Public Accounts Committee on Nov. 20th, 2007

[John Williams, Conservative, Edmonton—St. Albert, AB]

So we will not see any more of these legal opinions, convoluted distortions of—

[Rodney Monette]

I would do my best, Mr. Williams. If I may, Mr. Chairman, Mr. Williams, I have two observations. One is that, as you point out, the Comptroller General is responsible for an accounting treatment. The government's response to one of your previous reports said that if there's a difference in an opinion on an accounting treatment, that would be put in writing. It would be put to the Secretary of the Treasury Board, the President of the Treasury Board, and if it's not resolved, it will go to the Auditor General.

I think this is going to give it some pretty significant profile. I think most deputy ministers around town will pay attention to that.

I guess my other observation is that, as kind of a general principle, over the years I've been in many positions where I've received legal opinions. It's still up to the person who is accountable for that file to do the right thing. Legal opinion is important and you have to factor it in, but it's not always the end of the day.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Always remember that if you run into a serious problem wherein lawyers perhaps more senior in the food chain than you try to impose their opinion, you can always come here and we will give you the benefit of our great and wonderful wisdom.

[Rodney Monette]

Thank you.

[John Williams, Conservative, Edmonton—St. Albert, AB]

On that same basis, the Comptroller General is one of many equals among all department heads and so on. Do you feel that you have enough authority as the Comptroller General to ensure that when you say it has to be done this way, it will be done this way? Your signature is on the line, and you're the person who comes here to justify these. Do you feel you have sufficient authority to ensure that the finances are handled properly?

[Rodney Monette]

Thank you, Mr. Williams. That's a really good question.

Of course, I'm interim, and I've been in the job about three weeks at this point, but what I would say is that on technical matters such as accounting treatment and so forth, I feel pretty confident that the view of the Comptroller General would be the final say on those accounting treatments. If there is some need for resolution, it's going to have a very high level of transparency.

At the end of the day, I personally, as an accountant, have a code that I have to work by, and if I thought something was really wrong, it would be my personal accountability not to associate myself with it.

The worst possible scenario is that you would resign over it because you thought it was wrong, and hopefully nothing would ever come to that.

As for my colleagues at the deputy minister level—and before coming to this job I was the associate deputy at National Defence—I think they take the views of the Comptroller General pretty seriously. They don't want, as accounting officers, to have the Comptroller General saying they're not doing something right. They're going to be coming here as accounting officers and having to say what they've done and learning whether or not it's appropriate. I think they'll take the views of the office quite seriously.

[John Williams, Conservative, Edmonton—St. Albert, AB]

You mentioned National Defence. They had their little problems over there on contracting; it was about a $150 million deal. I've always been a proponent of internal audit coming under the direction of the Treasury Board and the Comptroller General, rather than reporting to the deputy minister, because I've always maintained it's a career limiting move to criticize the boss; therefore, internal audits should be under your supervision so that you ensure that issues identified are dealt with appropriately.

This also allows for some independence of the internal auditor. By being Treasury Board employees and moving around from department to department, there's always something fresh and new for them to look at.

In the private sector, internal audit is what I call a fast track to senior management, and in the federal government internal audit is a dead-end job. What's your comment on ensuring that internal audit is alive and doing its job properly and under the control of the Comptroller General?

[Rodney Monette]

It's a hugely important function, and, Mr. Williams, I feel it's had a tremendous resurgence in the last couple of years under my predecessor, Mr. St-Jean, who put through a new policy requiring that departments and agencies have external audit committees.

I'm pleased to report that—my colleagues will correct me—11 departments, I think it is, have these in place now. They're all under way, and they have to have them in place by April of 2009. I think they take this very seriously. Some of the folks who might have been wondering about it are starting to see that these audit committees are actually giving them really good advice. They're getting external perspectives, they're getting good advice, and the committees are doing a good job of looking at their control systems and so forth.

Concerning your question about the reporting relationship, Mr. Williams, I've seen your comments previously. I know this is a model you've looked at carefully. I guess I could see it working either way. As you point out, right now it's organized as a kind of functional relationship. What I would say is that if you have a strong relationship with the community, you can make things work and can have your senior auditors feel that they have somebody they can go to if they need help and support.

I think it can be made to work just fine.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Does the Auditor General have any comment on this, Mr. Chair?

[Sheila Fraser]

Mr. Chair, I think Mr. Williams knows our opinion, that the internal audit department should report to the deputy minister. It is part of the management responsibilities within a department. It is a very important tool for the deputy minister to understand what is going on in the department.

In the case Mr. Williams used, as the fraud—I guess we can call it fraud—at National Defence indicates, it was in fact an internal audit that handled all of it: found it, did the investigation, and did a very good job on it.

So we maintain that internal audit should report to the deputy minister.

[The Chair, Liberal, Shawn Murphy]

Thank you, Ms. Fraser.

Thank you, Mr. Monette.

Before we start the second round, I just have a couple of issues I want to explore.

First of all, this is for you, Mr. Monette. The public accounts committee was written to by the Southern Chiefs' Organization out of Manitoba. I gave you a heads-up on this yesterday, and I don't expect a full answer, but I just want to get it on the record for a response. They indicated that the public accounts for 2005-06 indicated they had received $3,029,396, whereas their records indicate they had received $160,000. There is probably some explanation.

Can I get your undertaking that your office will explore this and get back to the committee with a full explanation as to the discrepancy?

[Rodney Monette]

Thank you, Mr. Chair. Absolutely, I shall do so.

[The Chair, Liberal, Shawn Murphy]

Back to you, Ms. Fraser, the second area is an issue of transfers to other levels of government. My concerns are general, but my example will be specific. I'll deal with the $1.5 billion ecoTrust fund. The budget plan was presented in Parliament, the budget was debated and passed, and supply was given. And in regard to the ecoTrust fund, I quote:

The Canada ecoTrust for Clean Air and Climate Change will provide support to those provinces and territories that identify major projects that will result in real reductions in greenhouse gas emissions and air pollutants. The provincial initiatives supported by the Canada ecoTrust for Clean Air and Climate Change will complement industrial regulations and existing federal initiatives. Projects could include provincial technology and infrastructure development, such as carbon sequestration, and clean coal and electricity transmission, that will lead to a significant decrease in greenhouse gas emissions and air pollution. The Government will invest over $1.5 billion in the trust.

That trust fund was referred to in your report on the public accounts; it just refers to the $1.5 billion for clean air as an expense. For a parliamentarian and a member of the public, these are very laudable goals. One would think this actually happened, that the money was transferred to the provinces and spent on these projects. Now, everyone sitting at that end of the table knows that's not the case. The provinces take the position that the money is received in revenue. They take it into revenue and they do not have to spend it on environmental initiatives; in fact, they can spend it on anything they want.

It is my position that there is an absence of accountability here. The provinces rely on some of the directions coming from the Public Sector Accounting Board to support their position when they take the money and don't spend it in any way, shape or form as appropriated by Parliament. It's also my assertion there are other fundamental accounting principles being violated, the principles of consistency and transparency, and that the statements of the Government of Canada should reflect the underlying economic transactions, which I assert is not the case here.

So my question for you, Ms. Fraser, as an officer of Parliament, as the Auditor General, is, can you give this committee and Parliament the assurance that these funds, the $1.5 billion, are being spent on environmental projects? If you can't give that assurance, is it a concern to your office? If it is a concern to your office, do you have any plans as to what you might do with it?

[Sheila Fraser]

Thank you very much for that question, Chair.

We are concerned about very large transfers being made purportedly for certain purposes, but when you look at the actual agreements, there are absolutely no conditions requiring the recipient to use the moneys for the purposes being announced. We are actually currently doing some work, which I hope we will publish in the fall of 2008. It will be basically be an information piece about what the different transfers are, what the indicated purposes of these transfers are, and if there are in fact any conditions.

Some members might recall a few years ago there was a great deal of press coverage of money for a medical equipment fund and the criticism of some provinces that they were in fact using that money to buy lawnmowers. When you actually went to the agreement, even though it was announced as being destined for medical equipment, there was actually no condition that the province had to spend it on medical equipment. So the provinces were quite entitled to spend it on anything they wanted to spend it on.

So we believe there should perhaps be a little more truth in advertising, and we would like to do a piece for Parliament to inform Parliament about what are the major transfers to the provinces, are there in fact any conditions on them, and if there are conditions, does the government have any process in place to actually ensure those conditions are being met?

We would expect that piece to come within a year.

[The Chair, Liberal, Shawn Murphy]

Just to review what you're saying, this $1.5 billion eco-fund that went out the door here had no conditions, and we know governments do not have to account for it and they do not have to spend it on environmental issues.

[Sheila Fraser]

I hesitate to talk about this trust fund. This is a separate trust fund that was set up for the provinces. The money was put into this trust fund. As to what conditions and how the provinces then apply, we're not aware of all of that. There's sort of a third party, an independent trust fund that was set up, destined for the provinces. So once the money goes out the door, under the accounting rules, the federal government is entitled to record an expense.

The difficulty on the accounting is that there's a great variety in the way in which provinces record the receipt of money. There is a project, actually, with the public sector accounting standards board, that has been under way now for a couple of years, and I suspect will be under way for many years because there's a great deal of dissension in the community about how recipients should record transfers. The exposure draft that came out proposed that any funds being received by the provinces should be recorded as revenues unless there was a clear condition put on it that it had to be used for a certain purpose or over a certain time. There's a great deal of pushback on that. In fact, it would probably be very useful I think if parliamentarians would comment on this issue, because there's quite a debate going on right now, and it is all about accountabilities. The provinces record these amounts very differently, one to the other, because the rules are not absolutely clear.

[The Chair, Liberal, Shawn Murphy]

But you will agree with me, will you not, that under the present circumstances there is a real concern about the lack of accountability on the transfer of these funds to other levels of government?

[Sheila Fraser]

You know, Mr. Chair, I'm not sure it's up to the Auditor General. If governments and Parliament approve these moneys going out on this basis, we think Parliament should be informed if there are conditions or not conditions. But if two governments negotiate these agreements and it's approved by Parliament, it would appear that Parliament accepts this lack of conditions and lack of accountability.

[The Chair, Liberal, Shawn Murphy]

I just read the budget speech and it was very clear what the money was to be used for. You're saying when they do an agreement, that's not at all in the agreement.

[Sheila Fraser]

I wouldn't refer to this specific one. I'm not sure. But in many cases, that is not the case.

[The Chair, Liberal, Shawn Murphy]

Not the case at all.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Mr. Chairman, can I just follow up on that and ask, on the plans and priorities that are given to us in Parliament to approve the expenditures by the government, is this money indicated to be for environmental purposes, or is it just kind of a general transfer?

You're saying the actual agreement itself—

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

On a point of order, Chair—

[John Williams, Conservative, Edmonton—St. Albert, AB]

—seems to be wide open and with no conditions attached. So what information have we been given versus the information that is in the agreement?

[Sheila Fraser]

That is the purpose of the work we're doing now and the report we will be coming with in the fall of 2008, to actually inform parliamentarians about what has been announced and what are the conditions, and if there are conditions, are they being monitored.