Public Accounts Committee on May 30th, 2006

[Charles-Antoine St-Jean]

If I may, in my statement on page 15, I say that

a senior official of my Office and myself met with senior officials from the Office of the Auditor General as part of its public accounts 2004 audit. That was on August 10, 2004. The purpose was to discuss this transaction.

At that time, I submitted the legal opinion to the Auditor General. He told me that the audit had not been conducted with respect to parliamentary appropriations. I accept his point of view. I had been in my position for barely six or seven weeks, and I didn't know exactly what the scope of the Auditor General's work was. I find myself dealing with two somewhat difficult transactions, and I wanted to discuss them with the Auditor General. The first represented approximately half a billion dollars and the second $20 million. Was I sufficiently clear with the Auditor General when I wanted to get an opinion on the parliamentary appropriations? That remains to be seen. Whatever the case may be, I have learned a few lessons since then.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

I have a quick question and then a follow-up to that. Is it common practice to have some sort of verbal advice given and not have it in writing? Is that considered a common practice? Given the nature of these questions in your interaction with the Auditor General's office, wouldn't it have been appropriate to have that, as opposed to a verbal confirmation, something in writing, or is that common practice where there's a verbal exchange on matters of this nature?

[Sheila Fraser]

Can I just clarify on our recollection?

Our recollection is there was a meeting between one of my officials and one of Mr. St-Jean's people. There's no recollection that there was actually an agenda item on a meeting or that there was any particular attention paid to this. The whole discussion revolved around a $22 million accrual being set up in a general provision that totalled some $20 billion. So the amount was insignificant. A copy of the legal opinion was given, and I have a note that was issued the next day, which just said: “I reviewed the material, discussed the amount, and consider this an appropriate accrual.” We do not go back and audit appropriations. We don't give an opinion on that, so it is not part of the work we do. But it also says, “Note: amount of work was minimal but reasonable given the size of the accrual.” Therefore, it was basically a pass on that amount.

So there was not an extensive audit done of this, given that we were in the public accounts audit and this was what they called the forum where officials discuss large and significant issues just before we sign off on our opinion on the public accounts audit.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Did you have a copy of the legal opinion to review at that time?

[Sheila Fraser]

I believe they were given a copy of the legal opinion; it was shown and read.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Was it fairly extensive?

[Sheila Fraser]

Well, the legal opinion is some 13 or 14 pages, I guess. So given the relative unimportance of the amount in the context of the audit of the public accounts, there was not a lot of work done.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

It was immaterial at that time.

[The Chair, Liberal, Shawn Murphy]

Mr. St-Jean, do you have something to add?

[Charles-Antoine St-Jean]

If I may say, I do take the information from the Auditor General very seriously.

There are two things. First, in the public accounts there are the financial statements themselves, and there are notes to the financial statements. The notes to the financial statements talks about spending and borrowing authority. When there's a vote being blown, their report is a note to the financial statement; it's part of the financial statement. That was the first point.

The second point is that the scope of the Auditor General's audits includes authorities. Do they do a lot of work on this? Maybe not, probably not. But does it include authorities? Yes, because it's part of the note to the financial statement.

[Sheila Fraser]

I would prefer we not get into an argument about what our scope is and what we opine on, but if you look, you'll see we do not opine on authorities in the financial statements.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Bains.

Mr. Fitzpatrick, for eight minutes.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

I'm going to try to get back into some legalities on this thing. I actually find it surprising that it seems to be the chartered accountants who understand that section 53 of our Constitution basically says that government cannot spend any public revenue without...it says it “shall originate in the House of Commons”. We have three liabilities here that I can see that have occurred in consecutive years, and I do not see that any one of these liabilities ever originated in the House of Commons.

Then I go to the Financial Administration Act...and I expect you, as the Comptroller General, sir, to be quite familiar with these provisions because that's your job. There's section 26 of the act that reinforces what the Constitution says. Section 37.1 is quite clear on it; it says other arrangements similar in kind to a contract. And here are you and your people, running off trying to get a lawyer to give you some sort of legal opinion that gives a third way.

Mr. Baker said there are two ways this matter could be dealt with: you've blown the vote or you go back to Parliament and get approval on supplementary.... You seem to be suggesting we have a third way of dealing with it. Government can go ahead, a department can go ahead, and book expenses, enter contracts or things similar in kind, and then after the fact--not originating in the House of Commons, but after the fact--you can report it in your general statements, not with the department on the appropriations, but in the general statement where we're probably dealing with $2 billion. You can just put something in there saying “unrecorded liability”, which is a catch-22 if I ever heard one.

Are you saying that this new exotic, creative way of accounting is the way we're going to proceed in this count? We book the expenses, incur the cost, and then after the fact we come back to Parliament, in defiance of section 53, and ask for approval. That's good financial management?

[Charles-Antoine St-Jean]

If I may, Mr. Member, the books that are prepared for the Government of Canada.... There are two sets of books: one is the financial statements of the Government of Canada; the other one is the book of the appropriations.

In the financial statement of the Government of Canada, we're directed under the statement of accounting principles to record liabilities that closely match those as prescribed by generally accepted accounting principles. So we book those liabilities in the financial statement.

The Auditor General made reference to some $20 billion of liabilities. There are many liabilities that are booked in the normal course of events in the books of the Government of Canada. They have not been approved by Parliament, because you have not authorized them as payments yet. But to say there are some liabilities--for example, I can think of environmental liabilities and other types of liabilities--that the government estimates they will likely be accountable for, but they have not received the authority from Parliament--

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Sir, I have to go back to basics. I've been in the House. I know what supplementary estimates are and I know what the estimates are.

The area that you work in, you review that and you get a projection. And if there are estimates in your department...and I sure hope the Comptroller General is policing that to make sure the departments provide accurate information to Parliament before we vote on those things.

I take section 53 seriously and I take the Financial Administration Act seriously. It's the law. We're not just breaking rules; we're breaking the law for not following these things.

There's nothing in those sections for me as a parliamentarian to ascertain these expenditures. And to come back later on and put it into a general statement for the whole blaming Government of Canada as an unrecorded liability, even as a lawyer I have a heck of a lot of problems trying to get my mind around that terminology. Somebody must have stayed up a long time at night to come up with that kind of inventive thinking.

But anybody who was looking at the Firearms Centre certainly wouldn't have been looking at this unrecorded liability that you presented in your general summary at the end of 2003-04.

[Charles-Antoine St-Jean]

I'm saying that the amount, the contingent liability of $21.8 million, was recorded in the financial statement of the Government of Canada. It was not recorded against the appropriation based on the legal advice that was obtained.

Do I like it? No. But the legal advice was making reference to the fact that the law, the Financial Administration Act, makes reference to the word “debt” and not “liability.” Do I like it? Absolutely not, but it's the law.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

What occurred here would certainly not be a practice that anybody here should endorse as good accounting. I find it an exotic and extreme way of trying to deal with something.

Somebody really didn't want to come back to the House of Commons on supplementary estimates. Mr. Wiersema said it was political considerations. This was in the charged atmosphere of the sponsorship program, and I know what happened the year before. The government couldn't even get their backbenchers to agree to supplementary estimates for the firearms registry.

There was an elaborate strategy going on to make sure that Parliament was locked out of this arrangement. We even went to the extent of getting some lawyer to give us some cover so that we could find some exotic third way of getting rid of this problem, with some creative accounting, but which no accountant in his or her right mind would say is an acceptable accounting practice.

[Charles-Antoine St-Jean]

If I may conclude on this, sir, I was not at those meetings. I looked at the situation here.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Who was there when it was booked at the year-end as an unrecorded liability? Mr. Wiersema wasn't there at that time.

[Charles-Antoine St-Jean]

I was the Comptroller General as of June 1, 2004.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Who did it?

[Charles-Antoine St-Jean]

The transaction was recorded in the books, in the financial statement, as an accounts payable, as an accrued liability at March 31, 2004. That's what we were referring to when I reviewed the matter at the time.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Mr. Baker, could I get a question in before we leave here?

Your boss is your political minister. There's a serious problem here. It's quite apparent to me. It has caused a lot of meetings. Even the Treasury Board got involved with meetings that weren't documented. It had to be a serious matter, and there are political considerations.

Mr. St-Jean already mentioned that we live in two worlds: the world of politics and Parliament, and the world of accounting--

[The Chair, Liberal, Shawn Murphy]

On a point of order, Mr. Wrzesnewskyj.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

That was a misconstruction. I believe Mr. St-Jean said, “There are two worlds: the accounting world and the world of legal opinions.”