Public Accounts Committee on May 30th, 2006

[William Baker]

Being neither an accountant nor a lawyer expert in these areas, it certainly wasn't obvious to me. There were legitimate issues raised. The agreement in principle, to which people refer, in July of 2003 was between officials. Nothing was signed. It was an understanding. On the surface, there certainly wasn't a contract.

What was important to me, and always was, was that there had to be Treasury Board authority, Treasury Board approval, to amend the contract. That was not in place at the time. So in the context of the legal opinion that made that clear, that the authority would be required, that seemed reasonable.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

But based on your wording, it seems that you thought the only two options at the time were supplementary estimates or to blow the vote. At this point, it seems to me, you must have thought of this as an arrangement similar to a contractor.

[William Baker]

At a point in time, I thought those were the only two. I should also point out that there was a question of urgency. We were very seized with the fact that the window was quickly closing to obtain supplementary estimates that year. I think we had a few days left to get a submission into Treasury Board. In exercising my duty, I wanted to advise the minister of that possibility.

Had this issue surfaced even two or three weeks earlier, and we'd had a chance to do the due diligence on the issue, I would not have had any need to advise the minister of the need for supplementary estimates, because the conclusion reached was that we could operate within the appropriation, that this additional charge was not to be accounted for.

[The Chair, Liberal, Shawn Murphy]

Madam Ratansi, you have a question?

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Yes, I have a very quick question.

The reason I asked who wrote the FAA--and then I'm looking at the excerpts of the Treasury Board's payables--is that it looks as though a lawyer has written it. I honestly have a real problem here. I am an accountant by trade, and I would have a difference of opinion with any accountant....

I think that's a healthy discussion, and I agree; if I ever want to have my statements not qualified, I will seek an external auditor's opinion. But I don't think there was any wilful desire to deceive anyone. There was no Machiavellian plan to deceive anyone.

If you look at the policy statement, it says it is the policy to record liabilities and to charge them against existing appropriations or provide them, through a central provision, for valuation. I would have said, yes, that's what I would do. But that's not.... It's probably here. Yes, we learn lessons.

As well, I was looking at the accounting treatment, and it says, “However, the Government's appropriation, accounting and recording policies...impose some special criteria for defining and recording liabilities.” I would have taken that and decided, “Ah, I'm going to treat it this way.”

However, the question that was posed to you about the $15 million...it's like a leasehold improvement. You said you did not own the software. And it says clearly here that if the system has not been transferred, the calculation of liabilities should be based on the percentage of work completed, etc.

So I'm not going to dis you for seeking a legal opinion, because I think it is important to seek a legal opinion. But having learned this lesson, in half a second could you respond on how you will go forward? Because he has to then take the question from there.

[John Morgan]

No, we will definitely look at this. As I said earlier, when it comes to situations such as capital leases, which we treat as liabilities on the books of the government, we do not charge appropriations for the capital cost of that lease at the time we sign the lease. So we don't have to rationalize why the two would be different. We have hundreds of millions of dollars of capital leases on the books that haven't been charged appropriations yet, and that's because, under the FAA and our interpretation of it, those do not represent a debt or an amount owing at the end of the fiscal year.

In this situation we're dealing with software, where there's a contract for services provided over a 15-year period. We're buying the service; we're not buying the product. Therefore, if the service isn't provided, we don't charge, we don't pay. So we will have to rationalize the two differences here.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Okay.

[The Chair, Liberal, Shawn Murphy]

Thank you very much.

Mr. Sauvageau.

[Benoît Sauvageau, Bloc, Repentigny, QC]

Mr. Chairman, I have a point of order. You'll tell me whether my comments are relevant or not.

Mr. Wiersema said, and I quote:

Mr. Chairman, I was a participant in the mid-February 2004 meeting [...] While it was not my role in the meeting to command any particular recommendation or decision by those responsible, my position on the accounting for the amounts in question was not only clear, it was the source of the tension on the issue. It likely was also the reason the meeting was called.

Ms. Cartwright, Assistant Secretary, Accountability in Government, said that Mr. Wiersema had lied. The latter had wanted to respond, but there was no time left.

I'd like to ask you whether he can respond to that comment that his statements were false. I believe this is important for the committee.

[The Chair, Liberal, Shawn Murphy]

It's really not a point of order, but we're going to ask for closing remarks, and of course Mr. Wiersema will be given the opportunity to give a full response.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

A point of clarification: from his statement, if possible.

[The Chair, Liberal, Shawn Murphy]

He'll have an opportunity to do that and we're going to ask him to do that.

What we'll do now, colleagues, is ask for closing statements, and of course we'll ask Mr. Wiersema too. I'm going to ask also if any of the other officials who are sitting behind there have anything to add. Certainly, we'll give everyone an opportunity, but first we will call on the Auditor General herself, Ms. Fraser.

[Sheila Fraser]

Thank you, Mr. Chair.

There are a number of statements that we could take exception to and disagree with, but in the interest of time--and I think everybody is starting to get tired of issues--we will continue our discussions with the Comptroller General on the accounting of the development costs, not service costs, that are being extended out over 15 years.

We look forward to the committee's report, and I thank you for your interest in this issue.

[The Chair, Liberal, Shawn Murphy]

We thank you for your time and that of your officials.

Mr. Baker, closing comments.

[William Baker]

Yes, Mr. Chair.

We're talking in May of 2006 about an audit that was performed in 2005-06, looking back on transactions and decisions that were made in previous years. A conclusion has been reached by the Auditor General that has subsequently been accepted by the Treasury Board and Comptroller General, and I'm very comfortable with that.

Concluding today that the opinion of the Auditor General is the better opinion as to what should have happened two years ago in no way detracts from the fact that the officials at the Canada Firearms Centre and my colleagues elsewhere, to the very best of my knowledge, always operated with due diligence and a simple desire to do the right thing and report accurately to Parliament.

[The Chair, Liberal, Shawn Murphy]

Monsieur St-Jean.

[Charles-Antoine St-Jean]

Thank you very much, Mr. Chair.

In concluding, may I say this is a very serious matter, as has been mentioned before. We have to do our very best to make sure that we do report to Parliament in a full, fair, and complete manner.

The lesson has been learned from this experience in terms of how we will deal with that kind of issue in the future. The Auditor General will be called in when there is some alternative accounting treatment to take place. And the other action plans that are taking place will deal with some of the symptoms that have been noted in this matter, including establishing the pecking order and to see to it that when there's disagreement of the accounting treatment, what is the role of the Comptroller General? A new policy will make it very clear that it will be a duty of the Comptroller General to report such disagreement to the deputy minister and the secretary so that there will not be any kind of misunderstanding in the future.

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. St-Jean.

Mr. Wiersema.

[John Wiersema]

Thank you, Mr. Chair.

I would like to deal with the single issue of the extent to which I went along with whatever was proposed here.

As I said in my opening statement, my position on this was clear throughout. I believe my position on this was the reason that mid-February meeting was called. I received a call from my office late one afternoon saying there was this meeting being convened that evening and that the Deputy Minister of Public Safety had insisted I be in attendance. So I did attend that meeting.

I did not change my view in that meeting, but based on discussions in that meeting it became very clear to me that we weren't having an accounting conversation, we were having a conversation about the political implications of seeking supplementary estimates. The comment was made in the meeting that we cannot, or I cannot, recommend supplementary estimates, because it will have implications for the estimates. Given all of that, it was not an accounting conversation, it was a different conversation, and I didn't think it was necessary to restate my view.

A few days subsequent to that meeting, Mr. Pigeon formally sent the legal opinion to me, the legal opinion that will eventually be shared with you. I was not privy to that legal opinion. My name wasn't indicated in that legal opinion up until that point. I received that legal opinion a couple of days after the meeting that we've much referred to today, and it was of concern to me.

I was going to draft a memo back to Mr. Pigeon indicating that I received his opinion, it was interesting, but it still had not changed my view on the accounting for that matter. I circulated that draft memo to selected individuals within the secretariat for their comments before I sent it. I was strongly advised not to send it, because decisions had been taken and because I would be viewed as exercising or demonstrating sour grapes on the matter. At that point, I had resigned and I was advised not to send the memo, on the basis that it would be viewed as sour grapes on my part. Madam Cartwright was one of the people who saw that draft memo.

Secondly, during the course of the finalization of this audit, as I understand it, on two separate occasions government officials, in letters to the Auditor General's office, referred to my participation in these meetings. Both of those letters were subsequently retracted. In both letters, initially, the first drafts referred to my participation in the meeting, but the final version of both letters removes those references. That, to me, is an indication of the degree of conviction that the government had as to the extent to which I concurred with the ultimate decisions that were taken.

Thank you for the opportunity for these closing remarks.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Wiersema.

I'm going to give the opportunity to anyone else who has anything to add to the very serious and somewhat troubling and difficult issue that this committee is dealing with.

Ms. Cartwright, do you have anything to add?

Does anybody else?

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

For clarification, I am personally disappointed that the Public Works people are not here. My recollection is that they were involved in a whole lot of meetings all through this process. It just seems that they're a player that should have been here. They should have been called.

[The Chair, Liberal, Shawn Murphy]

That's a good point, Mr. Fitzpatrick, and I agree with you 100%.

We did spend a lot of time trying to track down Ms. Bloodworth. She is presently in England. I'm not exactly sure of the nature of her visit. She is changing jobs within the public service, and I understand she's not starting her new job until sometime in mid-July.

She is coming home, we understand, for a couple of days in June. We can follow up with the steering committee, but I agree with you that, from what we heard today, she was a major player in some of these discussions and she was the deputy minister at that point in time. We'll follow that up.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

The other point I want to make, and that I'm very upset about, is that this meeting would have been a lot better if we had seen the legal opinion before this thing started. It just seems to me that we should have had this a long time ago. I'm not going to imply there's some sinister motive in having this thing late, but it seems to me a photocopy or an e-mail could have got things out to people fairly quickly on this.

It's regrettable, because I'm a lawyer and I'm scratching my head at the legal opinion, quite honestly. If I walked into court having to defend the government with a lawsuit with the software company, I wouldn't be jumping up and down over this legal opinion that you refer to.

[The Chair, Liberal, Shawn Murphy]

And don't forget that the legal opinion is 14 pages.

Mr. Morgan, you have closing comments.

[John Morgan]

Just a couple, if I may, Mr. Chairman.

One is, in terms of the requirements that Parliament puts on government for how it accounts for transactions and activity, through various pieces of legislation Parliament prescribes exactly how the government must keep its books. So we endeavour to do that, respecting the laws of Parliament.

The second item is, in terms of the nature of the contingency associated with this, throughout the discussions there were references to the point that if the submission doesn't come to the Treasury Board for approval of contract amendment, this may be a situation of a contingency. In other words, if Treasury Board does not approve it or does not ratify the contract amendment, we could be in a situation where there is a contingency.

The Treasury Board did not ratify or did not approve the contract amendment as we were closing the books, and therefore it was treated as a contingency on the books of the government.

Thank you.