listed in the Main Estimates as possible as opposed to using Supplementary Estimates, it is inevitably up to the government to decide what to do with extra funds when in a surplus situation.  As he said:

If [the government] decides that instead of reducing the debt or reducing taxes they are going to spend, than that spending will need to be reflected through supply in Parliament.  What [the increase in Supplementary Estimates shows] is the overall growth in spending year over year, which has largely been announced in the Budget and therefore not reflected in the Main Estimates.^[10]

The time lag between Treasury Board authority to spend and Parliamentary approval to spend can cause major problems for departments.  The Auditor General found that after Treasury Board approval, departments often begin spending money on a program or activity before the funding has received parliamentary approval because several months can elapse between the initial approval of funds requested in a Treasury Board submission and the subsequent approval by Parliament.  As the Auditor General noted, this time delay leaves departments with two choices: they can wait for parliamentary approval before they spend money on a program, or they can start spending if they think they can manage the risk that parliamentary approval may not come.  The latter approach, called “cash managing”, can be a risky activity as departments could face a supply problem should Parliament reduce or negative a vote.  In addition, spending funds before they receive parliamentary approval undermines parliamentary control because money is spent before Parliament has examined and approved the spending.^[11] 

The Committee accepts the Auditor General’s statement that this cash managing generally occurs for existing programs where there already is authority to spend.  However, it is extremely concerned that departments believe that they can override parliamentary authority when they see fit by cash managing funds before approval is given to access and spend these funds.  The Committee wants to reaffirm the importance of the Parliamentary control framework of spending by stressing the need for parliamentary approval before spending funds requested in the Supplementary Estimates.

In discussing the practice of departments spending prior to parliamentary approval, David Moloney of the Treasury Board Secretariat stated that the Secretariat has no way to judge how many departments cash manage for an existing program before the funding is approved by Parliament.  As he stated, the Secretariat has no information on the daily, weekly or monthly use of spending authorities and therefore cannot gauge whether departments are spending money before approval has been given by Parliament.

The Committee was shocked to learn that the Treasury Board Secretariat has no means to gauge whether or not a department internally cash manages to cover the needs of a program before it receives approval of their Supplementary Estimates by Parliament.  The Committee believes that a rigorous Expenditure Management System should be able to track this sort of practice.  As such, the Committee recommends that

RECOMMENDATION 10

The Treasury Board Secretariat use the Management Accountability Framework to determine the amount of cash management that happens in departments and report the results of this tracking publicly beginning with the next round of assessments.

Spending authority often lapses at the end of each fiscal year for almost all departments and agencies.  To encourage good management practices, departments are allowed to carry forward unused funds of up to five percent of their operating and capital budgets into the next fiscal year.  These operating budget carry-forward amounts need Parliament’s approval annually.  Carry forward funds are accessed through the Supplementary Estimates. 

In a recent report, the Committee recommended that “departmental carry forwards be presented to the House of Commons in a separate Supplementary Estimate and be subject to a separate vote.” ^[12]  This recommendation was in part based on the Auditor General’s statement that so doing would provide more clarity to what is being voted on in the Supplementary Estimates.  The government responded that the carry forward has been separately identified in the Supplementary Estimates for some time: since the 2004-2005 Supplementary Estimates, all departmental operating budget carry forwards have been separately profiled at the beginning of these Estimates in the summary of horizontal initiatives.  For these reasons, the government stated that it “does not believe at this time that a separate Supplementary Estimates subject to separate votes are necessary in order to highlight the use of operational budget carry forwards.” ^[13]

Although the government is unwilling to create a separate Estimates document for operating budget carry-forwards, it is creating a new vote.  The 2007-2008 Supplementary Estimates (A) state that in May 2007 the Treasury Board approved the creation of a departmental Operating Budget Carry Forward Vote.  When these Supplementary Estimates are approved by Parliament, the new vote will “provide the authority to consolidate these routine departmental transactions into one Vote, thereby reducing the number of line items in the Supplementary Estimates.”^[14]  With this change, instead of having to wait until the Supplementary Estimates are approved, departments will be able to request and receive their operating budget carry-forwards as soon as they are approved by the Treasury Board.

Though the Committee is pleased that the Treasury Board Secretariat still provides a detailed list of departmental operating budget carry-forwards in a separate Treasury Board central vote in the Supplementary Estimates, it is concerned that this information is being lost in the Supplementary Estimates.  Showing the carry-forward only as a Treasury Board central vote will make the Supplementary Estimates a less transparent document.  In light of this move away from transparency and clarity, the Committee again recommends that

RECOMMENDATION 11

The Treasury Board Secretariat present departmental operating budget carry- forwards to the House of Commons in a separate Supplementary Estimate and thus have these carry-forwards be subject to a separate vote

The Committee believes that some of their concerns with the Supplementary Estimates could be assuaged by a better description of why a certain item is being included in the Supplementary Estimates instead of the Main Estimates.  So doing would allow parliamentarians to better understand the need for Supplementary Estimates.   For this reason, the Committee recommends that

RECOMMENDATION 12

The Treasury Board Secretariat improve the transparency and clarity of Supplementary Estimates documents by including an explanation of why the items a department is seeking approval for need to be funded through the Supplementary Estimates rather than the Main Estimates.

Because the Expenditure Management System is at the heart of the operation of government, the Committee was appalled to discover that the current System does not assess new program funding against ongoing program funding, nor does it have any real capacity to evaluate programs for their effectiveness.  Despite years of management improvements and policy initiatives that have attempted to align program spending with reviews of a program’s effectiveness and value-for-money, the central agencies still do not have the capacity provide the oversight necessary to assist government with the allocation of funds.

The Committee is growing weary of the numerous commitments to align resources to results.  Although the government has recently pledged to improve the effectiveness of the Expenditure Management System in both the 2006 and 2007 Budgets, the Committee remains sceptical that real change will occur.  The Committee believes that good management begins with good financial information.  As the examination of the Auditor General of Canada’s chapters on the Expenditure Management System shows, there can be little confidence in the financial information that informs government spending decisions.  In order to establish an effective Expenditure Management System that will equip parliamentarians with the information they need to make the best spending decisions possible for Canadians, the Committee recommends that

RECOMMENDATION 13

The Government appoint a Blue Ribbon Panel to examine the financial information systems that generate management information with the goal of improving the spending decisions of the Government.