National Birthdays, Odd Anniversaries and the Brave New World
Twenty-five years after Canada flipped the switch on accrual accounting, a veteran of the trenches looks back on the project that dragged the federal books out of the Dark Ages on time and under budget.
We recently experienced another round of National Birthday celebrations. I must admit that our Canada Day celebrations were exceptionally compressed and compact this year, compared to years gone by. We didn’t even haul out the huge flag that once floated atop the Peace Tower in Ottawa. It’s a long story and an even bigger flag.
Then there were the oddest celebrations to our South. But, as I was reflecting on National Birthdays, past including our Centennial, including Expo 67 and the now infamous monorail adventure (see my last offering), and the amazing events of the American Bicentennial – I remembered another anniversary. It was twenty-five years ago, on April 1st, 2001, that the federal government in Canada moved out of the dark ages of accountancy and adopted a full accrual accounting regime for its annual financial statements. Now that truly was a momentous occasion!
I know, you are thinking, whoopdeedoo, it was just an accounting standard change. Well, I could say the same thing about my first smart phone. Did you ever carry around a portable phone in a bag, the size of grandma’s purse, loaded with bricks? Yours Truly did, and I have the back issues now to prove it. Same goes for my first “portable” office computer. It took two people to carry that one around some forty years ago. But I digress.
Anyway, it was the late 1990s and the federal government announced that Canada would move from its modified cash basis of accounting, where it really only kept track of its payables and receivables, made year-end accruals thereof, and held all capital assets at zero value on its books. As annual appropriations were solely cash based, another quirky government thing – it hadn’t really occurred to anyone that capital assets mattered much, as they were expensed in the year of acquisition. Are you horrified yet, dear fellow accountants?
So, away we went to figure out how to get from where we were, the accounting Dark Ages, to the brave new world of almost full accrual accounting. How hard could it be, right? Well, it turns out that the work to be performed involved every aspect of our financial processes, including systems, and was going to be particularly tough in departments and agencies that were capital asset intensive. At that time, I was the head of the units at the Department of National Defence (DND) responsible for costing services, comptrollership and the financial system. I was “asked” to head up the DND project to implement the government’s new Financial Information Strategy (FIS).
I was given a dedicated project team, a nice new office in the boonies of Ottawa (that’s another painful story) and told to go forth and bring about accrual accounting. I was also given $20 million and a very tight project timeline.
So I did what all good public servants do when tasked with a novel challenge… I went Walk-About! By that, I mean that I went around to all of the major Defence departments that were friendly (USA, UK, France, New Zealand, Australia…) and asked if they had done this successfully and what tips they might have for us folks in Canada. The responses ranged from a diplomatic shrug, to sighs of exasperation, to stern warnings not to follow in their footsteps. It was the latter that really got my attention. So off I went to the UK, Australia and New Zealand!
I actually caught a break in that the fellow who had completed this very task for the UK MoD was giving a talk in Ottawa. I attended the talk and, at the end of same, rushed up to introduce myself to the good Colonel, hand him my business card and ask him to tea and a chat with my project team and some of the main players in DND.
He accepted, and the information he provided proved to be extremely important and very timely. In essence, he described the very resource-intensive process that the UK MoD had completed, one that cost well over 80 million euros and resulted in significant concerns being expressed by their legislative auditor. The advice from the UK was to go light and go small on this project. That was exactly the same advice I received from my counterparts in Australia and New Zealand. In the case of Australia, the advice was even more direct, blunt and delivered after a lovely dinner and a few libations.
The bottom line was to do this smart, not intensive. In their experience, it was better to keep the initiative to only the strict minimum of key individuals involved in the accounting processes, especially capital assets. In other words, don’t follow the direction from the all-knowing and all-powerful central agencies that called for the FIS to support everyday budget managers’ decision making, thus requiring them to be fully versed in all things pertaining to accrual accounting. We took that advice very much to heart in our project design. We also heeded the words of the then Deputy Minister at DND, who threatened very dire consequences if he had to be turned into an accounting expert.
It should be noted that the previously mentioned gurus at the Department of Finance and Treasury Board Secretariat had a much grander vision for the FIS and its ramifications. We even heard that carrying our capital assets on our balance sheet would wipe out the federal debt, and that the tracking of depreciation would ensure effective capital asset management and eliminate asset rust-out. As someone who had to take a ride in a VERY old Sea King helicopter, I can tell you that the latter concept did not ring true.
After many, many efforts on systems, financial coding, solving the cash appropriation versus capitalization of assets dilemma, and massive amounts of communication and training, we flipped the switch on April 1st, 2001… and it worked! We were on time and under budget.
As part of their communications and motivational strategy, the Project Office at Treasury Board decided to give anyone who received FIS training a rather cheap plastic desk clock, probably worth $2 or $3. I silently took possession of just over a thousand clocks for all the DND folks we trained. Ironically, the clocks given out to the thousands of people who had to be trained under the Financial Information Strategy had no numbers on them! You just can’t make this sort of thing up!
Until next time…