- Governance Evaluation: Debt & Reserves Management -

Archived - Departmental Response
Governance Evaluation: Debt and Reserves Management - Plamondon & Associates

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The Department is pleased to note that the report concludes that the governance system for treasury management that has been in place of the past five years has consistently met standards of good governance, that it has benefited from a number of substantive improvements over that period and that the updated governance system is well-designed and operating effectively.

The recommendations made in the report and program management responses below are segmented into two sections: 1-5 address the evaluator's main recommendations and 6-10 address additional recommendations also contained in the report.

Main Recommendations

Understanding of Governance Framework (p. 6 and 17): Make the new Treasury Management Governance Framework document available to internal and external users to enhance transparency, understanding and adoption; provide more detail about objectives, responsibilities, authorities and operational procedures for each of the various committees.

Departmental Response

The Department agrees that transparency and clarity are important to the success of the new Treasury governance framework and will take steps, in conjunction with the Bank of Canada, to enhance these aspects, including posting of the framework on the Department's website.

1.  Review of the Governance Framework (p. 14 and 17):

Conduct the next review of governance framework by the end of 2005; evaluate the design and operation of the governance system at least every two years.

Departmental Response

The Department plans to assess the effectiveness of the governance framework on a regular basis, using the evaluation template created as part of this review. The precise timing of the next review will be determined through the evaluation priority-setting process, but the next governance evaluation is planned for 2005.

2. Effectiveness of the Treasury Evaluation Committee (p.15 & 17):

Expand the number, scope, depth, budgets and profile of the Treasury evaluation program and enhance its independence.

Departmental Response

The Department believes there is significant value in the external evaluation of treasury management and that expansion of certain aspects would be beneficial. While expenditures in this area need to be balanced against other priorities, particularly in an environment of scarce resources, the Department of Finance is committed to funding the evaluation program as required to meet its objectives.

3.  Consultations (p.14 & 17): Review the consultations program undertaken by the Department of Finance and the Bank of Canada.

Departmental Response

The Department is committed to ensuring that input is received from a range of stakeholders as part of effective funds management strategy planning. The issues identified by the evaluator, including the nature of interlocutors and the frequency and type of consultation process, are reviewed periodically. Where feasible, measures are taken to enhance the effectiveness of the consultations process.

4.  Performance Evaluation (p. 15 & 17): Consider establishing a standing external Performance Evaluation Committee to examine the overall effectiveness of Debt and Reserves Management operations and staff.

Departmental Response

The Department does not believe that circumstances necessitate the creation of a standing external Performance Evaluation Committee. There is no suggestion in the report that there are weaknesses in the current regime for the monitoring of performance. Ongoing performance reviews are currently done by senior management and the Bank of Canada Board of Directors, and supplemented by ex-post evaluations and audits conducted by independent third parties and by the Auditor General. It is also noted that past treasury evaluations, as well as ongoing dialogue with other sovereign borrowers, indicate that useful performance measures for a benchmark borrower like the government are difficult to develop. Nevertheless, the Bank of Canada and the Department of Finance are currently taking steps to expand public reporting on a wide array of outcomes in the Debt Management Report.

Additional Recommendations

5.  Oversight Role of Parliament (p. 9): Involve the Public Accounts Committee in the next governance review; assess how the needs of Parliament can best be met.

Departmental Response

The Department ensures that Parliamentarians are kept apprised of the focus and performance of treasury management through the tabling of annual reports on the future fiscal year's Debt Strategy, the past fiscal year's Debt Management and the Management of the Foreign Exchange Reserves. In addition, copies of all external evaluations of treasury management policy and programs are sent to the Public Accounts Committee. To ensure that needs are understood and met, the next evaluator of the governance framework will be requested to seek the views of Parliamentarians through the relevant Parliamentary committees.

6.  Strengthen Independence of the Risk Committee (p. 11): Consider adding an outsider to the Committee and reduce the number of attendees at meetings.

Departmental Response

The role of the Risk Committee is to provide opinions on the risk implications of recommendations put forward by the Funds Management Coordinating Committee and Risk Analysis working group. It also provides advice to the Bank and the Department of Finance on risk implications during the development of policy proposals and recommendations and operational practices and monitors overall operational risk. The Department and the Bank believe that an independent risk monitoring function is important and have recently taken a number of measures to reinforce the independence of the Risk Committee, including appointing senior Bank official outside the funds management area to the Committee, changing the reporting relationship of the supporting unit (the Financial Risk Office) within the Bank and limiting attendance at RC meetings. In the view of the Department, the benefits of an external member to the RC would be outweighed by the costs of disclosure of information on government positions including plans of a commercially sensitive nature. Further, the number of qualified, non-conflicted experts in this field is very limited.

7.  Effectiveness of the Funds Management Committee (p.14): Take measures to ensure the effectiveness of FMC.

Departmental ResponseThe Department understands that ensuring that the FMC is an effective forum is vital to the success of the governance framework. Steps have already been taken to enhance the quality of discussion, including limiting attendance, establishing meeting dates well in advance and providing background briefing on issues.

8.  Crown Borrowing Framework (p.15): Undertake an independent assessment of the current framework used by Crowns to fund their activities and alternative approaches.

Departmental Response

The Department recognizes that there are alternative approaches that could support government bond liquidity and potentially reduce Crown borrowing costs, and also the desirability of studying these alternatives. The Department will follow up on this recommendation by undertaking a review of Crown borrowing in 2004-05 under the auspices of the Treasury Evaluation program.

9.  External Comparison (p. 15): Develop a more systematic approach to incorporating knowledge of other countries' practices and developing staff awareness of those practices.

Departmental Response

The Department agrees with this recommendation and, in conjunction with the Bank of Canada, will be taking steps to improve the collection and dissemination of knowledge of leading practices in other sovereigns. This would be in addition to the ongoing evaluation process, as each report has as a component of its development a consideration of best practices of other similar sovereigns. Furthermore, an exchange of information on sovereign practices occurs annually within the context of the OECD working party on Debt Management.

- Governance Evaluation: Debt & Reserves Management -