Ask anyone who has had the “dubious pleasure” of sitting through a budget lockup, federal or provincial, how easy it is to read and understand the financial documents that governments’ provide. They will just roll their eyes in frustration. It seems to most readers that the sole purpose of budget documents is to create confusion so that they just throw up their hands in defeat.

What most people want is a simple and clear presentation of the government’s fiscal numbers: revenues, spending, budget balance, and debt. They want to know how these numbers have changed compared to previous years and also compared to previous budget forecasts. They would like understandable explanations and a common and preferably understandable system of budget accounting; one that does not require a degree in forensic accounting. They would like the language to be clear, rather than vague, obtuse, overly technical, and often downright misleading.

One can only hope.

The C.D. Howe Institute has just published “Credibility on the Bottom Line: The Fiscal Accountability of Canada’s Senior Government, 2013 – C.D. Howe Commentary No. 404, a report of how well senior (federal, provincial and territorial) governments provide understandable fiscal documents, which would allow them to be held accountable.

This is an annual report, divided into three sections: Measuring Fiscal Accountability; How Much Do Budget Votes Actually Mean? Targets versus Results; and Policy Recommendations. In the past, we have been quite critical of the methodology and interpretation related to the section entitled  “How Much Do Budget Votes Actually Mean? Targets versus Results”   and many of these concerns are still applicable to the current Report.  However, they will not be repeated here.  Instead, we will focus on the first and third sections of the Report.

With respect to Fiscal Accountability, the Report assesses senior governments on how well they satisfy the following information relating to presentation, reporting schedule and audit:

• Does the budget present one prominent set of revenue, spending and balance figures calculated in accordance with Public Sector Accounting Board (PSAB) recommendations?
• Do the public accounts present early and prominently headline revenue, spending and balance figures?
• Do the public accounts present headline revenue and expenditure figures that correspond to the most prominent figures in the budget?
• Do the public accounts prominently explain variances between the results and the budget?
• Does the government publish in-year updates showing deviations from the budget plans?
• Did the auditor give the public accounts a clean opinion? and,
• How soon after the end of the fiscal year did the public accounts pass the audit?

Based on these seven criteria, the C.D. Howe Institute gives the federal government and Ontario an “A” grade.  British Columbia received a B+, downgraded primarily to the fact that their Auditor General has expressed negative opinions on the financial statements in 9 of the past 20 years, and New Brunswick a B-, as the accounting standards used in the budget and public accounts are not the same.

Nova Scotia received a C+, while Manitoba and Alberta received a C.  Alberta’s low ranking was primarily due to its presentation in its budget of multiple spending and balance figures.  Under current legislation, its budget is divided into three components: Operational Plan, Savings Plan and a Capital Plan.  Each Plan is presented separately.  As a result, there is no one single bottom line number as to what constitutes the surplus/deficit. 

The remaining provinces/territories received even worse grades.  Although the markings are somewhat subjective, they clearly demonstrate that most senior governments still have a long way to go in improving the reporting of their financial results. 

But the record of understandable budget and public accounts numbers is a lot worse than the C.D. Howe report card.

The C.D. Howe Report makes a number of recommendations, which go beyond their report card.

1. Budgets Should Match Public Accounts: The Public Sector Accounting Board (PSAB) recommends standard accounting principles for senior levels of government.  However, senior governments are sovereign entities and can set their own accounting policies, for both their budgets and final audited results in their public accounts.  Auditor Generals present their opinions on both the government’s stated accounting policies and those of PSAB when auditing the financial statements in the public accounts.  The federal government and five provinces present their budgets and public accounts on the same accounting basis.

However, five provinces and the three territories do not.  As a result, it is difficult to assess how the government did against their original budget objectives.  Adjustments need to be made to the original budget estimates such that these projections confirm to PSAB accounting standards.  In addition, without compliance to a standard set of accounting principles, it is difficult to assess fiscal performance among the provinces and territories. To ensure consistency in the presentation of the budget and the public accounts, the two should be the same accounting bases, following PSAB accounting standards.

2. Budget Spending Estimates Should Match Public Accounts Spending Estimates: With the exception of two provinces, the Estimates (details of spending requiring Parliamentary/Legislature approval) are not on a consistent accounting and coverage bases as the budget and public accounts. As a result, there is a delink between the Estimates and the spending numbers in the budget and public accounts.  In addition, reconciliations of the differences are not provided.  Legislators lack important information when reviewing the Estimates.

We, along with others, have raised this issue on numerous occasions.  Up to Budget 2007, the federal government provided a reconciliation between the Estimates and the Budget. Since then, no reconciliation has been provided.  Estimates 2014 increased the difference between the Estimates and the budget by excluding employment insurance benefits from the Estimates.  Presently, spending in the Estimates is about $45 billion lower than that included in Budget 2014 for 2014-15.  This means that a significant amount of spending does not receive the same scrutiny by Parliamentarians as those included in the Estimates.

3. Public Accounts and Like Committees Need Revitalizing:  The C.D. Howe Report argues that committees reviewing the Estimates, the budget and the public accounts should be strengthened. This would improve parliamentary oversight of government decisions.  This would require more training of Committee members and that that turnover of members be restricted. 

4. Year-End Results Must Be Timely:  The C.D. Howe Report recommends that end-of –year results be published three months after the end of the fiscal year, as is the case in Alberta.  However, the Report considers the date of the most recent audit approval as the date of release.  This is not necessarily true.  For example, the date of the audit approval for the Public Accounts of Canada for 2012-13 was August 29, 2013.  However, these Public Accounts were not tabled in Parliament until October 30, 2013, with interim results released on October 22, 2013 in the Annual Financial Report.  Release of final results by other senior governments is usually in the early to late fall.

Legislation requires that Alberta table its public accounts by the end of June.  To meet this requirement, extensive use of estimates is made, with adjustments made in the subsequent fiscal year.  The use of estimations by other jurisdictions is limited, as most jurisdictions’ final results are based on administrative data, thereby resulting in delays in the publication of the final results.

However, senior governments should be encouraged to table their audited results much earlier than is now the case.  Much of the delay results from disputes between the government and the auditor.  Adherence of PSAB standard should result in the audited results being available earlier.  In addition, most governments require that the final results be tabled in Parliament, thereby delaying the release if Parliament is not in session. There is no reason why the final results cannot be released six months after the end of the fiscal year.  

The C.D. Howe Report is, on the one hand, good news for the federal government for the publication of budget and related documents but bad news because there is no reconciliation of Budget spending and Main Estimates spending. 

As clearly indicated in the C.D. Howe Report, senior governments are not doing a great job in providing Canadians and their Legislatures with understandable and consistent fiscal numbers.

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