Government Operations Committee on March 28th, 2012

[Michael Ferguson]

We did an audit that included the G-8 legacy fund, but my understanding is that it didn't include something dealing with those transfers. We did make observations about the G-8 legacy fund, though.

[John McCallum, Liberal, Markham—Unionville, ON]

Okay.

My next question is about an order paper question in which we asked the government to provide information on which elements of the statutory elements of the estimates were not included in the estimates. The answer we got was that the elements of the statutory components not included in the estimates were so numerous that they could not give us an answer within 45 days.

I would have thought that as part of the estimates process it would be important for parliamentarians to have a clear understanding of all the expenditures of the government, including the statutory components. I wonder if you have any comment on that.

[Michael Ferguson]

Our office has always promoted and will always promote government transparency and accountability. I can't speak to the specific item you're talking about or the response to the government, because it's just not something we have looked at or have audited, but as a general concept, we certainly support transparency.

[John McCallum, Liberal, Markham—Unionville, ON]

My third question, then, relates to your introductory comments. You said that the problem of the main estimates not coinciding with the budget is an issue of timing, and we have heard many witnesses say that if the budget were introduced three months earlier, say, than the presentation of the main estimates, then we could have main estimates coinciding with the budget and have less need for supplementary estimates. I believe that's what you said in your opening comments.

Many witnesses have said that they think this would be a major step, and they've been saying that for years, but it has never happened. Perhaps this is an unfair question, since you're just recently arrived—or maybe some of your colleagues could answer—but do you know of any reason why this would be a bad idea? Or is it just bureaucratic inertia that something that seems fairly obvious simply never happens?

[Michael Ferguson]

I think I'll answer the question by going back again to my experience in New Brunswick, which is a small province when compared to the complexity of the federal government. In New Brunswick, when we tabled a budget that included an amount of total expenses we also tabled main estimates that completely reconciled to the expenses in the budget. There was a direct link on a full accrual basis between the estimates and the budget speech of the minister, and they were all tabled on the same day.

[John McCallum, Liberal, Markham—Unionville, ON]

Oh?

[Michael Ferguson]

Again, it was a surprise to me when I got here and found out that the main estimates are actually done on a different basis from the budget and the financial statements. I see that we've made a recommendation on it: that there should be full accrual budgeting in the main estimates. So again, my experience was that those documents were tied together.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you.

[The Chair, NDP, Pat Martin]

That's very interesting and very useful to us.

I think for the Conservatives the last speaker in this round is Scott Armstrong.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Thank you, Mr. Chair.

I want to thank all three of you for being here.

Mr. Ferguson, my riding borders on New Brunswick, so I follow what goes on in the New Brunswick legislature fairly closely. Currently the sales tax in New Brunswick is 2% lower than it is in Nova Scotia, so that causes people on my side of the border a great deal of difficulty.

I do have some questions about your experience. I see that you were the comptroller, also the auditor general, and later the deputy minister of finance in New Brunswick. I think that provides you a unique level of experience to bring to this committee.

My first question is on the accrual versus cash issue. I know that it's the position of the federal Auditor General to move us more towards an accrual formula. From your perspective as the Auditor General, what is the argument between cash and accrual?

[Michael Ferguson]

The argument I guess essentially is.... Well, if you start with the financial statements of a government, the financial statements of a government that represent “here's what happened during the year”—so they're backward-looking documents—have to be prepared on an accrual basis. Accounting standards dictate that they have to be prepared on an accrual basis. As auditor, we have to make sure they were prepared on that basis.

So when you start with this—that the final report the government issues has to be on an accrual basis—then you start to look at the budget documents, which are forward-looking documents. In order to be able to tie the budget documents to the financial statement documents, there are a couple of things: number one, you would need to have the same basis of accounting; and number two, you would need to have the same definition of the entity, of what's in the budget. The organizations that are in the budget should be the same ones as those in the financial statements.

But then you get down to where there are some items that are expensed on an accrual basis. For example, I will use provision for losses on accounts receivable. You have accounts receivable and you expect that some of them you won't collect, so you have to expense the amount that you expect you're not going to collect. But it doesn't require you to pay out an amount of cash in that year. Okay?

I think that's what people struggle with in terms of accrual appropriations versus cash appropriations. It's that the accounting would require you to record one amount, but cash management may be very different from the year when you actually record the expense on an accrual basis.

As for what parliaments have done historically, parliaments have approved cash disbursement. So I think the thing that has to be sorted out is just exactly how you would represent the difference between the accrual estimates that tie into all of the other documents with the amount of cash that needs to come out of the bank account.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

So from our perspective of trying to provide some oversight—it's not only us, of course, but the standing committees on each department that also try to review the estimates—do you think if we moved to more of an accrual basis it would make our job easier because it's a bit more transparent? What do you think would happen from our perspective?

[Michael Ferguson]

As a personal observation and simply going back to my history—and again, understanding that I don't know the complexity of the federal government process—I always felt that it was important to have the main estimates on the same basis as the budget and as the financial statement, so that then you have a very clear trail from one to the other, which would imply, as the Office of the Auditor General of Canada has recommended in the past, that you would use an accrual-based approach for the estimates.

Again, though, you have to reconcile that with the traditional parliamentary role of approving the cash that needs to be paid out. In New Brunswick, for example, what we would do is budget for the amount of bad debt expense, but then we would also have a separate amount that budgeted the amount of new loans that we would pay out, even though new loans weren't an expense, but they were a cash item. Okay?

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Right.

[Michael Ferguson]

So in that type of approach, you need to have both. You need to have the expense on an accrual basis, but then you need to consider also including some other items that represent additional cash that would have to be paid out.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

How much time do I have?

[The Chair, NDP, Pat Martin]

You have about 30 seconds, Scott.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Really quickly, then, what services do you provide to people on this committee and other standing committees to help us wade through the estimates? Do you have any idea of what services your office can provide us?

[Michael Ferguson]

Certainly we are always willing to sit down with any member of the committee and talk through what we know about it. But again, we haven't done any audits and we're not doing any audits on this, so we're not going to present any report to Parliament on that.

We have also presented an overview of the estimates process, which this committee, in the past, recommended we do. But we're certainly willing to sit down with anyone to help people understand.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Thank you.

[The Chair, NDP, Pat Martin]

Thank you, Scott.

Thank you, Mr. Ferguson.

That concludes the first round of questioning.

I'd just like to raise a point of clarification, based on questioners from two parties and from your opening remarks. One of the things we heard was a witness recommendation that if we moved the fiscal year to July 1 instead of April 1, we could in fact have a full three months to examine the estimates instead of the rather truncated time we're given now. That would align the budgets and the mains and it would eliminate the need for interim supply. I gather from your answer to John's questions that this is something you see as being feasible or even perhaps is the practice where you came from, the alignment of the budget and the mains.

[Michael Ferguson]

I think there were a couple of things in there.

Yes, the practice we had in New Brunswick was very much an alignment between the budget and the main estimates. But I think you started the question by saying that people have suggested moving the fiscal year-end—

[The Chair, NDP, Pat Martin]

Yes, to give us more time to examine the estimates. This was a recommendation we heard from a couple of witnesses, something that they have actually done in other countries in recent years.

[Michael Ferguson]

I'd have to look at that. I have a hard time understanding moving the fiscal year-end. To me, it just potentially moves all of the problems to different dates.

[Mike Wallace, Conservative, Burlington, ON]

Keeping the budget process the same, though--moving the fiscal date, but the budget would still be presented in March.