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The 2013 Fall Report of the Auditor General of Canada was tabled in Parliament this morning.
This government should be very concerned that, among the report’s conclusions, five of the seven audited departments and the Treasury Board of Canada Secretariat have made unsatisfactory progress in addressing significant gaps and weaknesses in internal controls over financial reporting. After all, these controls serve to safeguard public resources against loss due to waste, abuse, mismanagement, errors, and fraud.
Financial reporting is the most significant attribute of a reliable accountability regime. As ACFO President Milt Isaacs stated in the Ottawa Citizen, if departments can’t manage normal reporting standards and requirements, they risk underspending, overspending, or misusing funds. It affects the costing and tracking of spending and decision-making, which are all at risk if we are relying on information that’s not complete like it should be.
Yet, as much as the Auditor General’s report is concerning, it is not unexpected. A steady increase in reporting requirements over the past 30 years – particularly since the Federal Accountability Act was implemented in 2006 – has left departments overwhelmed and struggling to meet growing external reporting obligations. A draft report by the Deputy Chief Financial Officer Council (DCFO) prepared in June 2012 identified the finance community has now reached a point where it no longer has the capacity to meet all external reporting requirements while still delivering core comptrollership functions.
Contrary to what some have suggested, reducing financial reporting requirements is not the solution. Reducing reporting requirements is in fact a defeated resolve and comes with its own risk of consequences. If we fall further behind in meeting reporting requirements – or if we decide to ease these requirements – we risk opening up our reputation to suspect.
This can have unnecessary consequences for Canadians. It can impact our bond rating, and weaken our position when negotiating trade agreements to name a few potential risks. It can also mean a lost opportunity to be able to afford to enter into new markets and jobs. According to Mr. Isaacs, there are big benefits to citizens globally if governments can manage their fiscal house at levels of acceptable accounting standards on their fiscal activities and I can’t say that is the case for us right now.
As Canada expands our trading partners and explores new markets, there is an expectation from these new trading partners that we have our fiscal house in order. We need reliable, accurate, and complete financial reporting to be an international leader in financial stewardship and to build strong trade and diplomatic relationships.
Meeting these financial expectations requires qualified finance professionals who can interpret financial data and compile these reports – known as financial capacity. Adhering to more rigorous international financial reporting standards will only increase the burden on our financial capacity. As the Auditor General and Deputy CFO reports show, we are not ready.
Furthermore, as other nations face these same financial reporting expectations, it is creating competition for a limited and expensive talent pool. Under these circumstances, the federal public service is finding it challenging to recruit financial officers. The current government’s austerity approach to fiscal management and proclivity to demonize the public service has only compounded this challenge.
We are not able to acquire the talent that we need in order to meet financial reporting requirements. The government needs to look at how they are managing – or more accurately not managing – the FI community. The financial management community is a dedicated, highly motivated, and engaged community, but this will be strained if the current environment persists.
Financial accountability was the horse that this government rode to town on in 2006. Today, the Auditor General’s report states that financial pressures facing the government, along with its stated intent to return to balanced or surplus budgets, also underscore the importance of ensuring the integrity of financial information.
If this government truly understands the importance that financial reporting plays in a global economy, it has to invest more in financial capacity.