Shooting the Messenger

11 -The Fifty Percent Solution

The Estimates contain the details of the government’s projected expenditures by department and agency. They consist of the Main Estimates and the Supplementary Estimates. The Main Estimates contain expenditure details for the upcoming fiscal year. The government presents the Main Estimates to Parliament for review and approval usually in early March, although the timing will depend on the Budget.

From the House of Commons Standing Committee on Government Operations and Estimates web page.

It's the little things that trip you up, the unexpected little things. For the diplomats it was a request to build a small database to facilitate the preparation of the Estimates for Parliament that would lead to the discovery of probably the largest and longest sustained raid by public servants on the public purse in Canadian history.

Building this database was one of the first jobs I was given when I joined the Department of Foreign Affairs as Financial Systems Analyst.

The preparation of the Estimates at Foreign Affairs is slightly more complicated than in other departments because a large portion of its budget is spent in other countries' currency.

The Estimates preparation process, when I was with Foreign Affairs, began in September. One of the formalities was opening the Globe and Mail newspaper to the page where it publishes the rates of exchange for the Canadian dollar against most if not all the world's currencies.

These exchange rates became the budgeted rate of exchange — the exchange rates used to convert budgeted expenditures in a foreign currency into Canadian dollars. This Canadian dollar total for planned expenditures for the coming fiscal year was the amount that Parliament was asked to approve as part of the Estimates process.

It is next to impossible to predict what the Canadian dollar will be worth from one day to the next against the American dollar, let alone accurately predict what our dollar will be worth against most of the world's currencies eight to twenty months down the road.

What you can predict, with absolute certainty, is that in some countries the Canadian dollar will gain in purchasing power, in others it will lose.

The idea then was to pass on any increase in purchasing power in countries where the Canadian currency gained against the local currency to posts (post, like mission refers to any Canadian embassy, high commission or consulate) in countries where the dollar experienced a decrease in purchasing power.

For example, if Parliament had authorized the rental of affordable, comfortable housing similar to that found in Canada as guaranteed under the Foreign Service Directives (FSD) in Paris, the increased purchasing power of the Canadian dollar against the French Franc did not mean you could now rent a fancy apartment on Les Champs Elisés complete with two fireplaces and comfortable seating for twelve at the dining room table which was what was done.

You had to return to Ottawa any gains in purchasing power: the amount of the authorized transaction multiplied by the difference between the budgeted rate of exchange and the actual rate of exchange. Ottawa would then make these "new" dollars available to less fortunate posts.

If you did not return this windfall, then posts experiencing a decrease in purchasing power would be forced to draw dollars from a special emergency reserve, and when that reserve fell below a certain threshold Parliament would be asked for more money via the Supplementary Estimates process.

In effect, Canadian taxpayers would be asked to pay for luxuries which Parliament had not authorized, and this is what was happening.

I, of course, did not know that at the time. It was only about a year after I joined the team completing the building of the Post Expenditures Database as part of the Full Telegraphic Input of Financial Data project that I discovered what was happening.

The Auditor General, in a previous audit at Foreign Affairs, had expressed concern as to the timeliness and accuracy in the reporting of expenditures by posts. To fix this problem, Foreign Affairs had embarked on an ambitious and innovative project called Full Telegraphic Input of Financial Data.

Expenditures made by all posts would be transmitted via the Department’s worldwide communication network on a weekly basis to the Department powerful mainframe computer (a DEC-20 from the now defunct Digital Equipment Corporation of Maynard, Mass.) in Ottawa and quickly sorted, analyzed and summarized and made readily accessible for review and action by management.

As an incentive, and so as not to add to the administrative burden of posts, expenditures would be reported in the currency the goods or services were paid for; the DEC-20 would convert all expenditures made in a foreign currency into Canadian dollars based on the exchange rate that accompanied every transaction.

Full Telegraphic Input meant that, for the first time, the exchange rate used by posts to convert Canadian dollars into the currency of the host country to purchase a good or a service and the cost of the good or service was available in electronic format on the same computer where the Estimates Database was located.

And what did the Estimates Database contain?

The exchange rate at which posts budgets had been approved by Parliament. The Department and posts were not aware of the significance of this development.

They say the road to Hell is paved with good intentions.

During the implementation phase of Full Telegraphic Input of Financial Data I spent a lot of time, at all hours of the day and night in front of a computer terminal waiting for some post halfway around the world to send in their information.

Before the information was "packaged" to be included in the Post Expenditures database it was quickly manually scanned for obvious errors.

It was late one night while waiting for the information from Warsaw or Ouagadougou to arrive that I realize I could eliminate the need for post to calculate gains and losses on foreign currency transactions altogether. All I had to do was link the Post Expenditure Database and the Estimates Database (child's play) and write a program to calculate gains and losses and build a database to store the information.

The time savings would be impressive. It took more than one hundred (100) people around the world sometimes days to perform these calculations every month using pen and paper and a desktop calculator, what the DEC-20 could do in a matter of hours.

It took more than a few months, working part-time and after hours to put together what became known as the Currency Fluctuation Reporting System. Most of the time being consumed in writing programs to produce summary and detail reports for each Embassy, High Commission and Consulate. Then, there was no sophisticated off-the shelf programs like Crystal Reports. You had to program every type of report from scratch and this took time.

Also, the DEC-20 could only do arithmetic to seven decimal points. This was not good enough to get an absolutely accurate calculation for countries like Italy where the Lira had plummeted to an all time low in the early eighties. Situations such as these added to the programming complexity.

The actual calculation done by the computer was of course quite simple. The following formula is easily understood by anyone who has ever traveled to a foreign country and had to convert Canadian dollars into the local currency.

(Expenditure in Local Currency x Budgeted Exchange Rate) – (Expenditure in Local Currency x Local Exchange Rate) = Gain or Loss on Transaction

Finally, I had processed more than a year's worth of information and produced the first complete set of computer printouts that would become known as the Currency Fluctuation Report. It was time to show my calculation to the boss, Dave Gordon, the Director of the Financial Planning and Analysis Division.

Why did I wait so long? I was doing this on my own time or when there was nothing else to do. I enjoyed the challenge. I was also doing the type of complex programming that was not part of my job description. I was afraid that if I told anyone before I was far enough advance I might not get a chance to finish what I had started.

Gordon was incredulous. "That can't be," he said, "the gains indicated are at least twice what posts are reporting."