: Addendum to the 2010 Ontario Budget:
Ontario's Plan to Enhance Accountability, Transparency and Financial Management


Enhancing Public Understanding of Government Finances

Improved Transparency in Financial Reporting

Strengthening Accountability to the Public

Enhancing Accountability, Transparency and Financial Management

The government is committed to ensuring Ontarians receive value for their tax dollars. To this end, the Province is implementing its plan to enhance transparency and public understanding of government finances and to strengthen accountability for the spending of taxpayer dollars.

Since 2003, a high priority of the government has been to improve transparency, strengthen fiscal accountability and ensure effective financial management of public funds. One of its first actions was to introduce the Fiscal Transparency and Accountability Act, 2004 to strengthen the Province’s fiscal accountability framework, provide greater transparency in budgets and improve financial reporting. It also extended the authority of the Auditor General to carry out value-for-money audits of broader public-sector (BPS) organizations that use taxpayer dollars to deliver public services, including health care and education.

Starting with the 2005–06 Public Accounts and 2006 Budget, the government improved the transparency of government finances by including the expenses of hospitals, school boards and colleges in its financial reports. In 2007, the government introduced more stringent transfer payment accountability requirements to strengthen assurance that public funds are being spent by recipient organizations for their intended purposes. In 2009, the government improved its costing practices by extending its accounting treatment for investments in depreciable assets to additional classes, including vehicles, aircraft and information technology infrastructure. This recognized that these investments support the delivery of public services over their useful lives.

Enhancing Public Understanding of Government Finances

Ontario, along with the federal, territorial and other provincial governments, has been working with the Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants (CICA) to improve public-sector financial reporting. The aim is to ensure that Canadian public-sector accounting standards continue to support sound public policy decision-making, government fiscal accountability and the clear transparent reporting of information on government finances to the public.

Need for Improved Public-Sector Accounting Standards

Public-sector accounting standards establish how the financial activities of governments and public-sector organizations are measured, recorded and reported to the public. They are an essential building block for effective government decision-making, budgeting and the transparent reporting of financial information.

The government believes Ontarians, and all Canadians, need a set of public-sector accounting standards that accomplishes the following goals:

  • reflects governments’ public policy objectives and the role of public-sector organizations in delivering public services;
  • supports governments’ and public-sector organizations’ accountability for the spending of tax dollars;
  • reflects the unique structure of governments and the public sector in Canada; and
  • gives the public transparent and understandable information on government finances.

Ontario and the other governments in Canada are concerned that changes PSAB recently proposed to accounting standards are inconsistent with these fundamental objectives. Ontario raised these concerns with PSAB through a federal–provincial Joint Working Group of senior government and accounting standards officials. The Group identified concerns with PSAB’s conceptual framework that underlies the board’s development of all public-sector accounting standards in Canada.

Governments and public-sector organizations are different from private-sector organizations. These differences need to be recognized in setting accounting standards. The public, as users of private-sector financial reports, requires information for their investment decisions. The public, as users of information on public-sector finances, primarily wants to know how their tax dollars were spent and whether the books are balanced.

Canadian Public-Sector Accounting Standards Must Recognize:

  • the distinctly different public policy role of governments and public-sector organizations in delivering public services;
  • the distinctly different underlying economics of governments that invest in human capital, public infrastructure and resource development to support job creation, economic growth and social policy objectives;
  • the distinct rights and responsibilities of governments to tax their citizens and reallocate resources to meet socioeconomic policy objectives;
  • the distinctly different needs of the public, as taxpayers, for information on how public monies are spent;
  • the unique structure of government and government organizations in Canada where the federal, provincial and municipal governments frequently partner to deliver public services through an array of government-funded organizations; and
  • the fundamental need of the public for transparent and understandable information.

Accounting standards in the public sector impact government budgets as much as they do financial reports. Proposed changes in accounting standards must consider potential impacts on government budgets, fiscal policy decision-making, the accountability for expenditures of public monies, and the importance of transparency and public understanding of government finances.

The Ministers of Finance from the federal, provincial and territorial governments were recently updated on the work of the Joint Working Group at their annual meeting in December 2009.

Following the meeting, the Ministers issued a joint letter to the Chairs of the CICA Board of Directors, the Accounting Standards Oversight Council (AcSOC) and PSAB. The Ministers expressed concern that PSAB had not yet addressed the critical differences between the accounting standards requirements of the public and private sectors and the related impact on the public’s understanding of government finances.

From a letter dated February 17, 2010, signed by Colin Hansen, Minister of Finance and Deputy Premier, Province of British Columbia, on behalf of the Ministers of Finance to the Chairs of the CICA, PSAB, and AcSOC.

“Governments are responsible to ensure the public has relevant and understandable information on government finances and the stewardship of public funds. We are concerned about the broad application of private sector concepts to Government public sector reporting.... [This has] significant implications for the complexity of government financial statements and for the ease with which the public obtains the information they need to assess the financial resources of government and their stewardship.”

Need for Consistent Accounting Standards throughout the Public Sector

The CICA prescribes four different sets of accounting standards for use in the public sector in Canada:

  • public sector;
  • not for profit;
  • rate regulated; and
  • profit oriented.

In 2011, the CICA will introduce another set, International Financial Reporting Standards (IFRS). Each of these sets of standards measures, records and reports public-sector financial results differently. This results in public-sector organizations reporting different financial results in similar circumstances. This distorts transparency and fiscal accountability for the expenditure of public monies.

Chart 1: Accounting Standards in Ontario Public Sector

There is a need for PSAB to establish a consistent set of accounting standards for all public-sector organizations in Canada as soon as possible. In the interim, the Ontario government will provide direction to provincial government organizations and enterprises to ensure consistent transparent financial reporting and fiscal accountability are sustained throughout Ontario’s public sector.

As an initial step, the government is providing direction to school boards to ensure accounting for capital contributions is consistent with the current practice of senior governments in Canada and other major broader public-sector organizations (hospitals, colleges and universities). This will ensure that their current operating surpluses or deficits are not distorted by capital grant revenues.

The government will also consult with municipalities to ensure a consistent application of capital accounting throughout the municipal sector in Ontario. This will ensure consistency with the current practice of senior governments in Canada and the other major broader public sectors.

More broadly, the government plans to consult with financial officials and the auditors of public-sector organizations throughout Ontario. The objectives of these consultations will be to ensure that the accounting standards meet the needs of the public for consistent understandable information on public-sector finances, and support sound fiscal decision-making and accountability on how public monies are spent.

Another important area is the continued application of rate-regulated accounting practices by government organizations and business enterprises in Ontario. In light of increased uncertainty regarding the future of rate-regulated accounting under IFRS and the need to ensure consistency with the decisions of regulatory authorities in Ontario, the government may need to take action to ensure the financial reports of rate-regulated entities continue to meet user needs.

Ontario, together with other governments, also continues to be concerned with PSAB proposals to record market-value “paper” gains and losses on financial instruments in public-sector financial results. Governments generally borrow long term to finance government investments and do not trade financial instruments for short-term market gains. Over the long-term period until government financial instruments mature, market values can vary considerably. However, there is no impact on public expenditures until financial instruments mature. Public understanding of government finances would be better served by continuing to include only actual realized gains and losses in public-sector expenses and disclosing current market-value information in the notes to government financial statements.

Improved Transparency in Financial Reporting

Starting with this Budget, certain revenues and expenses will be presented differently for improved transparency in reporting. These presentation changes do not impact the Province’s annual surplus or deficit results or accumulated deficit.

Education Property Taxes and School Board Expenses

For greater transparency in its financial reporting, the government is presenting education property taxes together with other tax revenues in its financial reports. Education property taxes are provincial revenues that support school boards throughout the province. This change is consistent with PSAB’s recently issued standard for tax revenues and its requirements for consolidation of broader public-sector organizations.

Under the presentation change:

  • education property tax revenues are now included in the taxation revenues of the Province and are no longer netted against school board expenses; and
  • school board expenses now reflect their total costs, including those funded by education property tax revenues.

The following chart illustrates the change in presentation of school board sector revenues and expenses for 2010–11.

Chart 2: School Board Sector Expenses, 2010-11

Refundable Property and Sales Tax Credits

As announced in the 2009 Budget, the government has enhanced and separated its refundable property and sales tax credits. People file personal income tax returns to apply for these credits. Although these tax credits are administered through the personal income tax system, they are intended to reduce property and sales taxes that people have previously paid.

Starting with this Budget, the property and sales tax credits are being treated as reductions of the specific taxes previously paid rather than as reductions of personal income taxes. This change is consistent with PSAB’s new tax revenue standard.

The following chart illustrates the change in presentation of these refundable tax credits for 2010–11.

Chart 3: Refundable Tax Credits, 2010-11

Net Debt

The government provides over $40 billion annually to Ontario’s hospitals, school boards and colleges. Since the 2006 Budget, these BPS organizations have been included in the government’s consolidated financial statements.

With this Budget, the government is including the net debt of hospitals, school boards and colleges in the Province’s Consolidated Net Debt (see Table 3 in Chapter IV). This change in presentation is consistent with revised PSAB standards. Previously, the net debt of these organizations was included with the Province’s investment in BPS net assets.

The following chart illustrates the change in presentation of tangible capital assets and net debt for hospitals, school boards and colleges for 2010–11.

Chart 4: Broader Public Sector, 2010-11

Strengthening Accountability to the Public

As part of continuing efforts to strengthen the financial management, transparency and accountability of Ontario’s ministries and agencies, the government is enhancing existing policies and processes to improve accountability, oversight and reporting. To support these changes, it is also further bolstering the Financial Administration Act.

Strengthening Government Organizations’ Accountability

The government has taken major steps to strengthen assurance that Ontario’s ministries and government agencies are spending taxpayer dollars wisely. It has recently introduced strict new guidelines on procurement and business expenses. In addition, the government is increasing the transparency of public reporting of expenses and the accountability of agencies for compliance with government policies.

Consistent with past improvements to strengthen accountability for transfer payments, the Province has revised accountability policies for government agencies. The revision will strengthen ministry oversight and clarify the responsibilities of the 255 classified agencies in Ontario for compliance with government policies.

The government has also revised procurement policies for ministries and agencies to ensure they follow open competitive practices when acquiring goods, services and consulting services. In addition, revised travel, meal and hospitality policies are being put in place. They set out clear mandatory standards for eligible expenses incurred by government, ministry and agency staff while on business. They restrict reimbursement of staff for hospitality expenses, as well as payment of consultant expenses incurred for hospitality. To strengthen compliance, increased audits of ministry and agency expenses are also being undertaken. Furthermore, travel and hospitality expenses of senior government and agency officials will be publicly reported on a government website starting April 1, 2010.1

Strong Controls over Stimulus and other Infrastructure Expenditures

In the 2009 Budget, Ontario announced a two-year investment in capital infrastructure to help stimulate the economy and create jobs across Ontario. To ensure these public funds are spent wisely by recipient organizations, the government applied strong control measures consistent with other capital programs. These controls ensure that funds are spent for the intended purpose to achieve expected results.

Stimulus Transfer Payment Accountability Provisions

  1. Description of intended use of transfer funds
    • specific project(s) for which the funds are to be used;
    • eligible project expenditures; and
    • projects must be completed by March 31, 2011.
  2. Report-back requirement for public accountability
    • periodic reporting on the use of transfer funds, service deliverables and outputs or outcomes achieved.
  3. Right to independent verification/audit
    • the Province has the discretion to verify/audit that information submitted by the recipient is complete and accurate, and that funds were used for the intended purposes.
  4. Right to recover funds
    • if the funds are not used, or will not be used, for the intended purpose(s), specified services are not delivered, or intended outputs are not achieved, the Province has the right at a future date to recover funds transferred.
  5. Public reporting on stimulus expenditures
    • public website reporting on the progress of the infrastructure stimulus projects; and
    • regular website updates on federal-provincial infrastructure stimulus funding, provincial contributions and information on new stimulus investments.

In 2008, through the Investing in Ontario Act, the Province provided $1.1 billion to 445 municipalities to invest in their capital priority areas. The government continues to invest in municipal capital priorities. Accountability for the use of public funds continues to be an important part of Investing in Ontario Act funding and other municipal infrastructure program funding. Municipalities or local services boards that receive funding for capital projects are required to report back to the Province on the use of the funds received, are subject to audit and may be required to repay funding if amounts are found to have been used inappropriately.

Ontarians can now also track the progress of the infrastructure stimulus projects in their community and across the province on the Revitalizing Ontario’s Infrastructure website.2 Launched in November 2009 by the Ministry of Energy and Infrastructure, the website offers greater transparency to Ontario residents by providing regular updates regarding federal–provincial infrastructure stimulus funding, highlighting the provincial contribution towards projects, tracking construction progress and providing information on new investments. As well, Infrastructure Ontario’s website provides regular updates on the government’s major infrastructure projects that are being delivered through alternative financing and procurement contracts.3

Strengthening Accountability Over Broader Public-Sector Expenditures

The government provides over $40 billion annually in grants to Ontario’s hospitals, school boards and colleges. In addition, these BPS organizations receive direct revenues from the public, such as tuition fees, donations and other recoveries that are dedicated to their delivery of specific public services.

The BPS organizations are accountable for managing the expenses of their operations and balancing these expenses, net of their dedicated revenues, with the provincial grant revenues they receive to fund their operations each year. This bottom-line accountability structure for controlling the costs of BPS organizations ensures clear accountability for the expenditure of taxpayer dollars.

The following table illustrates this accountability structure for the total expenses of hospitals, school boards and colleges in Ontario:

Table 1
Broader Public-Sector Organizations
($ Billions)
2011–12 2012–13
Total Expenses 47.4 49.5 51.4 52.9
Fees, Donations and Other Recoveries (6.2) (6.5) (6.6) (6.8)
  41.2 43.0 44.8 46.1
Provincial Grant Revenues1 (41.1) (43.1) (44.8) (46.1)
(Surplus)/Deficit 0.1 (0.1)
  • 1 Represents only provincial transfers recorded as current-year revenues by the BPS organizations. Provincial capital grants contributing to the construction or purchase of capital assets are deferred and amortized to revenues over the same period as related capital costs.

Improving Public-Sector Salary Disclosure

The government has taken steps to enhance the quality and transparency of disclosures under the Public Sector Salary Disclosure Act, 1996. Starting with the disclosure of 2009 salaries, the government will include the salaries of individuals earning over $100,000 who are seconded to government ministries from public-sector organizations.

The disclosure of 2009 salaries will be posted on the Ministry of Finance website on March 31, 2010.4

Improving Financial Management of Capital Assets

Over the last few years the government has put in place the building blocks of effective asset management — first, with the accounting for investment in major assets, such as land, buildings, transportation and infrastructure as tangible capital assets in 2003, and then with the extension of this policy in 2009 to other assets owned by the Province including vehicles, aircraft and information technology infrastructure.

Starting with the Province’s 2009–10 fiscal year, the government also modified its existing tangible capital asset accounting policy to include the capitalization of interest costs incurred during construction as part of the total cost. With the adoption of this accounting treatment, interest costs incurred during construction will be amortized over the estimated useful lives of tangible capital assets along with other costs of construction, rather than being expensed during the period of construction. This approach is consistent with PSAB accounting principles.

Effective Financial Management of Debt

The government borrows money to build new infrastructure such as roads, hospitals and schools, and to fund annual operating deficits. The Province’s net debt is composed of provincial debt, less cash and temporary investments, plus the net debt of the BPS and adjustments for changes in other financial assets and liabilities.

Increases in net debt result in increased interest costs, which squeeze the overall amount of funding available for future health care, education and social programs. Accordingly, it is important to manage the levels of government borrowing.

To ensure the sustainability of its financial plan, the government is taking action to curtail the rate of growth in the Provincial debt. First, the government plans to reduce and eliminate the deficit by fiscal 2017–18. Second, the government is carefully managing its infrastructure investment priorities to ensure an effective balance of economic stimulus investments with the level of increased debt. By deferring some capital investments, the Province is mitigating pressure on its borrowing requirements. This approach will help to reduce the rate of debt growth and increases in associated borrowing cost.

Other Financial Management and Reporting Improvements

As part of continuing efforts to improve financial management and reporting transparency, the government is proposing a number of amendments to the Financial Administration Act (FAA).

First, it is proposing to amend the definition of “ministry” in the FAA to clarify the application of the FAA and related directives, policies and guidelines to include all corporations that are owned, operated or controlled by the Crown. Similar amendments to the Management Board of Cabinet Act are also proposed. In addition, amendments will be proposed to the FAA and other related statutes to clarify the government’s authority to direct the organizations that are included in the Province’s consolidated accounts on which accounting policies are to be applied in the preparation of their financial statements.

To support the implementation of the Harmonized Sales Tax, the government proposes to amend the FAA to authorize the Minister of Finance and the Lieutenant Governor in Council to issue certain payments or credits to a person, where it is determined to be in the public interest, in respect of the provincial component of the tax paid under Part IX of the Excise Tax Act (Canada).

To clarify the characterization of money received for a special purpose, the government is proposing to amend the FAA to define such money as public money unless declared otherwise by another statute.

To ensure reporting transparency regarding operating expenditures for school boards, the government is proposing to amend the FAA to introduce a new class of non-cash expenses for operating grants for school boards related to the education property tax. This would allow the funding of school boards from education property tax to be reflected in the Ministry of Education’s estimates.

The government will also introduce the Supplementary Interim Appropriation for 2010–2011 Act, 2009 to supplement the Interim Appropriation for 2010–2011 Act, 2009 to provide the balance of interim legal spending authority anticipated for 2010–11 spending. All expenditures under the proposed Act would have to be authorized, the Printed Estimates approved by the legislature, and the proposed Act be repealed once the Supply Act for the 2010–11 fiscal year is enacted.