Public Accounts Committee on May 18th, 2006

[Sheila Fraser]

We conducted several audits, namely in the areas of housing and education. We even conducted a study on the fact that first nations must provide a lot of information and reports to the department. If I am not mistaken, the Treasury Board Secretariat did a study that shows that the Department of Indian and Northern Affairs receives 60,000 reports per year.

However, during our audits, we noted that the department does not do much with these reports. Very little analysis is done. In the end, the first nations provide a lot of information, but little analysis is subsequently done. The financial statements of all first nations are audited. The penalty for those that do not produce financial statements is very harsh: their funding for the following year is cut. The system strongly encourages first nations to produce these reports.

In the chapter on grants and contributions, we indicated that the performance of four or five departments was satisfactory. The performance of the Department of Indian and Northern Affairs was deemed unsatisfactory, because its management and analysis of programs are inadequate, despite the fact that it has substantial information. On several occasions, we have recommended that the department simplify its reporting requirements. Programs should also be consolidated, so that the department can better manage them.

[Richard Nadeau, Bloc, Gatineau, QC]

Thank you very much.

[The Chair, Liberal, Shawn Murphy]

Merci beaucoup, Mr. Nadeau.

Mr. Fitzpatrick, eight minutes.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Thank you.

Madam Fraser, I'm sure you'll be surprised, but I'm going to ask questions about chapter 2.

In your report, you mention that in March 2003 the minister made a commitment to limit expenditures to $1.2 million. Do you know who the minister was at that time?

[Sheila Fraser]

It would have been Minister Cauchon.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

The way I understand it, if that overexpenditure was truly reported and recorded as 2002 and 2003 expenditures--that's your position--it would have exceeded the minister's commitment to Parliament in the amount of $21.8 million. Is that correct?

[Sheila Fraser]

The $21.8 million is the expenditures that weren't recorded the subsequent year. The $100 million would have been exceeded by $17 million. I would note, in their response to the chapter, the government also agrees the $39 million was an error.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

The department, through some imaginative or creative accounting, found a way to carry this overexpenditure into 2003-04? Is that what occurred?

[Sheila Fraser]

At the end of March 2003, $39 million of development costs had been incurred--we estimated $39 million--by the contractor. Work had been done, but the accounts payable, in simple terms, were not recorded in the books. We see no evidence of a decision not to record them. We believe it could have simply been an error; that those costs were not recorded that year. Because they weren't recorded as a payable, when they were actually paid to the contractor in the following year, that's when the expense was recorded.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

From your audits, when was the decision made to record them in 2003-04?

[Sheila Fraser]

When they came to pay the $39 million they realized there had been an error; it probably should have been recorded the previous year, but to be quite frank, we wouldn't go back and open the financial statements of the Government of Canada for a $39 million error. We're talking about a financial statement that has expenses of $200 billion, so $39 million is not considered significant in that respect. The costs get recorded in the next year, and I would say that that happens with some frequency in any organization.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Who was the minister in charge of the department at that time?

[Sheila Fraser]

It would have been...do you mean in March 2003 or in...?

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

At the time they decided to carry it on into 2004.

[Sheila Fraser]

I don't know. There could have been a change of minister. I don't know the exact date it may have occurred. The department might be able to tell you.

I would presume there were discussions with the Treasury Board Secretariat and the Comptroller General, and it was decided that those costs would be recorded simply as when they were paid, which was in the following year.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

I'm going to jump into what we'll call accounting error number two. I had better premise my question on the idea that it was not an error; the officials knew they had some accounting problems with error number two, and it wasn't just a simple matter of omission or misunderstanding of the events.

On page 104, you mention that this would cause it to “blow the vote”. What's the significance of that reference?

[Sheila Fraser]

Blow the vote--that's Ottawa terminology. You are correct. When we come to March 2004, there was a decision made not to record $21 million of costs. If those costs had been recorded, the expenditures for the Canada Firearms Centre would have exceeded the appropriations--the amounts that had been authorized by Parliament--unless they had gone back and obtained supplementary estimates. That's what we call blowing the vote; it's exceeding the amounts that have been authorized.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

When was the decision made by the government not to record the overexpenditure in the 2003-04 period and to employ that complicated accounting to deal with this issue?

[Sheila Fraser]

It was essentially made in February 2004. That was when the decision was made not to go forward to request supplementary estimates. We see some back and forth even after that with the Comptroller General and the Canada Firearms Centre about the accounting, but essentially the decision was made when there was a recommendation made not to go for supplementary estimates.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

There was probably some dithering going on after that about how they were going to account for it if they weren't going to include it in the 2003--

[Sheila Fraser]

We can see indication of some disagreement about the accounting, yes.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Who was the minister at that time, when the decision was made not to record it?

[Sheila Fraser]

By then the firearms program had transferred from the Minister of Justice. It became a stand-alone department, and it reported to the Minister of Public Safety and Emergency Preparedness Canada, who was Mrs. McLellan.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Would the minister of the department have made the decision not to record it ?

[Sheila Fraser]

This was a recommendation that was made by bureaucrats.