Public Accounts Committee on Sept. 28th, 2006

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

No, you just say this is the amount expected to be recovered; you don't say that you have recovered it. Does Mr. Guité have this kind of money?

Okay, I'd like to move on, Mr. Chairman, to some random thoughts here.

On volume I, page 2.32, this is the Auditor General with her observations. But before we go there, there was another one I wanted to raise--back to volume III, page 2.14. Again, we had an interview with the CRA, Mr. Chairman. I just want to point out that on page 2.15 of volume III, under “Cases before the Court (CRA's estimate of the amount of tax evaded or fraudulently obtained)”: income tax, almost $82 million; goods and services tax and harmonized sales tax, $102 million. Combined there is $200 million in taxes, Mr. Chair. That is CRA's estimate of the amount that's been evaded or fraudulently obtained.

Do you have any comment on that, Mr. St-Jean?

[Charles-Antoine St-Jean]

This is the information that is reported by CRA when they do their analysis of all their recovery; it's the assessment. That represents $200 million of the money that is being assessed--

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

That's a lot of money, right?

[Charles-Antoine St-Jean]

I appreciate that, and our friends at CRA are diligent in recovering the moneys they can. They are disclosing their best estimate of what these amounts are.

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

As the chief government accountant, what do you think about these numbers?

[Charles-Antoine St-Jean]

I'm not happy to see any amount of money that is not recovered by the Government of Canada, but they are doing appropriate action, you see, to recover what they can.

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

Now I'm going to move to volume I. It's volume I, page 6.13, on capital leases.

I thought we had a good credit rating, Mr. Chairman. It's the Government of Canada, triple-A, and our borrowing capacity is pretty good, I thought. I'm taking a look under capital leases, Public Works and Government Services. At 269 Laurier Avenue West in Ottawa, the implicit interest rate, according to this, is 71.38%.

I hope there's a good explanation for this, because I think we're being taken to the cleaners, or somebody has got us over a barrel.

[Bill Matthews]

There actually is a very good explanation for this. We raised the same question. The way they have calculated the effective interest rate on this lease is incorrect. I've asked them to recalculate, but it is not 71.38%, and I will certainly endeavour to report back when we get the correct number.

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

Okay. That would be appreciated, because 71.38%, Mr. Chair, I thought was a little bit outrageous. I'm glad somebody picked it up before we picked it up, and I'm glad they're going to be looking at it.

I'll move back to page 6.11, the maturity of government debt. This is more of a management concern. We've had a period of very low interest rates for some years, and I know we carry a large amount in treasury bills just to ensure liquidity in the market, but in the long-term debt from 2022 to 2026, I see we've got $21 billion outstanding at an average rate of 7.18%, which is pretty expensive.

Is there anything we can do or should have done to mitigate that expense, Mr. St-Jean?

[Charles-Antoine St-Jean]

Maybe I could ask my colleague from the Department of Finance to answer that question.

[Chris Forbes]

If you look at the overall structure of the government's debt in terms of maturity, the Department of Finance does lay out a debt market strategy, a debt management strategy, in which we mix our short-term holdings and our long-term holdings appropriately, or attempt to find the right mix. As you know, we are moving towards more short-term debt--

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

More short-term debt?

[Chris Forbes]

We are moving towards more short-term debt, towards a higher share of short-term debt versus long-term debt--not significantly, but over time raising that proportion, so that may address a bit of your concern. Of course, the government is reducing its debt and paying off some of its market debt over time, so we do take decisions on which debt to pay off and what to buy back.

I'm not sure that answers your question entirely, but--

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

I would have thought, Mr. Chairman, that given the historically low rates we've had for the last three, four, and five years, the Government of Canada would have done everything it could to lock in these low interest rates for 10, 20, 30, 40 , or 50 years if it could, so that we would get a good return to the taxpayers of Canada, and 7.18% on $21 billion for the next 15 or 20 years is a fairly expensive bill that we're going to have to pay.

[The Chair, Liberal, Shawn Murphy]

I have a question, Mr. Williams. Now that the Conservatives are in power, are you saying that interest rates might go up?

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

No, I just said they've been historically low, Mr. Chair. I didn't say for how long they will remain historically low; I just said that they have been.

[An hon. member]

They were at 21% when Trudeau was Prime Minister.

[The Chair, Liberal, Shawn Murphy]

Mr. Rota, you have eight minutes.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

Thank you, Mr. Chair. Whenever there is uncertainty, I believe interest rates go up, but we won't talk about that.

The government has committed to having departments produce their own individual financial reports rather than having one large consolidated report. How close are we, and when do we see that happening, if we're not there yet?

[Charles-Antoine St-Jean]

Thank you very much for the question.

The plan is that by 2009 the 22 or 23 largest departments will be subject to an annual audit, and we're making progress in having some of those departments go through this process. Many of them are going to an audit readiness process. One of the departments, the National Research Council, obtained a clean audit opinion this year, and there's a lesson learned on how to go about it, so work is under way to bring it up.

That would bring about 94% of all government spending subject to a direct audit on an annual basis, but it's going to be tough. It's going to be a lot of work. By 2009 we should start seeing a lot more of those departments audited. This year, for the first time, they all report their financial statements in their departmental reports, but they're unaudited; in 2009 we hope to have all of them--the 22 or 23--audited.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

I'm just not quite clear on that. Maybe you can clarify why they can't do that now. What's keeping them from doing it? You tell me it's difficult, but they have their departments and they're operating them, so why can't they do that now?

[Charles-Antoine St-Jean]

Well, we do it; it's at the consolidated level.

It really depends on the strategy that was adopted in the prior years. Different countries will do it starting by department, and then they go to the consolidated level. The strategy of governments was to do it at the consolidated level and get the audited opinion at that point in time.

The materiality level for the consolidated department is $1 billion, if I recall. As I say, at the departmental level, the materiality level will be much lower. It would take a lot more work to do the proper accounting for the fixed assets, the liability, and there would be much tougher work in the cut-off routines. We're not there yet. We don't have that maturity as yet, but we're making progress.

Back in 1990, the U.S. had the CFO Act that mandated that the 25 largest departments be audited. Some 15 to 16 years later, they still have 16 departments with a clean audit opinion; they have eight departments with a qualified audit opinion, and some of them also have a denial of audit opinion.

It takes many years. We hope we're going to be able to ramp up fast, but we don't have the system capacity to do that yet. We're working hard to build it.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

How does it differ? You have your consolidated statement and you have the individual departments. How would the two differ? A statement is a statement. I'm just wondering what causes that difference?

[Charles-Antoine St-Jean]

The level of the materiality is one difference. When the Auditor General does her audit of the public accounts, she does it at the consolidated level. So some of the departments are audited in very much detail because they're important, and some others will be reviewed.

[Sheila Fraser]

I'd also like to add, Mr. Chair, that until about seven or eight years ago, the accounting systems of the Government of Canada were largely centralized and all the departments fed information into this one central accounting system. The decision was made to move the accounting back to the departments, so each one has its own accounting system. But there are still certain amounts that are managed centrally. Until fairly recently, things like environmental liabilities, land claims, big lawsuits and things like that were managed centrally. That responsibility has to go back to the departments if you're going to have a proper departmental financial statement.

It's part of that management decision about where balances are managed. It also affects the departmental financial statements. When we do the audit of the summary financial statements--and there's a great deal of difference in the audit--as we said, we have a materiality or what we call a relative importance of $1 billion.

Quite frankly, there are some departments we will only visit once every few years because it would be almost impossible for them to have an error of $1 billion in their accounts. When we start auditing them, it won't be $1 billion anymore, it will be much, much lower, so the level of precision they have to have in their own accounts will go up.

It's about changing systems, changing people, and changing the attention and discipline that they pay to their account balances. It has been very challenging in the ones we have done. Over the years, there have been three agencies--the Canada Revenue Agency, Parks, and the Food Inspection Agency--that have been required to have their financial statements audited. In the early years, and even yet, there are problems with the quality of data and the capacity of the people to produce really good financial statements.

To do it for the 22 departments is not an insignificant exercise.