Public Accounts Committee on Feb. 5th, 2009

[The Chair, Liberal, Shawn Murphy]

Thank you, Ms. Ratansi.

Thank you, Mr. Wiersema.

Madame Faille.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Thank you, Mr. Chair.

Again, thank you for coming here. I'm sure it's been a long day for you. Certainly, I'm as enthusiastic as my colleague opposite to be able to discuss the implementation of accrual-based budgeting. Since Ms. Ratansi has enlightened us so well on this matter, I will talk instead about Volume III of the Public Accounts of Canada.

I examined the 2006-2007 and the 2008 Public Accounts of Canada. The loss of public funds stemming from offences, illegal acts or accidents appears to be on the rise. The various losses incurred over the past year as a result of misdirected electronic payments total close to $4.4 million. A total of $2.7 million has been lost as a result of employee malfeasance. What exactly is the situation at Public Works and Government Services Canada?

Another issue is the use of fraudulent credit cards. And I could go on. A whole series of problems are listed in one of the sections. There is also the loss of public property to consider.

With regard to the auditing process, I thought you were supposed to receive from the different departments a detailed plan outlining ways of improving the current model for managing equipment or estimates of doubtful accounts.

Could you also tell me if the Auditor General's Office has received a detailed plan like this and if so, whether it meets your expectations?

[John Wiersema]

I can provide some explanations at this time. When we undertake to audit public accounts, we audit only those financial statements contained in Section 2 of Volume I, that is the government’s summary financial statements, not the actual details contained in volumes I and II.

The member spoke about losses of public money in volume III. Perhaps the Comptroller General could make some comments on that. The one brief comment I would make is that in an organization as large and complex as the Government of Canada, there are going to be losses and abuses of public moneys periodically. One of the good things in the public sector is that we're fully transparent about that. You had before you today in the public accounts a detailed listing of all those losses. It's made available to the Auditor General's office.

[John Wiersema]

The member spoke about losses of public money in volume III. Perhaps the Comptroller General could make some comments on that. The one brief comment I would make is that in an organization as large and complex as the Government of Canada, there are going to be losses and abuses of public moneys periodically. One of the good things in the public sector is that we're fully transparent about that. You had before you today in the public accounts a detailed listing of all those losses. It's made available to the Auditor General's office.

[Rod Monette]

Mr. Chair, I would also like to respond to that question.

You are absolutely correct. To minimize risk, it is a good idea to ask each department to submit a plan for improving its internal control systems. We also try to recover any losses and occasionally, we are successful. This is a serious problem and we try to avoid these kinds of situations. It is important to have a plan in place for recovering losses in the case of a criminal offence. Prosecuting such offences is another possibility.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

This morning, the Auditor General’s report highlighted the lack of IT resources at the Canada Revenue Agency. Over the past year, losses have amounted to about $31.6 million. I would imagine that the chances of recovering this money are virtually nil. Is my assumption correct?

[Rod Monette]

Perhaps I can ask one of my colleagues who is more knowledgeable about such matters to answer the question.

[Bill Matthews, Executive Director, Government Accounting Policy and Reporting, Treasury Board Secretariat]

Thank you. Which page are you referring to?

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

In the English version, the section on the Canada Revenue Agency under the category:

“Losses of revenues due to fraud or wilful misrepresentation discovered and detected in 2007-08”.

The reference is to eleven incidents resulting in a loss of $31.6 million. That is an enormous sum of money. Could you possibly break down this loss figure for me?

[John Morgan, Assistant Comptroller General, Financial Management and Analysis Sector, Treasury Board Secretariat]

Concerning the recoveries, the table on page 2.16 in French shows that of the $31.6 million in losses, they recovered $4.3 million in the current year and expect to recover an additional $21.7 million in future years.

CRA goes through these, and of course with the power of the Income Tax Act they're able to recover a substantial proportion of them. They estimate and disclose in this document how much they have recovered in the current year—

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Is the government managing to recover these amounts? Do you do a yearly follow-up to determine if any losses have been recovered?

[Bill Matthews]

Thank you for the question. Indeed, in the public accounts,

there is a follow-up table from one year to the next such that you can go through from each year and see losses reported in previous years and collections against those losses.

What you'll find in each year is new losses reported during the year as well as an amount that was recovered during the fiscal year, and then a forecast as to what we would expect to recover in future fiscal years, and then an amount that would estimate what we do not expect to recover. That would be in cases where somebody has gone bankrupt or a business no longer exists, where there's a very slim chance of recovery; we disclose that. But there is an accounting of the losses reported in previous years, going back and reporting how much was actually recovered.

[The Chair, Liberal, Shawn Murphy]

Thank you, Madame Faille.

Mr. Saxton, you have seven minutes.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

First of all I'd like to thank you all for coming today. I know it's been a busy day, as my colleagues have mentioned.

I'd like to thank the Auditor General and her team for all the hard work she's done in ensuring that we're getting value for tax dollars. I'd also like to thank the Comptroller General and his team for the good work they've done behind the scenes.

I've only been in Parliament a short period of time, but I must say I'm very impressed with the quality of the public service workers and officers of Parliament I've come in contact with. It's very encouraging.

I'm also encouraged by the AG's report. I understand that this is the tenth straight year that we've had a clean report. I'd like you to elaborate on what exactly that means for Canadians.

[Rodney Monette]

I think what it shows, looking internationally.... I was talking with my colleagues today and asking about Australia and New Zealand. To my knowledge, there's no other country that has had ten clean audit opinions at the government level.

I'll credit my colleagues here. John Morgan, who has been doing this for the last ten years, has been very careful in ensuring that we have the right controls over financial reporting. You have to have a control system in place.

In a big organization like the Government of Canada, as you collect his information from very many different departments and sources you have to have an appropriate system to do it. We do it through our Receiver General for Canada system, which is, I think, a world-class system compared with those of other countries.

Last, I'd just say, as the chair has said, that in terms of an important accountability back to you as parliamentarians and to the people for the purpose of saying that we have a fair set of books showing how the money was spent, it's an important accountability. For our part, it's something I'd say we are proud of—and more my colleagues, because they've been doing this for quite a few years. I think it reflects some very good work on their part.

[John Wiersema]

Mr. Chair, just to supplement what the Comptroller General has indicated, stated simply what it means for Canadians is that Canadians can trust the numbers that are in section 2 of the Public Accounts of Canada. The numbers of the total tax revenues, the total expenses, the total assets and liabilities of the Government of Canada are trustworthy and are fairly presented.

[Andrew Saxton, Conservative, North Vancouver, BC]

Do you think that has an impact on foreign investors, or even purchasers of our debt internationally, when they know this?

[John Wiersema]

I wouldn't presume to speak for foreign investors or purchasers of debt, but there have been studies that show that debt-rating agencies do credit organizations for financial statements with unqualified auditors reports; that you will, in the private sector at least, pay a premium on your borrowings if you don't get a clean auditor's report, and in fact you might not even get those financial statements accepted by a securities regulator.

So yes, it is a noteworthy achievement. Canada can quite rightly, in our view, be proud that we have a good set of summary financial statements.

[Andrew Saxton, Conservative, North Vancouver, BC]

In effect, then, it could affect our credit rating, which in effect could affect the cost of our borrowing as well.

[John Wiersema]

Yes, I think it is possible that it could affect.

[Andrew Saxton, Conservative, North Vancouver, BC]

In a positive way, right?

[John Wiersema]

Yes.

[Andrew Saxton, Conservative, North Vancouver, BC]

Okay. Thank you.

You've identified an issue with the implementation of international financial reporting standards. Am I correct in understanding that these will be applied to crown corporations but not to the public sector? Can you please explain why crown corporations and not the public sector?

[John Wiersema]

This is going to get into the details of accounting standards in Canada.

The crown corporations in Canada, pursuant to the Financial Administration Act that was first passed in 1984, were required to prepare their financial statements in accordance with what was called “generally accepted accounting principles in Canada”. In 1984, generally accepted accounting principles in Canada existed only in private sector standards, private sector accounting standards for commercial enterprises. So crown corporations in 1984 were legislated to follow the same accounting standards that apply to commercial enterprises in the private sector.

Since then, the Public Sector Accounting Board, on which both the Comptroller General and I are members, has become far more active. We now have generally accepted accounting standards for governments as well. So with respect to these financial statements, they're prepared in accordance with public sector government accounting standards set by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants.

With respect to the private sector and the crown corporations, they follow commercial standards, and the commercial standards are harmonizing or converging towards international accounting standards set by the International Accounting Standards Board. Those standards are called IFRS, international financial reporting standards. So most crown corporations, or at this point, all crown corporations in Canada, will be moving towards adopting those standards for year-ends in 2011, as I recall. The issue, however, is under study by the Public Sector Accounting Board. There is some move afoot to suggest that perhaps some crown corporations shouldn't follow those international standards but should continue to follow Canadian standards.

So at present there are basically two sets of standards that are followed by government organizations in Canada: CICA standards, which will eventually converge towards IFRS; and public sector accounting standards that are used by the government.

[Andrew Saxton, Conservative, North Vancouver, BC]

Just to follow up on that, are there international standards for public sectors?