Public Accounts Committee on May 30th, 2006

[John Morgan]

Yes, that's correct. It was recorded as a liability in the financial statements of the government, and the money was expensed on the bottom line, so it reduced the surplus.

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

So help me understand how I've been misinformed. I am trying to figure out.... I am doing double-entry bookkeeping and saying, how have I been misinformed?

[John Morgan]

It is certainly a matter of interpretation of what can be charged to an appropriation and what cannot be charged to an appropriation. Parliament has provided the government with the powers under the Financial Administration Act to keep its balance sheet and reflect whatever assets and liabilities it considers appropriate. That's in section 63 of the Financial Administration Act.

Parliament has also said that here is what must be charged to appropriation: any cash payment. It also says under section 37.1 that if you incur the following things, they must be charged to appropriations as well. You have no discretion on that, and you cannot charge anything else at year-end that does not fit this description.

The legal advice was, you cannot charge this particular thing to appropriations. The disclosure to Parliament occurred through the departmental performance report, where we advised the department to disclose the matter in its DPR, which it did. It recorded that as an unrecorded liability. The departmental performance reports were tabled in Parliament for 2003-04 and in 2004-05.

The public accounts themselves, because of the level of detail, are fairly aggregated in terms of the balance sheet. You would not see those individual amounts, the $21.8 million; however, we could track that and demonstrate in which balance that was included.

[The Chair, Liberal, Shawn Murphy]

Thank you, Ms. Ratansi.

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

That's it? I thought Ms. Fraser wanted to respond.

[The Chair, Liberal, Shawn Murphy]

Well, we'll give her an opportunity.

Do you want to respond?

[Sheila Fraser]

I'd like to go back. There is a difference between the financial reporting of financial statements and the tracking of voted appropriations. So the appropriation from Parliament is the authority to government to spend money. It is important that government track the spending, track all the charges against those appropriations, and it's considered very serious if it spends more than what Parliament has authorized.

In this case we are saying that this $21 million should have been recorded against the appropriation. If it had been, the government either should have gone back for supplementary estimates, to get additional authority, or they would have exceeded the vote.

Mr. Comartin raised an issue about our interpretation of the legal opinion. He said that because we were arguing that the legal opinion should have taken into consideration the PAYE policy of the government, which specifies how liabilities are to be recorded against appropriations...and he said, well, they shouldn't override.... What my lawyers are saying is, because it says “Subject to such directions as the Treasury Board may make”, then in fact that PAYE policy is referenced in the act, in the law, and it should be taken into account. It was not taken into account in that legal opinion, which, to us, is a major consideration in this whole debate.

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

And we will get the legal opinion later.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Ms. Ratansi.

Thank you very much, Ms. Fraser.

Mr. Sweet, five minutes.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Thank you for all your public service. It's become a little heated, and I don't think anybody has remembered that you're servants for us and we appreciate your service.

It's been established that the seeking of a legal opinion to determine accounting practice is not only uncommon, but there's no recollection of this ever happening before, under our Auditor General right now and the Comptroller.

Is there a suggestion that by not following this legal opinion, which unfortunately is not available to us today, it would put the government in some kind of liability?

[William Baker]

As public servants we deal with policies and legal opinions, and while this may have been an unusual situation, as attested, when we make decisions we take all of the information into account, and that's precisely what was done in February with the right officials in order to reach a conclusion.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

What I'm trying to establish is the motivation behind seeking the legal opinion. Was it to protect yourself from a contractor who might sue?

[William Baker]

No. I can give you a very clear answer on that.

The genesis of the legal opinion was, as indicated earlier, when as the Commissioner of Firearms I raised the issue as indicated in the Auditor General's report. Questions were raised in the Department of Public Safety, in particular, about what was the exact amount that we were questioning. Everyone was aware of the complexities of this contract. As alluded to, there were delay costs, there were unanticipated development costs. In providing that information, it was clear that we didn't really have a good handle on what belonged where, year-over-year charges, what was in the contract, what was not in the contract. On that basis, it was decided to seek a legal opinion from a senior lawyer in the justice department. That was a very important piece of the puzzle in determining the right way forward.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

I hope you can appreciate that it would be hard for the average person looking in here to see that there's $39 million, then $21.8 million, and then $15 million that's not properly accounted for. There's a contractor who's financing these delayed appropriations. There were meetings during which no notes were taken. In fact, if we had those notes today, we would most likely be able to establish a premise about what went on, because we have differing views from people who attended that meeting.

As the leader of the department, when this eventuality came up, why didn't you consult directly on this particular issue with the Auditor General's office?

[William Baker]

First of all, that would not be a normal course of events for a departmental deputy or a head of a department.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

No, but you would direct that.

[William Baker]

It had not occurred to me, given that we had already engaged senior officials in Treasury Board, the Office of the Comptroller General, and the Department of Justice. So when all was said and done, I was quite confident, based on the balance of information, that the inclusion was correct in going forward.

We were also aware that we were planning to make a disclosure in the departmental performance review for 2003-04, and that this matter would.... I was advised by my chief financial officer that this would be reflected in the Public Accounts of Canada, and there would be an opportunity to hear if there was a problem. Up until the time of the audit that is before us, I was not aware there was any issue with the accounting treatment.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Mr. Kasurak, has it been common practice for other departments, if they know their accounting is going to be subjected to an audit, to consult with you and ask for the appropriate practice?

[Peter Kasurak, Senior Principal, Office of the Auditor General of Canada]

In my experience, I've never personally been asked by a department about an accounting issue. But I believe that sometimes it would come up through our central team, which deals with accounting matters.

[Sheila Fraser]

The questions would generally arise with the Secretary of the Treasury Board or with the Comptroller General, rather than with the specific departments.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Yes, but it wouldn't be uncommon, if you knew that the audit team was going to look at it, to make sure you were handling this appropriately, when they were going to have to bring an account to it.

[The Chair, Liberal, Shawn Murphy]

Mr. Wiersema, did you have a comment you wanted to make?

[John Wiersema]

If I may, Mr. Chairman, Mr. Baker has made two references to his assertion that he was not aware there was an accounting issue. I have to go on the record to indicate that I disagree with that.

As he indicated, Mr. Baker's CFO came to see me, after he discussed this issue with my staff, to discuss the accounting ramifications and what he thought at that time was the need to seek supplementary estimates.

I indicated to Mr. Brunet that for me the issue was quite straightforward. Here we had a situation where work had been performed before the end of the fiscal year. The contractor had been asked by government officials to carry out that work. The contractor was going to be paid. In all my experience—in my short experience as Comptroller General, but in all my experience in the AG's office—the accounting for this was quite straightforward. In other government organizations, this would be recorded as a liability and charged to the appropriation.

So it was very clear to me, and I communicated that to Mr. Brunet. I believe it was clear to everybody else involved in the discussions that the proper accounting was self-evident.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Sweet.

Thank you very much, Mr. Wiersema.

We're going back to Mr. Sauvageau, cinq minutes.

[Benoît Sauvageau, Bloc, Repentigny, QC]

At that time, who was the Comptroller General of Canada? Is there an official, and if so, who is it?