Beyond the numbers : A new financial management and accountability framework for Ontario executive summary

November 20, 1995

The following is the Executive Summary and listing of all recommendations from the final report of the Ontario Financial Review Commission, tabled by the Minister of Finance in the Ontario Legislature on November 20, 1995. General enquiries regarding this summary, the recommendations or the full report may be directed to:

Ministry of Finance
Communications and Corporate Affairs Branch
(416) 325-0333

Copies of the complete report are available for $5.00 from:

Publications Ontario
880 Bay Street, Toronto

Or by writing to:

Publications Ontario Mail Order Service
880 Bay Street, 5th Floor
Toronto, Ontario
M7A 1N8
Telephone: (416) 326-5300
Toll-free long distance: 1-800-668-9938

Ce document est également publié en français sous le titre «Au-delá des chiffres : Un cadre de gestion et de responsabilisation financières repensé pour l'Ontario.»

Executive summary

This report presents a new framework for better use of resources throughout the public sector. It will move government from its current process orientation to a performance orientation. It lays out a cycle of planning, reporting, monitoring and evaluating that aims to ensure programs meet real needs, and meet them effectively. It reflects a belief that the Legislature is the proper forum for public accountability. And it represents hope for real and lasting change that will help to achieve in the most effective and efficient way the urgent goal of balancing the Budget and subsequently reducing debt in Ontario.

Putting this framework in place will require leadership. For that reason, the Commission urges the Minister of Finance and his colleagues in government to act immediately, both to introduce legislative measures where necessary and to start the process of cultural change throughout the public sector.

The report follows from the deliberations of the Ontario Financial Review Commission, which was announced in late July 1995 with a mandate to review the Province's accounting, reporting, and financial management practices. It was asked to address the need to restore credibility and confidence in the reporting of Ontario's financial situation.

In its deliberations, the Commission focused on studying problems, setting out firm recommendations where there were clear solutions and laying out a path for further work on more complex issues.

Its 55 recommendations fall into three main areas, which define the three major sections of this report:

  1. Planning
  2. Financial reporting and accounting
  3. Crown agencies

In each of the areas it looked at, the Commission identified opportunities for more efficient and effective use of public resources. While the need to capitalize on these opportunities is not unique to the Ontario public sector, the current financial situation of the Province demands immediate change.

The Commission agrees with government's focus on deficit and debt reduction as a major priority. Using resources more efficiently is one way to help government meet its targets while preserving vital public services.

To that end, the Commission believes its most important recommendations relate to planning:

  • planning that requires organizations to measure their progress towards appropriate goals is the road to more effective and efficient use of public resources;

  • planning that makes allowance for unforeseen events reduces the risk that government will fail to meet its debt and deficit targets.

To reinforce the cycle of planning, monitoring, evaluating and using past results to improve future performance, the Province must also report on a timely basis that is consistent with the way it lays out its plans.

These premises were the basis for the Commission's proposals, which it believes are key to its vision of a more effective and efficient public sector in Ontario. The following is a summary of its recommendations:

  • That government adopt a prudent planning framework which

    • encourages cautious forecasting and better expenditure planning;
    • monitors results for the purposes of taking any corrective action that is needed; and
    • includes provisions for unexpected changes in its economic outlook

    in order to ensure that it meets or exceeds its deficit and debt reduction targets in the most effective and efficient way.

  • That government and all of its ministries and agencies be required by legislation to prepare annual business plans that:
    • outline goals and priorities;
    • explain targets for assessing effective and efficient performance and outline how progress towards them will be measured;
    • report on progress toward established goals and explain the reasons for any changes in the plan; and
    • cover the upcoming fiscal year and following two years.

  • That government lay out in its annual Budget and business plan both debt reduction and deficit reduction targets.

  • That the Budget set out a contingency fund to cushion against unforeseen economic changes.

  • That government initiate a system of recognition and rewards to motivate effective and efficient behaviour, and remove current disincentives to such behaviour.

  • That government adopt accounting and financial reporting standards recommended by the Public Sector Accounting and Auditing Board (PSAAB) for the Budget, the quarterly updates on the fiscal situation, and the Estimates or other spending authority.

  • That government adopt one financial management and reporting system to replace the incompatible systems currently in use. This will also encourage the earlier adoption of new information technology.

  • That government move to change and speed up the legislative process so that ministry plans can be reviewed early enough to have meaningful input, the Budget is tabled before the start of the fiscal year, and spending authority is put before the Legislature immediately.

  • That government set out a new framework for deciding which type of organization — a ministry, a Crown agency, or the private sector — will deliver services most effectively and efficiently.

  • That government require the Workers' Compensation Board to draw up, within the next year, a workable and credible plan to eliminate its existing unfunded liability.

  • That government immediately draw up an action plan to show leadership in putting these recommendations in place.

The Commission was also asked to look at the costs of its recommendations. The initial outlay to put in place many of the recommendations may be significant. However, the Commission believes the major long-term benefits, both monetary and in terms of better financial management, will far outweigh those costs.

A listing of all recommendations follows.


I. Planning

A. Framework for fiscal planning

Recommendation I.1:
That government adopt a prudent planning framework which:
  • encourages cautious forecasting and better expenditure planning;

  • monitors results for the purposes of taking any corrective action that is needed; and

  • includes provisions for unexpected changes in its economic outlook

in order to ensure that it meets or exceeds its deficit and debt reduction targets in the most effective and efficient way.

Recommendation I.2:
That government present a three-year business plan as part of its annual Budget. This business plan should:
  • outline goals and priorities in enough detail that ministries can use it as a basis for their business planning, as outlined in Recommendation I.16 below;

  • explain government's targets for effective and efficient performance and how it will measure progress towards them;

  • report on progress toward established goals and explain the reasons for changes from its previous plan; and

  • outline the revenue, expenditure and economic projections for the upcoming year and the following two years.

B. Better fiscal management and revenue forecasting

Recommendation I.3:
That government return to the practice of tabling its Budget, which would now include a business plan, before the start of the fiscal year.

Recommendation I.4:
That government provide, in its annual Budget, deficit targets (and underlying fiscal forecasts) for the upcoming and following two years, and that it measure itself against these targets in the subsequent Budget and other reports to the people of Ontario.

Recommendation I.5:
That government provide in its annual Budget a longer-term view of its debt reduction targets, and that it measure and report on its progress towards those targets in its subsequent Budget and other reports.

Recommendation I.6:
That the Budget contain commentary on socio-economic trends that are likely to have a significant longer-term impact on the Province's fiscal health, and outline measures that may be needed to deal with those.

Recommendation I.7:
That government's fiscal forecast be biased towards the cautious end of the range of forecasts that are consistent with its economic forecast.

Recommendation I.8:
That the Budget set out a contingency fund exclusively to cushion fiscal targets against the impact of negative unforeseen economic changes. Government should apply any part of the fund which has not been spent by year-end to reducing the deficit and debt.

Recommendation I.9:
That, where there is disagreement or uncertainty over the methodology for calculating future federal transfer payments, Ontario adopt for the purposes of fiscal planning the most prudent methodology.

Recommendation I.10:
That the Ministry of Finance each year collect and evaluate a list of contingent expenditures and other latent costs throughout government that might increase spending in the next several years; and that the Ministry establish a clear plan for dealing with them.

Recommendation I.11:
That government use significant unanticipated revenues to reduce the deficit and debt, and that this be clearly disclosed in financial reporting.

Recommendation I.12:
That the Ministry of Finance focus its efforts to improve its revenue forecast on getting better information about its main sources of revenue: personal income tax, corporations tax and retail sales tax.

Recommendation I.13:
That the Ministry of Finance take steps to create a fuller and more open system of personal income-tax information sharing with the federal government, and pursue as a matter of urgency its continuing requests for monthly information on source deductions.

Recommendation I.14:
That forecasts of revenues from any new non-tax initiative be supported by a prudent and realistic business plan.

C. Business plans and performance measurement

Recommendation I.15:
That the government adopt an integrated framework for ministries' activities that better links planning, monitoring, reporting and evaluation to improve the management and accountability processes.

Recommendation I.16:
That, as part of the framework, each ministry:

  • prepare a three-year business plan that reflects the government's priorities;

  • maintain the three-year outlook by updating its plan annually before the start of each fiscal year;

  • specifically address in the plan the measurement of progress towards its stated goals and reasons for changes to its previous plan;

  • outline in the plan what it believes to be suitable performance measures and targets at the ministry and program level, subject to review by a Legislative committee;

  • include detailed spending and, if appropriate, revenue plans for the upcoming fiscal year and estimates of these for the following two years;

  • explain in its plan the delivery structure to be used, including the roles, relationships and accountability of all entities that provide service on behalf of the ministry, and provide justification for this structure; and

  • provide semi-annual summaries of progress for ongoing monitoring and appropriate action to improve performance.
Recommendation I.17:
That government initiate a system of recognition and rewards in the public service to motivate effective and efficient behaviour, and remove current disincentives to such behaviour.

D. Legislative role

Recommendation I.18:
That the requirement for business plans, as outlined in this report, at the government, ministry, and agency level, be legislated.

Recommendation I.19:
That government have a review carried out with the goal of ending the current Estimates process, which is ineffective. This review, by either a special task force of the Legislature or an existing committee, should focus on an earlier and more useful debate of spending authority.

Recommendation I.20:
That the special review consider the following additional suggestions from the Commission:
  • an appropriate committee of the Legislature, which could be a renamed and re-defined existing committee, should be given the task of reviewing each ministry business plan before the start of the three-year planning cycle it covers;

  • the committee should conduct reviews on a three-year rotational cycle (that is, look each year at the plans of one-third of ministries), with attention to past and planned outputs and outcomes, and be able to recommend changes to plans;

  • in looking at each plan, the committee should be able to consult with the appropriate Minister and Deputy Minister, the Provincial Auditor, and others as needed;

  • the committee should look at the ministry's proposed measures and targets for performance to make sure they are appropriate, well-designed and rigorous;

  • committee staff should then monitor results on a semi-annual basis, and the committee should be able to require the Minister and/or ministry staff to appear before it as required; and

  • spending authority should be secured immediately after the tabling of the Budget.

II. Financial reporting and accounting

A. Accounting basis and system

Recommendation II.1:
That government adopt PSAAB standards for the Budget, related spending authority and updates on the fiscal situation.

Recommendation II.2:
That government adopt one financial management and reporting system for all ministries, in place of the incompatible systems currently in use.

B. Financial reporting

Recommendation II.3:
That government produce an annual report consisting of:
  • financial statements similar to those currently produced as part of the Public Accounts, with the addition of a column showing the Budget plan; and
  • a "management discussion and analysis" that includes financial and economic highlights and reports on performance against the goals set in the Budget and business plan at the start of the year.
A news release summarizing the annual report should accompany its publication.

Recommendation II.4:
That government's annual report and the Public Accounts be presented no later than 120 days after the year end, but preferably within 90 days.

Recommendation II.5:
That government produce quarterly financial statements, on the PSAAB basis, containing for each quarter:
  • an updated fiscal forecast for the year, compared to the Budget plan for the year; and

  • actual results for the current year to date, compared to year-to- date actual figures for the prior year.

The second quarter should also contain a revised economic forecast for the year and outline its impact on the year's fiscal forecast, and should provide an update of the economic forecast for the next two years.
Ontario Hydro and Workers' Compensation Board
Recommendation II.6:
That government clarify the ownership of Ontario Hydro in order to end confusion in financial reporting.

Recommendation II.7:
That government require the Workers' Compensation Board (WCB) to draw up, within the next year, a workable and credible plan to eliminate its existing unfunded liability. This plan should outline specific benchmarks at regular intervals; and the government should monitor the plan's progress to make sure corrective action is taken if it falls short of those benchmarks.

Recommendation II.8:
That the present disclosure of the Workers' Compensation Board in the notes to the financial statements in the Public Accounts be improved by expanding it to include summary disclosure of the Board's balance sheet and its statement of operations and unfunded liability.

Recommendation II.9:
That government review the current governance structure of the Workers' Compensation Board with a view to making it financially accountable, more effective, and better able to provide leadership.

Recommendation II.10:
That the investment practices of the Workers' Compensation Board be reviewed independently to assess whether return on investments is appropriate to its long-term goals.

C. Accounting issues

Recommendation II.11:
That, in absence of a PSAAB guideline in a specific area, government follow, in order of authority and depending on availability:
  • accepted public-sector practice;
  • generally accepted accounting principles in the Handbook of The Canadian Institute of Chartered Accountants (CICA);
  • guidance from the CICA's Emerging Issues Committee; or
  • accepted private-sector practice in the area.
Recommendation II.12:
That government continue its accounting treatment of capital assets, which is generally to expense all spending on assets in the year they are bought or built, and follow those practices in the Budget and quarterly updates until PSAAB standards deal with capital assets. If and when PSAAB standards for capital assets are issued, government should adopt them.

Recommendation II.13:
That, when reporting the impact of restructuring that involves reducing staff, government follow the guidance of the Emerging Issues Committee of The Canadian Institute of Chartered Accountants. In general terms this would mean accruing and expensing the costs at the time the restructuring decision is made.

Recommendation II.14:
That government recognize all expenditures, including those related to downsizing or asset write-offs, in arriving at the annual deficit. It may disclose separately these and similar non-recurring costs.

Recommendation II.15:
That the proceeds of asset sales or other transactions outside the normal course of business be included in the reporting of government's annual deficit and disclosed separately from ongoing revenues.

III. Crown agencies

A. Service delivery

Recommendation III.1:
That government develop a management framework, based on the one outlined below, to determine which type of organization will deliver services most effectively and efficiently. This framework should specifically address the accountability issues that follow from any special powers the particular organization is given, and require ongoing monitoring to ensure that any special powers are justified.

Government should use this framework to decide whether the structures and operations of existing organizations need to change to improve their performance.

Recommendation III.2:
That when an agency is the organization used to deliver a government service, its business plans and published annual reports detail the costs and benefits of agency status. If the costs significantly outweigh the benefits over time, then government should conduct the activities through a ministry instead.

Recommendation III.3:
That, where there are no overriding public-policy reasons for government ownership of an enterprise which could operate successfully in the private sector, the private sector carry out the activity instead.

Recommendation III.4:
That government set out an accountability framework for all Crown agencies. The framework should require that agencies produce business plans, similar to those recommended for ministries, which set appropriate targets, report on results, and require ongoing monitoring. This framework should incorporate ongoing measurement of costs and benefits of agency status, as discussed in Recommendation III.2.

B. Accounting and accountability for existing agencies

Recommendation III.5:
That government expense, in the year they are made, any financial contributions needed to establish or continue an enterprise's self-sustaining status.

Recommendation III.6:
That, when an agency is classed as an enterprise on the basis of financial projections, it update those projections annually.

Recommendation III.7:
That government write off, at the time of its decision, its investment in any agency that it judges to be no longer self-sustaining. The agency should then be reclassified and treated as a service organization.

Recommendation III.8:
That, where an agency has both enterprise and service activities, the agency's own reporting clearly differentiate between these activities. Where it also acts as agent for government or other government agencies, the agency's financial statements should give appropriate note disclosure of its activities as an agent.

Recommendation III.9:
That, when creating a new agency, government seek to give it responsibility for activities that are either enterprise or service in nature, but not both.

C. Recommendations specific to agencies

Recommendation III.10:
That the Metro Toronto Convention Centre (MTCC), which now reports as an enterprise, provide annual updates of its business plan to support that continuing status.

Recommendation III.11:
That updated projections and business plans use net income as defined under generally accepted accounting principles in assessing MTCC's self-sustaining status.

Recommendation III.12:
That the province show as an expenditure in its financial statements its proposed $75 million non-repayable construction grant to MTCC when it is paid.

Recommendation III.13:
That, when and if PSAAB adopts its proposed standards on Crown agency reporting, the Development Corporations of Ontario (DCO) be classified as a service organization.

Recommendation III.14:
That the various regional agencies of the Ontario Development Corporations be combined and report as one entity.

Recommendation III.15:
That the Ontario Financing Authority (OFA) retain its status as an agency and that, in order to strengthen its risk-management capability, it be given greater management and administrative flexibility and add outside directors to its board.

Recommendation III.16:
That the board of directors of the OFA set over-all goals that are in line with its status as a government agency, and ensure that its risk-management policies in all its activities, including managing the Province's debt and investment portfolios, are consistent with those goals. The OFA should also ensure that its risk-management and disclosure policies draw on the best practices of the financial community. The OFA's annual report should disclose its goals, policies and practices in detail, along with related targets, activities, and performance.

Recommendation III.17:
That the Ontario Transportation Capital Corporation (OTCC) and government monitor regularly and assess at least annually OTCC's performance against projections to support its continuing status as a government enterprise, in view of the government's significant investment in OTCC and because of the uncertainty of OTCC's ultimate self-sustainability.

Recommendation III.18:
That the Ontario Clean Water Agency (OCWA) show, in a detailed business plan, the measures that will be required for it to remain self-sustaining as it faces more private-sector competition in its operating activities and lessens its dependence on profits from its financing activities, which are now the source of its self-sustaining status.

Recommendation III.19:
That government consider granting OCWA more management and administrative flexibility to allow it to operate more competitively.

Recommendation III.20:
That the Ontario Realty Corporation (ORC), which now reports as a government enterprise, be treated as a service organization instead. It should retain its status as an agency in order to draw on outside expertise in managing the Province's real estate assets.

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