Report of the Standing Committee on Public Accounts on Study Tour to the Canadian Office of the Auditor-General and the Standing Committee on Public Accounts, dated 8 June 2005:
INDEX Introduction
Objectives of the Committee Study Tour
Composition of Delegation
Background
Significance to the aims and objectives of the Committee
How does the study tour fit in with the oversight role of the Committee?
Overview of the Office of the Auditor-General (OAG)
a. The Role and Mandate of the Office of the Auditor-General and Overview of the Machinery of the Canadian Government
b. Relations with Parliament
c. Forensic Auditing
d. Accrual Accounting and provincial progress
Financial management and the need for a capability model
Treasury Board Secretariat
Governance of Crown Corporations
Comptrollership and Oversight (Financial Management and Control)
Accrual Accounting in the Federal Government
Canadian House of Commons Standing Committee on Public Accounts
Conclusion
Acknowledgements
Bibliography and list of publications obtained
Introduction
Objectives of the Committee Study Tour:
To study the role, mandate, and organizational structure of the Office of the Auditor-General of Canada. To study its forensic audit practices and the OAG’s relations with Parliament and the Executive arm of government. Performance audits or value for money audits as a focus area were also studied.
The Delegation also reviewed the operational aspects of the Canadian House of Commons Standing Committee on Public Accounts and the Treasury Board.
The financial management, anti corruption and fraud units, accountability of government departments and crown corporations and accrual accounting was very informative.
Composition of Delegation
Mr F Beukman, MP, Chairperson: Standing Committee on Public Accounts
Mr Ronald Mofokeng, MP, Whip: Standing Committee on Public Accounts
Ms L Mabe, MP, Group Convener: Standing Committee on Public Accounts
Mr E Trent, MP, Member: Standing Committee on Public Accounts
Mr G Dixon, Secretariat: Standing Committee on Public Accounts
Mr C Botes, Senior Manager: Office of the Auditor-General
The South African Office of the Auditor-General paid for Mr Botes’ travel and accommodation.
Background:
The Office of International Relations of the Auditor-General of Canada organized and presented the programme in Canada.
The Office of the Auditor-General of Canada and Treasury Board are international benchmark institutions with regard to the implementation of new innovation and accounting practice. The South African Treasury is also utilizing some of the comparative tools with regard to financial planning and operating models.
The Auditor General also implemented a capability model based on the Canadian model. (Ref AG Report)
With the implementation of accrual accounting and a financial management capability model (FMCM) in the South African macro-environment it has become imperative from a oversight perspective that the main financial oversight committee SCOPA becomes conversant with the two- mentioned methodologies.
The study visit to Canada focused mainly on two areas:
The migration to Accrual Accounting and the
Financial Management Capability Model (FMCM).
Significance to the aims and objectives of the Committee:
Generally Recognised Accounting Practice (GRAP) will ultimately require financial statements to be prepared on the accrual basis of accounting. Canada adopted a modified cash and modified accrual basis to ease in the migration to full accrual accounting. South Africa should adopt a modified cash basis as a transitional measure. Initially, the financial statements usually consist of a set of financial statements plus supplementary disclosures where accruals and provisions have not been accounted for in the financial statements.
It has been four years since South Africa has embarked on its project to migrate to accrual accounting. It is envisaged that it will take many years before all departments and public entities will apply full accrual accounting in the preparation of their financial statements.
A new oversight model for the Committee:
The Canadian model will be beneficial to improve oversight and accountability and and put it into the right perspective.
The Financial Management Capability Model (maturity levels) is based on the Canadian model as well as National Treasury’s Normative Measures. Departments and public entities (are evaluated on maturity levels from 1 to 6) will in future be evaluated in terms of the model.
It would also be of value to observe the methodology and to study the practical implementation of the capability model and the lessons from an accountability perspective.
2. Overview of the Office of the Auditor-General (OAG)
Mr Ronald Thompson Assistant Auditor-General, a Chartered Accountant in the Office of the Auditor-General of Canada and Ms Antonine Campbell Principle, International Relations of the Office of the Auditor-General met the Delegation.
The OAG relationships
The Auditor-General audits the federal government and reports to Parliament being comprised of the House of Commons and the Senate. Its role is to audit all areas of the federal government and to provide appropriate audit information on its financial statements and performance for use by the House of Commons in its scrutiny of government programmes. Its main goal is to provide relevant information to hold government to account.
The position of AG is posted in the Canada Gazette and major Canadian newspapers. An Advisory Committee composed of senior government members and members from outside organizations make recommendations to the President of the Treasury Board. The President in tern makes recommendations to the Prime Minister. The final appointment is made by Order in Council on the recommendation of the Prime Minister.
The Auditor-General’s mandate stems from a number of legislative Acts. Primary amongst these is the Auditor-General Act of 1977 that details the duties of the AG and Commissioner. The Act applies to Federal Departments and Agencies.
The Financial Administration Act details its mandate with regard to the Public Accounts of Canada and Crown Corporations. Crown Corporations like the Post Office are entities that make a profit and are obliged to supply financial statements for scrutiny by the Auditor-General.
Various Territorial acts and Entity specific Acts give the Auditor-General powers of access to public account information. These Acts may name the AG as auditor or private companies as auditor.
Safeguards for the independence of the Office of the Auditor-General:
The AG has the same safeguards as Judges. The salary of the AG is equivalent to that of a Queen’s Judge. There is no link between the AG and the Executive.
The AG is appointed for ten years and the removal of the AG is subject to approval by both the Senate and House of Commons.
The AG has the ability to choose what, when and how to audit
The AG has the right to ask the government for any information required to do the job however access to information does not always amount to disclosure of information
The AG has freedom to recruit her own staff
The AG submits reports directly to the House of Commons through the Speaker
Limited access to working papers
The OAG’s funding
OAG budget and Staff
The OAG budget is determined through the Blue Ribbon Panel consisting of:
3 experts (e.g. former AG or professional accountants: Senior partners)
1 appointment by the Speaker
1 appointment by the Senate
1 Treasury Board official
The panel recommends the appropriate funding level to Treasury. The Treasury Board considers approval of it.
The budget for the Office of the Auditor-General is roughly $75 Million:
Four offices in Ottawa, Edmonton, Vancouver and Halifax
It has approximately 600 employees
$65 million paid for professional salaries
The Staff of the OAG is highly qualified and multidisciplinary. It has accountants, engineers, lawyers, management specialists, economists, historians and sociologists on staff.
Professional staff has post-graduate or bachelors degrees and professional designations. Many have additional credentials.
Staff is appointed by the AG but the Public Service Commission checks the appointments
The breakdown of the OAG’s expenditure is as follows:
Regularity audits $27 million
Value for Money audits $40 million
Special examinations $05 million
Total $72 million
The Work of the Office
The OAG has six product lines:
Attest audit of financial statements – Government of Canada (Public Accounts)
Attest audits of financial statements – Crown Corporations
Performance Audits of departments and agencies.
Special examinations – Crowns
Environment and sustainable development monitoring activities
Assessment of performance reports
Performance Audits or Value for Money audits
The methodology for performance or value for money audits is available from around the world but in order to produce the value for money audits the OAG had to extensively retrain its staff and contract in additional staff knowledgeable in specific areas. The value for money audits require more than accountants and many of the OAG staff have additional credentials in specialized fields such as engineering, sociology, actuary, etc.
The AG does a "one-pass planning" exercise on entities to determine which entities to select for value for money audits. The planning consists of identifying high-risk areas within an entity. The areas are discussed and agreed on with the entity. The AG will then audit the department for the next five years according to the risk audit done. Audit observations pick up issues such as controls that should be in place but are not. From these it is easy to pick up other issues during the audit.
The importance of the value for money audits to the Canadian Parliament is evident in that the Public Accounts Committee focuses approximately 90% of its time on this area interest. This has resulted in a number of changes made to the level of transparency of departments and Crown corporations.
Previously the value for money audits in Crown Corporations resulted in the audit opinion tabled to the Board of Directors and only under exceptional circumstances did the public gain insight into this information. This has since been changed and is now done every five years for Crown Corporations with the report tabled to the House of Commons and made public on the Crown Corporation’s website. Crown Corporations are obligated to do the five-year audit whereas Departments and Agencies have a choice.
What are the objectives of performance reporting?
The Food Inspection Agency examined by the Office of the Auditor General did not receive any clean reports for a number of years. The Food Inspection Agency (FIA) looked after a number of portfolios such as the prevention of diseases, preservation of forests, and certification of flowers for export. The FIA is instrumental in encouraging exports and creates approximately 2 million jobs.
The Department of Agriculture funds the FIA and the FIA reports directly to the Ministry. Specific legislation exists for each department that the FIA has in its portfolio.
But what is performance and how to audit it? The OAG can inspect 45 000 cows but to what objective? In the AG’s press release statement on 23 November 2004 she highlighted that the "[e]stimates process is fundamental to an effective accountability relationship between Parliament and the government. It provides parliamentarians with the opportunity to review and challenge the government’s spending plans and to hold it to account for its performance against its plans"
A department needs to have objectives and guidelines to make estimates. The Treasury Board provides objectives for estimates of Departments. The FIA had a qualified report because it did not have defined objectives or set goals and subjects for performance reports.
Within the FIA the fisheries, agriculture and health was severely uncoordinated and fell over each other trying to achieve the same purpose. The Treasury Board, in setting the estimates, coordinates inter-departmental relations and effective management. The Office of the Auditor-General avoids expressing views on policy issues but can express an opinion on the performance of the solution. The review would then highlight management problems, lack of cooperation and an uncoordinated strategy.
Selecting Areas to Audit
The OAG is not sufficiently resourced to do Audits on every Department; it has to carefully select Departments for auditing through determining:
Materiality
Risk
Last Audit
Size and Complexity of Department
Requests
Key Priorities of Office and Mandate
Auditability
Frequency of Reporting
The OAG issues four reports a year. These reports contain approximately 10 Chapters.
The Auditor-General issues one Chapter on follow-ups. It follows up on departments every two years and reviews whether the implementation of recommendations was made. Three Chapters on the Commonwealth of the Environment and one Chapter on the Office of the Auditor-General are also tabled.
The Auditor-General Reports in:
February
April
November/December
The Commissioners Report is tabled in September
The OAG reports to the House of Commons and there is an automatic referral to SCOPA but this does not preclude the portfolio committees from having a hearing on it. The exception is the Commissions on Environment package sent to the Committee on Environment.
Key Information Sources
Part III – reports on Plans and Priorities
Performance Report
Audit Manuals
Value for Money (VFM)
Attest Audit
Special Examinations
Public involvement and the use of the media
The tabling of the November 2004 report was presented in a media lock-up question and answer session that highlighted the salient findings of the AG. It was met with much media hype.
The OAG courts the public through extensive use of the media to promote its reports. Its strategy is to create an expectation around its findings that not only focus the public’s attention on what is happening in government but focuses Parliament’s attention on the significance of what the OAG is reporting on and on what the public finds interesting.
Barring any other newsworthy events of the day, the hype created brings special attention to what the OAG is trying to achieve in her term of office. The media is effectively used to create significant public attention on issues contained in the reports. The development of its media success has been developed and improved on through the years. The OAG tracks its success through a well-developedKey Word Search that indicates their success in reaching their target audience consisting of parliamentarians, media and the public.
The November 2004 report
The OAG commented that three things are required to improve good governance:
An AG that is prepared to report the things that need reporting
A SCOPA that is prepared to give those things attention
A Department that is prepared to fix the problems
The November 2004 report brought these three issues to Parliament’s attention:
"The need to clarify the accountabilities of ministers and senior public servants,
The need for greater public scrutiny of government spending and,
The need for parliamentarians to follow the governments ambitious efforts to transform and strengthen public sector management."
Ministers are directly accountable to Parliament but Deputy Ministers and public servants account to the Minister and not to Parliament. The AG avers that greater accountability is required and that the system that was based on the Westminster style of government is not applicable to the changed environment of today.
Senior public servants attend committee hearings and they are asked to defend policy decisions taken by their Ministers. Ministers do not always attend committee hearings and she calls for greater clarification of the roles and responsibilities of senior public servants. She recommends that committees develop formal guidance that would set parameters for the questions that may be asked of senior public servants. She reports that the government has noted that this area needs defining and has undertaken a review to determine whether the doctrine of ministerial accountability is fully understood and whether it needs to be adjusted.
The internal audit function was assessed by the AG and out of the six federal organizations:
Two organizations met the International Standards for the Professional Practice of InternalAuditing. Three departments partially met the standards and one agency did not meet many of the standards
The AG recommended that the Office of the Comptroller-General, re-established on 1 June 2004, note the importance of informing senior management of understanding the importance that the internal audit plays. The AG reports that although the government has allocated more money for the strengthening of the internal audit, many of the same problems of a decade ago are reappearing. Senior management is still not assigning a high priority to this function within their departments.
The AG’s focus areas
The AG personalizes her term of office by focusing on specific objectives. The present AG has seven areas of concern for her term of office:
Accountability to Parliament
An effective Public Service
Aboriginal Issues
Well being of Canadians
Security
Health, safety, environment
Legacy and Heritage
The AG reported on Indian and Northern Affairs Canada – Education Program and Post–Secondary Student Support in chapter 5 of her November 2004 report. She reported that although the Education Department made a commitment as early as 2000 to close the education gap between First Nations education achievements and the rest of Canada she states that, "the Department has still not clarified its role and responsibilities in improving the educational achievements of First Nations."
She then contextualized the problem by estimating that it could take as much as 28 years to close the gap if things remain unchanged. This raised a number of questions during Question time in the House of Commons and during the SCOPA interaction with the AG; this issue was highlighted as major concern that needed addressing. Forensic Auditing
The OAG established the Forensic Auditing team in 1990 and currently it has five forensic accountants. It provides a service to the auditing teams by handling the criminal investigations. Its findings do not appear as a chapter but is included as audit observations in the AG reports and management letters.
The authority and mandate to perform forensic audits stem from:
Section 5 of the Auditor-General Act of 1977 that gives the AG authority to do examinations and inquiries
Section 7 (2) (c) of the Auditor-General Act of 1977 also authorizes the AG to investigate where money is spent other than appropriated
Section 10 of the Auditor-General Act of 1977 investigating "improperly retained money"
The Canadian Institute of Chartered Accountants (CICA) handbook
Treasury Board Policy and Procedures
Sections 76 and 82 of the Financial Administration Act
Sections 121, 122 and 126 of the Canadian Criminal Code
The OAG also receives disclosures from the public, general business, corporations, public servants and parliamentarians. The OAG decides which complaints to handle or refer to relevant authorities such as the audit committee or Accounting Officer. The OAG weighs credible investigations very carefully before accepting the assignment.
The Provincial and Territorial auditors are not equipped to do forensic auditing whereas the OAG forensic auditors receive training in wrongdoing and fraud methodology. The OAG has developed indicators of fraud, guidelines and checklists to assist its work. The OAG maintains risk assessment databases of Departments that assists in the assessment.
Not many issues are referred to the Police for investigation, only when the issues are overwhelming and the evidence is compelling enough is it referred.
Constraints to Forensic Auditing
Cannot audit non-governmental agencies
3rd parties and non –governmental entities not required to provide assistance or answer questions to the Office of the Auditor-General
No search and seizure powers
Cannot follow the money at recipients
The OAG does not encourage the public to disclose information but still receive approximately 50 disclosures annually.
Accrual Accounting and the Financial Statements The cash basis of accounting is the present method of accounting used by the South African government and various other countries but it is not the most effective method available for recording transactions and associated liabilities. Most governments around the world are now moving towards the accrual basis of accounting and The Canadian Institute of Chartered Accountants (CICA) and other international standard setting bodies recommend it.
What makes accrual accounting a more desirable system is its ability to record assets and liabilities incurred in previous periods. The accrual basis of accounting records all transactions when they occur and not when they are paid for as in the cash basis of accounting.
An example:
Your computer installation business finishes a job on 30 November 2004, and is not paid until 10 January 2005. Under the cash method, you would record the payment in January 2005. Under the accrual method, you would record the income in your books in November of 2004.
The advantages are that it is a much more comprehensive system of recording financial information. More liabilities and assets are recorded, resources are recorded; and the consumption of resources reveals the true state of equity available in government.
A further advantage is that Parliament is better able to hold government accountable for:
Stewardship of its assets
Full costs of its programmes
Ability to meet short term and long tem financial obligations
The impact of economic events and decisions during the year
It is better able to link results achieved with all resources used to achieve them.
The government itself is able to take better-informed decisions with more comprehensive information available.
The previous Canadian accounting structure was a modified accrual accounting that recognized transactions with a mix of accrual and cash accounting with an expenditure basis. It evolved with changes in the accounting standards.
The Key changes to the Financial Statements include:
Recognition of:
Non-financial assets (Tangible assets, Inventory, Prepaids)
Tax revenues
Liabilities (Employee and Veterans Future Benefits, Environmental Liabilities, Aboriginal claims)
Retroactive changes with restatement of prior year financial statements as required by accounting standards
Only half of the provinces have moved to full accrual accounting. Including federal and tangible capital assets and revenue in the accrual statements is some of the challenges facing provinces. Evaluating bridges, buildings, fences and roads is also a challenge to include in accrual accounting. The Chief State Appraiser needed to take the book value of property based on the materials used in the year it was made. Then he needed to apply economic deflation based on the assessment of the lifespan of the property coupled to any improvements done to the building. The value of the property remains an estimate and a challenge to audit.
Provinces that have moved to full accrual accounting:
British Columbia
Alberta
Manitoba
NW Territories
Saskatchewan
Quebec
New Brunswick
New Finland
Yukon
Office of the Auditor-General of Canada and its relations with Parliament
Relations with Parliament
Role of Parliamentary relations Group
Relations with Parliamentarians and with Standing Committees
Relations with Public Accounts Committee in particular
Parliamentary Liaison Group (PLG)
The PLG develops and coordinates the OAG’s parliamentary strategy. They monitor Parliamentary activities and provide advice and information to senior management on changes in legislation and questions arising in the House relating to findings from the OAG.
They co-ordinate and facilitate the OAG’s participation in PAC and other parliamentary meetings. The tabling of reports of the AG and Commissioner of the Environment and Sustainable Development is organized by the PLG. They respond to MP’s and Senators’ requests for information and facilitate contacts with Parliament and PAC. They also prepare information for the Office’s performance report. Their Management Report or "Results doc" keeps track of how effectively they assisted Parliament. It includes:
Whether Parliament is using issues and recommendations from Office of the Auditor-General to influence change
Measure extent to which PACS endorsed AG recommendations
Did Parliament parallel, endorse, explicitly endorse or go beyond recommendations?
Relations with Parliamentarians and with Standing Committees
Structure of reports
The OAG goes to great lengths to present the main issues in their reports in as user-friendly a manner as possible. Summaries of the salient findings in reports are produced using plain language and visuals for ease of reading.
Four Annual Reports are tabled the House of Commons in the year and consist of a volume containing a number of chapters. The November 2003 report contains 10 chapters with each chapter reporting on separate issues such as Accountability and Ethics in Government, the Sponsorship Programme, Protection of the Cultural Heritage in the Federal Government and Indian and Northern Affairs Canada –Transferring Federal Responsibilities to the North to name a few examples.
Annual Reports are automatically referred to SCOPAand in addition, the OAG writes letters addressed to Chairpersons of other portfolios highlighting specific issues in their area of interest. The Commissioner of Environment report is tabled to the Committee on Environment but the Commissioner writes an independent report to PAC.
Reaching out to Parliament
The Auditor-General will approach caucuses of parties. It will sensitize members to their roles and mandates. This is important because there is a high turnover of MPs. The OAG arranges informal meetings with MPs and briefs them on issues in their portfolios.
Parliamentary Committees do invite the AG to deliberations on legislation but the AG is careful to accept invitations from Committees on legislation. The OAG will only comment on audit issues or accountability issues.
The Auditor-General may meet with Ministers to inform them on any issues relevant to their portfolios.
The Research assistance given to SCOPA is of a high caliber seconded from the Library of Parliament. The AG assists in the formulation of questions; in many instances, a question can sound right but make no sense.
Responsiveness to Parliamentary requests
The AG is open to receiving requests from the SCOPA to audit certain areas of interest to the SCOPA. The Auditor-General still holds a discretionary mandate with regard to this and can exercise her judgment to decide on Audit requests. If it distracts the AG from her primary responsibilities then she can refuse. There are three factors in considering the request:
Funds,
Importance and
Available resources
The AG’s budget funds the request. The implications in accepting the request mean that a line function either moves or is postponed. Section 11 of the AG Act of 1977 allows the AG to approach the Treasury for additional funds to accommodate the request from SCOPA but usually the process for approval takes some time. Alternatively, the AG drafts the audit assignment to clarify the areas for auditing and then incorporates it into their budget proposal.
Canadian House of Commons Standing Committee on Public Accounts Composition of the Public Accounts Committee
Mr John Williams, a member of the opposition, chairs the Standing Committee on Public Accounts of the Canadian House of Commons.
The House of Commons Parliamentary support provides the Committee with:
2 Researchers from the Library of Parliament
1 Clerk from the House of Commons
Free office accommodation for MP’s including telephone, fax, cell phone and Internet access
The Committee has a $3 000 000 budget decide by the Committee for spending by the Committee. The Chairperson receives a salary of $150 000 pa. In addition each Member of Parliament receives a budget of $250 000.
This budget is used for:
Staffing Constituency Office: 2 staff in Ottawa and 2 in Constituency
Anything over budget is paid for out of the MP’s salary
In addition, each MP receives:
$70 per diem
Car mileage allowance of 40c per km
The Chairperson receives $16 000 pa for accommodation in Ottawa
64 points for travel: 1 point for travel from Constituency to Ottawa
Pension accumulates at 3% pa; the Member must be in office for six years. It is largely state funded with a percentage paid by the MP. The pension activates at Fifty-five years of age.
The committee has nine members mainly composed of backbenchers, normally new members. No whips are present on the committee. The SCOPA is the training ground for MPs and they usually express an interest to go to another committee of preference. This is in contrast to the British and India models where membership is normally reserved for more senior members.
The SCOPA has a permanent Researcher who is seconded from the Library of the House of Commons and is responsible for committee continuity. The researcher is the prime drafter of resolutions. The Clerks service the committee on a rotational basis. They know the procedure but lack the in-depth knowledge of issues related to SCOPA.
On the tabling day of the November 2004 report, the chairperson of the SCOPA hosts a preview of the report. The invitation is extended to the media via the chairperson’s office but the OAG foots the bill. The OAG presents an overview of the report to members and facilitates a question and answer session. MP’s have advanced information and ask pointed questions for clarity on issues alluded to by the AG. Members are allocated a strict time frame for questions, and are not allowed to go over their allocated time. The governing power present is able to inform the ministry after the session on any issues sensitive to its portfolio.
The AG is present as a witness during hearings and provides testimony on progress made by departments or to verify information. Her presence gives a better focus to the discussion or hearing. The SCOPA writes the report based on the evidence given but it needs objectives for the hearing and assessment to define the report to the house. Follow up issues
The SCOPA seeks commitment during the hearing with specific timelines associated with an action plan. There is a 150-day timeframe for government to respond to the resolution and produce an action plan. Usually the first order of business is for the SCOPA to reinstate the request for responses previously made. The committee finds it helpful to be precise in requesting information.
The ministry tables the reply to Parliament who then refers it to the SCOPA. The OAG does not follow-up on the issues again. It will give an assessment of the action plan and how effective it is in addressing the situation.
Financial management and the need for a capability model
Financial management in the Public sector having been bolstered by the introduction of the Public Finance Management Act has of necessity been required to undergo challenging and stressful changes in its approach to managing public finances. The PFMA ushered in, as Minister Manuel puts it, "[t]he basis for a more effective corporate governance framework for the public sector." The effectiveness of this framework still varies among organizations and often within organizations over time.
The Auditor-General of South Africa is mandated by section 188(1) of the Constitution of the Republic of South Africa, Act 108 of 1996 to report on the accounts, financial statements and financial management of –
a) All national and provincial state departments and administrations;
b) All municipalities; and
c) Any other institution or accounting entity required by national or provincial legislation to be audited by the Auditor-General.
Financial management is not a clearly defined area to audit, as there are no clear auditing guidelines. The Auditors–General of Canada and South Africa observe and report on problems in government departments and parastatals that often occur because of failings in financial management practices. The demand is growing for complete, accurate, timely financial information to be produced that enable management and Parliamentarians to take informed decisions on the efficiency, effectiveness, and economy of government programmes.
In the 1997 Report of the Auditor-general of Canada – April – wherein the development of a capability model is raised, the Office of the Auditor-General raises a number of questions of concern in assessing the strength of financial management in the federal government.
Toward achieving the prescribed mandate, the OAG has implemented a Financial Management Capability Model based on a capability model developed by the Canadian Audit Office and adapted for the South African market. All entities will be evaluated against this capability model. The Canadian Financial Capability Model (FCM)
The FCM is an initiative of the Canadian Office of the Auditor-General. It is an assessment tool for departments to assess their level of maturity in effectively managing public finances. The FCM details the steps an institution needs to fulfill in order to progress in grading. It therefore starts out at the level of a startup organization with minimal experience and systems for financial management and progresses to more complex and efficient organizations.
This framework for financial management allows Government institutions to use the tool as a road map to improve their level of financial management by:
Assessing its current level of maturity,
Determine its financial management requirements according to its current complexity and risk factor,
Assess its current capabilities against the requirements it has determined, and
Identify the gaps between those requirements and its existing financial capabilities. The Financial Capability Model: Maturity Levels
The modified capability model used by the Auditor-General of South Africa covers:
Level 1 - Start-up level
No proper control framework
Basic planning and control is taking place on an ad hoc basis.
Financial accounting and internal control systems are not properly developed.
No internal audit systems or audit committee has been established.
Level 2 – Development level
Develop and document a proper internal control framework and financial accounting processes
Financial accounting and internal control systems are developed and documented (including computer systems).
Internal Audit systems and audit committee have been established.
Level 3 – Control level
Focus on the proper implementation and functioning of financial accounting and internal control systems, including compliance with the PFMA and other reporting requirements.
Level 4 – Information level
Focus on measuring how resources are used with reliable and sufficient financial information
Level 5 – Managed level
Focus on balancing efficient and economical use of resources with quality and/or effectiveness of results achieved.
Level 6 – Optimising level
Focus on continuous improvement and learning Lessons learnt in implementing FCM
Departments were apprehensive about being rated especially those who suspected a poor rating. The Treasury Board took some actions to sensitize departments to the FCM.
The same team conducted the audits at different departments to ensure consistency in judgment.
The team met regularly to discuss ratings and revisit the results where earlier ratings seemed harsher than later assessments
The OAG did a series of presentations to the Departments to sensitize them, get feedback and market the model.
Treasury Board Secretariat
Governance of Crown Corporations
Comptrollership and Oversight (Financial Management and Control)
Accrual Accounting in the Federal Government
The Role of the Comptroller General
The Treasury Board Secretariat is the administrative arm of the Treasury Board. It supports the TB and acts as the central government agency according to the Financial Administration Act of 1985. It fulfills its mandate by providing advice and support to the TB and oversees the financial management functions in departments and agencies.
The Office of the Comptroller General was re-established with effect from 1 June 2004. The Comptroller General provides leadership and enforces appropriate financial controls in government. It reviews the auditing standards of government and is responsible for ensuring the implementation of the Internal Audit component. Furthermore, the Comptroller General interprets policy, appoints the CFO and defines the roles and responsibilities of the CFO.
Governance of Crown Corporations
Crown Corporations are entities of government that turn a profit. Parliament creates, dissolves and privatizes Crown Corporations. The Minister is the link between the Crown Corporation and Parliament and may decide on whether he is represented by a Deputy Minister, Board or CEO. The Treasury Board Secretariat produce consolidated performance reports on Crown Corporations. The Auditor-General audits the Crown Corporations and the AG and the Crown Corporation’s Internal Audit reports appear on the website of the Treasury Board.
Comptrollership and Oversight
The Office of the Comptroller General (OCG) sees the strengthening of financial management as a process moving forward from generality to specifics.
The Sponsorship scandal reported on in the November 2003 report of the Auditor General highlighted the need for greater transparency and accountability with regard to government spending. Canadians are becoming increasingly interested in the management of the financial environment and the call from stakeholders for increased transparency of financial and performance information required the Government to strengthen certain aspects of its management environment.
The Prime Minister views the strengthening of the public sector in a serious light and the President of the Treasury Board highlighted the Government’s plan to transform and strengthen public sector management through:
Strengthening comptrollership and oversight;
Reviewing government expenditures and modernizing management practices
Assuring accountability, transparency, good governance and an enhanced role for Parliament; and
Building capacity across the federal public service
As Government increases in complexity more and tighter controls are required. The OCG limits the instances of misspending and control failures.
Key initiatives taken
The TBS embarked upon certain initiatives to strengthen financial management:
It re-established the Office of the Comptroller General of Canada to oversee government spending
It reorganised and strengthened the internal audit function;
Modernised the financial management system;
Reviewed the Financial Administration Act
Embarked on more pro-active reporting on contracts greater than $10 000 and
Is moving forward to audit all annual financial statements of departments
The Treasury Board faces other challenges to restore a reliable control environment. Departments previously had to cut their budgets due to deficits and the Internal Audit component was a casualty of this exercise. Staffing the Internal Audit component is a challenge because the Departments are not able to find recruits with the necessary financial background. An additional problem is that the Baby Boom generation is retiring and leaving behind a void that needs to be filled.
In 1977, the House of Commons revised the Office of the Auditor-General Act including provision for performance auditing. Performance Auditing was unknown to Canada and to the rest of the world with the result that it became a challenge to recruit properly accredited comptrollers.
All Departments must be audited eventually. The South African Public Finance Management Act (PFMA) is five years ahead of Canada. The Treasury Board is in the process of reviewing the Financial Management Act (FMA) and changes are expected within 2005.
The OCG admits that Departments’ financial statements are not yet up to scratch. It is working towards building greater reliability on, and accuracy of, information.
More proactive reporting is taking place such as the travel and hospitality expenses of Ministers is being reported on. This brings about an awareness of what is being spent.
A question from SCOPA applies public pressure and changes the situation. Ministers become more aware that they are using public funds and must be more frugal. The Department publishes the dollar figure spent on their website with additional information on why it occurred andincludes the justification for the expense. The Deputy Minister is equal to a Director-General as Accounting-Officer and is responsible for reporting and accuracy of reporting.
Comptroller General’s observations on Chief Financial Officer (CFO)
Presently, Senior Financial Officers (SFO) and Senior Full-time Financial Officers (SFFO), deputy to the SFO, whose posts will revert to CFO, perform the function of the CFO. The SFOs role is still unclear because of the many functions ranging from general administrator to chief accountant that the position fulfills. Furthermore, the SFOs role with regard to reporting lines is unclear within the organizations hierarchy. In many instances, the SFO was promoted to the role of SFO but was not educated for it.
The proposed solution is:
Intense refocus on financial management
Clarity of roles and responsibilities
Independence from operations and/or programme delivery
Full-scope financial management responsibility
Senior executive responsibility and accountability
Appropriate competencies and qualifications, personal and professional
Continuum of financial management between TBS and Departments
Transition and sustainability of solution Accrual Accounting
The move to accrual accounting started in the early 1980’s. The Treasury Board moved from a Cash basis to a Modified Cash / Modified accrual basis of accounting. The transition period set the infrastructure in place to convert to full accrual accounting.
The readiness of the departments to move over to full accrual accounting depended on:
Systems
Policies
People
Systems
To move over to accrual accounting departments needed the proper systems in place. This required a significant financial investment and excellent project management. It also requires a balanced phasing in of departments to ease the process. The TBS stress that new system infrastructure is the foundation for improved reporting and decision making. Their must be dialogue with control systems and the department must be able to communicate internally and externally system to system before implementation of accrual accounting can commence.
Policies
The new chart of accounts requires extensive training of staff and the policies that guide the process must be specific. The TBS advise that where costs are not available departments must be practical in decision making.
People
Professional staff with accrual accounting experience must be hired. Communications and training is critical. The workload capacity must be carefully monitored but there are tremendous opportunities for personal growth and challenge.
Global Organisation of Parliamentarians Against Corruption (GOPAC)
Mr John Williams, Chairperson of the Standing Committee on Public Accounts of the Canadian House of Commons, chairs the Global Organisation of Parliamentarians Against Corruption (GOPAC). Mr Williams introduced members to the organisations purpose, goals and initiatives and requested members to take up the cause.
The GOPAC initiative was established October 2002 at the Global Conference in Ottawa, Canada to combat corruption through "specific initiatives that have clear measurable results." Its aim is to legislate against corruption and it therefore believes that the starting point to combating corruption lies in fixing the legislature.
Members of various countries join the initiative as individuals and lobby for other parliamentarians in their country to join GOPAC. When enough MP’s in one country join, they form a Regional Chapter. Enough Parliamentarians from the National as well as Provincial arena will form Provincial Chapters and address issues at the grass roots level.
The key thought behind the initiative is to hold government accountable. Corruption is more prevalent in governments where openness and transparency is lacking. When parliamentarians with leadership, initiative and high moral values start taking a stand against corruption, other parliamentarians of like mind are encouraged to take action. GOPAC’s goal is to engage legislatures and parliamentarians to identify "clear and specific objectives and move these forward towards implementation." This is a hard issue to fight alone. A single voice is easy to discredit but as a collective voice, corruption is easier to overcome.
Financially parliamentarians are at a disadvantage, as they often do not have the training or research capacity to hold governments to account. Each regional chapter of GOPAC is required to lobby support from government organisations and NGO’s that can supply the financial resources or skills required to be properly capacitated.
GOPAC, as a global organization, offers its members the following information resources:
Handbook for Parliamentarians on controlling corruption;
A training / orientation package for parliamentarians on the budgetary and financial oversight role of parliamentarians;
A code of conduct for parliamentarians
Indicators of performance for parliamentary oversight;
Parliamentarians with an anti-money laundering agenda; and
Implementing the United Nations Convention Against Corruption (UNCAC)
GOPAC Executive
The Executive consists of a seven member Board of Directors selected by each regional chapter. Fully recognized chapters obtain seats on the board to guarantee that the board is representative of its membership.
John Williams, Canada, Chair
Naser Al Sane, Kuwait
Son Chhay, Cambodia
Giovanni Kessler, Italy
Kim Yong Hwan, Korea
Musikari Kombo, Kenya
Cecilia Romero, Mexico
Secretariat
A professional secretariat based at the not-for-profit Parliamentary Centre in Canada provides support to GOPAC. The Parliamentary Centre has over thirty years experience giving support to parliamentarians around the world.
Martin Ulrich,
Executive Secretary
mulrich@rogers.com
Meaghan Campbell,
Program Manager
campbeme@parl.gc.ca
GOPAC CHAPTERS
Africa: African Parliamentarian’s Network Against Corruption (APNAC) [covering the
Sub-Saharan region]
National sub-chapters: Chad, Kenya, Nigeria, Tanzania, and Uganda
North East Asia: North East Asian Parliamentarians Against Corruption (NEAPAC)
National sub-chapters: Republic of Korea
South East Asia: South East Asian Parliamentarians Against Corruption (SEAPAC)
Middle East: Arab Parliamentarians Against Corruption (APAC) [underdevelopment]
Europe: European Union (EUPAC) [underdevelopment]
Russia: Parliamentarians for Parliamentary Control (PPC)
Newly Independent States of the Former Soviet Union: Newly Independent
States (NISPAC)
Sub-regional chapter: Caucuses
North America: North American Parliamentarians Against Corruption (NAPAC)
National sub-chapters: Canada
Latin America: Latin American Parliamentarians Against Corruption (LAPAC)
The SA High Commission Cocktail Evening The High Commissioner for the Republic of South Africa to Canada, Her Excellency Ms Theresa Solomon, hosted a cocktail evening of South African food and wine for the delegation and invited guests from the Office of the Auditor-General, the Chairperson of the Standing Committee on Public Accounts and staff from Foreign Affairs.
We extend our thanks and appreciation for the professional courtesy and warm welcome the High Commissioner extended to the delegation.
Conclusion The Committee was able to reach the objectives and goals set out in the original aim of the study tour. The information and insights obtained by the Committee will assist in future planning and activities with regard to:
The relationship between the AG and SCOPA
Procedures and Practices with relating to SCOPA
The nature and impact of Forensic Auditing
Accrual Auditing
Support and Research capacity available to SCOPA
The role of Treasury in the implementing of full accrual and accounting policy changes
Acknowledgements
The Committee acknowledges the support extended to it by the following persons:
High Commission for the Republic of South Africa
Her Excellency Ms Theresa M Solomon
High Commissioner for the Republic of South Africa to Canada
Ms Nowetu Luti
High Commission for the Republic of South Africa to Canada
The Office of the Auditor-General
Ms Sheila Fraser FCA
Auditor-General of Canada
John Wiersema, FCA
Deputy Auditor General
Mr. Hugh McRoberts
Assistant Auditor General
Mr Ronald Thompson
Assistant Auditor General
Mr Jean Ste-Marie QC
Assistant Auditor-General
Mr Frank Vandenhoven CMA
Principal
Frank.Vandenhoven@oag-bvg.gc.za
Mr Neil Papineau
Principal (Forensic Accounting)
Ms Antonine Campbell
Principle, International Relations
The Standing Committee on Public Accounts of the House of Commons
Mr John G Williams, F.C.G.A: Member of Parliament, Chair of the Standing Committee on Public Accounts and the Global Organization of Parliamentarians Against Corruption (GOPAC)
www.johnwilliams.ca
Ms Elizabeth B Kingston, M.A.
Clerk: Standing Committee on Public Accounts
kingse@parl.gc.ca
The Treasury Board Secretariat
Mr William G Bradshaw, CGA
Senior Director: Financial Management Policy Division
Comptrollership Branch
Chantal Lemyre, CGA
Senior Financial Analyst: Government Accounting Policy Division
Financial Manager Policy and Analysis Sector
Comptrollership Branch
Mr David Salie, PhD, MBA
Crown Corporation Policy and Information Division Service and Innovation
Salie.David@tbs-sct.gc.ca
Bibliography and list of publications obtained
November 2003 Report of the Auditor-General of Canada to the House of Commons November 2004 Report of the Auditor-General of Canada to the House of Commons
House of Commons Third Report of the Standing Committee on Public Accounts, 38th Parliament, 1st session
Strengthening Public Sector Management: An overview of the Government Action plan and Key Initiatives
Treasury Board of Canada Secretariat Management Accountability Framework
Looking Back and Moving Forward: Auditor-General of Canada’s First Report to the Second Legislative Assembly of Nunavut 2004
Strategic Plan for the Office of the Auditor-General of Canada
Office of the Auditor-General of Canada 2004-05 Estimates Part III - Report on Plans and Priorities
Office of the Auditor-General of Canada Performance Report for the period ending March 31, 2004
Public Accounts of Canada 2004
Volume I Summary of Report and Financial Statements
Volume II Details of Expenses and Revenues
Volume III Additional Information and Analyses
Report of the Commissioner of the Environment and Sustainable Development to the House of Commons – Chapter 5 Fisheries and Oceans Canada – Salmon Stocks, Habitat and Aquaculture
Report of the Auditor-General of Canada to the House of Commons – Chapter 3 national Security in Canada – The 2001 Anti-Terrorism Initiative
News Release Communique Office of the Auditor-General for November 2004 Report
Documentation Kit for Visitors: Office of the Auditor-General
Introduction
Auditor-General Act
Part X Crown Corporations
Information on the Office of the Auditor-General Organisation Chart of the Office of the Auditor-General
"How should the Government measure spending? The uses of Accrual Accounting" by F Stevens Redburn, Economist with the Office of Management and Budget
Cash v Accrual Accounting, Nolo: Http//www.nolo.com/lawcenter/ency/article.cfm/objected/08E205EE-E8B6-4D25-A2B0
Accrual Accounting and Budgeting National Treasury/OECD Technical Seminar, Pretoria, 15 March 2001
Canadian Council of Public Accounts Committees: Guidelines for Public Accounts Committees in Canada
The Financial Capability Model and the Records Management Function by John McDonald
Financial Management: Developing a Capability Model
Activity Report of the Auditor-General for the financial year 2002-03
Strengthening Financial Management and Control; Presentation slides to members of the South African Public accounts Committee, November 24, 2004
Global Organization of Parliamentarians Against Corruption (GOPAC) Information and CD Rom pack