Budgetary Allocation and Forecasting
July 2010

1. INTRODUCTION

1.1 Background

Financial accountability, transparency, and the stewardship of public funds are at the forefront of the Government of Canada’s agenda. In 2006 the government introduced the Federal Accountability Act, which makes deputy heads accountable for departmental spending, and created a new Parliamentary Budget Office to support an independent analysis of the government’s financial estimates.

Financial resource management processes are critical to ensuring that secured funding is consistent with a department’s financial requirements to deliver on its mandate and priorities. A strong allocation and forecasting model is based on integrated processes that include planning, budget preparation, decision making, resource allocation, reporting, and forecasting revenues and expenditures. In the Department of Justice, appropriate forecasting of the financial requirements for its services is key to the Department’s financial allocation process and is directly linked to the projected recovery of costs from clients for services rendered.

The Department of Justice receives funding from two sources: A-Base Authority and Net Vote Authority (NVA). A-Base funding is a source of funding for the Department, accessed through parliamentary votes Footnote 1. All sectors of the Department’s operations receive a certain level of A-Base funding. Under NVA, the Department has the authority to recover the costs of providing legal services from other government departments (OGDs). NVA represents additional funding received through invoicing these OGDs for legal services, net of any A-base funding available. Once this NVA revenue is collected, the Department has the authority to increase its spending authority/cash budget by the equivalent dollar amount, as approved by Treasury Board and in accordance with TB policies.

NVA revenues account for approximately 40% of the Department’s total operational funding. These revenues are a variable source of funding with 25% of the total revenues billed hourly and, therefore, dependent upon the volume of services provided to other government departments. The remaining revenues are billed on a full-time-equivalent (FTE) basis when lawyers are primarily dedicated to a specific client. Expenditures, on the other hand, are primarily fixed, with 80% of the Department’s operational expenditures linked to salaries. The mix of variable funding to fixed expenditures creates a level of spending risk that must be regularly monitored. The Department of Justice cannot exceed its legal spending authorities. Spending on operations must fall under or at funding received from both fixed A-Base funding and variable NVA revenues.

The financial resources available to the Department are significant. In the current fiscal year (2009-10), the total resources are $924.6 million, of which $235.1 million is from NVA funding. A-Base funding includes $257.4 million in Vote 1 for salaries and O&M, and $370.6 million in Vote 5 for grants and contributions. The balance of $61.5 million relates to the Employee Benefits Plan (EBP).

The Resource Management Division (RMD) within the Chief Financial Officer (CFO) Branch is responsible for providing ongoing financial planning, analysis, and management support and advice to the Department. The RMD is headed by a Director and includes the following three sections: Financial Planning and Reporting; Liaison and Coordination Services; and Costing and Charging. The RMD is comprised of approximately 24 employees, including six financial management advisors who are located in Headquarters (HQ) portfolios and sectors and report to the Director, RMD.

1.2 Audit Objectives and Scope

The main objective of this audit was to examine the adequacy of the management control framework for budgetary allocation and forecasting including the processes and mechanisms that support a) planning, including the determination of service demands for sectors and portfolios, and b) budgetary allocations to operational units and the subsequent forecasting of expenditures.

The scope of the audit included Headquarters and the following portfolios: Tax Law; Business and Regulatory Law; Public Safety, Defence and Immigration; and Aboriginal Affairs. Also included were a sample of legal services units and regional offices as well as the Litigation Branch, since the budgets of these offices are significantly impacted by Portfolio allocations.

The audit planning and on-site examination phases were carried out between August and October 2009.

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