Thank you very much, Mr. Chairman.
Thank you for the opportunity to appear before the committee. This is a very serious matter. I welcome the opportunity to discuss the findings of the Auditor General in her May 2006 report relating to the Canada Firearms Centre with the standing committee.
Attending with me is my colleague, Mr. John Morgan, the acting assistant comptroller general, financial management and analysis sector within the office of the Comptroller General. Mrs. Susan Cartwright, from the Treasury Board Secretariat, is also with us at the table.
Because these findings revolve around legislative authorities and accounting matters, it would be appropriate to first provide some context. The government must live in both the accounting and parliamentary worlds, with Parliament having primacy. It's unique in the public sector. With regard to parliamentary control over spending and the reporting of the use of appropriation, the Financial Administration Act provides very specific rules. In addition, Treasury Board accounting policies support the application of legislative requirements and the preparation of the government's audited financial statement.
When the possibility of the need for a supplementary estimate was brought to the attention of Treasury Board Secretariat, advice was sought from a number of different sources. The differing advice, coupled with the legislative nature of the appropriation and the fact that the costs in question were being incurred outside the formal contract, prompted requests for legal advice from the Department of Justice in early February 2004.
The key issue was that these costs were incurred under an agreement in principle and not under contract. Furthermore, there was an issue about the nature of the liability; for example, whether it was a liability or debt under subsection 37.1 of the Financial Administration Act. This legal advice concluded that the costs in question did not meet eligibility requirements of the Financial Administration Act for charging against appropriation. Given that these costs could not be charged to appropriation, it was concluded that there was no immediate requirement for ministers to seek supplementary estimates.
The Office of the Comptroller General accepted the legal advice. It also monitored the situation as the books were being closed to determine if there were any triggers for additional charges to appropriations, such as contract termination or amendment.
In compliance with its accounting policies, the costs and related liability were included in the Government's audited financial statements for 2003-04. The Firearms Centre was also advised by the Office of the Comptroller General to fully disclose the matter in its Departmental Performance Report which it did for 2003-04 and 2004-05.
The matter was first brought to my attention on June 17, 2004, a few weeks after l took office on June l, 2004. My position was that the Auditor General should be consulted as soon as possible to ensure that all facts were known to the Auditor General prior to the closing of the Public Accounts for 2003-2004.
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 in early August 2004, to discuss the accounting treatment from both an appropriations and financial statement perspective. A copy of the legal opinion and related analysis was provided to the OAG at that time. We were subsequently verbally advised later in August by the Public Accounts audit team of the OAO that it had no issues with the matter.
This matter points to deficiencies of communication by the government with the Auditor General. This also tells us that we must do better at minimizing risk and recurrence of such misunderstanding between the government, the Auditor General, and of course Parliament.
The four-point action plan on pages 22 and 23 of the Office of the Auditor General audit report includes some of the elements being put in place to address these deficiencies. Other measures are also being taken.
In conclusion, I do take the matter raised by the Auditor General very seriously, and I'm taking action to minimize risk of recurrence of similar circumstances in the future.
My colleagues and I would be pleased to respond to any questions that you or your committee members might have at this time.
Thank you very much.