Public Accounts Committee on May 30th, 2006

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Thank you.

Yesterday, in the $21.8 million, we established, even though the terminology doesn't make completely clear what the breakdown of the delay in development cost was, that delay costs were approximately $18 million, or $18 million plus; they were $1.8 million per month.

What would have been the approximate costs had this contracted company not maintained the system during this period of time? Do we have any estimate of that?

[Sheila Fraser]

At the time we did the audit we indicated that the system total cost is $90-some million, and about $30 million represents delay cost.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

But the question is the reverse. What would have been the cost—because those delay costs were basically there to maintain the system, at $1.8 million per month—had it not been incurred, if the company had been told to put it on the shelf, on the back burner? Would the system have been functional when it was needed? What costs would have been entailed in opportunity cost loss and actual dollar cost? Do we have any idea of that?

[Sheila Fraser]

I certainly don't have that information. I don't know whether Mr. Baker would.

[William Baker]

I may.

Those costs refer to the delay and other costs associated with the new system that was under development. There are two information systems. CFIS I, or Canadian firearms information system I, is the system that has been in place since the outset of the program, and it is the system that continues to provide support to the program. The CFIS II costs were associated primarily, as you have observed, with delay, and the delay costs, to correct the record, were $1.2 million per month.

There were also some associated development and interest charges. These were the cost of not being able to complete the development and delivery. The contractor had incurred expenses of experts, licences, and what have you necessary to develop a new system, and we were not able to proceed.

That answers your question I think in that those costs were incurred because of the delay, and had that system not been under development then, of course those costs would not have been incurred in their entirety.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Yesterday during our meeting there was some discussion around the agreement in principle. I had what I thought was a pretty straightforward question: when is an agreement in principle considered to be a contract? The answer was that the Auditor General's office considered the agreement in principle to in fact be a contract because senior officials were involved.

I'm curious, because that's quite an assumption. Is there some sort of policy framework that says that if a deputy minister or a department head is involved, at that point an agreement in principle is considered by the Auditor General's office to be a contract? And how do legal interpretations differ on this?

[Sheila Fraser]

I'd like to re-state the issue in perhaps a different way. What we are arguing is that there was a liability incurred by the government at the end of the year—March 2004—of $21.8 million. Quite frankly, I would think the government agrees there was a liability, because they recorded a liability.

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

Can we just get that confirmed? Does the government agree that this was a liability that was acknowledged, written or otherwise, so we have that for the record?

[William Baker]

Yes, indeed. It was in the public accounts: $21.8 million.

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

So there's no dispute that it was--

[William Baker]

It was a liability.

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

--accepted as a liability of the Government of Canada.

My apologies, Ms. Fraser.

[Sheila Fraser]

Thank you.

The difference in opinion is when we read subsection 37.1(1) and the government's policy on how to record liabilities. It says very clearly, and we give it to you in the attachment:

It is the policy of the Government of Canada to record liabilities to outside organizations and liabilities incurred up to and including March 31 in each fiscal year and to charge them to existing appropriations or provide for them through a central provision for valuation.

Government provided for the $21.8 million through a central provision. We are of the opinion it should have been charged to the appropriation for the Canada Firearms Centre because there was clearly an appropriation that covered the development costs of this program.

The government has brought forward arguments that there wasn't a formal contract in place and because of that it shouldn't be charged, but if you go back to their policy on payables at year-end, it says if there is an existing appropriation, liability should be charged to that. An appropriation was voted by Parliament for the Canada Firearms Centre and the development costs of that system would be included in that.

The whole discussion, quite frankly, about whether there was a contract is a bit moot. We're saying there was a liability and government has now agreed there is a liability.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

So it's just how that liability is reported.

[Sheila Fraser]

To the appropriations, that's right.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

As opposed to notes to the report and the timing. It's not an issue of money gone missing. What we're dealing with are technicalities and disputes on those technicalities, both legal, because it seems the government has a slightly differing view on that and also in terms of the accounting.

[Sheila Fraser]

I would like to reiterate the importance of this. You are correct that no money has gone missing. At the end of March 2005, all costs had been recorded, but in our parliamentary system it is fundamental that Parliament votes and authorizes spending to government, and government should not spend more money than has been authorized by Parliament. The whole maintenance of expenditures as compared to appropriations is an absolutely essential function of government.

If government believes spending is going to exceed an appropriation, it is incumbent upon it to come back to Parliament and ask for additional authority to spend through the supplementary estimates process.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

In your report on page 21, the third-last paragraph states that the Office of the Auditor General subsequently advised verbally that it had no issue with the accounting of this matter after a meeting with officials from the Comptroller General's office.

Mr. Wiersema was with the Comptroller General's office at that time, or was he with your office?

[Sheila Fraser]

No. This is actually the response by government; Mr. St-Jean referred to it in his opening statement, and I would just like to go on record as to what actually occurred.

A meeting was held sometime in August when a number of issues were discussed. I'm told by my team that this may have come up very briefly, and I have written correspondence from a member of my team indicating they reviewed the material regarding the accrual of the $22 million in the central reserve. We did not look at the appropriations; we do not audit appropriations, so I would ask Mr. St-Jean to correct it, because we never gave an opinion on appropriations, and it was indicated it was an appropriate accrual. It also says, “Note: amount of work was minimal but reasonable given the size of the accrual.” This was in the context of doing the audit of the summary financial statements of the whole Government of Canada.

Our materiality level is $1 billion, so you can imagine on a $22 million accrual that little, if any, attention was paid to it. If the question had been put to us, “Was this an appropriate charge to the accrual?”, much more work would have been done, and it would have been a very different kind of response.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Wrzesnewskyj.

Monsieur Sauvageau, huit minutes, s'il vous plaît.

[Benoît Sauvageau, Bloc, Repentigny, QC]

Thank you, Mr. Chairman.

I'll try to be brief, and I'll ask you to be brief as well, as far as that's possible, because time is limited. My first question is for Mr. Wiersema.

You enjoy parliamentary immunity, and you're appearing as an individual, not as a member of the staff of the Office of the Auditor General. At the end of your presentation, you said that it had seemed to you, before, during and after the meeting, that these decisions were being driven by considerations other than good accounting practices. What were those other considerations?

[John Wiersema]

Mr. Chairman, during the course of very many meetings held on this matter, a number of references were made to the political implications of seeking supplementary funding from Parliament for a program as controversial as this.

[Benoît Sauvageau, Bloc, Repentigny, QC]

Thank you.

Your report states that the documents contained in the files of the Treasury Board Secretariat are authoritative. That means that you were opposed to this decision. I'll use your evidence to put my question to Mr. St-Jean. You said that your position and your recommendation were not followed.

Mr. St-Jean, your predecessor has documents establishing that he was opposed to the decision to give the Department of Justice more money. The Auditor General stated that, in her view, these accounting errors were fundamental and flagrant.

In your evidence, you mentioned that one key aspect of the question was that costs had been incurred under an agreement in principle, rather than a proper contract. The Auditor General has just told us that was secondary and you're nodding your head... Am I mistaken? Pardon me.

Since your predecessor and the Treasury Board Secretariat of Canada have documents asserting that this makes no sense, and since the Governor General has concluded that these are fundamental and obvious accounting errors, why ask the department—which is to receive more money—whether it is entitled to receive any?

[Charles-Antoine St-Jean]

Thank you for your question.

As my predecessor mentioned, he expressed his objection to the proposed accounting treatment within the Treasury Board Secretariat. The documentation he refers to is kept by the Secretary of the Treasury Board and was made available to the Auditor General in the context of her audit. We therefore have all the documentation on this matter.

One question arises. There were a number of opinions. I don't know what the other considerations were because I wasn't in my position at that time; I took up the position on June 1. I consider only the accounting side and disclosure of the matter.

At that time, a number of opinions were given on the accounting treatment and parliamentary treatment.

For the past few days, I have had in hand the legal opinion that was used in this discussion.

[Benoît Sauvageau, Bloc, Repentigny, QC]

Are you referring to the legal opinion of the Department of Justice to enable that department to receive more money?