A Profile of the Public Service of Canada

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4.0 Stewardship

4.1 Introduction

Under the guiding principles of Results for Canadians, the aim of stewardship is good value for public expenditure and better results for Canadians. This is achieved through federal resources that are appropriately aligned with government priorities, and used efficiently and effectively with prudence and probity and through clearly defined and public reporting of key commitments and results. Government departments and agencies continually strive to achieve these outcomes through strengthened management practices and accountability, better allocation of resources, and results-based performance that demonstrates responsible spending and adherence to public values and ethics.

The Context for Change

Canada's vision of modern public management has evolved over several decades and will continue to do so. Over time the focus of effort has shifted, but the changes form a continuum. Each effort has built on the strengths and accomplishments of the initiative that went before. In the late 1970s and the mid-1980s, after a period of unprecedented policy development and departmental growth, the focus was on improved management practices and controls. In the mid-1990s, the main focus was on improving Parliamentary reporting and increasing the transparency of public spending. By the late 1990s, the need to improve services to citizens became a priority. As the decade drew to a close, the need to fundamentally rethink human resources management became the focus.

Implementing Change

The table on page 81 provides a sense of the key events and improvements that have taken place within the federal government of Canada since 1994 in an effort to strengthen stewardship across the public service and to increase excellence in management practices.

Modern comptrollership delivers on a key benefit: the increased effectiveness of the government in fulfilling its mission and achieving objectives. It represents better management.

Independent Review Panel Report

In this period it was realised that the divide between programme management and specialised functions like finance and information technology was no longer absolute, and that all managers needed to apply sound management practices that were previously the domain of specialists. This was the origin of the Modern Comptrollership Initiative, conceived in 1997 by an independent panel convened to review the future of comptrollership. The panel concluded that comptrollership could no longer remain a specialist function. The panel described modern comptrollership as a 'set of principles founded on a philosophy'. The philosophy is that stewardship must become part of every manager's thinking and behaviour, and that to exercise responsible stewardship a manager's decisions should bring together integrated financial and non-financial performance information, sound risk management, options for flexible delivery with due regard for appropriate control, and sound public service values and ethics.

The goal of the federal government is to improve management practices in all these areas and to achieve excellence in management through a modern management agenda.

While the objectives of stewardship remain constant, the means of achieving them are guided by revised government priorities, new insights as a result of continuous learning, and new opportunities and ways of doing business. To this end the Government of Canada has embarked on a series of modernisation initiatives in pursuit of achieving tangible Results for Canadians in the domain of management excellence. This includes:

1. Improving performance through modern comptrollership and integrated risk management, including rigorous stewardship, appropriate controls, and shared values and ethics;
2. Improving the allocation and re-allocation of financial and other resources to better align resources to the highest priorities, as well as the management of resources in the delivery of programmes;
3. Improving ongoing information management for better decision- making through more relevant and timely evaluations and internal audits;
4. Strengthening public accountability and reporting of results-_based management, with integrated financial and non-financial information, using accrual accounting as the basis for financial management and reporting;
5. Improving the management and stewardship of assets, such as real property.

Some Lessons Learned

Most of these modern management initiatives have some common key elements for success. These include the following:

1. All the initiatives require central leadership to provide the overall direction and co-ordination needed to make improvements in 90 organisations, individually and collectively, to make government-wide progress. This overall leadership includes the formulation of enabling policies and the creation of governance structures that leverage collective wisdom and knowledge and obtain necessary commitments to move in agreed upon directions and timeframes.
2. Almost all the initiatives required incremental funding to ensure that they were properly launched and nurtured. Approximately $200 million of one-time incremental funding was provided in total for FIS and modern comptrollership implementation, strengthening the evaluation and internal audit functions, and enabling the implementation of the new policy on the management of contaminated sites. This was in addition to internal reallocation _of existing resources - many times more than the amount of incremental funding - within each of the organisations for these and the other initiatives to improve modern management. Some the funding was used to provide centres of excellence, address common areas of need such as building capacity, undertaking common research, and building and sharing common tools and guides. A specific Modern Comptrollership Innovation Fund was established to promote joint undertakings to this end.
3. In terms of building capacity, significant efforts and products were devoted to communications and continuous learning - recognised as critical success factors in change management. Each of the web pages referenced in this section provides extensive coverage of these areas and of the many other factors that cannot be presented in this document.

In the end, the commitment and efforts of many individuals, on their own and with others in their own and other organisations, are the most essential elements contributing to success in all the initiatives identified above. Departments and agencies have steadfastly devoted people and resources to achieving all these objectives, while meeting their programme responsibilities. Their individual websites provide additional information on these many modern management change initiatives.

While significant benefits continue to accrue from current efforts to improve management practices, more has to be done. As a result, while the Government of Canada continues to implement all these initiatives for change, it will be initiating additional measures to further improve government-wide stewardship over the coming years. The following pages provide highlights of many of these initiatives.

Supporting Material

Website for the Treasury Board Secretariat

Website for the Comptrollership Branch of the Secretariat

Gateway to the sites of government departments and agencies

4.2 Managing Expenditures

Managing expenditures concerns the allocation of financial and other resources by central agencies to departments, and in turn to specific programmes and activities, as well as departments' own management of resources in the delivery of their programmes. The Government of Canada manages expenditures in part through the Expenditure Management System (EMS), which was introduced in February 1995. This section describes the evolution and operation of the EMS up to 2002, placing particular emphasis on the role played by the Treasury Board of Canada and its Secretariat.

The Context for Change

The federal government began a string of annual deficits in fiscal year 1970-71, contributing to a steady rise in the debt-to-GDP ratio from its post-war low of 18 per cent in 1974-75. By the end of 1992-93, the deficit had grown to over $41 billion (5.9 per cent of GDP), and the debt-to-GDP ratio stood at 67 per cent. By this point, there was growing awareness in the federal public service, on international financial markets and among the Canadian public that the government needed to take swift and significant action - particularly by reducing expenditures - in order to avoid the kind of fiscal crisis that New Zealand had faced in the 1980s.

The Liberal Party, who were to win the general election of 1993 and form a majority government, also recognised the need for reductions and promised, as part of their election platform, to reduce the deficit-to-GDP ratio to 3 per cent by 1996-97. This promise was followed in early 1994 by an announcement in their first budget that this objective would be achieved in part by reducing expenditures following a process of reviewing the spending of all departments.

This announcement led, among other things, to the Program Review exercise of 1994. Under Program Review, the government examined $52 billion in direct programme spending (accounting for 32 per cent of overall spending) to assess the relative priority and cost-effectiveness of programmes, and ultimately to identify candidates for reduction and restructuring. A central feature of this examination involved asking six questions about every programme:

1. Is it still in the public interest?
2. Is its delivery a legitimate and necessary role for government?
3. Is the current federal role appropriate, or should the programme be realigned with the provinces?
4. Should it be delivered in partnership with the private or voluntary sector?
5. Can it be redesigned for efficiency?
6. Is it affordable, given fiscal constraints?

The results of the review, announced in the 1995 budget, were substantial: a total of $16.9 billion in savings over three years, reducing planned programme spending by almost 19 per cent by 1997-98. A second Program Review exercise was conducted in 1995, which led to the announcement of an additional $1.9 billion in savings over three years in the 1996 budget. These two sets of budget decisions put the government on track to achieve its deficit-to-GDP target of 3 per cent by 1996-97, and even to achieve a further reduced target ratio of 2 per cent by 1997-98.

As Program Review cuts were considered permanent (and not to be reversed in the future), both reviews also anticipated significant ongoing savings after their three-year implementation periods. Nevertheless, having put programme spending on a permanent downward track through reductions in direct programme spending and other expenditures, the government then needed a budget process which ensured that this track was not subsequently tilted upwards by the addition of altogether new direct programme spending measures. To accomplish this, in early 1995 the government formally adopted a renewed budget process called the Expenditure Management System (EMS). Two key features of the new EMS were the elimination of central policy reserves and the requirement that departments finance new initiatives by re-allocating funds from existing programmes. Ongoing review of programmes by departments was to ensure that funds went towards the highest priorities and most cost-effective programmes, without increasing net spending levels.

While ministers of line departments retained authority over and responsibility for spending in their portfolios, they were required to inform Treasury Board ministers of the details of (and proposed changes to) departmental spending through a 'Business Plan'. Following the final budget decisions by the Prime Minister and the Minister of Finance, and the tabling of the budget in February, departments would prepare Business Plans that provided detail on how they would implement those budget decisions (including requested re-allocations and managerial authorities). Business Plans replaced a number of old internal reporting documents and outlined, for the upcoming three fiscal years and within approved expenditure levels:

• Major challenges, directions and objectives within the context of government priorities and departments' current and prospective positions;
• Strategies, actions, associated costs and the flexibilities required to deal with major changes;
• Associated goals, targets, and performance measures to assess programme results and management strategies.

At the same time, the Minister of Finance adopted a much more prudent approach to his management of the government's 'fiscal framework' (aggregate revenues and expenditures). This new approach had two main elements. The first was to make greater use of private sector forecasts of economic activity, and to deliberately favour conservative interpretations of those forecasts when estimating certain future revenues and expenditures for planning purposes. The second element was to set aside $2-3 billion every year in a contingency reserve, to be spent only if revenues still fell short of expectations or in case of a very large and unforeseen expense, failing which the entire amount would lapse (and so reduce the actual deficit for that fiscal year). The Minister of Finance's conservative estimates of governmental revenues helped dampen departmental expectations of new funding and provided effective top-down discipline of overall government spending, and his contingency reserve lapsed in full every year, which further aided deficit (and later debt) reduction.

Departments produced business plans on an annual basis from 1995 to 1998. During this period, two observations were made. The first was that the performance information contained within the plans was of variable quality. Departments often submitted variations on their Reports on Plans and Priorities (RPPs) which, as documents aimed at a general and public audience, contained information that was less precise, less disaggregated and less closely linked to actual departmental operations than the TBS desired. The second observation was that the TBS lacked the capacity to fully review and analyse each of the more than 70 plans it received from departments. As it became evident that business planning was not significantly helping the TBS to better manage the government's resources, the requirement that all departments submit an annual business plan to the Treasury Board was phased out from 1999.

By this time, the deficit had been reduced to zero and new funds were again available for spending on programmes (as well as for reducing taxes and retiring debt). Some of these funds were allocated to new initiatives that responded to policy pressures that had accumulated since 1995. Another portion was allocated to address operational pressures in existing programmes that had accumulated over the same period. Through an exercise known as Program Integrity, which was conducted in 1999 and again in 2000, the TBS identified many critical risks to the continued achievement of results in the delivery of existing programmes and services across government, assessed whether strategies were in place to mitigate those risks, and explored various funding options. The Treasury Board was then able, through the policy and budget priority-setting processes, to secure funding that could in turn be allocated to departments, over multiple years, to address critical pressures and to facilitate the restructuring of departmental programmes and budgets.

Nevertheless, due to new policy commitments and pessimistic economic forecasts, there was not enough flexibility in the fiscal framework to fully address all of the pressures that the TBS identified. So the Prime Minister asked ministers to find ways of adjusting their programmes and budgets so that departmental operations would be sustainable within existing funding levels.

In April 2001, the government introduced the concept of a 'Departmental Assessment' (DA) submission that would provide departments with an opportunity to outline how they planned to accomplish this (for example by scaling back or eliminating existing programmes or by delivering existing programmes more efficiently), as well as to outline the possible consequences in terms of service delivery - particularly over the long term - and the possible policy and political implications. The TBS was to work with departments during the preparation of their DAs in order to ensure that restructuring and reallocation options were sustainable, and that the risks and consequences had been properly identified. For its part, the Treasury Board was to consider granting the authority necessary to implement departmental adjustment strategies, and refer to Cabinet or the Prime Minister those proposals that had significant policy or political implications. Participation by departments in the DA process was, however, voluntary and by the end of 2002 very few departments had identified themselves as candidates and prepared or submitted a DA.

Implementing Change

In preparation for a fiscal year that begins on 1 April, the government typically tables a budget in Parliament in February. There are four major components of the government's 'budget': the Minister of Finance's budget speech (which outlines the government's overall fiscal policy, as well as major changes to revenue and expenditure measures); the Main Estimates (containing more detailed information on the requested appropriations for each department); the Reports on Plans and Priorities (through which departments provide performance information on the expected costs, activities and results of their programmes); and the actual legislation (primarily the Appropriation Bills) on which Parliament votes.

A simplified version of the current EMS, paying particular attention to the role of the TBS, would identify three major inputs to budget decisions on expenditures. The first input concerns the renewal (for one more year) of existing spending on programmes and the addition of recently-approved funding. Beginning in July, the TBS calculates, for each department, the size of their budgets for the upcoming fiscal year (and, for planning purposes, for the two subsequent years). This calculation takes into account ongoing spending from previous years, sunsetting funds and new funding approved by the Treasury Board since the previous budget exercise (see 'Treasury Board submissions' below). Departments indicate how new funding will be apportioned to their various programmes and how ongoing funding may be reallocated among programmes. This exercise is known as the Annual Reference Level Update (ARLU), which culminates in the production of the Main Estimates and the Appropriation Bill. No process is in place by which ongoing expenditures across government are comprehensively or systematically reviewed or challenged by the central budget agencies for continued relevance or cost-effectiveness, although individual departments may conduct their own reviews, either as part of, or separate from, the budget process.

The second input concerns the addition of new funding, most often for new programmes designed to implement initiatives outlined in a Speech from the Throne. Throughout the year, departments will use Memoranda to Cabinet (MCs) to propose new policies (see section 5). Most such MCs receive approval in principle from one of the two Cabinet policy committees - the Cabinet Committee on the Social Union (CCSU) and the Cabinet Committee on the Economic Union (CCEU). In December and January, the Prime Minister and the Minister of Finance determine which of these initiatives will receive funding in the budget, and to what extent. These two decision-makers may also include in the budget funding for initiatives that had not been previously submitted to one of the policy committees for approval in principle. (In most cases, departments must subsequently submit an MC that receives approval in principle before they may access those funds.) The new funds are then announced in the budget speech, but often are not included in the Main Estimates or other budget documents since final decisions may be made too late for this.

The third input concerns statutory expenditures. Projected statutory expenditures for the upcoming year are included in the budget not for approval, but simply for information, because statutory expenditures have, by definition, already been authorised, often for an indeterminate period of time, by Parliament in the original legislation. Nevertheless, statutory expenditures, for example payments on the debt, benefits for the elderly and transfer payments to the provinces, are important as they make up roughly two-thirds of annual expenditures. Again, there is no process in place by which statutory expenditures are comprehensively or systematically reviewed or challenged by the central budget agencies for continued relevance or cost-effectiveness, but the Department of Finance and individual departments may conduct their own reviews. As votes in Parliament on budget legislation are deemed matters of confidence in the government - and as a 'no' vote could force new elections - Parliament typically adopts the government's budget legislation without changes.

Important budgetary decisions are also made during the fiscal year covered by the budget. Such decisions may be made through at least three related processes.

1. Treasury Board submissions. When new initiatives are announced in the budget, the Department of Finance notionally sets aside the associated funds in the fiscal framework for the appropriate departments. However, departments may not actually spend these funds until the Treasury Board has approved detailed plans that outline how the initiatives will be implemented through specific programmes. Departments may prepare such submissions at any time in the fiscal year. The TBS analyses these submissions and makes recommendations to the Treasury Board. The TBS may recommend that special conditions be placed on the funds, such as requirements that they be spent only for very particular purposes or that they may not be released until the department has provided the TBS with certain information. In rare instances, the TBS may recommend that the Treasury Board should not approve the submission.
2. Supplementary Estimates. Two or more times a year, the TBS prepares additional appropriations legislation relating to the current fiscal year. New initiatives that are announced in the budget are not always sufficiently detailed, in terms of how the funds will be allocated to specific departments, to be included in the initial Appropriations Bill and voted on by Parliament. In these cases, funds are notionally set aside in the fiscal framework but are not added to the 'reference levels' of specific departments. Thus, once departments have received Treasury Board authority to spend these funds (through a Treasury Board submission), they must return to Parliament during the fiscal year to receive legislative authority to spend. The Supplementary Estimates process provides an opportunity for the government to detail and obtain parliamentary approval of the precise allocation of new funding announced in the budget to specific departments and, occasionally, to detail and obtain Parliamentary approval for new funding not announced in the budget. If time is of the essence, departments may be allowed to access (and spend from) a special Treasury Board-managed fund until the legislation is passed, at which point they reimburse the fund. Supplementary Estimates are also used to update Parliament on the government's actual expenditures on statutory programmes.
3. Reserve management. The Treasury Board manages two reserves which departments may petition to access in order to address operational pressures on their programmes. For example, an aspect of a department's operations may pose a significant risk to the health or safety of its employees or the public, or may require bridging finance in anticipation of a more permanent policy or funding decision. Another Treasury Board-controlled reserve is aimed at addressing pressures related to increases in departments' expenditures on salaries due to the outcomes of collective bargaining. Additionally, the Department of Finance controls a reserve aimed at addressing pressures related to unanticipated and non-discretionary increases in expenditures in certain quasi-statutory programmes, and the Privy Council Office controls a reserve aimed at addressing pressures related to threats to public security and anti-terrorism efforts. (Accessing these reserves requires, in addition to approval by the relevant central agency/agencies, a request in the Supplementary Estimates since, with the exception of the Compensation Reserve, all these funds are simply notionally set aside in the fiscal framework, and are not appropriated to the government by Parliament through the Main Estimates.)

After 27 years of consecutive annual budgetary deficits, the federal government has posted surpluses in each of the last five fiscal years. Forecasts of future revenues and expenditures suggest that this string of surpluses will continue at least into the near future. Nevertheless, economic forecasting is still a very inexact science and unforeseen events that require an immediate - and often expensive - response from the government are not uncommon. Fiscal discipline is still required to ensure that the government does not return to a deficit situation. At the same time, however, the government must respond to changing priorities and emerging knowledge, which often requires an increase in spending on certain activities. To help the government achieve the twin objectives of fiscal discipline and policy responsiveness, in early 2003 the TBS began to develop plans to play a more effective role as part, along with the Department of Finance and the Privy Council Office, of the Government of Canada's 'budget office' network.

There are four key components of the TBS's potential budget office role (in the annual budget cycle). The first involves gaining detailed and government-wide knowledge of the expected costs and results of departments' programmes. The TBS can gain this knowledge by improving the reporting relationship and pattern of dialogue between the TBS and all departments across government. The second involves gaining in-depth and up-to-date knowledge of specific expenditure and management issues in departments. The TBS can gain this knowledge through targeted and selective reviews of specific organisations, programmes and horizontal policy areas in government. The third component involves informing Treasury Board ministers of expenditure and management issues in the government. The TBS can accomplish this by analysing the information gained from reporting, dialogue and reviews; by synthesising key risks and opportunities from a government-wide perspective; and by presenting findings and recommendations to Treasury Board ministers. In particular, the TBS may focus on ways of better aligning resources with government priorities and expected results through the reallocation of resources (both within and between departments), and through the transformation of programme structures. The fourth component involves consolidating reserves under the Treasury Board and developing a single set of allocation criteria, and giving the Treasury Board more authority as to how new funds announced in the budget are allocated to specific departments and programmes.

Finally, a parallel initiative concerns the use of accrual information and techniques in federal budget-making. As part of its commitment to better financial management, the government is currently implementing accrual accounting through the Financial Information Strategy (see section 4.7). The government is also reviewing the potential of accrual budgeting to determine if it would provide a better framework for resource management. The findings of this review will be incorporated into the government's ongoing review of the EMS.

Supporting Material

Aucoin, Peter and Donald J. Savoie, eds. Managing Strategic Change: Learning from Program Review. Ottawa: Canadian Centre for Management Development, 1998 (available for order at the following website: http://www.ccmd-ccg.gc.ca/research/publications/index_e.html

Canadian government websites

• TBS: www.tbs-sct.gc.ca
• Finance: www.fin.gc.ca
• PCO: www.pco-bcp.gc.ca
• Parliament: www.parl.gc.ca
• Auditor General: www.oag-bvg.gc.ca
• Bank of Canada: www.bank-banque-canada.ca
• Main portal: www.canada.gc.ca  

4.3 Modern Comptrollership

As a management reform, modern comptrollership is one of the government's key priorities and is focused on the sound management of public resources and effective decision-making.

Modern comptrollership goes to the heart of the Government of Canada's management framework as described in Results for Canadians. Simply put, in its quest to achieve the highest quality of service to the public, the Government of Canada is committed to excellence in four areas that are critical to a well-performing public sector: citizen focus, values, results and responsible spending. Canadians expect continuous improvement in management practices and increased focus on results, responsible spending and accountability.

While traditional comptrollership focuses primarily on financial information, modern comptrollership supports the effective stewardship of resources of all types throughout the federal government with greater attention to results for Canadians. It is about working smarter for better results: better informed decisions, better public policies and better service delivery. Modern comptrollership is intended to provide managers with integrated financial and non-financial performance information, a sound approach to risk management, appropriate control systems and a shared set of values and ethics.

There are two specific dimensions to modern comptrollership - people and infrastructure. On the people side, roles and responsibilities related to comptrollership have evolved for managers and functional specialists. The people challenges are:

• To build awareness and acceptance of these changing roles and responsibilities;
• To articulate the requisite modern comptrollership competencies and skills;
• To self-assess the extent to which the competency profile is met;
• To develop learning plans to build the required capacity.

In terms of infrastructure, organisations must create an environment conducive to modern comptrollership and provide the appropriate delegations of authority, mature integrated information systems, appropriate controls, and tools to support their managers and functional specialists to manage in this complex reality. Modern comptrollership is also about a different relationship between departments and agencies and the Treasury Board Secretariat as the Government of Canada's management board.

The Context for Change

In 1997, the Independent Panel on Modernization of Comptrollership in the Government of Canada, which the federal government had earlier commissioned, issued its report, which was fully adopted by the government as a blueprint for modernisation, resulting in a three-year modern comptrollership pilot project, followed by a decision in 2001 for government-wide implementation by 2005.

This panel defined modern comptrollership as a set of principles founded on a philosophy. The philosophy is straightforward. The stewardship of public resources can no longer remain the domain of functional specialists; it must become a management function. Managers should be able to discharge their stewardship responsibilities without resort to overweening 'command and control' policies. And in consequence of this, a new partnership should exist between functional specialists and programme managers based on a mutual commitment to integrated management decision-making.

From this philosophy, the panel derived four principles, sometimes referred to as the four pillars of modern comptrollership. The choice of the term 'pillar' could be misleading since it connotes rigidity and separateness when in fact the four should be seen as dynamic systems and modes of management practice. In a fully effective organisation, each would function in its own right, and all would enjoy a dynamic interrelationship one to another.

The panel proposed that the four principles should be viewed as the essential prerequisites of integrated decision-making. Every modern manager, from the front line to the executive committee table, must be capable of making decisions that bring together integrated financial and non-financial performance information, sound risk management, options for flexible delivery with due regard for appropriate control, and sound Public Service values and ethics.

Integrated Financial and Non-Financial Performance Information: Measuring and reporting on performance is not a simple matter for governments. All over the world, different jurisdictions are struggling to improve the quality of the performance information provided to citizens. Modern comptrollership assumes this commitment to performance reporting, and then goes one better. Modern comptrollership assumes that departments can not only report on their programme performance but can also, in a relatively systematic fashion, link the resources spent with the results achieved. It is understandable that parliamentarians will want to know what it costs to produce certain results. But managers also need to know what it may cost to produce a result. Why? Because there are alternative ways of doing so, each with differing costs, and being able to associate resources with results makes for more informed choices about the most cost-effective course.

Sound Risk Management: Risk, together with cost, needs to be prominent in the analysis of options since the level of risk one is prepared to manage has a bearing on the real cost of achieving the result. Every manager to some degree relies on instinct to factor risk into the choices he or she makes. But this is not sufficient. Every well-performing organisation owes it to its managers to systematically consider the risk environment within which it must operate, the tolerance that the organisation has to risk, and the guidance and latitude it is prepared to give its managers.

Appropriate Control: Faced with diminishing resources and mounting demands for public engagement and accountability, modern managers must continually seek out innovative ways to deliver results for Canadians. But being able to do so presumes that managers are provided with an integrated, principles-based framework of appropriate internal control in place of a multiplicity of overly complex control policies. Again, the issue of risk management must be considered in establishing what is 'appropriate' control because the extent to which control can be released is dependent on the extent to which there is tolerance of risk. If there is zero tolerance of risk, there will be a rigid and comprehensive control framework.

Values and Ethics: Finally, every decision by managers in the Public Service of Canada must be grounded in the values of the public service and of their department. This is not a hypothetical matter. The ethical standards of public service in Canada are among the highest in the world. Every day, however, public servants are challenged to make complex choices. From their departments, they require guidance and tools on applying public service values in making complex, day-to-day decisions.

None of the four 'pillars' is new, and singly each does not make comptrollership 'modern'. It is recognition of their interdependency and management of their interrelationship that transforms and 'modernises' comptrollership.

Responsibility and Entitlement: Managers should approach the pillars in two ways: as a personal responsibility and as a professional entitlement. First, it is the responsibility of every manager to ensure that his or her management practices manifest the four principles. Every manager should strive to make decisions that bring together risk management, appropriate control, resources and results, and public service values and ethics. At the same time, however, managers should feel entitled to expect from their department an integrated framework and agenda for risk management, systems that link financial and non-financial performance information in a timely and accessible manner, integrated control frameworks and practical guidance on the application of ethics and values in day-to-day decisions. In turn it is the obligation of modern, effective organisations to provide to their managers an environment conducive to the practice of modern comptrollership principles.

Implementing Change

During 1998-2001 13 departments and two agencies took part in the pilot phase of modern comptrollership. As organisations embark on implementing modern comptrollership, an assessment tool known as the 'capacity check' is available to departments and agencies to perform a self-assessment of current capabilities relative to modern comptrollership management practices. This baseline assessment, involving interviews with executives and managers, allows for the identification of priority areas for improvement (i.e. processes, competencies, systems, etc.). Results from departmental assessments, combined with other management reports and performance information, are used to identify departmental priorities for improvements and develop action plans to address them. These priorities will depend on particular departmental circumstances, respective businesses, client needs and other considerations.

The pilots demonstrated that the successful implementation of modern comptrollership depends on managers' ability to:

• Provide strong leadership;
• Motivate employees;
• Strengthen control systems and monitoring;
• Share best practices;
• Focus on results.

The criteria used for the capacity assessment are:

Core Criteria

'Enabling' Criteria

Shared Values and Ethics Values and ethics framework Mature Risk Management Integrated risk management Integrated management control framework Integrated Performance Information Integrated departmental performance reporting Operating information Measuring client satisfaction Service standards Evaluation information Financial information Cost management information Rigorous Stewardship Business process improvement Management tools and technique Knowledge management Accounting practices Management of assets Internal audit External audit

Strategic Leadership Leadership commitment Managerial Commitment Senior departmental functional authorities Planning Resource management Management of partnerships Client relationship management Motivated People Competencies in modern management practices Employee satisfaction Enabling work environment Sustainable workforce Valuing peoples' contributions Clear Accountability Clarity of responsibilities and organisation Performance agreements and evaluation Specialist support External reporting

With the decision in 2001 to implement modern comptrollership government-wide, every department and agency is now expected to integrate modern comptrollership as a key element of their management improvement agenda, but each has flexibility on the timing and approach. An organisation is ready to start modernising when:

• The Deputy Head and senior management are committed and engaged;
• A plan is in place to integrate modern comptrollership with ongoing management improvement initiatives;
• There is awareness and understanding of modern comptrollership within the organisation;
• The organisation, given its other priorities, has the capacity and ability to implement modern comptrollership.

The process begins with designation of a project leader by the Deputy Head and the development of a broad strategy for integrating modern comptrollership into the organisation's management improvement agenda. In most cases, a dedicated project management office is also required. The size of the project management office will depend on the size of the organisation and the effort required to build the momentum and integrate comptrollership modernisation. At a minimum, a designated project leader is required, even if no formal office is established. This individual or group will work with senior management and other groups in the organisation to co-ordinate modernisation efforts.

Once an approach and strategy have been decided, the next step is to assess the current state of modern comptrollership in the organisation. For this purpose, a comptrollership capacity assessment tool has been developed and tested during the pilot phase. It allows an organisation to perform a self-assessment of modern comptrollership capacity. The assessment process is flexible but typically it covers everything relating to modern comptrollership throughout the organisation, including horizontal issues. The capacity assessment will provide the basis for creating a comptrollership modernisation action plan, or adding features to the organisation's overall management improvement framework and action plan.

To stimulate government-wide adoption of modern comptrollership, a Comptrollership Innovations Fund has been established with an annual budget of $10 million for fiscal years 2001-02, 2002-03 and 2003-04. These resources are intended to help offset the initial costs of modernising comptrollership. Funding is available for project management offices, comptrollership capacity assessments and selected key projects.

Approximately 90 organisations are involved in comptrollership modernisation under the leadership of the Treasury Board and its Secretariat.

Supporting Material

• Report of the Independent Panel on Modernisation of Comptrollership in the Government of Canada
• Modern Comptrollership
  Central web page
• Start up tools and information

  A Guide to Getting Started Suggested Steps for Modernising Comptrollership Communicating Modern Comptrollership Capacity Assessment Action Plan Guide Governance Structure

• Changing Management Culture: Highlights of a Symposium on Modern Comptrollership and Cultural Change 

4.4 Risk Management

The Context for Change

The Integrated Risk Management Framework delivers on the commitment set out in Results for Canadians - A Management Framework for the Government of Canada (March 2000) to strengthen risk management practices within the public service. In doing so, the Integrated Risk Management Framework supports the four management commitments outlined in Results for Canadians: citizen focus, values, results and responsible spending. The Integrated Risk Management Framework advances a citizen focus by strengthening decision-making in the public interest and placing more emphasis on consultation and communication. Similarly, it respects core public service values such as honesty, integrity and probity at all levels, and contributes to improved results by managing risk proactively. Integrated risk management also supports a whole-of-government view grounded in rational priority setting and principles of responsible spending.

Implementing Change

Responding to the need to strengthen risk management as a priority on the government management agenda, the TBS led research and consultations on risk management in collaboration with federal organisations, academics and private interests. The results highlighted the need for a common understanding of risk management and a more corporate, systematic approach. Informed by knowledge and experience from the public and private sectors in Canada and internationally, the Secretariat and its partners collaborated on the development of an Integrated Risk Management Framework.

The framework is designed to advance the development and implementation of modern management practices and to support innovation throughout the federal public service. It provides a comprehensive approach to better integrate risk management into strategic decision-making. It provides organisations with a mechanism to develop an overall approach to manage strategic risks by creating the means to discuss, compare and evaluate substantially different risks on the same page. It applies to an entire organisation and covers all the risks it faces (in the fields of policy, operations, human resources, finance, law, health and safety, and environment).

The purpose of the Integrated Risk Management Framework is to:

• Provide guidance to advance the use of a more corporate and systematic approach to risk management;
• Contribute to building a risk-smart workforce and environment that allows for innovation and responsible risk-taking while ensuring that legitimate precautions are taken to protect the public interest, maintain public trust and ensure due diligence;
• Propose a set of risk management practices that departments can adopt, or adapt, to their specific circumstances and mandate.

Application of the framework is designed to strengthen management practices, decision-making and priority setting to better respond to citizens' needs. Moreover, practising integrated risk management is expected to support the desired cultural shift to a risk-smart workforce and environment. More specifically, it is anticipated that implementation of the framework will:

• Support the government's governance responsibilities by ensuring that significant risk areas associated with policies, plans, programmes and operations are identified and assessed, and that appropriate measures are in place to address unfavourable impacts and ensure that the organisation benefits from opportunities;
• Improve results through more informed decision-making by ensuring that values, competencies, tools and a supportive environment form the foundation for innovation and responsible risk-taking, and by encouraging learning from experience while respecting parliamentary controls;
• Strengthen accountability by demonstrating that levels of risk associated with policies, plans, programmes and operations are explicitly understood, and that investment in risk-management measures and stakeholder interests are optimally balanced;
• Enhance stewardship by strengthening public service capacity to safeguard people, government property and interests.

Integrated risk management respects and builds on core public service values. Outcomes of applied integrated risk management must be ethical, honest and fair; they must respect laws, government authorities and departmental policies, and result in the prudent use of resources.

The Integrated Risk Management Framework responds to the recommendations contained in the Report of the Independent Review Panel on Modernisation of Comptrollership in the Government of Canada (1997) and its call for a strong commitment to four key elements: performance reporting (financial and non-financial); sound risk management; the application of an appropriate system of control and reporting; and values and ethics. In identifying as a priority the strengthening of risk management across the Public Service, the report stressed the need for:

… executives and employees [to be] risk attuned - not only identifying but also managing risks … matching more creative and client-driven decision making and business approaches with solid risk management …

and

… creating an environment in which taking risks and the consequences of doing so are handled within a mature framework of delegation, rewards and sanctions.

The framework builds on existing risk-management practices, reflects current thinking, best practices and the value of well-recognised principles of risk management. It is linked with other federal risk management initiatives across government, including recent efforts to strengthen internal audit and evaluation and increase focus on monitoring. Risk-management frameworks are also being developed in areas such as legal risk management and the precautionary approach. Collectively, these individual initiatives are contributing to strengthening risk management across the federal government in line with modern comptrollership and to improving practices in managing risk from a whole-of-government perspective. These initiatives will also contribute to improving the way government manages its programmes and services and meets the needs of Canadians.

The framework is a practical guide to assist public service employees to think more strategically and improve their ability to set common priorities.

The framework is comprised of four elements:

• Developing the corporate risk profile;
• stablishing a risk management function;
• Practising integrated risk management;
• Ensuring continuous risk-management learning.

Departments and agencies are actively working to implement the framework. The framework is being implemented in phases, then rolled out to all departments and agencies over time, based on lessons learned from pilot implementation. The Treasury Board Secretariat Centre of Expertise for Risk Management is providing overall guidance and advice to help departments and agencies implement the framework as well as identify and share risk management best practices.

Supporting Material

• Risk Management Central Web Page
• Integrated Risk Management Framework
• Best Practices in Risk Management  

4.5 Strengthening Evaluation and Internal Audit

The Context for Change

As a follow-up to the 1997 Report of the Independent Panel on Modernisation of Comptrollership in the Government of Canada, the TBS initiated separate, but parallel, reviews of the two existing policies for internal audit and evaluation. The reviews included consultations throughout the process with deputy ministers, heads of internal audit and evaluation, and other senior public service and private sector managers. The reviews identified the need for better-positioned internal audit and evaluation functions government-wide, which would also contribute significantly to the achievement of the government's management agenda tabled in Parliament in March 2000, Results for Canadians: A Management Framework for the Government of Canada. The result of both reviews is improved policies on internal audit and evaluation. In 2001 the government announced its revised policies.

Implementing Change

Evaluation

The revised evaluation policy gives evaluation a central role, distinct from that of internal audit. It also places a greater emphasis on evaluation as a management function that provides objective information on the results of programmes and initiatives that affect Canadians. At the same time, a Centre of Excellence for Internal Audit and a Centre of Excellence for Evaluation have been established within the TBS in order to provide leadership, advice and support to departments for the successful implementation of these policies.

The revised policy on evaluation and its standards emphasises the role of evaluation in providing timely, objective information on the performance of government policies, programmes and initiatives. It _is intended to help managers achieve better results for Canadians by stressing the need for sound evaluation. The main highlights of the revised Evaluation Policy are that it:

• Establishes a stand-alone policy and evaluation function (it is now separate from the Internal Audit Policy and its function);
• Expands the policy to evaluate the success of programmes, policies and initiatives in meeting their objectives (the previous policy refers primarily to the evaluation of programmes);
• Broadens the scope to include departmental, interdepartmental and intergovernmental considerations (the previous policy stresses departmental programmes);
• Stresses the need for managers to embed the discipline of evaluation in all their work, including the design of new policies, programmes or initiatives.

During the intervening period leadership and support has been focused on assisting organisations reposition evaluation as a key management tool; several millions of dollars have been allocated to do this. Evaluation networks have been created or re-established to provide ongoing government-wide sharing of information and experiences and extensive guidance has been offered to assist managers and evaluators on the development of evaluation frameworks as an integral part of ongoing management practices. To support capacity building, a community development strategy has been designed, competency profiles and an internship programme have been developed, and a training and development curriculum for evaluators has been established. Capabilities to monitor the health of evaluation government-wide, and track trends and issues across the system have also been established. Much work still remains to be done and many challenges will have to be tackled over the next few years. Plans are being developed to successfully address these.

Internal Audit

The revised internal audit policy repositions the internal audit community within government as a provider of independent assessments to departmental senior management on all important aspects of risk-management strategies, management control frameworks and information used for decision-making and reporting.

The revised policy on internal audit and its standards are aimed at providing independent assessments (or 'assurance') of the soundness _of risk-management strategies, management control frameworks and information used for decision-making and reporting. Other highlights of the revised internal audit policy are summarised below:

• It requires an active audit committee chaired by a senior departmental executive;
• It ensures that departmental heads of internal audit have an unimpaired ability to carry out their responsibilities, including reporting audit findings;
• It requires that internal auditors have unlimited access to all departmental documents;
• It requires that management action plans adequately address the recommendations contained in internal audit reports and that they are implemented.

During the intervening period leadership and support has been focused on assisting organisations to strengthen internal audit as a key management tool; a considerable amount of funding has been allocated to do this. A small agency initiative to assess the risks and issues has been established and a four-year government-wide strategic plan has been developed in consultation with the internal audit community. In support of capacity building through the renewal of a skilled workforce and the provision of guidance, competency profiles and human resources and learning strategies have been developed. A nationwide competition was held to identify qualified candidates for staffing. More opportunities for consultation and information sharing have been put in place (for example semi-annual Heads of Internal Audit Retreats) and more structured forums, such as quarterly Internal Audit Network meetings and monthly Senior Advisory Committee meetings are taking place to provide ongoing government-wide sharing of information and experiences. Internal audit guides and other internal audit tools have also been developed and distributed. Much work remains to be done and many challenges will need to be tackled over the next few years. Plans are being developed to successfully address these.

These combined policies on evaluation and internal audit therefore require that:

• Departments develop annual internal audit plans and evaluation plans, and make all completed internal audit and evaluation reports easily accessible to the public in both official languages;

• Departmental managers incorporate the findings of internal audits and evaluations into their priority setting and decision-making;

• The Treasury Board makes a significant investment to support these initiatives to assist organisations appreciably increase their capacity to improve performance in each of these key functions.

Supporting Material

• Evaluation central web page
• Evaluation Audit Policy
• Internal Audit central web page
• Internal Audit Policy  

4.6 Performance Reporting

The Context for Change

Performance reporting is a key integrating principle of Results for Canadians and a variety of initiatives have been underway, in conjunction with all the other efforts to enable organisations to focus on the achievement of results and to report them in simple and understandable ways to elected officials and to Canadians. Efforts have been concentrated in two primary areas: reporting on individual programmes and on horizontal initiatives.

Implementing Change

Departmental Planning, Priorities and Performance Reporting

Each year approximately 86 Departmental Performance Reports (DPRs) for the Government of Canada are tabled in Parliament. They outline the achievements of individual departments and agencies measured against the commitments in their respective Reports on Plans and Priorities (RPPs). These play a key role in the cycle of planning, monitoring, evaluating and reporting results through ministers to Parliament and Canadians. They provide parliamentarians and Canadians with a comprehensive accounting of results.

Organisations have been asked to produce an effective public planning report that meets the following criteria:

• It serves as an important planning instrument that has clear, concise and credible information that aids parliamentarians in meeting their decision-making responsibilities;
• It serves as an instrument of public accountability that demonstrates to Canadians what they receive in return for their tax dollars, in accordance with the funding that Parliament authorises for each federal department and agency;
• It serves as an instrument of public engagement, providing the foundation for a dialogue between citizens and their government on its future plans and directions;
• It provides evidence of sound management and demonstrates that public reporting on plans is consistent with internal planning processes and strategic and operational plans.

Organisations have also been asked to produce performance reports that respect the following reporting principles:

• Provision of a coherent and balanced picture of performance that is brief and to the point;
• Their focus should be on outcomes, not outputs;
• Performance should be associated with earlier commitments, and any changes should be explained;
• Performance should be set in context;
• Resources should be linked to outcomes;
• It should be explained why the public can have confidence in the methodology and data used to substantiate performance;
• They should include a report on horizontal indicatives, for example modern comptrollership and sustainable development.

Continuous efforts to assess and improve the quality of information provided in these reports are being made and over time the government is confident that through continuous learning and improvements in such areas as modern comptrollership, risk management, evaluation and internal audit, the reporting of programme information will improve.

The government is continually improving its tools and looking for ways to accelerate the pace of improved accountability and reporting. For example, the TBS has established a Strategic Outcomes Database that can be used to link such outcomes by programme and organisation. Information such as this is expected to provide organisations with better understanding of linkages that will lead to better performance reporting and better decision-making.

Performance Reporting on Horizontal Issues

For the first time in December 2001, a report was published on Canada's performance. This is a very comprehensive report that includes information on as many as 19 societal indicators that reflect a balance among social, economic and environmental themes. The indicators are grouped into four main themes: economic opportunities and innovation, health, environment, and the strength and safety of communities. This report is a reference tool that is intended to help Canadians to better evaluate the Government of Canada's performance and to play a greater role in developing public policy. The Government of Canada believes that a strong democracy like Canada's is built on the active engagement of its citizens and their understanding of the country's social and economic issues.

An updated edition of the report, Canada's Performance 2002 highlights Canada's strengths as well as the areas in which it can do better. The information in this report shows there have been successes in the health field. Improvements are especially evident in terms of life expectancy and infant mortality rates. In the last decade, life expectancy at birth has steadily increased from 77.3 years in 1989 to nearly 79 years in 1999. Infant mortality has fallen from 7.1 to 5.3 deaths per 1,000 live births in the same period. Canada's economy has also demonstrated solid performance, especially in employment. However, the results also indicate that some segments of the population are still living below the poverty line and that Canada faces challenges with respect to the environment and the need for a more involved civil society. Canada's Performance 2002 is a unique report as it establishes links between federal programme performance and socio-economic outcomes, while also allowing a comparison to be made between Canada and other countries.

The themes and societal indicators are:

1. Economic opportunities and innovation: real gross domestic product per capita, real disposable income per capita, innovation, employment, literacy and educational attainment.
2. Health: life expectancy, self-rated health status, infant mortality and physical activity.
3. Environment: air quality, water quality, biodiversity and toxic substances in the environment.
4. Strength and safety of communities: volunteering, attitudes toward diversity, cultural participation, political participation and safety and security.

Improvements in the 2002 report include the addition of a 'Performance Highlights' section, summarising Canada's performance over several years in each of the areas covered. The report also includes more disaggregated data than the first edition. For example, there are breakdowns by region, by gender and by groups of Canadians such as Aboriginal peoples and new immigrants. To facilitate government-wide analysis, the report also groups departments and agencies that work towards similar objectives within each theme. Through links to a database, the electronic version of the report provides access to departmental reports on plans and priorities, departmental performance reports, and audit and evaluation information.

The report is an important tool for demonstrating the government's commitment to overall performance, accountability, transparency and the effective use of public funds.

Supporting Material

• Canada's Performance 2002
• Horizontal Results
• Results-based Management
• Departmental Estimates, Reports on Plans and Priorities and Performance Reports  

4.7 Accrual Accounting/Financial Information Strategy

The Context for Change

While accounting standards continue to evolve to present economic reality more accurately, there is nevertheless a broad continuum ranging from cash to full accrual accounting. In the early 1990s the federal government had begun work on a Financial Information Strategy which envisioned moving from a modified cash/accrual system of accounting to a system of full accruals where tax receivables are recorded and capital assets and inventories are charged as an expense when used, thereby providing for a more complete recognition of liabilities.

The Independent Review Panel on Modernization of Comptrollership in the Government of Canada, the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants, the Auditor General of Canada, the International Federation of Accountants and others have advised the Canadian government to adopt full accrual accounting because it provides a more complete measure of the overall size of the government, allows financial results to be presented on a more appropriate and widely recognised accounting basis, allows the financial results of the government to more adequately reflect the economic realities of the period in question and, with proper and better information on assets and liabilities, enables managers to make better decisions and do a better job of managing resources.

Implementing Change

Accrual Accounting

The Minister of Finance first announced the government's intention to adopt full accrual accounting in the 1995 Budget as part of the federal government's Program Review and in November 1995, the Treasury Board ministers approved the FIS as a government-wide project to implement the strategy. Since then, central agencies and government departments have been working to lay the necessary infrastructure of policies, systems and expertise to implement this reform.

By April 2001 all departments and agencies had successfully implemented full accrual accounting as part of the FIS and since then every department and agency has been preparing their own financial statements on an accrual basis. For various reasons, however, the government decided, at the time, not to produce its Public Accounts and Financial Statements on a full accrual basis.

With the 2003 February Budget, the federal government announced that it will implement its commitment to present its consolidated financial statements on a full accrual accounting basis, thereby providing a more comprehensive accounting of its assets and liabilities, presenting a more transparent picture of the government's financial position and enhancing accountability, the management of liabilities and the stewardship of assets.

The major effects of the adoption of accrual are:

• All tax revenues will be reported in the year they are earned rather than when the amount is received. They will be recorded as receivables or as refunds payable, rather than recorded when the cash transaction takes place.
• Liabilities that were not previously reported will be recorded when they are determined to be likely and estimable, rather than when the cost occurs. They are now recorded as liabilities later in time.
• Capital assets and inventories will be recorded as assets when purchased and the amortisation or utilisation will be recorded as an expense. In the past, non-financial assets were not reported, so that acquiring real property or inventory would show as expenditures, but the asset would not show in the balance sheet.
• Implementing accrual accounting will result in a retroactive restatement of the financial statements previously reported. Various asset and liability balances and the accumulated deficit will be restated to reflect the new accounting policies. Therefore this change will also affect the calculation of the financial indicators of the government's financial position and results such as the annual surplus and the accumulated deficit.

Full accrual accounting is part of the government's Financial Information Strategy. The adoption in the government's financial statements is the last milestone in this initiative.

Financial Information Strategy (FIS)

FIS represents a government-wide initiative to enhance decision-making and accountability across government, and to improve organisational performance through the strategic use of financial and non-financial performance information. It is a prerequisite of the introduction of accrual accounting and to the success of both modern comptrollership and Results for Canadians as it directly supports three of the four key elements of modern comptrollership, and the information it provides is fundamental to linking expenditures with results. However, FIS is not so much about accounting as about accountable decision-making and its ultimate success will occur when programme managers and other non-financial specialists become adept at using and applying good financial and non-financial performance information in their daily decision-making to improve accountability and organisational performance. Focusing on people, policies and systems are all necessary for success. While all of these present significant challenges, the key is not number crunching, but managing for results.

People

A governance structure was established to provide the direction and oversight to implement all the necessary changes centrally and in over 90 organisations within the established parameters and timeframe. This included distinct accountabilities for the successful implementation within individual organisations and central administration. The deputy heads were accountable for implementation within their own organisations and the TBS and Public Works and Government Services Canada had accountabilities for government-wide implementation. The TBS had overall management responsibilities, including policies, and PWGSC was responsible for the central accounting systems. A government-wide FIS senior management steering committee was established to provide overall direction and co-ordination and an FIS Forum was established to set up individual working groups to deal with specific details and technical matters of common interest and concern. Special efforts were also put in place to manage the significant cultural change accompanying this significant undertaking.

A comprehensive learning strategy and framework was produced, as well as training packages for delivery at the work place and at training institutions. In addition a government-wide communications strategy, plan and framework were also produced for both government-wide use and for use by specific organisations. The internet was used extensively for collecting and disseminating information and many presentations and forums were used to collect and share ideas and information. In addition, a framework and plan were developed to directly address the change management elements of FIS. These included wide-range discussions, plans and documents to identify and provide concrete material on what to expect and how to ease the transition to the new FIS environment.

Policies and Systems

Until FIS, the financial statements of government organisations were prepared centrally using central accounting systems operated by PWGSC. With FIS, accountability for financial statements was transferred to individual organisations with the central systems used only to capture and report summary data. Hence, in addition to the change to accrual accounting, there were many other significant changes to manage. This not only required close collaboration between policy makers and systems designers but also extensive training of practitioners and managers. Areas most affected by FIS and accrual accounting included capital assets, inventories, prepaid expenses, tax receivables, environmental liabilities, and retirement and employee benefits.

With respect to systems, each federal organisation was required to have in place by 1 April 2001 a financial and administrative system capable of producing its financial statements on a full accrual accounting basis in the manner prescribed by the TBS. In addition, the central accounting systems, operated by PWGSC, were also required to be in full compliance with accrual accounting requirements, and to be able to collect summary information from the departmental systems and produce the annual Public Accounts and Financial Statements for the Government of Canada. Working together, all departments and agencies were able to install new financial systems that could handle the accrual accounting requirements of FIS and create the interfaces needed to transmit summary financial information to the central systems. All these systems were successfully made FIS-compliant by the established target date of 1 April 2001.

During the 1990s there were over 40 financial and administrative systems in government departments and agencies and efforts were made to gain efficiencies and improve effectiveness by reducing this number. At the time of adopting FIS, the number of approved systems had been reduced to seven and all organisations were required to use one of these approved systems to meet their FIS obligations. As a result cluster groups were established to collectively manage the federal government's involvement with these systems. While the system was still complicated, the reduction in the number of systems dramatically increased the probability that each organisation could have a fully compliant FIS system by the established target date. However, this required continual and close collaboration to identify, resolve and test all the technical challenges. In spite of all the obstacles, over 90 organisations were able to meet their FIS obligations, while at the same time tackling the challenges of mitigating risks associated with the Y2K 'millennium bug'.

To properly move to accrual accounting the federal government amended its accounting standards and revised or issued a number of policies, including allowances for valuation of assets and liabilities, contingent liabilities of the Government of Canada, accounting for fixed assets and inventory, accounting for inventories and receivables management. It also issued a Financial Information Strategy Accounting Manual and provided guidelines and associated training so that all departments and agencies would be able to prepare their own financial statements using full accrual accounting.

Since the completion of FIS on 1 April 2001, accrual accounting poicies have been issued and followed, new financial information systems have been installed and are now operational, accounting expertise needed to report on the greater range of financial activity has been acquired and all assets have been valued so that an opening balance for inventories could be included in the 2002/2003 period 01 financial statements.

As indicated earlier, following on from the final steps to introduce accrual accounting, the federal government has established a working group on accrual budgeting to examine the potential application of accrual information to the budgetary process. The working group is examining how accrual concepts bear on many types of decisions, drawing on the experience of other governments that have implemented accrual accounting. For the present, appropriations by Parliament remain unchanged.

Supporting Material

• Financial Information Strategy Web Page
• List of associated standards and policies
• Impact of accrual accounting on the Federal Government's financial statements  

4.8 Improving Real Property Management

The Context for Change

In 1995, when the federal government decided to adopt accrual accounting, it also established the position of Commissioner of the Environment and Sustainable Development as an integral part of the Office of the Auditor General of Canada to encourage stronger performance by the federal government in the areas of environment and sustainable development. The Commission's mandate is to make the government accountable for greening its policies, operations and programmes, and to assist parliamentarians in overseeing the federal government's efforts to protect the environment and foster sustainable development. Canada is one of the very few countries in the world with an Environment Commissioner reporting to the legislature and the only one whose Commissioner has a formal audit mandate.

Accrual accounting requires that all assets be identified and valued, and sustainable development requires that all assets be identified and managed in a manner consistent with sustainable development policies and directions. Hence, these two 1995 decisions, together with the overall objectives of Results for Canadians, have been key drivers in the way in which federal government departments manage their real property assets.

Implementing Change

These two drivers of change have significantly altered how real properties are valued and managed across the public service.

Until the completion of FIS in 2001, the federal government reported financial transactions on a modified accrual basis and all fixed assets (including real property) were reported at a $1.00 nominal value in the government balance sheet, the statement of assets and liabilities. In effect, real property was treated as an expenditure at the time it was acquired, and ultimately as a source of cash at the time it was disposed of. As the federal government is a major holder of real property, this approach did not reflect the federal government's related accountabilities and responsibilities. This approach also understated the true strategic significance of real property within the federal government, both in terms of 'store of value' and 'value in use'.

The decision to move to accrual accounting has had a profound effect on how the government manages its assets, including real property assets. As Canada is one of the largest countries in the world in terms of land mass, the federal government owns a considerable amount of real property, so the task of identifying all of this and accounting for it, and then managing it accordingly and in the context of sustainable development, was and continues to be a considerable challenge.

Since 1995 the Government of Canada has undertaken many initiatives to greatly improve the management of its real property assets. These have included extensive consultation and collaboration with people and organisations, both inside and outside the federal government, and the development of associated policies, guidelines and inventories.

Management of Real Property

The federal government's Real Property Management Framework Policy provides the overall policy in this area. It is government policy to acquire, manage and retain real property only to support the delivery of government programmes and to do so in a manner consistent with the principle of sustainable development. Accordingly, when managing real property, departments and agencies must do so in a manner that will preserve the maximum long-term economic advantage to the Crown; honour federal environmental objectives; provide safe and adequate facilities; and respect other relevant government policies.

In support of this policy, the federal government designed and developed a web-based federal real property database that contains common real property data for over 20,000 owned and leased properties for 85 custodian organisations.

This Directory of Federal Real Property is now the central record and only complete listing of real property holdings of the Government of Canada and includes basic information concerning federal real property such as custodian identification, property size, location and type of legal interest. The directory, which is administered by the TBS, maintains a contemporary record of basic information concerning the government's real property holdings, and is used to keep the government informed about the scale and major components of its real property inventory. It is also used to provide information to ministers, Members of Parliament and the general public concerning a specific property or group of properties within a particular geographic area.

Although all Crown lands in Canada are owned by Her Majesty the Queen, their administration is assigned to departments, agencies and Crown corporations to support the delivery of government programmes. These organisations are commonly referred to as custodians.

Management of Contaminated Sites

To strengthen its management of contaminated sites, the Government of Canada issued its Federal Contaminated Sites and Solid Waste Landfills Inventory Policy on 1 July 1 2000 to require departments and agencies that hold property to establish and maintain a database of their contaminated sites and solid waste landfills, and to submit this to the TBS for inclusion in a central inventory database. This inventory, which is linked to the Directory mentioned above, includes all known federal contaminated sites for which departments and agencies are accountable. It does not include properties owned by Crown corporations. Sites vary from several square metres of soil contaminated by leaking batteries to abandoned mine sites in the North contaminated with heavy metals. The inventory also includes non-federal contaminated sites for which the Government of Canada has accepted some, or all, financial responsibility.

The inventory project began in June 2000 when the government committed itself to gather and make public a list of its contaminated sites. To achieve this, the government allocated a total of $30 million to assist departments in assessing, identifying and classifying their sites. With much of the assessment and identification work completed, the government is now fulfilling its commitment to openness and transparency by making the inventory of federal sites available to all Canadians. The inventory is very much 'work in progress', to which additional sites and improved information will continually be added.

The classification system used in the inventory was developed by the Canadian Council of Ministers of the Environment (CCME). Under this system, a permanent classification is assigned to each site at the time it is assessed for contaminants, sites for which action is required being listed as Class 1, and sites for which action is likely to be required as Class 2, etc. It is important to note that the initial classification of a site will not change, no matter what steps are taken to remediate or otherwise manage the site. This means that even in situations where Class 1 sites have already been remediated, they will still retain their standing as Class 1 sites. However, their 'current status' would change to 'remediation completed'.

The inventory includes key information such as:

• Description and number of sites;
• The current status of each contaminated site;
• The percentage formed by each of the following categories: under assessment, under remediation, remediated and under risk management, under risk management, remediation complete and assessed with no action required.

The inventory also includes information by class for each department and for each region or territory.

Having had sufficient time to input information into the inventory and after extensive consultations, the federal government promulgated its Contaminated Sites Management Policy in 2002. The policy provides for consistent management of federal contaminated sites in support of sound stewardship of federal real property assets through the systematic identification and categorisation of risks, the development of management plans with an early focus on reducing the risks to human health, safety or the environment, optimal use of financial and technological resources through the use of a risk management approach; and the development of innovative strategies to recover the social and economic value of federal contaminated sites.

Four major organisations have responsibilities under the new policy. Custodian departments and agencies are responsible for the management of federal contaminated sites under their administration and discharge their responsibilities in a manner consistent with their interest in the real property and with the management framework for the property. The TBS is responsible for the establishment and maintenance of the Contaminated Sites Management Framework and the provision of strategic policy advice. Public Works and Government Services Canada, as a common services provider, is available to provide technical and management services to support government departments in implementing their contaminated sites management responsibilities on a cost-recovery basis. Environment Canada plays a leadership role by providing specialist advice and guidance to government departments, agencies, stakeholders and other interest groups on the application and interpretation of federal and provincial policies, guidelines and programmes that may relate to federal contaminated sites; promotes compliance with regulatory requirements and guidance; serves as a liaison with provincial and territorial governments; and develops, in co-operation with partners, environmental quality criteria, site assessment protocols and remediation technologies.

Identifying Contaminated Sites

According to the definition adopted by the government, a contaminated site is 'one at which substances occur at concentrations (1) above (normally occurring) background levels and pose or are likely to pose an immediate or long-term hazard to human health or the environment or (2) exceeding levels specified in policies and regulations'.

The main qualification for including a site in the inventory is that there is a concentration of a substance in the soil or ground water (usually a petroleum product or a metal) that is higher than expected for that region of Canada. There must also be some evidence that this concentration poses a risk to human health or the environment.

This risk is determined in a step-by-step process, beginning with a rough estimate of the contamination based on guidelines agreed to by federal, provincial and territorial environment ministers, all of whom are members of the Canadian Council of Ministers of the Environment. The final stage in the procedure process is an Environmental Site Assessment that uses such tools as field sampling and laboratory analysis to determine the type and level of contamination present.

Although the inventory does not currently contain any solid waste landfills, these areas are defined as 'sites that have been subject to engineered waste control mechanisms which may include soil filling or covering, hydrogeological monitoring, or management of the waste disposal process'. A solid waste landfill may or may not be a contaminated site.

Accounting for Contaminated Sites

At the same time, the federal government issued its policy on Accounting for Costs and Liabilities Related to Contaminated Sites _=to ensure that all costs and liabilities related to the management and remediation of environmentally contaminated sites, for which the Government of Canada has ongoing responsibility, are accounted for and reported in the financial statements of the government in the fiscal year in which environmental damage is incurred, or in the fiscal year in which costs and liabilities are identified.

Supporting Material

• Real Property Management
• Federal Contaminated Sites Management Policy
• Policy on Accounting for Costs and Liabilities Related to Contaminated Sites
• Commissioner of the Environment and Sustainable Development

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