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This report represents the results of the Evaluation of the Pilot Project on Non-Lapsing Appropriations (NLA) for Capital Asset Management that was undertaken in 2009–10.
The NLA pilot project was launched in 2005 as part of the response to recommendations made by two reports. The first was a 2004 Capital Asset Review (CAR) conducted under the umbrella of Government Expenditure Reviews in December 2003. The second was a 2004 report from the OAG that strongly recommended introducing accrual appropriations for federal expenditures. The purpose of the pilot was to study the potential impact of a possible government-wide application of a two-year NLA carry-forward mechanism.
The evaluation was overseen by the Secretariat's project authority at the Real Property and Materiel Policy Division (RPMPD), the Working Group for the Pilot Project on NLA for Capital Asset Management, and the Secretariat's Internal Audit and Evaluation Bureau. The evaluation was required to be completed as per the 2006 Treasury Board submission.
By providing the required structures, land, machinery and equipment, capital assets are a fundamental support to the majority of government programs. Over the years, issues concerning capital asset management in the federal government have emerged. Insufficient investment in capital assets has led to deteriorating infrastructure (i.e., "rust out"). A review was undertaken to examine expenditures and business processes and to identify opportunities for improvement in management, governance and effectiveness. The final CAR report, published in 2004, stated the following:
Though the management of assets is generally well done at the local level, the most costly item in this domain is deferred maintenance. It has been estimated by reliable sources that deferral of maintenance can cost up to five times the cost of doing maintenance on time…. The savings are found in both the repair and operating costs.
Following logically from this finding, the report went on to recommend that the federal government "provide non-lapsing asset funding over a 3 to 5 year time frame, contingent upon the quality of the long-term asset plan and department performance." The concept of "lapsing" refers to unspent budget at the end of the fiscal year-end. Under current processes at fiscal year-end, unspent funds in a department's budget are no longer available to the department. Instead, these funds are redirected into a government-wide consolidated account and spent on government priorities (e.g., paying down the national debt) or reallocated to other program areas. A "non-lapsing appropriation," then, would be a portion of a department or agency's budget that, if unspent at year-end, can be carried forward into the following fiscal year.
Also in 2004, a report from the OAG strongly recommended introducing accrual appropriations for federal expenditures. In this context, NLA for capital assets may be viewed as part of a possible broader vision to optimize federal government asset management.
The NLA pilot was launched in 2005 as a step toward implementing these recommendations. The purpose of the pilot was to study the potential impact and effects of a government-wide application of a carry-forward mechanism. The pilot project had three main objectives:
The pilot project was designed to simulate non-lapsing two-year capital appropriations. That is, it would allow amounts of unspent capital budgets at year-end to be added to the department's budget for the next fiscal year. Participating departments included Agriculture and Agri-food Canada (AAFC), Foreign Affairs and International Trade Canada (DFAIT), Royal Canadian Mounted Police (RCMP), and Fisheries and Oceans Canada (DFO).2 These departments were given the opportunity to carry forward 100% of their unexpended capital vote appropriations from the current fiscal year to the one following.
With the exception of DFAIT, all amounts carried forward were to be solely used for capital expenditures. The amounts carried forward by DFAIT were even further restricted to real property expenditures, although this restriction was lifted for fiscal year 2008–09 to include all capital. In this pilot, DFAIT was also limited to carrying forward a maximum of 5% of their capital vote (real property funds only in the first three years of the pilot and all capital funds, except Mission Security, since 2008–09).
Participating departments were chosen based on the following criteria:
Memoranda of Understanding (MOUs) signed between the Secretariat and the participating departments identified the amounts eligible for carry-forward in the pilot (see Exhibit 1.1).
|Amount for Carry-Forward||$30 million||$78 million||$141.8 million||$20 million|
|Notes||Capped at 5% of the department's capital vote.
Carry-forward limited to real property assets.
As of 2008–09, all capital, with the exception of Mission Security, was eligible for carry-forward under this pilot.
|DFO did not join the pilot until November 2007.||RCMP received one-time permission from Treasury Board to add $53 million to their special purpose allotment (SPA) in fiscal year 2007–08.|
The final year from which appropriations could be carried forward was fiscal year 2009–10. Therefore, the final year for which funds could be included in Supplementary Estimates (A) is fiscal year 2010–11.
SPAs were established for fiscal years 2005–06 to 2009–10 for each participating department for the amounts specified in Exhibit 1.1. Authority was granted to these departments to carry forward the unexpended balance of the SPAs established for Capital Asset Management in the previous fiscal year and to increase the SPAs by the amount carried forward. This was done through the inclusion of items in Supplementary Estimates.
The MOUs identified the reporting requirements of participating departments in two broad categories: financial results and impact on management decisions.
Specifically, departments were expected to provide details of financial carry-forward on a project-by-project basis. As well, departments were required to provide descriptive information regarding the impact on their management decisions by illustrating how the ability to carry forward affected their investment and/or business planning (including up to five specific examples).
Further guidance was provided in June 2009 to departments in the form of a template for the annual report. This template required that departments report on both a cash and an accrual basis. It also required the identification of specific projects for which carry-forward amounts were associated. A narrative section asked participating departments to explain how the pilot project had affected the management of capital assets more generally and also asked for descriptive examples of how specific projects were impacted by the pilot.
MOUs with the participating departments outlined the following roles and responsibilities for the Secretariat and the departments in the implementation of the pilot project.
The Secretariat had responsibilities for:
The participating departments had responsibilities for:
RPMPD was the lead for this pilot project at the Secretariat. Responsibility to support the management of the pilot was shared by the Secretariat's Program Sector and Expenditure Management Sector.
A logic model was developed near the beginning of the pilot to describe how the NLA activities were expected to lead to the outputs and the desired immediate, intermediate and ultimate outcomes. The logic model was used as the basis for developing evaluation questions to address the performance of the program.
In order to fully understand the context for the pilot project on NLA, it is useful to review the other mechanisms that were already available to departments and agencies in managing their capital votes. What follows is a discussion of two of these mechanisms along with their key features.
The 5% capital carry-forward allows eligible departments and agencies to carry forward capital budget amounts from one fiscal year to the next, up to 5% of their capital vote to a maximum of $75 million. The origin of the 5% carry-forward was Treasury Board Circular 1987-53, whose intent was to "give departments flexibility in managing capital funds by allowing them to carry forward limited amounts of these funds into the next fiscal year." This mechanism applies to departments and agencies that have separate capital votes in the Main Estimates, but it does not apply to Crown corporations or to National Defence.
The information requiredto request a carry-forward includes proposals that must be related to specific capital plans, objectives and results and must be justified in relation to the principles outlined in the Circular. Departments must clearly explain the circumstances around the funds that are expected to lapse, demonstrate the need to carry moneys forward, and explain how these would eventually be spent.
By December 15 of each year, deputy heads must write to the Secretary of the Treasury Board to seek frozen allotments equal in amount to the desired carry- forward. Approved amounts are frozen in the current fiscal year, with departments authorized to include them in the Supplementary Estimates for the following year.
The capital reprofiling mechanism allows departments, agencies, and Crown corporations supported by appropriations to carry forward capital budget amounts from one fiscal year to a future fiscal year. In late August, a Secretariat call letter solicits Annual Reference Level Update (ARLU) and reprofile requests from organizations. Although there is no explicit limit on reprofile amounts, requests must meet eligibility requirements and are subject to certain conditions. Requests are then assessed by the Secretariatand the Department of Finance Canada. Decisions are usually made in December, and the approved amounts are included in a future year Supplementary Estimates and frozen in the current year.
This evaluation sought to achieve four main objectives (from which flow the four main evaluation issues):
Because the pilot ended in 2009–10 (i.e., this was the last fiscal year from which appropriations could be carried forward), the evaluation provides options to address the key question of what should follow the pilot project. It is expected that the evaluation will be used as one source of information in developing a future mechanism that facilitates the management of federal government capital programs.
Three main lines of evidence were employed for this evaluation: document review, key informant interviews, and administrative data review.
A document review was conducted using a template developed in the design phase of the evaluation. In all, 45 documents were reviewed, public documents (n=13), decision documents (n=19), and monitoring and reporting documents (n=13).
In all, 20 interviews with 33 individuals were conducted for the evaluation as follows:
Interviews were semi-structured and followed an interview guide tailored to each respondent group (see Appendix A).
The administrative data review included all financial information available to populate the template on expenditure management data (presented by department in Appendix B) and was done in two parts. The participating departments' financial information for fiscal years 2005–06 to 2009–10 was gathered from the Public Accounts of Canada, which are posted on the Library and Archives Canada website. Subsequently, the financial data contained in the template were verified and completed by departments. The intention was that once the template was fully populated, the financial information (i.e., amount of carry-forward, amount reprofiled, amount of capital funds lapsed) would be analyzed with a view to responding to the evaluation questions on the success of the pilot project.
The second component of the administrative data review involved gathering financial information on capital project spending. This information was obtained from the Departmental Performance Reports (DPRs) for fiscal years 2003–04 to 2008–09 for all participating departments. These data were gathered for several years prior to pilot implementation in order to identify trends from pre- to post-pilot implementation. Projects identified in the NLA Annual Reports were cross-referenced with the information contained in the DPRs in order to focus on projects that utilized the NLA mechanism. The intention of this analysis was to examine the extent to which the pilot project influenced decision making around capital asset management. Further, the analysis assessed whether the pilot project allowed participating departments to make different decisions in carrying out capital projects than they would have made before participating in the pilot.
Several limitations of the study affect the interpretation of the findings:
There was an expectation in the evaluation design that the administrative data would contribute to the findings for many evaluation questions relating to success. However, after a careful review of the various sources, the evaluators found it difficult to draw meaningful conclusions from the financial data. The conclusions of the evaluation are based largely on the qualitative evidence.
Findings and conclusions are presented in Section 2.0. To facilitate the flow of the report, evaluation questions have been reordered. Section 3.0 presents the options for moving forward. Section 4.0 presents a summary of conclusions while Section 5.0 presents the recommendations.