Summary: what we found in our audits
Systems
Assessing and prioritizing Alberta’s infrastructure needs—see Volume 1, page 29.
Government Credit Cards—see Volume 1, page 172.
The Ministry should provide guidance to departments to ensure consistent accounting treatment of grants throughout government—see page 178.
Performance reporting
Our auditor’s report on the Ministry of Treasury Board financial statements is unqualified. Because the Ministry did not have any performance measures, we did not complete any specified auditing procedures.
Overview of the Ministry
The Ministry of Treasury Board’s 2007–2010 business plan identifies five core businesses:
Five core businesses
• Spending management and planning
• Strategic capital planning
• Accountability in government
• Corporate internal audit services
• Oil sands sustainable development secretariat
Spent $8 million In 2006–2007, the Ministry spent approximately $8 million. It did not have any revenues.
For more information on the Ministry and its programs, visit its website at www.treasuryboard.gov.ab.ca.
Scope: what we did in our audits
1. Systems
We examined whether departments are applying the government’s accounting policy for grants consistently.
We followed up on our previous year’s recommendation on Supplementary
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2. Performance reporting
We audited the financial statements of the Ministry for the year ended March 31, 2007.
Our audit findings and recommendations
1. Systems
1.1 Inconsistent budgeting and accounting for grants Recommendation
We recommend that the Ministry of Treasury Board, working with other departments, provide guidance to ensure consistent accounting treatment of grants throughout government.
Background
The Canadian Institute of Chartered Accountant’s Public Sector Accounting Handbook, section 3410, states that grants should be
recognized as liabilities or expenses in the financial statements in the period that the events giving rise to the grant occurred, as long as:
• the grant is authorized;
• eligibility criteria, if any, have been met by the recipient; and
• a reasonable estimate of the amount can be made.
Government’s accounting policy for grants
In the Province of Alberta’s consolidated financial statements, the
government’s accounting policy for grants is described as follows: “grants are recognized as expenses when authorized, eligibility criteria, if any, are met, and a reasonable estimate of the amounts can be made.” In the fiscal year ending March 31, 2007, the total amount of grants expensed in the province’s consolidated financial statements was more than $22 billion.
Clarifies eligibility
criteria Recently, the Public Sector Accounting Board issued draft guidance on government transfers. The guidance clarifies the definition of eligibility criteria when assessing if a liability exists, so it will likely affect accounting for grants in the future. The Board is working to improve consistency across Canada of accounting for grants.
Conditions for large capital construction projects
When departments sign agreements to pay grants, the agreements typically include conditions specifying what the recipient must do to receive the funding. The conditions in the agreements are typically based on a percentage of completion and require submissions of documentation showing approvals, work progress, certificates, and compliance with laws.
For large capital construction projects, the departments pay the funds over several years, usually as the project is built and as the recipient meets conditions.
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Criteria: the standards we used for our audit Treatment should be
consistent The Ministry of Treasury Board should provide guidance to all departments to ensure they budget and account for grants in accordance with the
relevant accounting standards and the Government of Alberta policy, which will ensure consistent accounting treatment of grants throughout
government.
Our audit findings Treatment not
consistent across government
Grant liabilities and expenses are not consistently budgeted or accounted for across government. Departments treat grants differently—even though they have similar characteristics and agreements. The problem is when the departments recognize liabilities and the basis they use to record these liabilities. Departments record a liability and an expense at the following various times:
• when the recipient meets conditions of the grant agreement,
• when the grant agreement is signed,
• when the project has been approved, or
• when the Minister has approved the grant.
Examples of recording inconsistencies are below:
Record liability when recipient meets conditions
As grant conditions met—the departments of Infrastructure and
Transportation, Education, and some program areas in Advanced Education and Technology, Agriculture and Food, and Health and Wellness record grant liabilities and expenses for capital construction in their financial statements in the same period they pay the funds—as recipients meet conditions of grant agreements.
When the Minister approves a project, the department notifies the recipient and the two parties sign an agreement. Then, these departments show a commitment in their financial statements, but they do not record the
liability and expense until the recipient has met the grant conditions. This is consistent with how they budget the expenses. Budgets are based on the departments’ expectation of a project’s stage of completion when they prepare the budget.
Record liability when agreement signed
When grant agreement signed—the departments of Energy, Children’s Services, and some program areas in Tourism, Parks, Recreation and Culture, Agriculture and Food, and Advanced Education and Technology budget and record the liability and expense when the grant agreements are signed, but they don’t pay the grant until the recipient meets the grant conditions.
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Record liability when project approved
When project approved—the departments of Municipal Affairs and Housing and Seniors and Community Supports budget and record the liability and expense when they notify the recipient of grant approval for a capital construction project, but they don’t pay the grant until the recipient meets the grant conditions.
Record liability when Minister approves
When Minister approves grant—some program areas in the departments of Tourism, Parks, Recreation and Culture, and Health and Wellness budget and record the liability and expense when the Minister has approved the grants, but they don’t pay the grant until the recipient meets the grant conditions.
Timing of recording
is different In all these examples, the grant agreements have conditions, but the departments budget for the grants and record them as liabilities and expenses at different times. These examples are not comprehensive, because we did not look at all grants in all programs. But there is enough evidence to conclude that departments are budgeting and accounting for grants inconsistently.
Different interpretations of eligibility criteria
Neither the existing Public Sector Accounting Handbook, nor the
Government of Alberta policy clearly identifies what “eligibility criteria”
need to be met to record grants. In the first case above, departments used the conditions in the grant agreements as “eligibility criteria”. In the other cases, departments used project approval as the eligibility criteria. For them, conditions in the agreement relate more to the flow of funds and accountability for grants, but not eligibility criteria. The Ministry of Treasury Board has not provided guidance to departments on eligibility criteria.
The current accounting treatments may be appropriate given the lack of clarity in the existing standard, past practices, and the fact that departments are consistently applying their own practices across similar programs.
However, inconsistencies exist in budgeting and accounting for grants across the government. That treatment should be consistent and match the Government of Alberta’s policy. If the Public Sector Accounting Board approves the new guidance on transfers, some current practices may not comply with the accounting standards.
Implications and risks if recommendation not implemented
Without consistent budgeting and accounting practices, grants are budgeted for and expensed in one year but paid out over several years. So, funds are being appropriated prematurely, and the government could use them for other purposes.
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1.2 Supplementary Retirement Plans (SRPs)—implemented Background
In our 2005–2006 Annual Report (Volume 2, No. 30b—page 97), we recommended that the Ministry of Treasury Board review the Treasury Board Directives to ensure that the amount disclosed as the total
compensation of each senior executive includes Supplementary Retirement Plan benefits earned in the year.
Our audit findings Clear and complete
disclosure The Ministry of Treasury Board drafted an amendment to the Salary and Benefits Disclosure Directive, which requires clear and complete disclosure of annual and cumulative SRP benefits that senior executives earn. The Treasury Board approved this amendment on June 13, 2007. Total
compensation for each senior executive, disclosed in financial statements, now includes all benefits earned during the year, and the cumulative liability to each senior executive is also disclosed.
2. Performance reporting
Unqualified opinion Our auditor’s report on the Ministry’s March 31, 2007 financial statements is unqualified.
Volume 2—Audits and recommendations Offices of the Legislative Assembly