The Budget Process
Managing and Controlling the Public Finances
WORKS AND GOVERNMENT SERVICES CANADA
OF THE AUDITOR GENERAL
OF COMMONS STANDING COMMITTEE ON PUBLIC ACCOUNTS
THE MANAGEMENT AND CONTROL
OF PUBLIC FINANCES IN CANADA
the fiscal year from 1 April 1996 to 31 March 1997, the federal government
spent more than $161 billion, of which public debt charges alone accounted
for almost $45 billion. Revenues amounted to $152.4 billion, so that
the deficit amounted to $8.9 billion. The federal government's liabilities
totalled nearly $641 billion.
view of these figures, the need for excellent financial management is
clear. A simple accounting error or slight hitch in a government program
could result in a loss of several hundreds of millions of dollars. Financial
controls are even more important in a context of budgetary restraint like
that in Canada today.
tabling of the budget papers on budget day ends the budget development
process. A cycle of financial management that extends over more than 20
months then begins. The purpose of this cycle is to ensure that public
funds are spent correctly, efficiently and as directed by Parliament.
paper emphasizes financial management rather than budget development.
It explains the public finance management cycle in detail. Before we examine
the cycle and the various players in detail, it is helpful to know the
organizations and departments involved in the budget process so as to
have a better idea of how the income and expense budget is developed.
We will then review the public finance management cycle, beginning with
the role of Parliament and ending with that of the Public Accounts Committee.
A. The Budget
the spring, Cabinet meets to assess the results of the last budget and
to set major priorities. Previously announced initiatives are taken into
account and new positions are formulated. Departments draw up multi-year
activity plans on the basis of the resources available to them. Treasury
Board reviews the plans to ensure that they are consistent with the budget
objectives and evaluates the plans' impact on policies. During the summer,
the government develops strategies and options to be examined by the Department
of Finance, which prepares a financial and economic outlook update.
the fall, the Department of Finance publishes documents for the budget
consultation process, which will involve experts, provincial ministers
and the general public. While consultations are taking place, reduction
and reassignment options are developed. The Department of Finance weighs
different positions and draws up the broad budget outline.
the winter, the government makes the final decisions. The Minister of
Finance delivers the Budget Speech and the President of the Treasury Board
tables the Estimates. The budget process is then complete and the financial
management of the budget decisions begins.
B. Managing and
Controlling the Public Finances
Financial Administration Act (FAA)
sets the framework for the whole public financial management cycle. The
following figure illustrates clearly how the Act controls the government's
financial operations. This Act, passed by Parliament in 1952 and amended
several times since then, controls the government's financial activities.
As its name indicates, the Act establishes the main rules of financial
management that the government departments and agencies must follow.
FAA specifies the responsibilities of Treasury Board, the Comptroller
General and the Department of Finance which, as we will see, are, along
with the Office of the Auditor General, the key players in managing the
plays a very important role in financial management by approving the expenditures
of every department and government agency for each fiscal year (1 April
to 31 March).
process of managing the public finances really begins a few days after
the budget is read, when the President of the Treasury Board tables the
Estimates in the House of Commons. The Estimates are in three parts and
set forth the government's financial requirements. Part I contains the
main points of the Estimates. Part II gives the detailed financial requirements
of each department and agency. The Parts III (one for each department
and agency) essentially repeat the information contained in Part II, but
go into more detail. In the past, many complained that the information
in the Part IIIs was difficult to understand and that too much emphasis
was placed on receipts rather than on results. The Part III documents
are being replaced with two new publications, however. Sixteen departments
are already taking part in a pilot project on reforming the reports made
to Parliament as part of the Estimates, improving the information available
in the documents and increasing the governments accountability to
Parliament and the Canadian public. Beginning in 1998-1999, the Part III
documents will no longer be submitted with the Main Estimates; all departments
will be required to submit reports on their plans, priorities and commitments
for results over the long term. Information on performance (which was
a very small feature in the Part III documents) will be provided in a
separate document tabled by each department in the fall, six months earlier
than previously. All departments are supposed to have submitted a performance
report by fall 1997.
Part IIIs (and the new reports on plans and priorities) are examined by
various standing committees of the House of Commons. Barring exceptions,
committees have until 31 May to adopt the budgets and report back to the
House. The ministers and their senior officials appear before the committees
to present and justify the expenses for the various programs. A vote on
the overall Estimates is then taken in the House.
examination of the Part IIIs, the reports on plans and priorities and
the performance reports does not, as a rule, generate much interest among
parliamentarians, the main reason being that, until very recently, committees
could not recommend funding changes without their actions being perceived
as a vote of non-confidence. Over the years, parliamentarians have been
somewhat frustrated about not being able to modify departmental expenditure
plans. Their frustration was addressed in part by an amendment to the
Standing Orders in February 1994. Committees can now examine departments'
plans and priorities and recommend changes. Since the appropriations are
often voted on after the beginning of the fiscal year, the Act allows
about a quarter of the required amounts to be released for operations
that are already under way. New projects can begin only when the funding
has been definitely approved by Parliament or deemed to be approved.
departments may need additional funding during the year for all sorts
of reasons. For example, the Department of Defence could face unforeseen
expenses in time of war. The government must then present supplementary
estimates seeking new funding or a transfer of funding between departments.
These estimates must be approved by Parliament. Supplementary estimates
are usually presented two to four times a year, as required.
in 1867, Treasury Board (TB) is the oldest Cabinet committee. It is made
up of six Cabinet ministers, including the President of the Treasury Board
and the Minister of Finance. Unlike other committees, Treasury Board,
through the Treasury Board Secretariat, employs several hundreds of public
servants. Furthermore, TB is the only committee subject to the Financial
Administration Act (the other committees can be created or abolished
by the Prime Minister). The Act establishes Treasury Board as a central
control agency. This means that the Board has the power to regulate the
various aspects of financial management.
Board has many tasks: it prepares the Main Estimates, establishes rules
for government disbursements and receipts (contracts, purchases, issuance
of cheques) and establishes accounting policies. In fact, these tasks
can be summarized as exercising control over public funds so that they
are spent honestly and carefully.
proceeding in this way, it is easier to avoid abuses and errors of judgment;
however, this approach allows little flexibility within departments. For
example, if officials want to bypass certain rules, they must convince
TB that it is justified. All this rigour sometimes creates tension between
the Board and departments. Officials complain about the many delays and
the lack of delegation of authority that result from this practice.
Board is also responsible for program evaluation within government.*
While departments have responsibility for evaluating their own programs,
Treasury Board, through the Secretariat, can carry out certain examinations
affecting more than one department. Treasury Board also establishes guidelines
for evaluations, audits and reviews.
departments' role in financial management is limited to complying with
the established rules. Departments must first ensure that their expenditures
have been approved by Parliament and that they still have the funds for
them. They must then ensure that the goods and services bought were indeed
received and met the contract requirements. In the case of a subsidy or
transfer payment, the departments must ensure that the recipient is truly
entitled to such a payment.
departments must also conduct internal audits and program evaluations.
Although departments are given a budget to work with, they cannot acquire
goods valued at over $5,000. When the cost exceeds this ceiling, the departments
must make arrangements for the acquisition with Public Works and Government
WORKS AND GOVERNMENT SERVICES CANADA
respect to financial management, Public Works and Government Services
Canada (PWGSC) acts as a central accounting agency responsible for the
receipt and disbursement of public funds.
a department approves the purchase of a particular good or service, PWGSC
ensures that the department has the funds required for this expense in
its budget, and only then issues a cheque for the acquisition. PWGSC takes
it for granted that the department has fully complied with all purchasing
with Treasury Board, PWGSC is responsible for the government's accounting
system. These two agencies must ensure that everything is done in accordance
with established accounting policies and conventions. Under the authority
of the Receiver General for Canada, PWGSC prepares and publishes the annual
financial statements found in the Public Accounts.
Public Accounts, now tabled in December of each year, nine months after
the end of the fiscal year, present the financial operations of the government.
They give the detailed revenues and expenditures of the government and
its departments and agencies.
OF THE AUDITOR GENERAL
Auditor General is one of the most visible players in the public finance
management cycle. The mandate of the Office of the Auditor General is
to transmit the appropriate audit data to the House of Commons. The Auditor
General Act provides that if funds were spent for purposes other than
those assigned by Parliament or without regard to economy or efficiency
or if satisfactory procedures were not established for measuring program
effectiveness, the Auditor General must report that fact to the House
of Commons. The Act requires the Auditor General to "call attention
to anything that he considers to be of significance and of a nature that
should be brought to the attention of the House of Commons..." Prior
to 1994, the OAG prepared only one annual report containing the Auditor
General's observations and recommendations. Now, in addition to the annual
report, the law allows publication of three periodic reports.
carry out these duties, the Auditor General Act grants the Office
a great deal of independence. Unlike most of the public service, the OAG
does not report to a minister of the Crown. The Auditor General, who is
appointed for a non-renewable term of ten years, is independent and can
therefore choose what to examine and report on.
OAG's role is to audit the government's programs and financial activities
after the fact and to report on them to the House of Commons. Financial
statements are audited to ensure that the information contained in the
financial reports of departments, agencies and Crown corporations is presented
accurately. The Auditor General must also evaluate the accounting methods
used in the government's public accounts and report to the House of Commons;
in this way, the Auditor General acts like any auditor in the private
addition to this attest audit, the Auditor General must also conduct a
comprehensive audit, an exercise that responds to the concerns of parliamentarians
and taxpayers. Guided by considerations of economy and efficiency, the
Auditor General must determine whether the spending of public funds was
properly authorized and the best use made of resources.
OAG acts as an ongoing positive force. The Auditor General's examinations
can prevent waste or loss or lead to faster correction of unsatisfactory
situations. Sometimes it is only because of Parliament's public review
of his annual reports that the Auditor General can force the appropriate
parties to correct the deficiencies that he has detected. Nevertheless,
it should be noted that even without the parliamentary review, officials
are urged to attach great importance to improvement.
the Auditor General encourages better financial management and control
within the government. He makes the government more accountable to parliamentarians
and Canadians. Parliamentary committees make the Auditor General's task
easier because they act as an ultimate deterrent. As we shall see, the
Auditor General and the Public Accounts Committee make up a special team
for protecting public funds.
OF COMMONS STANDING COMMITTEE ON PUBLIC ACCOUNTS
its examination of the public accounts, the House of Commons Standing
Committee on Public Accounts completes the government's public financial
management cycle. This committee, chaired by an opposition member, ensures
that departments, agencies and Crown corporations are accountable to Parliament.
The committee's mandate is to ensure that optimum use is made of resources.
It must determine whether government policy and the observed results fulfil
the previously set objectives. It does not call into question the rationale
of government programs, but rather the efficiency and soundness of their
implementation. Its role is to understand, evaluate and correct after
the fact (through recommendations made in its reports to the House of
Commons) the deficiencies and flaws noted by the Auditor General.
the committee is not concerned with government policy, it can be non-partisan,
deal with problems and seek solutions. To fulfil its mandate, the committee
uses criteria of efficiency, effectiveness and administrative simplicity
(cost of administration) in its examinations. To pursue its work, the
Standing Orders of the House allow the Public Accounts Committee to summon
individuals and demand that documents and records be submitted as well
as to study and investigate all questions referred to it by the House.
Public Accounts of Canada and the annual report and periodic reports of
the Auditor General are automatically referred to the Public Accounts
Committee as soon as they are tabled. The committee can thus immediately
investigate the issues raised in these documents and report if it sees
committee spends 90% of its time considering the Auditor General's reports.
In light of the Auditor Generals observations, the committee invites
the responsible officials to answer questions from members of the Public
Accounts Committee. When this committee examines the Auditor General's
annual report, the observations in it take on a whole new dimension. The
Public Accounts Committee can usually influence bureaucrats who have managed
public resources inefficiently to change their ways. The risk of having
the Public Accounts Committee report to the House of Commons on bureaucratic
incompetence usually ensures that senior officials summoned before the
committee agree to take corrective action.
frequently, the committee selects important aspects of the Public Accounts
or financial reports of Crown corporations for more thorough consideration.
In this case, the committee then examines the accounting methods used
by the government or Crown corporations to ensure that they comply with
the principles generally recognized in the profession.
presence of the Auditor General in departments and Crown corporations
is a deterrent to irregularities that lead to waste, misuse of funds and
fraud. The Public Accounts Committee is a valuable ally of the Auditor
General; without it, the Auditor General's reports would probably lose
much of their deterrent effect. A possible sanction is to be called to
appear before the Public Accounts Committee. The possibility of such a
sanction enables parliamentarians to put the maximum pressure on reluctant
bureaucrats to explain their actions or take corrective action.
than two years elapse between the preparation of the budget estimates
and the time when the Public Accounts Committee can really close the budget
process. Some critics say that the process takes much too long and does
not provide fast enough information for parliamentarians and Canadians.
Nevertheless, given the huge size of the task and the many people and
groups involved in the budget and the public financial management cycle,
it would be very difficult to speed up the process. One might say that
the time taken is the price we pay for good, sound financial management.
There is always room for improvement, however; the introduction of the
OAGs periodic reports is one good example of this. They enable the
Public Accounts Committee to address expeditiously the problems brought
to light by the Auditor General.
From 1978 to 1993, certain tasks
such as formulating accounting policies and program evaluation guidelines
were assigned to the Office of the Comptroller General, an agency separate
from the Treasury Board with responsibility for financial management issues.
The OCG was integrated with the Treasury Board Secretariat in 1993.