Rescinded [2017-04-01] - Directive on Expenditure Initiation and Commitment Control

Provides requirements to establish management practices and controls to exercise expenditure initiation and commitment controls.
Date modified: 2010-08-12

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1. Effective date

1.1 This directive takes effect on October 1, 2009.

1.2 It replaces the Policy on Commitment Control (dated October 1, 1996).

2. Application

2.1 This directive applies to departments as defined in section 2 of the Financial Administration Act.

2.2 Those portions of sections of this directive that provide for the Comptroller General to monitor compliance with this directive within departments and/or request departments take corrective action, do not apply with respect to the Office of the Auditor General, the Office of the privacy Commissioner, the Office of the Information Commissioner, the Office of the Chief Electoral Officer, the Office of the Commissioner of Lobbying, the Office of the Commissioner of Official Languages and the Office of the Public Sector Integrity Commissioner. The deputy heads of these organizations are solely responsible for monitoring and ensuring compliance with this directive within their organizations, as well as for responding to cases of non-compliance in accordance with any Treasury Board instruments that address the management of compliance.

3. Context

3.1 This directive supports the objectives of the Policy on Internal Control by outlining the responsibilities of the chief financial officer to establish management practices and controls, in support of the deputy head, so that managers exercise expenditure initiation and commitment controls.

3.2 The first element of spending authority, expenditure initiation, is the authority to incur an expenditure or make a commitment that will result in an expenditure from an appropriation. This authority is aligned with managerial, budgetary and operational responsibilities.

3.3 Commitment control is an important management practice that is integral to sound budget control, forecasting and allocation and reallocation of program resources in government organizations.

3.4 Pursuant to section 32 of the Financial Administration Act, a sufficient unencumbered balance has to be available in an appropriation, or item in Estimates which are before the House of Commons, before any contract or other arrangement is entered into by the organization.

3.5 The deputy head or other person charged with the administration of a program is responsible for establishing procedures to ensure that commitments are controlled and accounted for and that records pertaining to them are maintained, according to Section 32 of the Financial Administration Act.

3.6 This directive is issued pursuant to sections 7 and 32 of the Financial Administration Act.

3.7 This directive is to be read in conjunction with the following:

4. Definitions

Definitions to be used in the interpretation of this directive are in the Appendix.

5. Directive statement

5.1 Objective

  • To ensure that managers exercise expenditure initiation and that organizations do not exceed the appropriation authorized by Parliament or allotment limits approved by the Treasury Board.
  • To ensure that appropriate financial and operational management controls are applied to the decision-making process in spending public money.

5.2 Expected results

  • Financial resources are used appropriately, based on the right authority, and losses due to waste, abuse, mismanagement, errors, frauds, omissions and other irregularities are minimized.
  • Spending authority is managed in a manner that maintains effective commitment control.
  • Managers do not exceed their budget allocations or appropriations.
  • Payments have a corresponding commitment.
  • All commitments are recorded promptly and accurately.

6. Requirements

The chief financial officer is responsible for supporting the deputy head in the implementation of this directive and the management of delegated authorities by ensuring that:

6.1 Delegation

6.1.1 Expenditure initiation authority is formally delegated in writing by the minister, the deputy head or the applicable legal authority.

6.1.2 Commitment authority is delegated in writing to departmental officials by the deputy head (or equivalent) for ensuring that there is a sufficient unencumbered balance available before entering into a contract or other arrangement. Note that subsection 32(2) of the Financial Administration Act applies.

6.1.3 Transaction authority is delegated in writing for the purpose of allowing an official to sign a contract or sign off on legal entitlements.

6.1.4 Authorities are delegated to positions identified by title, not to individuals identified by name.

6.2 Systems, procedures and controls

The chief financial officer, at the request of the deputy head, is responsible for ensuring:

6.2.1 Management practices and controls are established and maintained when:

  • Departmental officials, who are designated to exercise delegated authorities as described in subsection 6.1 of this directive, are not permitted to delegate these authorities to other officials.
  • Written authorization of delegated authorities as described in subsection 6.1 is included in the organization's financial authority delegation instrument.  Note that such delegations are consistent with subsections 6.2 and 6.3 of the Directive on Delegation of Financial Authorities for Disbursements.

6.2.2 The recording of and reporting on commitments are standardized throughout the organization.

6.2.3 Financial systems are designed to limit access by authorized personnel, calculate and report commitments in the current fiscal year, prevent over-commitments, maintain and store commitment data and information and summarize relevant information for management.

6.2.4 Training has been provided as specified in the Policy on Learning, Training and Development and in the Directive on the Administration of Required Training for those departments to which the training policy and directive apply. For departments not subject to this policy and directive, the chief financial officer or a person designated by the deputy head is required to establish departmental training requirements relevant to this directive.

6.2.5 Hard commitments are recorded at the time of expenditure initiation unless soft commitments of the same amount were previously recorded for those transactions.

6.2.6 Commitments are recorded individually. When it is impractical to formally record commitments individually (e.g., low-value transactions), the organization's procedures will be designated to identify these instances and describe how they will be accounted for.

6.2.7 Commitment accounting entries are recorded at the value expected to be incurred. 

6.2.8 Records of the dollar value of continuing commitments are kept separately for the current fiscal year and for each future year within the most recently approved Annual Reference Level Update.

6.2.9 Substantiating documentation of hard commitments for all fiscal years is recorded and retained to ensure an adequate audit trail.

6.2.10 Reference levels are adjusted for any reductions or additional resources approved by Treasury Board.

6.2.11 Unencumbered balances for current-year appropriations and Treasury Board-controlled allotments are adjusted, when appropriate, on a timely basis when revenues, notably net voting and refunds are received.

6.2.12 Commitments are controlled for revolving funds so that payments, when netted against receipts, will not exceed the drawdown authority limit.

6.2.13 If forecasts of a potential over-commitment cannot be managed, the relevant program sector of the Treasury Board Secretariat is notified immediately.

6.2.14 The unencumbered balances of budget allotments and appropriations are monitored and reported on a regular basis to help ensure sufficient authority remains for the entire period and appropriations are not exceeded.

6.3 Monitoring and reporting requirements

6.3.1 Chief financial officers are responsible for supporting their deputy head by overseeing the implementation and monitoring of this directive in their departments; bringing to the deputy head's attention any significant difficulties, gaps in performance or compliance issues and developing proposals to address them; and reporting significant performance or compliance issues to the Office of the Comptroller General.

6.3.2 The Comptroller General is responsible for monitoring departments' compliance with the requirements of this directive and conducting a review within five to eight years.

7. Consequences

7.1 In instances of non-compliance, the deputy heads are responsible for taking corrective measures within their organizations with those responsible for implementing the requirements of this directive.

7.2 In support of the responsibility of the deputy heads to implement the Policy on Internal Control and related instruments, chief financial officers are to ensure corrective actions are taken to address instances of non-compliance with the requirements of this directive. Corrective actions can include requiring additional training, changes to procedures and systems, the suspension or removal of delegated authority, disciplinary action, and other measures as appropriate.

7.3 Individuals are reminded that sections 76 to 81 (Civil Liabilities and Offences)  of the Financial Administration Act as well as sections 121 (Frauds against the Government),  122 (Breach of Trust), 322 (Theft) and 380 (Fraud) of the Criminal Code may apply.

8. Roles and responsibilities of government organizations

This section identifies other significant departments with respect to this directive. In and of itself, it does not confer an authority.

The Treasury Board Secretariat, Office of the Comptroller General is responsible for development, oversight and maintenance of this directive and for providing interpretative advice.

9. References

9.1 Other relevant legislation and regulations

9.2 Related policy instruments and publications

10. Enquiries

Please direct enquiries about this directive to your departmental headquarters. For interpretation of this directive, departmental headquarters should contact:

Financial Management Policy Division
Financial Management and Analysis Sector
Office of the Comptroller General
Treasury Board Secretariat
Ottawa ON  K1A 0R5

Telephone: 613-957-7233
Fax: 613-952-9613

Appendix — Definitions

Appropriation (in reference to commitment control) (crédit [dans le contexte du contrôle des engagements]) — Is defined in section 2 of the Financial Administration Act.

Commitment (engagement) — Is a pledge or agreement to pay a sum of money at a future date.

Commitment accounting (comptabilité d'engagement) — Is the recording of obligations to make future payments at the time they are planned and before the time services are rendered and billings are received. Such obligations may represent contractual liabilities, as is the case when purchase orders or contracts for goods or services are issued. Alternatively, they may represent conditional liabilities, as is the case when an arrangement is made that may require the spending of funds if conditions specified in the arrangement are met.

Commitment authority (pouvoir d'engager des fonds) — Is the authority to carry out one or more specific functions related to the control of financial commitments as required in the Directive on Expenditure Initiation and Commitment Control.

Commitment control (contrôle des engagements) — Is an established procedures that prevent an organization from entering into a contract or any other arrangement that provides for a payment unless there is enough money available in that year's appropriation to discharge the debt that is incurred during that fiscal year.

Continuing commitments (engagements continus) — Are commitments that will require a series of payments or settlement actions over an indeterminate period of time. An example is the obligation to make monthly payments for telephone service.

Designate (designer) — Is the act of appointing a person to exercise specific authorities or functions.

Expenditure initiation (engagement des dépenses) — Is the authority to incur expenditure or make an obligation to obtain goods or services that will result in the eventual expenditure of funds.  This would include the decision to hire staff, to order supplies or services, to authorize travel or relocation or hospitality, or to enter into some other arrangement for program purposes.

Hard commitment (engagement ferme) — Is a commitment recorded once expenditure initiation has occurred but before a contract is signed.

Management practices and controls (pratiques et contrôles de gestion) — Are policies, processes, procedures and systems that enable a department to operate its programs and activities, use its resources effectively, exercise sound stewardship, fulfil its obligations and achieve its objectives.

Soft commitment (engagement préalable) — Is a commitment recorded, prior to expenditure initiation, based on foreseen or forecasted expenditures.

Spending authority (pouvoir de dépenser) — Consists of three elements: expenditure initiation authority, commitment authority and transaction authority.

Transaction authority (pouvoir d'exécuter une opération) — Is the authority to enter into contracts, including acquisition card purchases, or sign off on legal entitlements (e.g., employment insurance payments).

Unencumbered balance (solde non grevé) — Is the amount that is free of any claim against the appropriation.

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