British Columbia -- Budget '99
Ministry of Finance and Corporate Relations
Joy K. MacPhail, Minister

Budget Reports
This electronic version is for informational purposes only.
The printed version remains the official version.

Report G:
FINANCIAL MANAGEMENT DEVELOPMENTS
IN THE MINISTRY OF FINANCE AND
CORPORATE RELATIONS

Introduction

Improving transparency and accountability have been important themes of reforms to government around the world in recent years. Governments are being urged by international agencies and financial market participants to provide timely and reliable fiscal and economic information.

This report outlines initiatives taken in recent years and currently underway by the Ministry of Finance and Corporate Relations ("Ministry") to:

Many of these initiatives are the result of the evolution of practices, standards and the state of the art in accountancy, financial management and economics. The Ministry strives to remain well-informed of developments in these areas, reflecting its commitment to continuous improvement.

 
Improving Government Financial and Economic Information

The Ministry is responsible for managing the public finances in a prudent and responsible manner. A key element of public sector financial management and accountability is the availability of timely information that accurately reflects the state of provincial finances.

In recent years, the Ministry has increased the amount of economic and fiscal information provided. For example, in 1998 more information was provided on assumptions underlying the budget economic forecasts and capital spending plans of government-funded agencies.

These initiatives also respond to recommendations from the Public Accounts Committee of the Legislature, the Auditor General, and requests from the media, other interested groups and the general public.

This information is reflected in budget documents, the Public Accounts, Quarterly reports and other publications such as the annual Financial and Economic Review and Debt Statistics Report. Chart G1 on the next page depicts the annual financial and reporting cycle. The various fiscal and economic publications released during the year are pictured on page 91.

Chart
CHART G1
THE FINANCIAL AND REPORTING CYCLE

Highlights of improved reporting include:

In addition, this year's budget documents include improved and more comprehensive reporting on expenditures in the Estimates.

 
Improvements in Forecast Methodology and Transparency

Planning for the future is a critical function in any public or private sector organization. Planning necessarily involves making assumptions and forecasts about the future.

In the Ministry, the two key forecasting functions are closely related:

— predicting the economy's future path; and

— predicting the amount of revenue the tax base will generate.

FISCAL AND ECONOMIC PUBLICATIONS
OF THE MINISTRY OF FINANCE
AND CORPORATE RELATIONS

For several years, the Ministry has pursued improvements in forecast methodology through the following means:

In addition to ongoing efforts to improve forecasting methodologies and results, the Ministry has taken steps to increase the transparency of forecast processes.

To ensure the budget incorporates a wide range of professional views on the economic outlook, the Minister of Finance and Corporate Relations hosts an annual pre-budget economic conference with leading private sector and academic forecasters and economists. Their views are presented in the budget. During the year, Ministry staff also host economic roundtables with people in the local economic community to gather information on regional and sectoral developments.

Recent budget forecasts have included revenue contingencies or "allowances". The amount of these allowances is based on the difference between "prudent" and "most likely" economic forecasts. The revenue allowance is in addition to the expenditure budget contingency, which provides an offset to unforeseen expenditures in areas such as forest fire-fighting. The revenue allowance and the expenditure contingency reduce the risks inherent in forecasting.

 
Accounting and Information Management Developments

The Ministry has continuously updated its accounting policies and standards and has put in place better systems for collecting, integrating and reporting information.

The Ministry works closely with the Auditor General to ensure appropriate accounting policies. The province is a leader in Canada in the capitalization of assets. The Estimates and the Public Accounts are now on a full "expense" basis. Thus, the costs of long-lived capital investments more closely match the useful life of the assets, ensuring that the costs and benefits of public investment are spread more equitably across fiscal years. This improves financial reporting to the Legislature and to taxpayers.

The Ministry and the Auditor General have been discussing the appropriate accounting entity of government for some time. The government sought the opinion of the Public Accounts Committee of the Legislature but the issue remains unresolved. The government is referring the issue to a panel of experts recently appointed by the Minister of Finance and Corporate Relations (see "Response to Auditor General's Review of the Estimates Process" on page 95). Once this issue is dealt with, the government expects that all of the reservations of the Auditor General placed on the Public Accounts will be eliminated.

Together with government ministries, the Ministry is introducing a new Corporate Accounting System (CAS-ORCA). This system is designed to link the financial accounts of all government ministries, replacing a number of different computer systems used in ministries. CAS-ORCA is being piloted in the ministries of Forests and Transportation and Highways effective April 1,1999, and is to be introduced to the rest of the government over the next two to three years. The new system will improve corporate reporting as well as allow for the streamlining of government financial operations through common standards and business re-design.

The Ministry is reviewing its tracking of monthly financial data. The objective is to provide more accurate information for decision making and for the quarterly reports released by the Ministry. This is consistent with a recommendation of the Auditor General.

The Public Accounts are the government's annual financial report. Many improvements have been made to the content and timeliness of the Public Accounts during the past year. The 1997/98 Public Accounts were released on October 21,1998, two months earlier than the previous year. The Ministry and the Auditor General are working closely to see if this date can be advanced further for the 1998/99 Public Accounts.

For the first time, information on government payments was made exclusively available through the Ministry web site (http://www.fin.gov.bc.ca). This included a search tool to find specific payments made by the province. The full Public Accounts are also available on the web site.

In the 1997/98 Public Accounts, the Ministry also adopted a private-sector balance sheet model, improved note disclosure (e.g. measurement uncertainty) and increased information on colleges. British Columbia is the only province to provide supplemental reporting on the broader public sector entity, an approach favoured by the Auditor General.

In 1999/00, the Ministry will consolidate the government's internal audit function to ensure better and more efficient audit coverage across government. This will improve the allocation of audit resources across government and ensure better follow-through on cross-government audits. This initiative should increase cost savings from audits, improve financial processes and result in better program management.

The Ministry is also leading two special reviews: one designed to streamline and improve financial and administrative policies. The other to benchmark our financial functions against comparable jurisdictions. The intent is to identify efficiencies without compromising control. These reviews should also provide best-practice guidance from other jurisdictions on streamlining financial administration. An example of a process improvement is the introduction of the government purchase card to eliminate paperwork involved in "local minor purchase orders". This helps reduce costs for both government and participating merchants.

 
Improving The Performance of Government Programs and Operations

In its stewardship of provincial finances, the Ministry has a strong interest in ensuring that government programs meet their objectives in an efficient and cost-effective manner.

A commonly-noted difference between the public and private sectors is the absence of a definitive "bottom-line" in government operations. A single government program may be designed to meet multiple objectives, whereas the purpose of a business product such as a line of computer software is to earn a profit for its producer. Consequently, it is often more difficult to assess the performance of government operations and programs.

Beginning in 1994, the Deputy Ministers' Council (DMC) and the Office of the Auditor General (OAG) jointly began development of a performance management framework for the provincial government. The Ministry, through the budget process, guides and co-ordinates the government's implementation of performance management. The framework was designed to improve performance by focusing on results and to provide meaningful information on program performance to the public.

In 1995, the First DMC-OAG Joint Report was released. This report provided an overview of accountability processes. It also introduced the accountability framework and described the roles and responsibilities of government and the Legislative Assembly. The Public Accounts Committee (PAC) expressed support for the initiative and made 10 recommendations to the Legislative Assembly for improving government's performance management systems. These included re-alignment of select Standing Committees and reform of the Estimates process to include reference to program outcomes and performance measures reporting.

A Second Joint Report was released early in 1996. It provided an implementation plan, schedule and responsibilities, and extended the initiative to funded agencies that provide health, education and social services.

A Third Joint Report was released in the spring of 1997 on progress of the initiative. The report indicated that progress at the ministry-wide level was slower than originally planned although there were significant strides made in reporting results for individual programs. It was recognized that a reasonable implementation schedule was required to test the measures and make refinements before performance measures are reported publicly.

Throughout 1998, progress was made in other areas:

Although the initiative has not moved toward full implementation across government exactly as envisaged in the joint DMC-OAG reports, the government remains committed to using performance measurement and management to improve program delivery to the public.

 
Risk Assessment and Management

The Ministry is responsible for the effective management of the risks of loss to which the government is exposed by virtue of its assets, programs and operations.

Unlike individuals and small firms purchasing private insurance, experience has shown that it is less expensive for government to insure itself against risk of loss than to purchase insurance. In fact, the province acts as the insurer of a large portion of the public sector including the public health and education systems. As a result of effective risk management programs, the government has saved in excess of $330 million since 1986. In 1998, the Ministry of Finance and Corporate Relations' director of risk management was named Risk Manager of the Year by the Chicago-based Business Insurance magazine.

The Ministry is also engaged in other forms of risk management in issuing government's payments, managing its cash balances, and meeting its borrowing needs. A key objective is to minimize debt service costs. This is achieved by using a number of strategies and financial products to obtain the lowest financing rates at the least risk. (For more information see "Effective Debt Management", British Columbia Budget ’95 Reports, Appendix E3, pp. 62-65.)

The impending Year 2000 date change has been well publicized. Since governments provide many important public services, the continued functioning of these services is critical for ensuring public safety and well-being. The Ministry expects that all mission-critical systems will be Y2K-compliant by the fall of 1999. The topic box on page 91 discusses the provincial government's preparations for the Year 2000 date change, which have been underway since 1996.

In addition to near-term risks arising from the Year 2000 date change, there are other potential threats to government operations such as earthquakes and other natural disasters. The Provincial Emergency Program is in place to plan and co-ordinate government's response to such events. In addition, the Ministry recently put in place systems to allow government to make payments if electronic payment systems fail.

 
Response to the Auditor General's Review of the Estimates Process

On March 16, 1999, the Auditor General of British Columbia released a report on the Estimates process.

The recommendations in this report fall into two broad categories:

Due to the extensive and broad nature of the recommendations in the first category, further work and consultation is necessary.

The government's first steps include the appointment of an advisory panel, legislation to establish an economic forecasting council and a request for models that reinforce the professional independence of staff charged with preparing forecasts.

The advisory panel will consist of British Columbians from a wide range of backgrounds. Under its mandate, the panel will be asked to bring forward recommendations, including legislative proposals as required, by September 30, 1999. The panel's report will be made public at the same time it is presented to government.

Government has acted on several of the Auditor General's recommendations including:

The Minister of Finance and Corporate Relations is committed to ensuring confidence in and reliability of the economic, revenue and expenditure forecasts upon which the budget is based.

Accordingly, the Financial Administration Act will be amended to formalize in statute an economic forecasting council made up of private sector forecasters. The council has been advising government for the past two years. Government will be required by legislation to publish the council's advice in the budget.

The professional independence of Treasury Board staff charged with preparing economic and fiscal forecasts will also be reinforced. The Minister of Finance has directed the Secretary to Treasury Board to bring forward recommendations that clarify appropriate roles and responsibilities in this area.

 
Conclusion

The Ministry of Finance and Corporate Relations is committed to advances in transparency, openness and accountability and to continuous improvement in forecasting and performance measurement and management.

Topic Box
TOPIC BOX
PREPARING THE PROVINCIAL GOVERNMENT
FOR Y2K

 

previous CONTENTS FOR REPORTS next
BUDGET ’99 HOME PAGE

Link to the Home Page for:
British Columbia Signature
If you have questions or comments about content please contact:

Copyright 1999: Queen’s Printer, Victoria, British Columbia, Canada