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.
Conservative
Brian Fitzpatrick Conservative Prince Albert, SK
Until the legal opinion came, Mr. Baker, if I understand you correctly, the legal way of dealing with this matter would be by supplementary estimates, or blowing the vote. Those were the two options. That's my understanding, until a legal opinion came, right?
Former Commissioner, Canada Firearms Centre, As an Individual
Forget the legal opinion; those are the only two options, to my knowledge.
Conservative
Brian Fitzpatrick Conservative Prince Albert, SK
Then out of the blue came the suggestion for high-level meetings, or whatever, and people decided, well, we can't; obviously neither of these alternatives is attractive, so let's seek a legal opinion.
Who made the decision to seek a legal opinion? Which department made that choice?
Former Commissioner, Canada Firearms Centre, As an Individual
The legal opinion was requested specifically by---
Former Commissioner, Canada Firearms Centre, As an Individual
Margaret Bloodworth, the Deputy Minister of Public Safety. The reason for that was when I alerted the minister to the possible need for supplementary estimates, it was incumbent on Margaret Bloodworth, the Deputy Minister of Public Safety, to get to know the facts. I subsequently met with her and she raised questions we didn't have all the answers to, in terms of which amounts, for which years, for which purposes. The suggestion was made that we should get a legal interpretation, and she subsequently requested that from the Department of Justice.
Conservative
Brian Fitzpatrick Conservative Prince Albert, SK
I understand that. It looks like there were a lot of things out of control at that time and you had to seek a lot of advice on the matter.
But I want to come back to one point that I still think shows that--sorry, Mr. St-Jean--it doesn't look like the government learned a whole lot here. I want to raise the point because the payables at year-end...your guidelines for Treasury Board say:
This policy states that costs for large system development are to be recorded as expenditures against a departmental appropriation in the year when they are incurred, rather than when they become due and payable under a contract.
I am quite surprised, after all this turmoil we went through here in accounting error number one and in accounting error number two, that lo and behold we get this $15 million amount. You've amortized that thing out over 15 years, and you're not bringing that in as a full liability in the year 2004-05, which seems to me is what that policy obviously states, and I think it's a general accounting thing too. I mentioned that yesterday.
If you take out a $50 million mortgage on your business, when you look under the liability section it's not going to be $1 million for year one; it's going to be booked as $50 million. But this isn't what we're doing here with this accounting work. We're trying to do the same things we were doing before. I'm not sure that the watchdog and the guardian of parliamentary spending and control here is really serious about making sure the rules are followed and the laws are followed around here, because we're just going along with what I think is an unacceptable way of accounting for money.
Comptroller General of Canada, Treasury Board of Canada Secretariat
Maybe I could ask my colleague to give a technical answer on that $15 million. I'll come back on the lessons learned, if it's okay with the member.
Acting Assistant Comptroller General, Financial Management and Analysis Sector, Office of the Comptroller General, Treasury Board of Canada Secretariat
Yes.
I should indicate that we've noted that we will be reviewing this year in accounting with the Auditor General's office and the Canada Firearms Centre as we close the books for this year. But it isn't as straightforward as one might think.
The example here is that this contract was renegotiated in February 2005 as a service performance contract. We account for appropriations in accordance with the liabilities and the debts related to that contract. So if there is no performance, there is no payment on this particular.... In terms of the development costs, which actually have not all been incurred--there have been some incurred over the last fiscal year--the liability is actually payable over the 15-year period as they perform. If there is no performance, there is no payment; if there is contract termination, there is no payment for those particular costs.
This may be similar if you think of capital leases. You may ask someone to build you a building and lease it back over a 25-year period.
What we do for appropriation purposes is we charge appropriations as those payments are due under the lease, under the service. They provide that service over the 25 years. We don't record that capital charge to appropriations at the time the lease is signed. This is similar, in a way, in that this is a software development that is going on. We do not own the software, so what they have done is they've structured a contract to get certain functionality provided by the supplier over 15 years, and as these payments are coming due under the contract, that's when the appropriation is going to be charged.
I have indicated we will be reviewing this with the Auditor General as we close the books for this year-end, but that was the logic in terms of how this would be charged to appropriations. It is actually reflected as a liability on the balance sheet.
Liberal
Comptroller General of Canada, Treasury Board of Canada Secretariat
In closing, I want to talk about what is the lesson learned from this matter. As I have mentioned, the report is from the Auditor General. These are quite unusual circumstances, and we have to make sure to prevent this kind of a miscommunication or error from happening again. So we've put in place a number of action plans, including one in which the Comptroller General, the next time he or she is not in agreement with, say, the deputy minister, must advise the deputy minister in writing of the disagreement on the proposed accounting treatment. That will be part of the policy on financial reporting.
Liberal
The Chair Liberal Shawn Murphy
Thank you very much, Mr. Fitzpatrick.
I have a few questions myself, and then I want to move to a few of the members who really haven't had an opportunity. Then we have a brief meeting after to deal with the most recent report of the steering committee.
I want to go back to perhaps you, Mr. St-Jean, and to Mr. Wiersema. I want to get a clear understanding of the so-called pecking order of who makes the decision. We had a situation here in February that there was a dispute as to how a certain expenditure was to be handled from a financial accounting point of view and from an appropriation point of view. I'm not totally clear on something. You were the acting Comptroller General, Mr. Wiersema. There were a number of people at this meeting, there were different views, and a decision was made to seek legal opinion. But was there anyone at the meeting who had the final say, that this is the way we're going to handle it?
Former Comptroller General of Canada, As an Individual
In terms of who makes that final say, I guess, Mr. Chairman, that would ultimately be the decision of ministers, based on the advice of public servants.
I can speak from my own role on this. As I indicated in my testimony, I thought my position was clear throughout. I maintained my position consistently in all the meetings. It became clear to me at some point in the process that my position was not going to carry the day. I became increasingly uneasy with this. I spoke frequently to my boss at the time, the then Secretary of the Treasury Board. He was very aware of my views as well as my extreme discomfort with what was happening. Beyond that, Mr. Chairman, I don't know what else I could have done.
Liberal
The Chair Liberal Shawn Murphy
I just want to clarify this in my own mind so that when we're writing this report.... You did not have the authority under the government hierarchy, as acting Comptroller General, to say that we were going to handle it this way.
Former Comptroller General of Canada, As an Individual
No, Mr. Chairman, I did not. The responsibility for financial reporting of the Firearms Centre, I believe as Mr. Baker has acknowledged, is the responsibility of the deputy head, based on the advice that he's received.
Former Comptroller General of Canada, As an Individual
It would be Mr. Baker's decision, technically, in terms of the accountabilities, as to whether or not to recommend to the minister the need for supplementary estimates and the accounting for these transactions.
Liberal
Former Commissioner, Canada Firearms Centre, As an Individual
Ultimately I sign off on the accounts with an attestation. I did so on the full understanding that what I was doing was due and proper and involved the consensus and support of the entire centre.
I'll just repeat that at no point following the consideration of the legal opinion did I or my chief financial officer receive anything from anybody saying that this was an improper way to go, so we assumed we had done the right thing, and I stand by that to this day.
Liberal
The Chair Liberal Shawn Murphy
No one in the Office of the Comptroller General or anyone else told you that you shouldn't be doing it?
Former Commissioner, Canada Firearms Centre, As an Individual
Not subsequent to the consideration of the legal opinion and the meeting that is referred to in the Auditor General's report.
Liberal
The Chair Liberal Shawn Murphy
Perhaps I'll come back to Mr. Wiersema later. Now, if this situation arose in the private sector, it's my understanding that if the chief executive officer and the chief financial officer got into a dispute they would bring in the external auditor, and that external auditor would be part of the meeting and his or her view would carry the day, I would think.
I take it that the way the government operates it wouldn't be a normal practice to bring in someone from the Auditor General's office to a meeting like this to get an opinion. Am I right in that?
Auditor General, Office of the Auditor General of Canada
We are at times requested for opinions on accounting treatment of various issues. I think it would be very rare. I don't recall that we've ever been requested for any kind of opinion on a transaction similar to this. I think this case is probably a very unusual one in several regards, so we wouldn't normally be involved in this kind of determination, but again, we are often asked for accounting opinions on very significant transactions.