Public Accounts Committee on Sept. 28th, 2006

[The Chair, Liberal, Shawn Murphy]

Ladies and gentlemen, I want to welcome everyone here to the meeting of the Standing Committee on Public Accounts. Bienvenue à tous.

I want to welcome our witnesses here today.

From the Office of the Auditor General of Canada, of course we have the Auditor General, Sheila Fraser. With Mrs. Fraser are Douglas Timmins, Assistant Auditor General, and Frank Vandenhoven, principal.

From the Treasury Board of Canada Secretariat, we have the Comptroller General, Charles-Antoine St-Jean, and Bill Matthews, senior director.

From the Department of Finance, we have Chris Forbes, director of fiscal policy division.

I don't believe there is anyone else.

I want to extend to each and every one of you a very warm welcome.

Mr. Williams, you have a point of order. I recognize you.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Thank you very much.

I was in the House today at routine proceedings, which, of course, start after question period. I had some petitions to present that are very important for my constituents. The meetings are now starting at 3:15, and I have a conflict between presenting petitions and being here at the committee. Why are we now starting at 3:15 rather than at the normal time of 3:30?

There were some points of order and privilege in the House after question period. I was caught in the conflict, but here I am, and I still haven't had my petitions presented.

Do we have to start at 3:15, Mr. Chair?

[The Chair, Liberal, Shawn Murphy]

It's something that the committee can take back to the steering committee, Mr. Williams, but I can tell you where we were coming from.

It's been our experience that a lot of members try to schedule other events at 3:30, whether it be interviews, meetings with people, or going back to offices. On a lot of occasions, which you as former chair know, it's very difficult to get started at 3:30. In fact, many times we start at quarter to four. We thought we would try to start at 3:30.

If it presents a major problem for members of the committee, we can certainly revisit it. That's the reason behind it. As you can see, we're starting now and it is very close to 3:30.

But again, I'll put that on the agenda, Mr. Williams, at the next meeting of the steering committee, and we'll see what the views of the members are.

Is there anything further?

Before we ask the Auditor General for her opening remarks, I want to note a point of information.

We approved by motion the report on the Department of Public Works and Government Services that deals with the leasing of government office space. Of course, we circulated it to each and every member. According to committee practice, we gave everyone 24 or 48 hours to comment. We did not receive any comments. The report will be finalized and translated, and it will be presented in the House at the first opportunity.

If time allows, perhaps we could spend the last 20 minutes in camera, reviewing the most recent draft of the gun control report. As members are all aware, we spent a considerable amount of time on the report; however, certain amendments were made. Those amendments were made in both official languages and circulated to the committee. We want the committee to have one last look at the report. We will do that later today at the end of this meeting.

Having said that, I am now going to ask our Auditor General for her opening comments.

[Sheila Fraser, Auditor General of Canada, Office of the Auditor General of Canada]

Thank you, Mr. Chair. We are pleased to be here today to brief the committee members on our report on the audited 2005-06 financial statements of the Government of Canada.

With me today are Doug Timmins, Assistant Auditor General, and Frank Vandenhoven, principal, both of whom are responsible for the audit of the financial statements of the Government of Canada.

I am pleased to see that the committee was able to hold this hearing on the day that the public accounts were tabled. The public accounts are a key accountability report of the government.

The Comptroller General will be explaining the main points in the government's financial statements to the committee, and I will talk about the highlights of my audit opinion and observations.

My report on the 2005-2006 financial statements is included on page 2.4 of the Volume I of the Public Accounts.

My opinion provides Parliament with the assurance that the government's financial statements are fairly presented in accordance with Government's stated accounting policies, which conform with Canadian generally accepted accounting principles.

My opinion can be referred to as a “clean” opinion. Our Office has been able to issue such an opinion on the Government's financial statements in each of the past eight years.

Mr. Chair, I would like to point out that this is the first year in which our audit opinion indicates that the government's financial statements conform with Canadian generally accepted accounting principles. This change was made because the standards of the Public Sector Accounting Board were recognized as generally accepted and auditors are now required to opine against those standards.

Given our legislative mandate to report against the Government's stated accounting policies, my opinion indicates assurance in that regard as well.

I commend the Government for producing financial statements that are fairly stated in conformity with Canadian generally accepted accounting principles. Parliamentarians and all Canadians can be assured that the financial statements provide sound financial information, and in our view, Canada continues to demonstrate leadership in financial reporting for national governments.

I would like to discuss two key accounting issues that we dealt with during our audit.

Firstly, this year the government applied the Public Sector Accounting Board's revised standard on the government reporting entity. Under this new standard, organizations are considered to be part of government if they are controlled, and controlled in an accounting sense, by the government. In essence, these organizations are treated as part of the government reporting entity, and as a result their assets, liabilities, expenses, and revenues are included in the government's financial statements.

Transfers to such organizations are not treated as expenses until these organizations use the funds for their intended purposes. This was a challenging standard to implement and resulted in the following entities being included in the government's financial statements for the first time: the Canada Foundation for Innovation, the Canada Millennium Scholarship Foundation, the Canada Foundation for Sustainable Development Technology, the Aboriginal Healing Foundation, and the St. Lawrence Seaway Management Corporation.

This issue has been a long-standing item of discussion with government, and in fact the public accounts committee recommended that the government address this issue. The implementation of this new standard resulted in a reduction in the government's opening accumulated deficit of $5.1 billion. More details of the impact of this on the financial statements are found in note 2 on page 2.11 to the financial statements.

I am pleased to report that I believe the government followed a reasonable approach in implementing this standard and that it addressed this difficult issue. This results in a more complete and accurate picture of the government's financial position and results.

Secondly, the government's financial results include $3.6 billion in expenses pursuant to authority given to the government through Bill C-48, An Act to authorize the Minister of Finance to make certain payments. Of this, $3.3 billion related to transfers to provinces and territories. The government created this obligation prior to March 31, 2006, by communicating its intention to transfer funds to provinces. The actual amount of the transfer was dependent on the size of the surplus.

The Government's accounting treatment was acceptable for these reasons: the Government obligated itself to pay the funds; it did not stipulate any conditions on the transfers; and it had authorization from Parliament to make the payments.

These matters are discussed in more detail in our Observations, which are found starting on page 2.29 of the Volume I of the Public Accounts. In these Observations, I have also provided an update on issues raised in previous years. I am pleased to report that the issue of “netting” has been resolved. The Government continues to work on the other issues, which while important, were not so significant as to affect our audit opinion. We will continue to monitor progress on these issues.

In conclusion, I would very much like to thank the staff of the Office of the Comptroller General and of all of the departments involved in this work. The actual tabling of these accounts reflex many hours of painstaking work.

Mr. Chair, we would now be pleased to answer any questions the Committee may have.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mrs. Fraser.

Monsieur St-Jean.

[Charles-Antoine St-Jean, Comptroller General of Canada, Office of the Comptroller General, Treasury Board of Canada Secretariat]

Thank you for the invitation to appear before this committee to discuss the public accounts.

The preparation of the financial statements for the Government of Canada is a challenging task that requires sound judgment in the application of professional accounting standards. This process also requires the frequent and thorough discussion of issues with the Auditor General and her office. We are extremely pleased that, for the eight consecutive year, the Auditor General has issued an unqualified opinion on the Government's financial statements.

Canada is one of only three countries in the world, the others being Australia and New Zealand, to have such a track record of unqualified audit opinions on its consolidated financial statements. This is an accomplishment of which we should all be proud.

The government reported a surplus of $13.2 billion last year, which resulted in a reduction of the accumulated deficit from $494 billion to $481 billion. This is the ninth consecutive year that a surplus has been recorded.

The surplus of $13.2 billion was more than the forecasted surplus of $8 billion, as announced by the Minister of Finance in the May 2006 budget. Revenues were $1.3 billion higher than forecast, primarily as a result of a $1 billion foreign exchange adjustment on Canada's investment in the International Monetary Fund, which was reflective of the strengthening of the Canadian dollar. Program expenses were $4 billion lower than forecast, primarily related to lower-than-expected program spending and year-end adjustments.

This is also the first year that the Government's financial statements include the results of four foundations that met the revised definition of control for financial reporting purposes. This adjustment resulted in a $5.1 billion decrease to the opening accumulated deficit.

I would like to stress that accounting standards are evolving both nationally and internationally. The pace and complexity of these changes are not without their challenges for both preparers of financial statements and auditors. Currently on the horizon are new standards related to segmented reporting, government transfers, and financial instruments, which will significantly impact the government's financial statements.

The international scene is also changing, with movement to harmonize standards for the private sector. One can assume that the public sector standards will eventually follow this trend. It was announced earlier this month that the International Public Sector Accounting Standards Board will be relocating its offices to Canada. This is a significant event, and it further solidifies Canada's reputation as a world leader in public sector financial reporting.

Mr. Chairman, we have tabled a presentation outlining some of the key financial results for last year. That presentation is now available.

Before starting to make the presentation, I would like to thank the Auditor General and her office for the continuing professional working relationship we have enjoyed.

I would also like to publicly thank all the many government officials in Public Works and Government Services Canada, Canada Revenue Agency, all departments, and my office for the very long hours and great work in enabling the tabling of these accounts.

Thank you very much. I look forward to our discussion.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Monsieur St-Jean.

Mr. Forbes, do you have any opening comments?

[Chris Forbes, Director, Fiscal Policy Division, Economic and Fiscal Policy Branch, Department of Finance]

I do not, Mr. Chair.

[The Chair, Liberal, Shawn Murphy]

Thank you very much.

I want to again thank you for being here on the day the public accounts are tabled in Parliament. I think that's appropriate.

It always startles me that the Government of Canada can get their public accounts out in September but the provinces struggle to get them out by the end of December. In some provinces it's well into January before they get them out. Of course, they're only a fraction of the size. It's amazing how we can get it done here but not in smaller entities.

We're going to go to questions now in the first round. Liberal Party, Mr. Proulx--

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Mr. Chairman, will we be going through the deck?

[The Chair, Liberal, Shawn Murphy]

Do you want to go through it?

[Charles-Antoine St-Jean]

I could go through the presentation, if it would be helpful for the members. Or we could go directly to questions.

[The Chair, Liberal, Shawn Murphy]

I'm at the total discretion of the members. It's been circulated and people can read it. I don't think there's any need for it.

Mr. Sweet.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Whatever the majority of the committee feels is fine with me.

[The Chair, Liberal, Shawn Murphy]

Mr. Williams.

[John Williams, Conservative, Edmonton—St. Albert, AB]

It's bedtime reading. I'm sure Mr. Sweet will want to fall asleep with this, because it's really riveting stuff. This is very important. I suggest we take it home and study it in great detail.

[The Chair, Liberal, Shawn Murphy]

Does anybody else have any views on how we should proceed?

You'll refer to it in questions and answers, Mr. St-Jean, and we'll proceed without your going through it. The way it's presented makes for very quick and easy reading. We certainly appreciate the way it's done. I'm sure members have perused it here.

Mr. Proulx.

[Marcel Proulx, Liberal, Hull—Aylmer, QC]

Thank you, Mr. Chairman.

Good afternoon, Ms. Fraser and Mr. St-Jean, and welcome also to the people who are with you today. I am glad to see that you have both extended your congratulations and thanks to each other. That is a very good sign. It means that there is harmony within the Canadian government family.

Just for my own information, I would like someone to explain why the inclusion of four foundations and one corporation makes a difference. Ms. Fraser, am I to understand that you now audit these foundations and this corporation?

[Sheila Fraser]

No.

Mr. Chair, we are not responsible for auditing the financial statements of these foundations and this corporation. In 2005, however, our mandate was broadened so that we are now authorized to carry out what are called management audits. That means that we can audit certain aspects of their operations. Indeed, three foundations are currently being audited as part of broader, more extensive audits. At the same time, we do rely on private sector auditors who audit the financial statements to include them in the results presented for the Government of Canada.

[Marcel Proulx, Liberal, Hull—Aylmer, QC]

Since you include these foundations and this corporation in the Government's financial statements, am I right to assume that they are subject to the Financial Administration Act?

[Sheila Fraser]

This is not legal control. According to accounting standards, when it is in a position to influence its operations and set the objectives, policies, as well as the overall direction of an organization, the government is deemed to control that organization. Some of these foundations were established under an Act of Parliament and have very limited objects.

For example, they cannot borrow money; they use the fund provided to them by the government for very specific purposes. It is assumed that the federal government controlled the operations of these foundations, even though it did not do so on a day-to-day basis. The fact remains that it does control their objectives. For that reason, the results must be included in the Government of Canada's financial statements.

[Marcel Proulx, Liberal, Hull—Aylmer, QC]

Am I to understand that they are included in the financial statements even though there has been no actual control of how the funds were used? I understand what you are saying. I realize that there is a broader audit or understanding in terms of their mandate and compliance with the policies which were relied upon to create these foundations or manage the corporation. If the use of funds is not controlled, how can you include these results in the Government of Canada's financial statements?

[Sheila Fraser]

In the case of both the foundations and the corporation, I believe the financial statements are in fact audited. However, that audit is carried out by private sector firms. A financial statement is produced and a financial audit is carried out. We rely on these auditors to provide us with accurate financial data.

As regards the attainment of goals, compliance with legislation and the use of funds, that is a different type of audit. Some organizations are required to do that every five years. The Secretariat may ask that these specific items be subject to an audit. We do not audit these things on a regular basis. I would even say that until recently, we did not even act as the auditors for a number of fairly significant Crown corporations. We rely on other Auditors. In some cases, we do additional work that we consider necessary in order to express an opinion.

[Marcel Proulx, Liberal, Hull—Aylmer, QC]

As regards these foundations and this corporation, do the private sector experts carry out their audits using accounting standards for the industry, or according to the Government's accounting standards?

[Sheila Fraser]

All auditors, whether they are private sector or legislative auditors, are required to comply with the standards set by the Auditing Standards Board. That organization establishes auditing standards for Canada as a whole, and we are all required to follow them. The Government does not set standards for auditing.