Public Accounts Committee on Sept. 28th, 2006

[Bill Matthews]

Very clear, thank you.

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

Now to the Auditor General, Mr. Chairman.

This is with regard to volume I, page 2.32, where it says, “Status of items reported in previous years.” We're talking about the reconciliation of Canada Revenue Agency's tax revenues.

You seem to have a problem there, Madam Auditor General. Any chance that's going to get resolved and reconciled soon?

[Sheila Fraser]

I would certainly hope so, Mr. Chair. The difficulty in the Canada Revenue Agency is that the systems were never designed for accounting purposes; they were designed to track account balances with taxpayers. This was done at a time when the government recorded revenues on a cash basis. When we moved to an accrual basis, the systems didn't support that. So there's a lot of manual reconciliation, and systems don't always balance.

The Canada Revenue Agency has been working on it. The situation is improving--I can say that--but we are still concerned that the accounting systems are not robust enough that they don't have these unexplained differences at the end of the year.

[The Chair, Liberal, Shawn Murphy]

Mr. Williams, we'll get back to you.

Monsieur Laforest et monsieur Nadeau, cinq minutes.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Ms. Fraser, in your May Status Report, you referred to reviews and audits you had conducted in a number of departments and agencies.

In your 2004-2005 report tabled last spring, you noted that a number of deficiencies identified previously had not been corrected, which can give rise to inaccurate and incomplete financial information. Basically, that feeds into the audit process you undertake in anticipation of your annual report.

On the one hand, you present these facts in your report, but on the other hand, you say that this probably does not represent a major problem, even though you don't express it exactly in those terms. You audited or reviewed 11 separate departments and agencies.

What is a deficiency as compared to an error?

[Sheila Fraser]

One thing that is very important when producing financial information is the rigour and quality of the systems and controls that are in place, particularly in relation to computer systems. The auditor audits those system controls in order to determine whether they are adequate and rigourously maintained.

For several years now, our systems audits have allowed us to identify a certain number of weaknesses as regards Parliament. For example, control of access is inadequate. Some people have more access than they should to certain things. Normally, if the controls in place are robust and adequate, as auditors, we can rely on the systems that are there and have less work to do in terms of corroborating the information. But because the systems are not as reliable, we must corroborate the information, meaning that we have to test and examine many different documents. There may be a deficiency, but when we carry out our audit, we have to compensate by doing all kinds of other things. If the system meets my expectations, before the end of my mandate, we will be able to rely on those controls and reduce the amount of corroborative work that is required. My sense is that this will be a task for the next Auditor General.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you.

[Richard Nadeau, Bloc, Gatineau, QC]

Overall, the federal government's budget amounts to some $200 billion, which is an astronomical amount of money. There is a lot of machinery involved in producing a budget.

Do you carry out these audits on a rotational basis where there is a chance that it may be more contentious or when public opinion demands that there be an audit?

[Sheila Fraser]

No. There is planning involved. If the Committee is interested, at some point, we could provide information with respect to our planning and our audit approach. I would be very pleased to discuss that with you.

We audit the 25 or 26 largest departments every year, without exception, particularly Public Works and Government Services, National Defence, Indian and Northern Affairs, Agriculture and Agri-Food Canada.

As for smaller departments--Immigration Canada, for instance--expenditures there are considered to be less risky. Also, they are mainly for wages, and there is no significant litigation involved, as for the Department of Indian and Northern Affairs. Thus the risk level is deemed to be lower, and as a result we carry out a detailed audit only about once every three years. If we consider the systems to be adequate and the figures to be correct, we see no need to go back every year.

As regards even smaller departments--such as Justice Canada, for example--there we are talking mainly about salaries. We audit salary systems for the Government as a whole, and for that reason, do not feel it is necessary to...

[Richard Nadeau, Bloc, Gatineau, QC]

I'm not sure whether I am correct about this or not, but I believe that National Defence is one department that has a large amount of expenditures--or at least, if there are not a lot of them, they certainly deal with equipment that is extremely costly. And with Public Works and Government Services Canada, we're talking about buildings, equipment, and so on. When you audit this kind of department, I suppose you proceed compartment by compartment--the word “compartment” probably isn't right--or rather, item by item. In that context, I guess you make different choices.

[Sheila Fraser]

Yes. Let's take the Department of National Defence, for example. Because we have audited capital expenditures up to the opening balance, we can then audit all significant purchases made during the year. On a yearly basis, we audit the inventory system, because the inventory figure is important.

For the Department of Indian and Northern Affairs, we audit all legal proceedings to which they are a party. This same department also conducts an annual analysis of all litigation, of provisions, and of expected payables. We then re-audit each of these items every year.

We focus on the most significant items and those that present the highest risk, but at the same time, we do a general survey of the department's expenditures, to ensure that it is complying with the necessary authorizations, that it's expenditures are accounted for, and so on.

[The Chair, Liberal, Shawn Murphy]

Thank you very much.

Back to you, Mr. Williams, for five minutes.

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

Thank you, Mr. Chairman.

I have a couple of questions, Madam Fraser.

You have a note in here about accrual appropriations, and the committee has taken a hard stance on that over the years. Where are accrual appropriations at today, and can we expect that will be implemented soon?

[Sheila Fraser]

Mr. Chair, I'm not sure that I'm the person you should ask on that. We are still calling for it. The government operations committee, as some of the members here will know because they're on the committee, has undertaken the study of that. We had a meeting on it last week, and another meeting is going to be called shortly.

We are urging government to take a position. To my knowledge, that has not been done.

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

I think it was determined that the public accounts committee should be recommending to the government that they adopt that, because it's too difficult for them to work on cash appropriations and accrual accounting. So we should discuss that in committee and perhaps report it to the House.

My second question, Mr. Chairman—I know we may want to get on to another issue—is on volume III, p. 2.11. We're talking here about debts, obligations, claims written off or forgiven. It adds up to just under $3 billion, which is a significant amount of money even for the Government of Canada.

Have you any comments on this, Mr. St-Jean? I notice that a lot of the writeoffs, Mr. Chair, are theft of computers and staff defalcations and money stolen from the RCMP—you would think it would be safe there—and border security selling vehicles that they've impounded, and unfortunately, keeping the cash--

[The Chair, Liberal, Shawn Murphy]

It seems that somebody stole 50 taxi chits too.

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

Is anybody looking at the small stuff, because it adds up to $3 billion?

[Charles-Antoine St-Jean]

As you said, this is a significant amount. If I'm not wrong, the biggest amount is with the Canada Revenue Agency, where they collect $220 billion of personal and corporate tax, and GST, and so on. They have procedures in place to collect--to identify it and vigorously go after that debt--but the question is whether this is enough. There are some business decisions being made. If there are no assets to be recovered, you can press until the lemon is dry, but the important part is that this is reported, so the amounts are tracked and vigorously followed, and systems are being put in place to report it, also.

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

It does sound to be about 1.5% of revenue--$200 billion in revenue, $3 billion being written off for lost, stolen, misappropriated, or whatever the score may be.

[Charles-Antoine St-Jean]

It's not an expense. They're written off during that year.

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

I thought it was an expense.

Anyway, I hope somebody is on top of it as a government policy, rather than just writing it off and moving on, Mr. Chair.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Williams.

Mr. Proulx, for five minutes.

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

I'll be very short, and I'll be sharing with Mrs. Ratansi.

Ms. Fraser, I'd like to continue in the same vein as Mr. Nadeau as regards your audits.

In the different departments that you audit, are expense accounts audited or do you simply assume that the figure is for total expense accounts and move quickly on to something else?

[Sheila Fraser]

I do not believe that we audit expense accounts when we audit the financial statements. When we conduct a management audit, we may extend the scope of the audit to include such accounts.

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

On what basis would you decide to include an expense account?