Public Accounts Committee on May 18th, 2006

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

It wouldn't be an overstatement to say that it was set up to fail from the beginning, if there's no way at the end of every year to tell whether your services are making any impact based on any kind of performance standards you have set.

[Sheila Fraser]

That's probably a harsh judgment. And if you were to apply that judgment, it would apply to many government departments and agencies.

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

We have some work to do, then.

In the postponement of funds that was recorded--I think there was $39 million and $21 million; there were two figures that were batted around. It hasn't been made clear if you saw any evidence, in those cases, that there was any ministerial direction.

[Sheila Fraser]

In the first case, no, we see no indication of a decision being made. In the second case, we see evidence where senior bureaucrats made a recommendation not to get supplementary estimates.

Peter, do you want to add anything more?

[Peter Kasurak, Senior Principal, Public Safety and Emergency Preparedness, Office of the Auditor General of Canada]

Yes.

In the second instance, the chronology is that the centre alerts their minister to the prospect of supplementary estimates because they see an overrun looming. After that, senior officials at the board, as well as at Public Safety, get involved, and there is a determination at the bureaucratic level that supplementary estimates are not desirable.

So we can see that there were discussions. The written record is very scant, but we didn't find any evidence of ministerial direction. After that, the officials determined the course of events, as far as the record goes, on their own.

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

But the minister was well apprised of the situation.

[Peter Kasurak]

Yes.

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

And there was no initiative or intervention in order to bring that to Parliament's--

[Peter Kasurak]

Quite frankly, Mr. Chair, we can't say what happened, because the record is far from complete.

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

Going back to the quality of the gun registry, the long-gun registry, you also mentioned the quality of data that is there. We see for the verifiers that the network was poor; there was a very low degree of training. In our questions before we were saying that we weren't even cognizant of whether they were aware of the Privacy Act or anything. Could you expand on that for me?

[Sheila Fraser]

Sure. I'll ask Mr. Kasurak to expand on that.

[Peter Kasurak]

The quality has been impaired for a couple of reasons. One is that when they brought in the restricted weapons data, it needed to be cleaned up, and it never was, and there are still faulty records there. Also, in an effort to reduce the burden on people, they allowed weapons to be registered without being verified. When they started to verify weapons, we noted 10% to 12% inaccuracy in the records. And the final and perhaps most significant inaccuracy we noted was inaccuracy in addresses, which of course is a critical component of the database, and it's never been checked against other government address databases.

Those are the areas that we commented on, plus the weakness in the volunteer verifiers.

[The Chair, Liberal, Shawn Murphy]

Okay.

Mr. Ménard.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

Good afternoon, Ms. Fraser. It is always a pleasure to welcome you.

I come here by choice, as my professional interests are entirely different, but each time, I end up wiser. That was the case last time, when you clearly explained the difference between cash-based accounting and accrual accounting. I would like to complete my understanding of accrual accounting. In my professional life, I managed a corporation of some importance in my life, the Barreau du Québec. I was president of the bar, and I was also vice-president of the bar prior to that. The budget was nevertheless $6 million.

Because our financial health was good, I realized that when it came time to replace equipment, we could purchase or lease it. I was convinced that by purchasing it, I would be spending less money. However, if I had decided to lease it, I could have had more financial leeway at the end of the year. I imagine that I am not the only one to have discovered that, and that officials have done so too.

I am trying to understand what happened in 2003-2004 and 2004-2005. If I understand correctly, we need to use accrual accounting. Cash-based accounting is basic and does not provide as good a picture of the situation.

[Sheila Fraser]

Indeed.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

Accrual accounting is based on the assumption that when the financial commitment is made, it is recorded that year.

[Sheila Fraser]

The government has, for a long time, used accrual accounting for amounts payable. When a contractor does work for the government or where an asset is acquired, the amount due must be recorded, whether it is paid or not.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

If you hire someone for work that will last 18 months, you simply need to record what you have to pay him as the work is being completed.

[Sheila Fraser]

That's right. You must estimate the value of what has been done at the end of the fiscal year and record that amount.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

Obviously, that was not done, and you piously call that an accounting error. Others use other terms, but you leave that to them.

So the accounting error consisted of carrying the entire amount forward to the following year, but a problem arose the following year, because the amount needed to be recorded somewhere. The problem was carried forward, but part of the amount was nevertheless recorded the following year. In other words, amounts were recorded for work that had been done the previous year.

[Sheila Fraser]

That is correct. The $39 million corresponded to the value of the work that had been done to develop a system as of March 31, 2003. That sum was not recorded until the following year, when the amount was paid. That creates a problem, because the Canadian Firearms Program became a separate department with its own budget. So it no longer had the flexibility, so as to speak, that the Department of Justice had. The $39 million had a significant impact on the authorized amount. That is why they realized in February that they would be exceeding the authorized amount.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

I want to make sure that what was carried forward in 2004-2005 and that they tried to spread over 15 years is in part the amount that was carried forward in 2002-2003 and in part something else.

[Sheila Fraser]

No. The $21 million amount was recorded the following year. That is another agreement.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

But by recording it the following year, they had less money to record another amount, and they had to carry that other amount forward.

[Sheila Fraser]

What is spread over 15 years is part of the financial statements for the year ending March 2006, and we have not yet audited that.