Thank you, Madam Speaker. Your Standing Committee on Government Operations is pleased to provide its report on the review of the 20202021 Public Accounts, and commends it to the House.
On December 8, 2021, the Minister of Finance tabled the 202021 Public Accounts. The public accounts are the financial statements that show the financial results of the Government of the Northwest Territories for a given year.
Each year, the Standing Committee on Government Operations reviews the public accounts. These reviews assess the credibility of the government’s financial position and provide accountability for the government’s financial results. Put differently, these reviews matter because they ask whether public money was spent prudently and as intended by the Legislative Assembly.
On June 29, 2022, committee held the public portion of its review. Committee received briefings from officials at the Office of the Auditor General and the Office of the Comptroller General. Their input was valuable to identify and clarify key issues.
In response, committee developed eight substantive recommendations to improve financial practices and reporting. These recommendations seek to achieve three goals:
Understand and address NTHSSA's growing deficit;
Enhance disclosure on environmental liabilities, resource revenues, and tangible capital assets; and
Make fiscal reporting more timely, frequent, comparable, and digital.
Committee is pleased to submit these recommendations and looks forward to their implementation.
When NTHSSA was established in 2016, its accumulated deficit stood at $51 million. Part of the promise of amalgamating the six regional health authorities was to "control spending" while "improving care." NTHSSA's creation was supposed to help use resources more effectively and improve accountability and risk management.
Yet now, six years later, NTHSSA's accumulated deficit has almost quadrupled. It stands at $194 million, up by over $140 million. The accumulated deficit has climbed because expenses have exceeded revenues by $10 to $35 million in each of the last six years.
NTHSSA reports that the reason for the operating deficit are "numerous." Five notable cost drivers include:
Cost of overtime due to staffing shortages;
Underfunded locum costs;
Unfunded or underfunded programs;
Unfunded growth in healthcare positions; and.
Underfunded COVID19 costs.
To understand and address these and other cost drivers, the GNWT has pointed to a "Financial Sustainability Plan." The plan was finalized in December 2020. Shortly afterwards, the Minister of Health and Social Services said, What we are trying to do is reduce the size of NTHSSA's deficit to zero through the health system's sustainability plan, to understand the drivers that are adding to the deficit and address those and reduce them until we get to a point where we are not budgeting with deficits for the health authorities."
It's unclear whether the Financial Sustainability Plan is on track to reach its zerodeficit goal. Early reporting suggested that the plan was delayed and staffing efforts faced difficulties. This work may have been delayed due to the COVID19 pandemic. In 2021 2022, the first full fiscal year after the plan was finalized, NTHSSA's annual deficit reached an alltime high of $34 million. Other reporting in the Health and Social Services business plan document and the NTHSSA Annual Report does not indicate whether any savings have been achieved.
The territory’s mediumterm fiscal outlook adds to our concern. The GNWT’s financial forecasts says it will run out of room to borrow money within four years, in 20262027. Meanwhile, the health system faces relentless cost pressures, an aging population, and a need to keep up with technological innovation, all while maintaining service levels. Without reforms to achieve better value from existing health system resources now, the GNWT may be forced to reduce healthcare services in the future. Committee is concerned that the GNWT's Financial Sustainability Plan may not be sufficient to ensure the healthcare system's longterm, or even mediumterm, financial sustainability. The OAG, the Office of the Auditor General, believes that the recent changes to increase financial reporting capacity at the NTHSSA are not enough, on their own, to address the persistent deficits. Committee expects to see improved performance towards attaining the healthcare system's goals while respecting budget constraints. As the Minister previously said, this work starts with a better understanding of NTHSSA's deficit. Committee therefore recommends:
That the Department of Health and Social Services provide detailed reporting and analysis on each cost driver of the Northwest Territories Health and Social Services Authority’s persistent operating deficit. The analysis should quantify how each driver contributes to NTHSSA's operating deficit. The analysis should also quantify, break down, and explain, for each driver, the difference between:
Budgeted expenses, positions, and programs; and
Actual results.
The Office of the Auditor General also raised concerns about internal controls at the NTHSSA. Internal control processes are important to protect the public sector from fraud, corruption, waste, and abuse. Internal controls also help governments measure the valueformoney of services. The OAG reported that many areas of internal controls needed improvement and noted this problem in a management letter to the authority. Better internal controls at the NTHSSA are a key element to improving the performance and restoring financial sustainability. Committee wants to reinforce accountability for the OAG's recommendations and therefore recommends:
That the Department of Health and Social Services disclose its response to the Office of the Auditor General’s 20202021 Audit Observation that many areas of internal controls need improvement at the Northwest Territories Health and Social Services Authority. The department should also disclose its action items, progress on those action items, and timeline to improve internal controls.
I will now turn it over to the MLA for Kam Lake. Thank you, Madam Speaker.
Thank you Member for Yellowknife North. Member for Kam Lake.
Thank you, Madam Speaker.
Environmental liabilities represent the costs required to remediate contaminated sites for which the GNWT is responsible.
The 20202021 public accounts reported 277 contaminated sites with a total liability of $68 million. This liability is further broken down according to seven types of sites, such as "abandoned mines" and "landfills."
For years, committee has advocated for more transparency on the GNWT's contaminated sites. In 2018, committee recommended14 that the GNWT develop an online inventory modeled on the federal government's Federal Contaminated Sites Inventory.
The GNWT accepted that recommendation and, in the past year, released the GNWT Environmental Liabilities Dashboard.
Committee commends the GNWT for this work. The dashboard is a significant contribution toward more transparency on environmental liabilities. However, the GNWT's dashboard is missing key categories of information of interest that are available on the federal inventory. Take, for example, the Giant Mine Remediation Project, which is comanaged by the GNWT and the federal government. The GNWT's dashboard plots the site on a map, identifies the site type and contaminant of concern, and provides a brief description. The federal inventory provides this information and much more, such as the volume of contaminated media, population estimates at distances around the site, and a breakdown of remediation spending for each year.
Committee encourages the GNWT to build on its Environmental Liabilities Dashboard and provide more disclosure. Committee therefore recommends:
That the Department of Finance provide a plan with timelines to enhance reporting on the GNWT Environmental Liabilities Dashboard by matching reporting practices in the Treasury Board of Canada Secretariat’s Federal Contaminated Sites Inventory.
The public accounts reported that in 20202021, the GNWT collected $66 million in gross nonrenewable resources revenues. Nonrenewable resource revenues include mineral, quarry, oil and gas, and water revenues as defined in the Northwest Territories Lands and Resources Devolution Agreement.
The public accounts only break down the gross revenue amount into three broad categories: minerals, oil and gas royalties; licenses, rental and other fees; and quarry fees.
Committee wants to see a more detailed breakdown of each type of resource revenue and a clear presentation of gross revenues, disbursements to other governments, and the resulting net revenues for the GNWT. Thorough reporting is important to maintain the credibility of resource revenue collection and distribution.
While current reporting practices meet minimum standards in the Public Service Accounting Standards, the OAG indicated that "there is room for enhanced disclosure in a note." Committee agrees and therefore recommends:
That the Department of Finance provide more detailed resource revenue data on gross amounts received and calculations of amounts retained. This enhanced reporting should separate annual aggregate values from petroleum, mineral resources, and each other type of resource revenues.
The public accounts reported that in 20202021, the net book value of the GNWT's tangible capital assets, or TCAs, was $3.7 billion. Tangible capital assets are the buildings, roads, equipment, and other assets whose life extends beyond the fiscal year and are being used on an ongoing basis.
Each asset is amortized over its estimated useful life. Some assets may be fully amortized even if they’re still in use, making them assets with a zero book value. Committee is not aware of reporting in the public accounts on assets with zero book value. Information on accumulated amortization, which was $2.2 billion in 20202021, does not indicate how much of that amortization comes from fully amortized assets. Committee believes this type of reporting is important as an indicator of future asset replacement costs that are potentially imminent.
Committee wants to see more reporting in this area and therefore recommends:
That the Comptroller General add to the financial statement discussion and analysis section of the public accounts information on tangible capital assets with zero book value and provide a timeline for implementation.
For this review of the public accounts, committee took a special look at transparency in fiscal reporting. This kind of transparency refers to the comprehensiveness, clarity, reliability, timeliness, and relevance of reporting on public finances. Transparent fiscal reporting is important for effective fiscal management and accountability. It helps ensure members, businesses, and residents have information to hold government accountable. It provides government with accurate information to make better budget and policy decisions. And it strengthens the credibility of a jurisdiction’s fiscal health to markets.
In recent years the GNWT has made several changes to make the public accounts more transparent. Significant changes include enhancing the financial statement discussion and analysis section and more detailed disclosure in the notes. Committee appreciates the Comptroller General’s commitment to continually improve the public accounts and openness to committee recommendations.
In support of continual improvement, committee evaluated the GNWT's fiscal transparency compared with international standards – specifically, the IMF’s Fiscal Transparency Code. The IMF, an international financial institution, calls the Code "the international standard for disclosure of information about public finances." The Code includes 12 dimensions of transparency in fiscal reporting.
Committee found that the GNWT met the highest advanced standard of transparency in five of the 12 dimensions. In the remaining dimensions, the GNWT could improve its fiscal reporting practices to meet the highest international standards.
Madam Speaker, I would like to, please, pass the reading of the report on to my colleague from Thebacha.
Thank you, Member. Member for Thebacha.
Thank you
Government of the Northwest Territories performance on 12 international best practices of fiscal transparency
There are three categories the dimension, the principle, and the rating of the government practices.
Coverage of Institutions. Fiscal reports cover all entities engaged in public activity according to international standards. We got an "advanced" for that.
Coverage of stocks. Fiscal reports include a balance sheet of public assets, liabilities, and net worth. Advanced.
Coverage of flows. Fiscal reports cover all public revenues, expenditures, and financing. We got advanced for that.
Statistical integrity. Fiscal statistics are compiled and disseminated in accordance with international standards. Advanced.
External audit. Annual financial statements are subject to published audit by an independent supreme audit institution which validates their reliability. Advanced.
Timeliness of annual financial reports. Audited or final annual financial reports are published in a timely manner. We got a "good" for that.
Internal consistency. Fiscal reports are internally consistent and include reconciliations between alternative measures of summary fiscal aggregates. We got "good" for that.
Classification. Fiscal reports classify information in ways that make clear the use of public resources and facility international comparisons. We got a "basic" for that.
Comparability of fiscal data. Fiscal forecasts, budgets, and fiscal reports are presented on a comparable basis with any diversifications explained. Basic.
Coverage of tax expenditures. The government regularly discloses and manages revenue loss from tax expenditures. Less than basic.
Frequency of inyear reporting. Inyear fiscal reports are published on a frequent and regular basis. Less than basic.
Historical revisions. Major revisions to historical fiscal statistics are disclosed and explained. Unclear.
Committee believes the GNWT should and can meet the highest standards of transparency. To that effect, committee is advancing recommendations to improve in three areas:.
The timeliness of annual financial statements;
The frequency of inyear reporting; and
The comparability of fiscal data.
Committee recognizes that our recommended improvements will take place. The improvements imply significant administrative, technological, policy, and even legislative work. The most significant challenge may be to develop the internal government collaboration needed to produce greater external transparency. With these factors in mind, committee is seeking the GNWT's commitment to take steps, with timelines, towards reaching the highest standards of fiscal transparency.
Timeliness refers to the time lag between the end of the fiscal year – March 31st – and when the public accounts are published. Timely publication is critical to ensure that past fiscal performance can inform future budgets. It also ensures that any irregularities identified by auditors can be addressed quickly. Several international organizations, such as the IMF, recommend releasing the public accounts within six months of the fiscal yearend. The GNWT does not meet this standard. Legislation only requires the GNWT to complete the public accounts within nine months. Over the past five years, the GNWT has released the public accounts seven to nine months after fiscal yearend.
Release date of the public accounts since 2017
The years for 2017 for the public account year, release month was November 2017, which was eight months.
For 2018, it was released on October 2018, which is seven months.
2019, December 2019 was nine months.
2020, December 2020, it was nine months.
2021 was released on November 2021, which was eight months.
While the Comptroller General is required to produce an interim financial report within six months of fiscal yearend, this practice falls short of the international best practice. The interim financial report is nonconsolidated, unaudited, and generally not available to the public. Committee believes a timelier release of the public accounts is achievable. Yukon’s Department of Finance, for example, is working with consolidated entities and the OAG to move up the release of the Public Accounts. Committee therefore recommends:
That the Department of Finance amend the Financial Administration Act, section 35, to move the required release date of the public accounts by three months, from December 31 to September 30.
I will now turn the next item over to MLA Johnson from Yellowknife North.
Thank you, Member. Member for Yellowknife North.
Thank you, Madam Speaker.
Frequency of inyear reporting refers to publishing information on government revenues, spending, and debt financing over the course of the fiscal year and comparing these results with the budget. Frequent and regular inyear fiscal reports are important because they provide information on progress implementing the budget. This helps inform budget preparation for the next year. Inyear reports also require government to create and enforce procedures to collect and consolidate data across public sector entities.
The GNWT does not appear to meet the "basic" level on this international standard: to publish inyear fiscal reports on a quarterly basis, within a quarter. In fact, committee is not aware of any inyear fiscal reports that the GNWT regularly releases to the public. Though the GNWT released an inyear fiscal update in 2021, this practice is not routine. That document also did not offer data tables to compare the results with the actual budget.
Other jurisdictions produce regular inyear fiscal reports. The federal government releases quarterly and monthly fiscal reports. Yukon releases a detailed semiannual interim fiscal and economic update.
Committee wants to see more transparency on the GNWT's inyear progress implementing the budget, and therefore recommends:
That the Department of Finance take steps to publish inyear fiscal reports on a quarterly basis, within a month, and provide a timeline for implementation.
Comparability refers to how information is presented in the public accounts to make easy comparisons over time and with other fiscal documents, like the budget. Comparable fiscal data matter because they enhance the integrity and transparency of government finances.
A key aspect of comparability is the use of consistent classifications in fiscal documents. There are four main internationally adopted classifications used for fiscal data:
Administrative, which identifies the department responsible for a financial item;
Economic, which identifies the type of spending, such as salaries or travel;
Functional, which identifies the socioeconomic objective of a financial item, and
Program, which consists of a set of activities to achieve a policy objective.
The GNWT's budget and main estimates documents use, more or less, all four types of classification. By contrast, the public accounts use only three types, leaving out program classifications. The discrepancy makes it harder for users of the public accounts to scrutinize how well the GNWT implemented the budget.
An additional barrier to fiscal comparability is publication format. To committee’s knowledge, the only publication format for the budget and the public accounts is PDF. Each PDF is limited to a single year’s data, making it onerous and even prohibitive for users to manipulate the data and assess longterm trends beyond those included in the discussion and analysis section.
Take, for example, a public accounts user trying to assess the GNWT's spending on child and family services over the past ten years. The user would have to locate, open, and search ten PDF documents. This task would be practical on only certain devices. While the user would find reference to spending at the Department of Health and Social Services, an administrative data classification, they would not find information on how child and family services, a program classification. This example illustrates how the current publication format and data classifications reduce the usefulness of the public accounts.
Other jurisdictions provide examples of digital publication formats that make it easier to use the public accounts. Ontario provides a searchable, webbased table of spending items broken down by program, as well as .csv data files highlighting fiveyear fiscal trends. Quebec displays webbased graphs of highlevel fiscal aggregates with ten years of historical data and links to the relevant page in the traditional public accounts document. And Yukon’s Department of Finance is implementing a recommendation from its public accounts committee to digitize its public accounts.
Committee wants to see changes to make information in the public accounts more comparable over time and with the budget, using userfriendly publication formats. Committee therefore recommends:
That the Department of Finance take steps to digitize the public accounts and provide a timeline for the implementation and anticipated costs. The digitized presentation of financial results should align with the administrative, economic, functional, and program classifications used in the budget and main estimates documents.
This concludes the Standing Committee on Government Operations' Report on the review of the 20202021 Public Accounts. The committee looks forward to the government's response to these recommendations.
The Standing Committee on Government Operations recommends that the Government of the Northwest Territories provide a response to this report within 120 days. Thank you, Madam Speaker.
Thank you Member for Yellowknife North.
Madam Speaker, I move, second by the honourable Member for Thebacha, that the Standing Committee on Government Operations Report on the Review of the 20202021 Public Accounts be received by the Assembly and moved into Committee of the Whole for further consideration. Thank you, Madam Speaker.
Thank you, Member for Yellowknife North. The motion is in order. The motion is nondebatable. All those in favour? All those opposed? Abstaining? Motion is carried. Committee Report 3619(2) is referred to Committee of the Whole for Tuesday, November 1st, 2022.
Carried
