Treasury Board of Canada Secretariat
Symbol of the Government of Canada

ARCHIVED - Summative Evaluation of the Pilot Project on Non-Lapsing Appropriations for Capital Asset Management

Warning This page has been archived.

Archived Content

Information identified as archived on the Web is for reference, research or recordkeeping purposes. It has not been altered or updated after the date of archiving. Web pages that are archived on the Web are not subject to the Government of Canada Web Standards. As per the Communications Policy of the Government of Canada, you can request alternate formats on the "Contact Us" page.

2.0 Findings and Conclusions

2.1 Relevance

2.1.1 Is the use of non-lapsing appropriations consistent with federal government priorities for capital asset management?

Conclusion: The use of NLAs is consistent with the federal government priorities for capital asset management and fiscal discipline.

Broadly speaking, federal government priorities for capital asset management have been influenced by the need to maximize the impact of available resources on assets and investments and by the imperative of fiscal discipline. The use of NLAs is consistent with both of these lines of thought.

As previously indicated, the CAR was undertaken "to strengthen the management of assets through identification of best practices, problem areas and solutions." A major finding of the review was that year-to-year budget allocations were impeding a longer-term perspective for the management of assets.

The CAR found several problem areas that likely contribute to Canada's escalating "infrastructure deficit." A key contributor to this deficit is the lack of funding for "proper maintenance" of capital assets. Deferred maintenance essentially creates a liability for the government.

The review recommended to the following:

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. This approach will allow the departments to carry unexpended asset funds forward from one fiscal year to the next and will give managers a more stable funding base for planning their operations without fear that their resources will be cut off.

The need for fiscal discipline, management of the fiscal framework, and responsible spending has been reflected in Speeches from the Throne and Budget Speeches from 2005 to 2009. For instance, the Speech from the Throne 2008 states:

As Canada navigates today's economic uncertainties, it is even more important that we keep our sights fixed on responsible fiscal management.

The objectives of the NLA pilot include better management of capital funds, which supports the government priority on responsible spending.

Criteria for participation in the pilot project were based on the department's track record in capital asset management. This is consistent with recent trends regarding delegations of authority to departments based on risk. For instance, the Treasury Board Policy on the Management of Projects (approved June 2007) explicitly links higher delegations to departments that demonstrate greater capacity to manage investments in assets and acquired services. This policy sets out a rigorous set of criteria for assessing the ability of federal government departments to manage projects.

2.1.2 Is there a continuing need for non-lapsing appropriations for capital asset management?

Conclusion: The pilot project demonstrates that departments see a need to deploy a mechanism such as NLA that facilitates the management of large federal government capital programs.

The ongoing need for NLAs is linked to the expected outcomes from the project logic model (Exhibit 1.2), which include better overall project management and decision making. This is supported by interview results at participating departments that consistently showed a continuing need for NLAs.6 Key informants felt that the timing for declaring a carry-forward of funds (i.e., after the fiscal year-end) was advantageous, as was the predictability of annual access to this mechanism.

Improved project management and decision making were seen to derive from specific conditions—flexibility, predictability and advantageous timing in managing funds. These conditions also help to mitigate the risks created by circumstances outside of managers' control, such as weather, supplier availability or winter/summer cost differentials, which can delay projects and lead to unplanned, suboptimal spending at the year-end (i.e., low priority spending and lapsing of funds that are returned to the consolidated fund). As one informant stated, "There is better long-term decision making. Looking forward to plans for the next year allows attention to the most important investments rather than being driven by cash-flow issues."

The Secretariat's key informants, on the other hand, expressed several different views regarding the continuing need for the NLA mechanism, being at once supportive, cautious and critical:

  • Supportive—It was said the mechanism should be made available to departments that have demonstrated the capacity to use such a mechanism effectively;
  • Cautious— Limitations were suggested, such as only using the mechanism on a project-specific basis or using it only for larger, riskier projects or by departments that forego use of the other mechanisms; and
  • Critical—It was said that the conduct of the pilot, especially in the earlier years, did not form a sufficient basis for determining its usefulness.

2.2 Success

This section of the evaluation is based on the logic model for the NLA pilot (Exhibit 1.2). A program's logic model shows how activities are expected to produce outputs that in turn lead to achieving immediate outcomes and then intermediate and ultimate outcomes. The logic model for the NLA pilot shows this progression, though it should be noted that these immediate and intermediate outcomes are somewhat circular. The achievement of some immediate outcomes—good project management, financial management and risk management—intrinsically involves good decisions. However, improved management decisions also occur as a result of these immediate outcomes and are therefore shown at the intermediate level on the logic model. This evaluation demonstrates that the pilot project has led to all of the outcomes discussed above.

2.2.1 To what extent has the pilot project led to improved financial management of capital asset budgets?

Conclusion: There is evidence to suggest that improved financial management of capital asset budgets has occurred. In addition, some pilot departments achieved lower net lapses than in previous years.

Indicators of improved financial management

A key indicator of improved financial management is the extent to which there are fewer instances of goods and services purchased at above market value close to the fiscal year-end. Evidence from both the interviews and the document review suggests that improvement in this area did occur during the pilot project. Key informants in three of the participating departments specifically identified the certainty associated with the NLA mechanism as directly contributing to improved financial management. This certainty was contrasted with the uncertainty of not knowing whether Treasury Board would approve the funds requested, a situation in which departments might spend those amounts rather than risk losing the funds completely.

Another key indicator of improved financial management is the degree to which pilot departments have net lapses at year-end under the NLA as compared with the years before they entered the pilot. The concepts of gross and net lapsing, as well as the change in mindset about lapses, are important in understanding how this second indicator is used to measure improved financial management.

Gross lapsing is the amount of unspent funds at year-end without considering any carry-forward provisions. It is therefore a simple calculation: budget less expenditures. Traditionally, an indicator of good financial management is how close a manager or department comes to spending their budget without going over. Thus, managers are encouraged to minimize their gross lapses and to use the 5% carry- forward provision as a safety net.

On the other hand, net lapsing is the amount of unspent funds at year-end after considering carry-forward provisions. Its calculation for the NLA pilot departments is as follows: budget less expenditures, less the amount being carried forward through the 5% provision, less the amount being carried forward through NLA. Under the NLA, gross lapses are not used as an indicator. Instead, the indicator of good financial management relates to the amount of the net lapse since this incorporates how well a manager or department planned for and managed their overall capital spending over two years using the mechanisms available to them. The evaluation therefore compared the amount of net lapses before and after each department entered the pilot.

Improved financial management

As shown in Exhibit 2.1, results were mixed. However, departments with the most flexibility under the NLA were the most successful at minimizing net lapses. AAFC and DFO both had net lapses of zero for each year they participated in the pilot. DFAIT and the RCMP were less successful in this regard. DFAIT's lapses stayed about the same before and after participating in the pilot. As shown in Exhibit 1.1, DFAIT's SPA through the NLA was capped at 5% of its capital vote and was limited to real property assets. This does not apply to 2008–09 when all capital became eligible except Mission Security.

The RCMP was the lone pilot department whose net lapse increased during the years it participated in the pilot. The RCMP experience may be an anomaly due to specific circumstances:

  • The department was limited to a relatively small proportion of their capital budget in the SPA (between 6% and 28%);
  • Its capital budget allocation increased significantly year over year during the pilot (including a 32% increase in one year and a 24% increase in another); and
  • Challenges were encountered with a number of its very large capital projects during the time of the pilot.
Exhibit 2.1—Net lapsing for NLA pilot departments before and after pilot ($)
2002–03 12,078 2,217,455 80,304 3,329,118
2003–04 20,360,371 1,223,515 20,248,919 9,655,541
2004–05 360,001 23,066,313 4,134,365 5,525,243
* 2005–06 0 7,356,499 0 0
* 2006–07 0 0 0 47,162,657
* 2007–08 0 0 29,559,227 21,778,191
* 2008–09 0 0 2,984,151 81,636,678

2.2.2 To what extent has the pilot project led to improved management of capital asset projects?

Conclusion: The evaluation found that there was improved project management under the NLA pilot.

Improvement in project management was demonstrated in the following areas, all of which imply greater cost effectiveness:

  • Improved cash management;
  • More strategic resource management;
  • Better control in maintaining original project scope;
  • Improved ability to phase in projects and use more effective scheduling; and
  • Assurance that funding availability corresponded to the optimal construction season.

A review of the annual reports revealed that the NLA mechanism directly affected project management in a number of ways. The following excerpts illustrate this:

  • "The … pilot project has helped the Canadian Coast Guard (CCG) improve the management of its capital budget and capital projects by increasing flexibility to better manage the cash profile of CCG projects. It has enabled CCG to be more proactive in the implementation of its project delivery by extending the carry-forward timeline to a point that allows more strategic and planned resource management." (DFO 2009)
  • "The non-lapsing authority allows the project to maintain the original scope and business plan objectives without impacting other core agency activities." (DFO 2009)
  • "The increased project planning flexibility is evident during construction delays at remote sites that are accessible only by ship or helicopter. The implementation of these projects can now be phased in to optimize delivery of project work." (DFO 2009)
  • "Carry-forward has enabled this project to address escalation and Western construction capacity and to schedule the project over fiscal years to decrease the impact on other projects and maintain essential operations." (AAFC 2008)
  • "Purchases of two of the units were concluded during fiscal year 2008–09, but the third acquisition for a total value of $2.3 million could not be concluded until the early part of 2009–10. Therefore, having the non-lapsing authority permitted this transaction to be completed early in the new fiscal year using both old-year and new-year funds." (DFAIT 2008–09)
  • "With non-lapsing, the RCMP can be assured that funding availability will correspond to the optimal construction season, thereby facilitating project planning and reducing excess construction costs generated by such things as winter construction." (RCMP 2008)

Respondents noted that the flexibility to transfer funds into the next fiscal year with limited notice and a high degree of certainty was particularly beneficial for the efficient management of projects.

2.2.3 To what extent has the pilot led to improved risk management in allocating resources from the capital budget?

Conclusion: The evaluation found that risk management improved as a direct result of the NLA mechanism.

Financial management, project management and risk management are all interdependent; improvements in one area generate improvements in the others. There were many examples of project risks that the NLA mechanism was able to address. In general, NLA helped to mitigate the risks of poor financial and project management, as well as the risks of poor decision making. For instance, the following example from a DFO annual report details project risks that could be mitigated with the use of NLA:

This project entails the procurement of a large number of small craft, dispersed throughout the country. This creates a risk of procurement complications [and can] lead to the delay of certain planned acquisitions. (DFO 2009)

In addition, key informants from participating departments also stated that the NLA mechanism addresses key risks associated with project delays when funding has run out for that fiscal year. Risks that the NLA mitigates in these instances include the following:

  • Increased costs to restart the project after a break;
  • Loss of dedicated project management attention; and
  • Loss of human resources that had been previously allocated to the project.

2.2.4 To what extent has there been progress toward achieving intermediate outcomes?

Conclusion: There has been progress on almost all of the pilot's intermediate outcomes, which include improved quality of decisions for capital asset management, enhanced value for money, and optimal allocation of resources in the investment plan.

Improved quality of decisions

Key informants from all participating departments emphasized that the improved quality of decisions for capital asset management was one of the most important outcomes of the pilot project. Despite limitations in the administrative data, findings from key informant interviews revealed that other outcomes (including value for money and the optimal allocation of resources), were largely achieved because managers were able to make better decisions. It was reported that these decisions were facilitated by removing the artificial fiscal-year funding framework and replacing it with a more fluid and realistic mechanism that recognizes project cycles and the reality of managing large capital asset projects.

Key informant interviews revealed that the NLA mechanism enabled better decision making at two main levels:

  • Tactical decision making—This usually involves shorter-term decisions at the project level. Tactical decisions can also refer to decisions about how to manage the capital budget and when to declare carry-forwards or reprofiling of funds. Often, tactical decisions revolve around how to avoid lapsing at the fiscal year-end. Key informants at the Secretariat and the Department of Finance Canada indicated that the other mechanisms can adequately inform tactical decisions but acknowledged that they do not offer the same advantages as the NLA mechanism.
  • Strategic decision making—This involves decisions that consider the entire portfolio of projects in the investment plan. They usually favour higher-priority, larger, multi-year projects.

Both levels of decision making were important in realizing the expected outcomes of the pilot project. It is at the level of strategic decision making, though, where the NLA mechanism offered the incremental advantage of being able to strongly adhere to the priority projects that departments identified. Key informants from all participating departments indicated that the NLA mechanism allowed them to focus their efforts and spending on the highest-priority projects. This benefit was also confirmed by departments that already have 100% carry-forward.

Enhanced value for money

Key informants from participating departments reinforced the fact that there was greater value for money in the way capital budgets were implemented due to the NLA mechanism. For example, departments could better target certain times of the year to minimize costs related to construction cycles, availability of materials and contractors, and operational needs. The following examples from annual reports illustrate this:

  • "The delivery of construction material could be phased to align with actual installation plans in lieu of accepting material well in advance, frequently before fiscal year-end" (DFO 2009). This avoided incurring the additional cost of prolonged storage and redistribution and transportation to project work sites.
  • "With non-lapsing, the RCMP can be assured that funding availability will correspond to the optimal construction season, thereby … reducing excess construction costs generated by such things as winter construction." (RCMP 2008)
  • "The non-lapsing enables the RCMP to deal partly with market and industry capacity issues. For example, if there is a shortage of key labour or materials for a particular fiscal year, the RCMP may choose (where possible) to defer its project to the following year and thus generate savings to the Crown (e.g., construction in the Vancouver area prior to the 2010 Olympics may prove to be very expensive in light of pre-game construction demand)." (RCMP 2009)
  • "This project, to replace leased units, was undertaken because the return on capital purchases in Mexico results in an attractive saving in rent. Having the non-lapsing authority provided a source of funds that enabled each of these important transactions to be completed early in the new fiscal year." (DFAIT 2006–07)

Optimal allocation of resources in the investment plan

Key informants from participating departments indicated that the NLA mechanism encouraged management of projects at a portfolio level (as identified in the investment plan). Knowing that there is certainty around the ability to carry forward funds as required and flexibility in terms of when that amount has to be declared, managers can target those projects where it is financially beneficial to do so.

Another result of the NLA mechanism according to several key informants was the ability to take a multi-year perspective on the investment plan. For example, before the pilot project, capital projects would cascade forward (due to slippage), thereby eating into the budget for the following year. The NLA mechanism allowed the department to move funds forward without disrupting the plan for the next year. Since many capital projects (particularly high-priority ones) are multi-year, the overall impact of non-lapsing funds was to introduce more certainty in the availability of the total expected envelope in future years.

Annual reports provided many examples of improved resource allocation in the portfolio of projects, such as the following:

"At the end of [fiscal year] 2007–08, the Bureau was working toward the closure of a property purchase in London of $3.1 million. The remaining funds of $1.41 million on March 31 were insufficient to conclude this transaction. Therefore, having the non-lapsing authority permitted this transaction to be completed early in the new fiscal year using both old- and new-year funds." (DFAIT 2007–08)

A respondent from a department with 100% carry-forward indicated that having flexibility results in less focus on the annual cycle of funding and a greater focus on project management. More specifically, it was stated that managers are able to plan projects over a longer duration and in a more practical way which resulted in better spending decisions.

2.2.5 How does the achievement of these outcomes vary by participating department? To what extent can variations be explained by differences in how the pilot project was implemented at each department (i.e., proportion of capital vote in the SPA, length of participation in the pilot)?

Conclusion: All participating departments were able to achieve the expected outcomes of the NLA pilot to some extent.

Each of the participating departments was able to achieve outcomes of improved financial, risk and project management, in spite of differences in the way they implemented the pilot. The following high-level synopsis based on the financial tables in Appendices B and C and evidence from the annual reports shows how each department used the NLA mechanism:

  • AAFC joined the pilot in 2005–06. From that time, the amount in the SPA ($30 million) has been close to its total capital budget. Since 2006–07, AAFC has been using its SPA to carry forward large amounts (i.e., 44.4% of the amount in their SPA from 2006–07, 62.6% from 2007–08, and 80.9% from 2008–09). Between 2007–08 and 2008–09, out of the 16 different projects identified in the annual reports there was a relatively even mix of large and small amounts being carried forward. Projects were largely focused on renovations, repairs and the replacement of aging assets. Annual reports outlined a number of reasons for delays in some projects, such as construction capacity and cost escalations as well as changing needs and new priorities.

  • DFAIT joined the pilot in 2005–06. The amount in the SPA was limited to 5% of its real property budget until 2008–09. At that time it was expanded to 5% of all capital with the exception of Mission Security. Largely due to the small absolute amount in the SPA, DFAIT used the NLA mechanism for a total of 3 large projects between 2007–08 and 2008–09. Two of the three projects related to purchases and one was a new construction project.

  • DFO joined the pilot project in November 2007 and applied the SPA to the Canadian Coast Guard (CCG). The amount in the SPA ($141.8 million) is approximately 50% of the total value of CCG's capital budget. Between 2007–08 and 2008–09, 80% of the value of the department's NLA carry-forward was used for multi-year Crown projects, accounting for 8 of the 22 projects declared in the annual report. The remaining projects were smaller and less strategic in nature. CCG used the NLA for both new construction and the repair of vessels. Although DFO was the newest member of the pilot project, its late start does not appear to have affected the achievement of expected outcomes. This demonstrates that the benefits of NLA can be realized fairly soon after it is in place.

  • The case of the RCMP, which joined the pilot project in 2005–06, is less straightforward. Due to a misunderstanding at the outset related to the maximum amount that could be included in the SPA, the RCMP only identified 10% of their total capital budget. Significant increases to the RCMP capital budget in subsequent years, coupled with limited capacity to carry out a number of large capital projects, created additional challenges. The amount in the SPA was originally 10% of their total capital vote. In 2007–08, the amount carried forward in the SPA was increased to 28% of their total capital vote for one year only. According to annual reports, it appears that the RCMP used the SPA for both large projects (over $30 million) and small ones. The types of projects that have benefited from the NLA mechanism included purchases, new construction and replacement of assets.

2.2.6 Given what is known about progress toward immediate and intermediate outcomes, how likely is it that this mechanism can achieve ultimate outcomes?

Conclusion: It is very likely that the ultimate outcomes of the pilot project can be achieved, given the significant progress toward all intermediate outcomes.

Due to the high degree of achievement of immediate and intermediate outcomes, it is likely that the pilot project can achieve the ultimate outcomes of improved overall effectiveness of capital spending and a longer-term, strategic investment approach.

There is evidence from interviews and annual reports that progress toward these outcomes is being made. Key informants from most participating departments indicated that outcomes at this level were expected or already achieved within their departments.

2.2.7 Were there any unintended outcomes of the pilot project (negative or positive)?

Conclusion: Key informants identified a number of positive unintended outcomes.

Key informants from participating departments identified the following unintended outcomes:

  • A more accurate picture of cash-flow management and projections;
  • Increased rigour of capital budget management overall, including more effective use of all funds; and
  • Decreased dependency for asset management divisions on their departments for funds, resulting in more flexibility and freedom in making business decisions.

2.3 Implementation and Design

2.3.1 To what extent were roles and responsibilities for the pilot clearly defined and articulated?

Conclusion: The division of roles and responsibilities between the Secretariat and participating departments was clearly articulated. However, this was not the case within the Secretariat.

The MOUs between the Secretariat and each of the participating departments articulated the roles and responsibilities for each party. However, they did not identify to whom these roles were assigned in the respective departments over the course of the project.

In the majority of interviews at the Secretariat, respondents found that the roles and responsibilities within the Secretariat were not well-defined or communicated. Key issues were the lack of clarity and coordination of the Secretariat's position on the amounts in or changes to the SPA. Respondents felt that, as a result, departments interpreted the NLA mechanism differently in implementing the two-year simulated NLA. In addition, respondents felt that the Secretariat did not maximize the use of the reporting mechanism to improve the quality of reports and should have used the reports for accrual reporting and provided feedback on how departments might better use the NLA.

Key informants from all participating departments felt that the roles and responsibilities within their departments were clearly defined. Most of the difficulties raised by key informants were generally a result of ambiguities in the introductory stages of the project. However, additional clarification and improvement by the Secretariat enabled participating departments to address these early challenges.

The evaluation question did not address the role of the Department of Finance Canada because this was not identified at the outset of the pilot. Department of Finance Canada officials were interviewed and indicated a preference for participating more fully in the pilot project.

2.3.2 To what extent were the standard operating procedures and practices for the pilot project well defined, documented and understood? What were the particular areas of concern or confusion?

Conclusion: Standard operating procedures (SOPs) were not clearly defined and documented until late in the pilot project.

A review of the available documents early in the pilot project (including MOUs, Treasury Board decision letters and prcis documents) reveals that there was no explicit description of how the pilot was to be implemented or how the mechanism was going to work. A document was prepared with input from the Secretariat's pilot project working group and circulated to departments in February 2009.7 This document includes SOPs and attempts to clarify a number of ambiguous areas, such as the following:

  • Concept and use of two-year NLAs;
  • Link between carry-forward amounts and the related projects;
  • Reporting requirements; and
  • Use of and appropriate timing for the other mechanisms.

Key informants at the Secretariat were more concerned about the lack of SOPs than respondents from participating departments. In fact, almost every informant at the Secretariat voiced some concern about the ambiguity around the SOPs. Issues raised include the following:

  • How the amount in the SPA was originally identified;
  • The lack of clearly articulated SOPs; and
  • What mechanism at the Secretariat was to be used to enforce the MOU.  

The way the pilot project related to the budget estimates planning cycle was also raised as an issue. Specifically, there was a general sense of disconnect in all units at the Secretariat in terms of how the pilot related to the expenditure cycle.

Key informants from participating departments were largely unconcerned about SOPs. Some specifically indicated that the MOU provided enough direction. Key informants from only one department voiced significant concerns, mostly about how to set the amount in the SPA and about the availability of other mechanisms while participating in the pilot project. The lack of clear and consistent SOPs until late in the pilot project may have contributed to the different forms of implementation at participating departments.

2.3.3 How could monitoring and reporting of the pilot project be improved? To what extent are data currently available to assess the overall success of the pilot project? To what extent did participating departments provide accrual-based reports?

Conclusion: The NLA pilot project did not have adequate quantitative data and reporting information to support an assessment of overall success. However, annual reports provide some information to facilitate decisions about the future of the mechanism. Departments did not provide accrual-based reports during the pilot project.

The document review found that, outside of the MOU, there was little direction provided for reporting in the first few years of the pilot project. There was no template or sample report for participating departments until early 2009 when a template was provided. Without a consistent reporting format or common performance measurement strategy and ongoing monitoring with a clear purpose, it was not possible to adequately track the progress of program participants (e.g., regarding the types of projects benefiting from NLA, cash flow, etc.)

The evaluation found that accrual reporting was not undertaken. The pilot project was cash-focused, that is, making cash available to departments when they need it. Therefore, the annual reports were also cash-based and highlighted how cash flows were affected by the NLA carry-forward.

2.4 Best Practices, Lessons Learned and Risks

2.4.1 What best practices were observed by participating departments?

Conclusion: A number of best practices were found regarding governance of the pilot project, maximizing high-quality decision making, and using the NLA mechanism in concert with other mechanisms.

A number of best practices were identified by key informants in participating departments. Most of these practices speak to the way in which departments chose to use the mechanism to maximize its usefulness.

Two of the four participating departments identified best practices for engaging the department's investment management board in the governance of the pilot. In one of these departments, the investment management board contributed to a shared understanding of how the pilot would impact year-end processes. In this case, the investment management board approved all projects for use in the NLA and also served a useful function in managing risks. Another department's board reviewed projects mid-year to assess whether projects had to be slowed down or sped up. The NLA mechanism was then used to shift funds to projects that were experiencing delays.

Departments that involved their investment management boards also developed more rigorous processes of reporting internally. One department added a step in the project approval process to better manage its finances in light of the NLA mechanism. Monthly reporting on the percentage of completion at each stage of each project facilitated the prediction of which funds would be spent and which funds were best reallocated. Another department had a set of principles at the investment management board for tracking the carry-forward.

Taking a selective approach or targeting NLA usage seems to be a generally recognized best practice, as in the following examples:

  • Distinguishing which projects are best suited for NLA, as opposed to other available mechanisms, rather than treating it as a lump sum of capital to be carried forward;
  • Limiting the use of NLA to when it is most needed to avoid carrying forward too much funding; and
  • Using the mechanism to further an organization's mandate. In other words, given a large number of projects within a diverse asset base, the continuity of funding should be used to address those projects which further the goals of the organization as a whole.

2.4.2 What were the main lessons learned from the pilot project? How can these be applied to future pilot projects generally and to the possible continuation or expansion of the pilot project for non-lapsing appropriations for capital asset management?

Conclusion: One important lesson learned from the pilot project is that capacity should be a criterion for determining a department's access to NLA.

If departments lack the capacity to spend their capital budgets in a given fiscal year, the NLA has the potential to exacerbate this problem. Departments that carry forward funds because they are incapable of disbursing large amounts of capital quickly run the risk of having their capital budgets accumulate with every passing year. This creates a "snowball effect." Key informants suggested that if the pilot is expanded, measures would need to be put in place to manage the risk of excessive lapsing, especially if funds were to be carried forward for more than one fiscal year.

2.4.3 Does the concept of non-lapsing appropriations pose any unreasonable or unmanageable risks with respect to the fiscal framework?

Conclusion: This evaluation concludes that the risks posed by NLAs are reasonable and manageable.

A number of potential risks were identified by key informants at the Secretariat, the Department of Finance Canada and some participating departments. Many of these risks were common to all three mechanisms. Exhibit 2.2 shows risks specific to NLA, identified through the document review and key informant interviews, and their related mitigation strategies.

Exhibit 2.2—Potential Risks and Mitigation Strategies Related to NLA
Potential Risk Possible Mitigation Strategies
1) Expanding the mechanism across a wider set of federal government departments would pose a risk to the fiscal framework. The ceiling amounts made available to participating departments will remain only a small fraction of the $6.6 billion the federal government spends through the capital vote every year.

Amounts for carry-forward through NLAs are capped through the MOU that Treasury Board signs with each department.

2) The mechanism may encourage the phenomenon of "kiting" whereby funds are transferred from the operating vote to the capital vote in year 1, carried forward in the capital vote from year 1 to year 2, and then transferred back from the capital vote to the operating vote in year 2. This manoeuvre would thwart the intended purposes of NLAs. The Secretariat can select departments through rigorous performance-based criteria.

Periodic audits are available to ensure appropriate use of the NLA mechanism.

In addition to the mitigation strategies for the risks listed above, many key informants from both the Secretariat and participating and non-participating departments indicated that the use of the NLA mechanism discourages sub-optimal year-end spending.

2.5 Alternatives

2.5.1 Is there an alternative mechanism (including existing mechanisms) that would achieve similar outcomes for departments in managing their capital budgets?

Conclusion: As they currently exist, reprofiling and using a 5% carry-forward would not achieve similar outcomes as NLAs since they do not include the timing, predictability and flexibility benefits associated with NLAs.

Re-profiling and the 5% carry-forward were examined to assess the extent to which these mechanisms would achieve outcomes for departments similar to those of the NLA in terms of managing their capital budgets. Key informants from all of the participating departments were clear in affirming that NLA provided value over and above these other mechanisms, although Secretariat respondents were not as decisive about the matter. Most respondents from all groups generally agreed on the main characteristics of each mechanism and their relative strengths and weaknesses.

Timing—Described in one case as "de facto reprofiling," the April/May time frame for declaring the carry-forward amount for NLA was considered by key informants in participating departments to be ideal for providing maximum flexibility. This differs greatly from reprofiling, where funds must be declared four to six months prior to a parliamentary vote, and the 5% carry-forward which requires that funds be declared by December 15 of the current fiscal year.

Degree of certainty or predictability—It is important to recognize that, for NLA, reporting to the Secretariat is generally for purposes of information rather than justification. Participating departments can make the carry-forward decision themselves, which provides a level of predictability not afforded by the other mechanisms and which facilitates longer-term planning. Unlike NLA, reprofiling requires rigorous justification by departments and carries with it the uncertainty of approval. The 5% carry-forward includes both operating and capital vote amounts and therefore could be subject to greater scrutiny than the pre-approved NLA amount, creating greater uncertainty.

Flexibility in terms of the amount—Under NLA, amounts carried forward are only limited by the ceiling of the SPA. In many cases, this ceiling amount constitutes a fairly large proportion of the departments' capital vote (e.g., approximating 100% in the case of AAFC). In addition, since the amount carried forward does not have to be declared until after the end of the fiscal year, there is maximum flexibility in terms of the amount that is actually transferred. Reprofiling, on the other hand, is generally used only for large amounts, and carry-forward is limited to 5% of the capital budget.

Administrative burden—While this issue was not explored explicitly, many key informants highlighted the advantage of lower administrative requirements, including business case preparation and reporting for the NLA mechanism, compared with the other mechanisms. The administrative burden was considered to be reasonable even after the implementation of reporting templates.

Exhibit 2.3 summarizes the NLA, the 5% carry-forward and the reprofiling mechanisms using the factors discussed above.

Exhibit 2.3—Comparison of Carry-Forward Mechanisms
Factors NLA Pilot Reprofiling 5% Carry-Forward
(declaring and receiving funding)
Amount to be carried-forward is identified after year-end (April/May). Approved through aide-mmoire to Treasury Board minister in the Supplementary Estimates (B) in October. Generally, departments must declare funds to be reprofiled 4–6 months prior to parliamentary vote.   Carry-forward amount must be declared to the Secretariat by December 15 each year. Amount is approved through aide-mmoire  to Treasury Board minister in Supplementary Estimates (A).
Degree of Certainty
(obtaining the requested amount)
SPA provides the ceiling under which departments have freedom to propose amounts for carry-forward.

Decision to carry forward is made by the departments.

Secretariat review is limited. Access to funding is subject to Treasury Board ministerial approval of aide-mmoire.
Re-profiling requires completion of a specific template and requires rigorous justification on a project-by-project basis. Departments have freedom to propose amounts up to 5%. Amounts must be justified, and departments must explain how funds will be spent.
Amount of Carry-Forward Allows for transfer from current year to the next budget year of any amount below the SPA ceiling. Allows for transfer from current year to the next budget year or to subsequent budget years. Generally used for larger projects. No explicit limit on amounts. Allows for transfer from current year to the next budget year of a limited amount.