Thank you, Mr. Chair.
We thank you for inviting us to discuss our report on how government decisions limited Parliament's control of public spending.
Accompanying me today is Peter Kasurak, senior principal of the public safety team, who was responsible for this audit.
I would like to take this opportunity, first, to provide a brief summary of our findings and, second, to provide remarks on their importance.
In fiscal year 2002-03, the Department of Justice did not report liabilities of $39 million incurred in the development of CFIS II, the Canadian firearms information system, as they should have done. This error had two effects. The first was that Parliament was not told that the program had actually exceeded the limits stated by the then Minister of Justice in the House. Second, it also meant that the new Firearms Centre management team had to deal with an unexpected $39 million in unrecorded expenses in 2003-04. In that year, 2003-04, in addition to the unrecorded $39 million, there were new costs of $21.8 million stemming from the ongoing development of CFIS II. Although the centre initially recommended additional funds be requested from Parliament through supplementary estimates, senior officials at the Treasury Board Secretariat and Public Safety and Emergency Preparedness Canada sought an accounting presentation that would avoid reporting these costs against that year's appropriation.
Acting on their advice and a legal opinion obtained by Public Safety, the centre incorrectly decided that the new CFIS II liabilities of $21.8 million did not need to be recorded against the centre's voted appropriation. The result was that Parliament was not informed that the centre had in fact exceeded its appropriation, more commonly known as having “blown its vote”.
Our report analyzed each argument made by officials to justify their decision not to report these costs against the centre's vote and concluded that officials erred and government accounting policy was not followed. These accounting errors meant that Parliament was not properly informed of the true costs of CFIS II on a timely basis.
We note that not seeking proper authority for supplementary funds when there is a reasonable likelihood that an appropriation would be exceeded could be interpreted as a breach of the Standing Orders of the House of Commons.
Failure to fully account to Parliament for expenditures against a vote could also be viewed as an infringement of the privileges of the House of Commons. Only the House itself can determine whether such a breach has occurred.
Comments have been made that this affair is simply a technical matter, a "disagreement amongst accountants." If I believed this, I never would have tabled a separate report.
In my opinion, the accounting errors made were fundamental and obvious in nature. Subsection 37.1 (1) of the Financial Administration Act is clear (see attachment), a debt incurred for work performed that remains unpaid at the end of the fiscal year must be charged to an appropriation, in that fiscal year. This subsection of the FAA is also subject to such directions as the Treasury Board may make. Such direction has been provided through the Payables at Year-End Policy (see attachment).
Under this policy, liabilities for costs incurred must be either charged to a departmental appropriation, or recorded in a central accrual where no appropriation exists. In this case, Parliament voted an appropriation to the Firearms Centre for the development of a new information system (CFIS II), so an appropriation clearly existed. The government incorrectly recorded a central accrual and, in my opinion, the Centre's 2003-04 Vote should have been charged instead.
The government's main argument for not charging the liability to the Centre's Vote was that there was no contract approved by the Treasury Board. I do not agree for the following two reasons.
First, despite the absence of a Treasury Board ratification, a liability existed as senior officials of the Centre and PWGSC with sufficient authority entered into an agreement with the contractor. It was based on this agreement that the contractor forged ahead with the additional work. In this case, what was required was Treasury Board ratification, rather than approval.
Second, in incorporating in its Contracting Policy a provision for after-the-fact ratification of contracts by the Treasury Board, the Board recognized the possibility for the government to enter into a contract prior to its ratification.
Moreover, the consequences of adopting the position taken in this case—that the period for recording expenses would be determined by the date of Treasury Board approval—would seriously impair Parliament's control of the public purse by allowing officials to choose a convenient time period, rather than following the economic reality of the transaction. I am also surprised that these consequences would have not been apparent to senior accounting officials.
Many people have asked who was responsible for these accounting errors. We found that inadequate records were kept and that the memories of those involved in this situation conflict about the details of what happened. While ministers were informed that supplementary estimates might have been required in 2003-04, there is no record that ministers gave any direction to public servants.
The Commissioner of the Canada Firearms Centre is responsible for the financial reports of that department. The Treasury Board Secretariat and the Department of Justice are responsible for the provision of accounting and legal advice, respectively. Finally, the Treasury Board Secretariat is responsible for the preparation of the Public Accounts of Canada.
Finally, I am concerned that records are not being kept of important decisions. Not only were there no formal minutes kept of meetings, but according to the participants, no notes were taken. After the fact, the memories of participants about the details of the meetings conflicted with each others' and were often quite vague. I do not believe it would be particularly onerous for such records to be maintained. In cases such as this one, they would have been of obvious importance at a later date.
Mr. Chair, that concludes our opening statement. We would be pleased to answer committee members' questions.