Evidence of meeting #5 for Public Accounts in the 39th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was accounting.
Former Comptroller General of Canada, As an Individual
Controlling document--I believe that would be a fair statement; yes, Mr. Chairman.
NDP
Joe Comartin NDP Windsor—Tecumseh, ON
Mr. St-Jean, would you agree that it's the generally accepted accounting practice?
Comptroller General of Canada, Treasury Board of Canada Secretariat
I would say that in circumstances where you have multiple factors, this is an issue you look at very carefully with your auditor at that time. That would be my position. This is a significant aspect. I take the point of John that it would not have been his key point, but I also take the comments from my colleagues here that if you ignore legal advice, you do it at your own peril. This is the reason why I would do it. I would review this matter with the auditor at that time.
NDP
Joe Comartin NDP Windsor—Tecumseh, ON
Ms. Fraser, I'm going to ask you to comment on this, but I want to stay with Mr. St-Jean for a minute.
Is this all about how much credibility you give to that legal opinion, as opposed to the position of Mr. Williams? Some accountants or auditors may in fact accept it and let it in effect determine their decision and other auditors or accountants would not.
Mr. St-Jean, I'd like you to answer that first, if you would. Then we will have Ms. Fraser.
Comptroller General of Canada, Treasury Board of Canada Secretariat
I would say that legal opinion was a determining factor of those who made the decision at the time.
NDP
Comptroller General of Canada, Treasury Board of Canada Secretariat
Well, as I mentioned earlier, we live in both worlds--both the accounting world and the parliamentary vote world. The accounting world talks about the generally accepted accounting principles on a full accrual basis. The parliamentary vote talks about the modified accrual basis, which has been modified by the PAYE policy; it asks the government to record transactions that have not been paid for at March 31, subject to certain criteria. Subsection 37.1(1) makes reference to the word “debt”, not “liability”. They make reference to the word “debt”. I don't like it, but that's the way the law is written.
Former Comptroller General of Canada, As an Individual
I'd like to make a very brief point, Mr. Chairman.
If one were to accept the legal opinion as the basis for determining the accounting, would that not require the Treasury Board to revisit its policy on payables at year-end? The reason is that this legal opinion would have broader implications than just the particular case in point here. It would have broader implications for recording other liabilities and charging them against the appropriation as well. To the best of my knowledge, the PAYE policy has not been revised.
NDP
Joe Comartin NDP Windsor—Tecumseh, ON
Would that be only with regard to the firearms, then, or all sorts of other agencies and departments?
Former Comptroller General of Canada, As an Individual
All sorts of other agencies and departments in similar situations with similar liabilities.
Auditor General, Office of the Auditor General of Canada
Mr. Chair, I would like to refer you to the attachment to our opening statement. We have in there an excerpt from the Financial Administration Act that everyone has been talking about, subsection 37.1(1), on which the legal opinion is based. The legal opinion goes into a great deal of discussion about the definition of debt. We have our arguments and we can argue that, but what is really key in that subsection is at the very beginning, where it says, “Subject to such directions as the Treasury Board may make”.
The Treasury Board has made a policy on how liabilities are to be recorded and how they are to be charged to appropriations at the end of the year, and the legal opinion makes no mention of that policy, does not consider it at all. So even if one is to accept the legal opinion as is, on their definition of debt, one needs to consider the policy of payables at year-end, and the policy says, “It is the policy of the Government of Canada to record liabilities and to charge them to existing appropriations.”
Our argument is there was a liability. The government agrees there was a liability. They booked a liability. They even call it an “unrecorded liability”, and there was an existing appropriation to cover those expenses. So we can argue till the cows come home about the definition of debt, but the government's policy...and this is the way government has been applying this since they've adopted it, so--
NDP
Joe Comartin NDP Windsor—Tecumseh, ON
I have to jump to the defence of the lawyer, though, Ms. Fraser. You're playing lawyer yourself at this point, and in spite of any direction that comes out of the Treasury Board--and this is simply an accepted rule of interpretation in law--those directions cannot override the rest of what's in section 37.
In fact, the analysis you've just given is not necessarily a valid one. Legal interpretations, statutory interpretations...I think I've caught Mr. Rosenberg's attention. Those directions cannot override the statutory provisions that have been passed by Parliament.
Auditor General, Office of the Auditor General of Canada
I must say that we have a serious issue, then, with how government records liabilities and if the government is going to go to strictly recording based on debt. The way they have analyzed that in that legal opinion, I have yet to see anybody go through and make sure there are signed contracts approved by Treasury Board for every accrual. We're talking about a fundamental and huge change in the way government records liabilities at the end of the year, and I'm not sure that's what government expects to come out of all this.
Liberal
The Chair Liberal Shawn Murphy
Thank you very much, Mr. Comartin. Thank you very much, Mrs. Fraser.
We'll now go to Mr. Bains for eight minutes.
Liberal
Navdeep Bains Liberal Mississauga—Brampton South, ON
Thank you very much, Chair. My question is for the Comptroller General, Mr. St-Jean, with respect to his opening remarks.
Basically, I'm looking at your paragraph 7, where you indicate that legal advice was sought because of the notion that there was a need for supplementary estimates and that the legal advice was sought from the Department of Justice in early February, due to the nature of this particular liability.
Is this the first time such a liability has come up, where legal advice was sought? Is this the first time this course of action was taken?
Comptroller General of Canada, Treasury Board of Canada Secretariat
Perhaps my colleague, John Morgan...he has had many more years than I have.
Acting Assistant Comptroller General, Financial Management and Analysis Sector, Office of the Comptroller General, Treasury Board of Canada Secretariat
This is the first time this particular case has come up, where it has been this difficult from an accounting policy perspective to determine what is the appropriate charging to appropriations. I'd like to add that Parliament has prescribed in legislation exactly what can be charged to appropriations and what cannot. Therefore, in our role in the Office of the Comptroller General, whenever we get involved in these sorts of discussions, be it about general financial management or accounting policy, we seek the counsel of Justice, because it is prescribed in legislation.
At the same time, however, we put on our other hat, which is that of dealing with the preparation of the government's financial statements that are in accordance with generally accepted accounting principles.
So we do try to respect both of these rules as we go about preparing the financial statements and taking decisions on individual transactions. Every year we get at least 30 questions from departments on how to apply a policy on payables at year-end. Sometimes these are very complex questions; sometimes they are relatively straightforward. But that is part of our role, to interpret the policies we develop and to interpret, with the aid of counsel, how to apply the legislation of which we are the primary owners, and we do that every year.
Liberal
Navdeep Bains Liberal Mississauga—Brampton South, ON
So basically, with the legislation and the accounting dilemma that you were dealing with, and the nature of this liability, did you think it was appropriate to seek legal advice? Do you think that was the appropriate course of action based on the nature of the--
Acting Assistant Comptroller General, Financial Management and Analysis Sector, Office of the Comptroller General, Treasury Board of Canada Secretariat
I think so, yes, given that this was a very unusual situation, where it was appropriations, that there was an existing contract and the work that was being done was done under an agreement in principle.
The agreement in principle had four conditions, none of which had been fulfilled. One was that the agreement in principle had to be approved by Treasury Board, that the contract amendment had to be executed, that the actual service effective date of the system, performance of the system, had to be delivered December of 2003, and there was a fourth condition, which dealt with verification of pricing. None of those conditions had been met. Therefore, this was a very complex situation where we said we probably need to get some legal advice on this, because within the secretariat there were differing views and therefore the decision was made to try to clarify legal application.
Liberal
The Chair Liberal Shawn Murphy
John, I think you wanted to.... It's not one of those dissenting voices, is it?
Former Comptroller General of Canada, As an Individual
It's not a dissenting voice; it's just to clarify.
Given that the legal opinion was sought while I was the acting Comptroller General, I wanted to clarify that it was not the then acting Comptroller General that sought that legal opinion. It was sought elsewhere in government. So I did not request that legal opinion.
Liberal
Former Comptroller General of Canada, As an Individual
The then Deputy Minister of Public Safety and Emergency Preparedness.
Liberal
Navdeep Bains Liberal Mississauga—Brampton South, ON
So I guess based on the fact that this legal advice was sought because of the nature of the liability, and you believe it was the right course of action in light of the complex nature of the issue... after the legal advice was rendered, you shared this information.
This is where I'm confused, and I would really like your assistance here as well, Ms. Fraser. This was shared with the Comptroller General and the Office of the Auditor General. You indicate in paragraph 15 that you had discussions with the Office of the Auditor General. Subsequently, you were given verbal advice that the nature of this legal advice that was sought and accepted was consistent at that time with the accounting principles.
I guess there was some misunderstanding before, so could you clarify that for us, please?