Indigenous and Northern Affairs Committee on Oct. 29th, 2012

[The Chair, Conservative, Chris Warkentin]

Colleagues, I call to order this 47th meeting of the Standing Committee on Aboriginal Affairs and Northern Development. Today we continue our review of Bill C-27.

For the first hour, we will have representatives from the Office of the Auditor General of Canada. With us today are Mr. Campbell and Mr. Berthelette.

Thank you, gentlemen, for joining us. You know the process. We'll turn it over to you for your opening statement of approximately 10 minutes, and then we'll turn it over to our colleagues to question you.

Mr. Berthelette, we'll turn it over to you.

[Jerome Berthelette, Assistant Auditor General, Office of the Auditor General of Canada]

Good afternoon, Mr. Chairman

I would like to thank you for inviting the office to speak about Bill C-27, an Act to Enhance the Financial Accountability and Transparency of First Nations.

With me is Ronnie Campbell, Assistant Auditor General, who was formerly responsible for first nations' audits.

Since 2000, the office has tabled 16 chapters that address first nations and Inuit issues directly, and another 15 chapters that deal with issues of importance to first nations people.

In 1996, we tabled a study entitled “Study of accountability practices from the perspective of first nations”. We noted that the relationship between the first nations and the federal government had evolved from direct service delivery by the department to service delivery by first nations. As a result of this evolution, the issue of accountability presented difficulties for both parties. In particular, the accountability of that government to Parliament became more complicated as departments were no longer directly responsible for the delivery of programs at the community level.

At that time, we met with first nations and were told that they were willing to explore ways to ensure that the information needs of Parliament were met, and they stressed the importance of internal accountability. From their perspective, accountability is non-hierarchical and is based on shared objectives.They stated that the reporting framework was of limited value to them, was onerous, and did little to enhance accountability to the community.

In 2002, based in part on what we had learned from the 1996 study, we proposed our definition of accountability: a relationship based on obligations to demonstrate, review, and take responsibility for performance, both the results achieved in light of agreed expectations and the means used. We defined five principles that support an effective accountability relationship: clear roles and responsibilities; clear performance expectations; balanced expectations and capacities; credible reporting; and reasonable review and adjustment.

We noted that delivery of programs through partners creates new and complex accountability relationships. In these arrangements, accountability is shared. With respect to reporting, we suggested the need to be clear about the measurement strategy as well as the required information and how it is to be collected, verified, and analyzed, and by whom and when.

In this work, we also stated that transparency is the sustaining element of accountability; transparency implies that one can see clearly into the activities of government. Transparency and accountability mean stronger institutions and more credible government.

Also in 2002, we tabled a study on first nations reporting. We stated that reporting needs to provide meaningful information to first nations and to the federal government and that fundamental change was required to reduce the burden on first nations.

In 2011, we identified four structural impediments that limit the delivery of public services to the first nations and hinder improvements in living conditions on reserves: lack of clarity about service levels; lack of a legislative base; lack of an appropriate funding mechanism; and lack of organizations to support local service delivery.

We strongly support the principles of accountability and transparency. We hope this background on accountability will be useful to the committee as it reviews the proposed legislation.

Mr. Chair, we do not feel that our office can comment on the merits of Bill C-27. That being said, we would like to make a few remarks on some technical aspects of the bill.

First, subclause 5(1), on how first nations are to maintain their accounts, contains the expression “generally accepted accounting principles” and a reference to the Canadian Institute of Chartered Accountants handbooks. There are currently no accounting standards in Canada that explicitly mention first nations. Although the handbooks referred to in subclause 5(1) are generally pertinent to the activities of first nations governments, they have not been designed or amended to take those particularities of the first nations situation into account.

Second, under subclause 5(2), when auditing the accounts of first nations having transactions that do not easily fit a particular standard, the auditors must assess the acceptability of the accounting framework, including the reasonableness of the accounting policies adopted by these first nations. Different auditors may come to different conclusions for similar transactions.

Third, in clause 6, the requirement for an audited or reviewed schedule of remuneration is unique. This information is normally provided as a note to the financial statements or as supplemental information in an annual report. There are no accounting standards made applicable to the preparation of this schedule of remuneration or to the auditor's report or review engagement report. Also, it is not clear who would decide, and on what basis, whether the schedule is to be audited or reviewed. This ambiguity increases the risk of confusion and inconsistent practices.

Finally, the definition of remuneration in clause 2 combines both salary and reimbursement of expenses. When other levels of government report salary and reimbursement of expenses, they do so separately. Among other things, this ensures a clear distinction between official salaries and wages and the reimbursement of travel and other expenses. For example, at the federal level, there are separate disclosure requirements for salaries and for travel and hospitality expenses.

Mr. Chair, this completes my opening remarks. We would be glad to answer any questions the committee members may have.

[The Chair, Conservative, Chris Warkentin]

Thank you very much. We appreciate that opening statement.

Colleagues, you'll recall that when we invited members and representatives from this office we did it explicitly with the understanding that they wouldn't be commenting specifically about the merits of this legislation, but rather about what they've spoken about in terms of their past studies, as well as the suggestions they've made with regard to this legislation. I just want to remind colleagues of that.

We'll turn to Ms. Crowder for the first 10 minutes.

[Jean Crowder, NDP, Nanaimo—Cowichan, BC]

Thank you very much.

Thank you, Mr. Campbell and Mr. Berthelette.

In point 13 in your presentation you refer to the point that “[t]his information is normally provided as a note to the financial statements or as supplemental information in an annual report”. I know that other witnesses who have appeared before the committee have talked about the fact that the audited financial statements will provide that financial piece, but they actually don't provide information on performance. Is that in part what you're referring to with regard to annual reports?

[Jerome Berthelette]

Well, in terms of annual reports, I think we have to make a distinction between annual reports and general financial statements. General financial statements generally form part of an annual report that a first nation chief and council might prepare for the purposes of reporting to their community.

That annual report will contain audited financial information and non-audited financial information. It will contain statistics about performance, and it will also include information about outputs, such as how many children are in the school, for instance.

Generally, these general financial statements form a part of annual reporting, but are not in and of themselves an annual report to the community.

[Jean Crowder, NDP, Nanaimo—Cowichan, BC]

But the general financial statements themselves actually don't provide that information around outputs and around performance, around numbers of children served, as you said, and numbers of houses built. A requirement to just provide audited financial statements without that context actually can't help members determine whether or not they're getting good value for their dollar.

[Jerome Berthelette]

In terms of the performance report, there are limitations that come with general financial statements, audited financial statements, but they do provide the community members with assurance that the accounts of the first nation are as they are stated in the financial statements. They can go to the financial statements and see where the community is expending, where the chief and council are expending the dollars that come from the federal government.

It provides some performance, particularly on the financial side, in terms of a clean opinion or not a clean opinion. If you have a clean opinion, you have high assurance that the accounting is good within the community.

[Jean Crowder, NDP, Nanaimo—Cowichan, BC]

What would you say about the level of expertise required to accurately interpret an audited financial statement?

[Jerome Berthelette]

In answering that question, maybe what I could do is refer the honourable members to Financial Reporting by First Nations, a CICA study copyrighted in 2008. In that report, it speaks to the issue of capacity and what is required from first nations in capacity building, if in fact the CICA Public Sector Accounting Handbook were to be applied on the reserves.

It says that there would be a need to develop the capacity among the statement preparers within the chief and council. There would be a need to develop the capacity among the members to understand what is in the financial statement, which can be complicated and requires some explanation in order for a user to be able to understand exactly what is being said. It might also require some capacity building on the part of the auditors, who would have to look at their staff and make sure they have the ability to apply this standard in a first nations situation.

[Jean Crowder, NDP, Nanaimo—Cowichan, BC]

Thank you.

In a letter to the committee from the Canadian Bar Association, they reiterated a number of the reports that your office has done over the years, and they indicated that part of the recommendation from the last 2011 report from your office said:

[W]e remain concerned about the burden associated with the federal reporting requirements, particularly related to INAC's contribution agreements with First Nations. Many initiatives with the potential to streamline reporting have been started but have not resulted in meaningful improvement.

That was in 2011. Would you be able to comment on whether there's been any shift since that time, in terms of the reporting burden that's already faced by first nations?

[Ronnie Campbell, Assistant Auditor General, Office of the Auditor General of Canada]

Thank you, Mr. Chair. I'll take that question, if I may.

No, we conducted the audit and tabled it in 2011. We noted there that the reporting burden, as something we reported several years ago, still remained a significant issue. That was in 2011. We've not gone back and audited that since.

[Jean Crowder, NDP, Nanaimo—Cowichan, BC]

What we know from your previous reports is that...I believe one number was an average of 168 reports a year, which tabled out to something like roughly 60,000 reports over 600 first nations. We already know that first nations do a significant amount of reporting to the federal government right now. My understanding is that the recommendations around reducing financial burdens have been made but not responded to in any way since, in terms of a formal process from your office.

I'm trying to be careful, because of course you can't comment on the merits of this bill, but you have first nations—many with fewer than 500 members—who are already facing tremendous numbers of reports. Some will not have the capacity, for example, to provide Internet reporting, and many do not have the capacity to actually interpret the reports that have already been done.

I'm concerned that by putting another burden, a reporting requirement, on first nations without removing something else may lead to a job not particularly well done.

[The Chair, Conservative, Chris Warkentin]

We have a few seconds left. If it's possible, please give a short answer.

[Ronnie Campbell]

I didn't have a short answer in mind, but I'll try. Thank you, Mr. Chair.

I think all first nations are already audited. Without my venturing into commenting on the bill, as I think I understand it, the bill introduces some requirements in relation to the audits that have already been conducted.

[The Chair, Conservative, Chris Warkentin]

Thank you.

We'll turn to Mr. Richards now, for seven minutes.

[Blake Richards, Conservative, Wild Rose, AB]

Thank you, Mr. Chair.

I certainly thank both of you for being here today. I know that you obviously have great expertise in the subject matter, so it's much appreciated that you're here to share that expertise with us.

Obviously, accountability and transparency are, I believe—and I'm sure you would agree—key elements for governance, and for good governance, which is something that our government has taken quite seriously. You only have to look at one of our first acts as a government, the passing of the Accountability Act, to see that.

You obviously have some expertise, and I'd like to hear from you a little further. Can you give this committee some background in terms of some of the basic principles or basic practices that relate to this subject matter of financial transparency and that governments in Canada are expected to follow? Could you share some of those basic principles and basic practices that governments in Canada are expected to follow as a matter of course?

[Jerome Berthelette]

Well, Mr. Chair, I think we have to start from the relationship between the first nations and the federal government. Under the grants and contributions agreements that first nations signed with the federal government, there are reporting requirements—

[Blake Richards, Conservative, Wild Rose, AB]

I'm sorry. I don't want to interrupt you. I wanted to just clarify my question.

[Jerome Berthelette]

Sure.

[Blake Richards, Conservative, Wild Rose, AB]

I think it may have been misunderstood.

What I'm asking for specifically now is just a basic overview. When we look at government in general in Canada, what are some of the basic principles or practices in terms of accountability that would be expected of governments in Canada?

[Jerome Berthelette]

I'll take the federal perspective. It's the one I'm most knowledgeable about.

First we look at it from a department's point of view. Departments develop reports on plans and priorities. They develop DPRs, the departmental program reports. They are responsible for maintaining their books of accounts. The books of accounts get rolled up into the Public Accounts of Canada and are audited by our office. These are available on the website to anybody who wants to take a look at them.

[Blake Richards, Conservative, Wild Rose, AB]

If you take a look at the basic principles behind that specific example you've given me, would you say that those types of principles currently apply to first nations governments in Canada?

[Jerome Berthelette]

First I have to say that when we talk about the federal government, we talk about an accountability framework that has evolved over time. What we have now is not what was in place years ago, right? We have a pretty integrated and complex accountability framework.

First nations, we have to understand, generally have populations of about 500 people, so when we talk about an accountability framework for a population of about 500 citizens, I think we have to keep in mind that it cannot be and will not be as complex as what we see federally. What you see when you visit a community is an accountability system that is based on a day-to-day interaction between the chief and council and the community members. I would not want to be a chief or a councillor in a community, because a chief and councillors are available to the community 24 hours a day, seven days a week, to resolve a host of problems that in many cases are irresolvable?

You have that accountability, and you also have the accountability that comes from running a program. If they run an education program, they do have to account to their community members in terms of how that education program is operated. In some communities, this means that the education director or the principal will meet from time to with community members or may file a report with the band council. That report may be shared with the community. Chiefs and councils go out of their way in some communities to have their meetings open to the public, including broadcasting them over the radio.

The accountability framework within each community does vary from community to community.

[Blake Richards, Conservative, Wild Rose, AB]

Because I have limited time, and I think I have the basic premise of your response, I'll just move on, if I can.

As I look at local governments, I'll use my province as an example. I'll use the City of Calgary and the City of Edmonton as examples. When they publish their audited financial statements, in their notes they specifically include the salaries and benefits of their elected officials.

I'm just curious. Based on that and your experiences in the Office of the Auditor General, how do the standards that are set out in this bill for first nations governments compare to those of other governments, like the examples I've used, to other aspects of governments in Canada...?

[Jerome Berthelette]

I think the general accountability frameworks across governments tend to be quite similar.