Public Accounts Committee on Nov. 23rd, 2009

[The Chair, Liberal, Shawn Murphy]

I'd like to call this meeting to order and welcome everyone here.

This meeting is called by the committee to review and report on the Public Accounts of Canada. This is a three-volume report detailing all revenues, expenses, taxes, transfers to persons, and transfers to other levels of government for the fiscal period April 1, 2008, up to and including March 31, 2009.

This might not be the most exciting meeting of the committee, but in my view it is probably the most important meeting the committee holds each year. It is the final stage of the financial accountability process of government. It starts with the budget the Minister of Finance tables each spring, which sets out the government's financial plans for the upcoming year. That is followed by the estimates process, the business of supply, where the actual moneys are appropriated by Parliament. Then, of course, we have the public accounts, which are prepared by the government but are audited by the Auditor General; they're tabled in Parliament and the cycle is complete.

I want to welcome our witnesses. The committee is very pleased to have with us today, first of all, from the Office of the Auditor General of Canada, the Auditor General, Sheila Fraser. Ms. Fraser is accompanied by Assistant Auditor Nancy Cheng. We have, from the Department of Finance, Paul Rochon, who is the senior assistant deputy minister, economic and policy branch. We have, from the Treasury Board Secretariat, the Comptroller General of Canada, Mr. James Ralston.

Mr. Ralston, first I want to congratulate you on your new appointment. I understand this is your first appearance before the committee, so welcome to the committee.

Mr. Ralston is accompanied by Assistant Comptroller General Bill Matthews--Bill has been here many times before--and Susie Gignac, the executive director, government accounting policy and reporting, financial management and analysis sector.

Welcome to each and every one of you.

We'll start with opening remarks. I understand, Ms. Fraser, you have a five-minute opening presentation, and Mr. Ralston, you have five minutes of opening remarks. I understand the Department of Finance does not have opening remarks.

I turn the floor over to you, Ms. Fraser.

[Sheila Fraser, Auditor General of Canada, Office of the Auditor General of Canada]

Thank you, Chair.

We thank you for the opportunity to present our audit report on the 2008-09 financial statements of the Government of Canada.

As you mentioned, I'm accompanied by Nancy Cheng, assistant auditor general, who is responsible for the audit of these financial statements.

We are pleased to see that the committee is holding this hearing on the Public Accounts of Canada, a key accountability report of the government. The Comptroller General will be explaining to the committee the main points in the government's financial statements, and I will focus on the highlights of our audit opinion and observations.

My report on the 2008-2009 financial statements is included on page 2.4 of volume 1 of the Public Accounts.

The opinion provides Parliament with the assurance that the government's financial statements are presented fairly, in accordance with the government's stated accounting policies, which conform with Canadian generally accepted accounting principles. It can be referred to as a “clean” opinion. Our office has been able to issue such an opinion in each of the past 11 years.

We commend the government for producing financial statements that are presented fairly in conformity with Canadian generally accepted accounting principles. In our view, Canada continues to demonstrate leadership in financial reporting for national governments.

I would now like to discuss several issues that we have presented in our observations.

In view of the global economic downturn, the government announced a number of stimulus actions in its fiscal update and economic action plan. We observe that the majority of the stimulus activities and actions will take place in the 2009-10 fiscal year. Our audit next year will focus on the accounting of these transactions to ensure that they are properly presented in the government's financial statements.

As described in note 17 to the summary financial statements, most of the stimulus spending will take place in 2009-10 and 2010-11. For the 2008-09 audit, we reviewed the government's accounting and disclosure of initiatives it undertook during the year in response to the downturn. We concluded that the government's accounting and presentation are appropriate and that its commitments are adequately disclosed.

As well, I am pleased to note that volume 1, section 1, of the public accounts includes a discussion about the economic stimulus commitments made during the fiscal year, such as investment in infrastructure spending. In our observations, we again raised the question of accrual-based budgeting and appropriations by departments and agencies. As we have noted in the past, the government has yet to commit to a date for adopting accrual appropriations or explain why it would not be prudent to do so.

We are also pleased to report that we have issued an unqualified opinion on the Department of Justice's financial statements—the first audit opinion for departmental financial statements. In addition, during the fall of 2009, my office will undertake a review of the readiness of Industry Canada for a controls reliant approach to the audit of their financial statements.

More details and several other matters are discussed in our observations. They also include an update on issues raised in previous years. These observations can be found on pages 2.34 to 2.39 of volume 1 of the Public Accounts.

In conclusion, we would very much like to thank the staff of the Office of the Comptroller General and those in all of the departments involved. These accounts reflect many hours of painstaking work.

That concludes my opening statement. We would be pleased to answer any questions that committee members may have.

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Ms. Fraser.

We're now going to hear from the Comptroller General, Mr. James Ralston.

[James Ralston, Comptroller General of Canada, Treasury Board Secretariat]

Thank you, Mr. Chair. Good day to you and to members of the committee.

Thank you very much for the invitation to appear before this committee to discuss the Public Accounts of Canada. I am pleased to be here in my new role as Comptroller General of Canada.

With me are two members of my staff: Mr. Bill Matthews, assistant comptroller general, financial management and analysis sector; and Ms. Suzie Gignac, executive director, government accounting policy and reporting.

For the 11th consecutive year, the Auditor General has issued an unqualified opinion on the government's financial statements. This testifies to the highest standards of the government's financial statements and reporting.

I would like to thank the Auditor General and her office for the continued professional working relationship that we have enjoyed.

Mr. Chair, we have tabled a slide presentation outlining some of the key financial results for the fiscal year ended March 31, 2009. We can go through the presentation, or if you would prefer, we can simply table the presentation and go directly to the questions of the committee.

Thank you.

[The Chair, Liberal, Shawn Murphy]

I don't know, Mr. Ralston. I've gone over your slide presentation and I think it's pretty well self-explanatory. I don't think we need to go over it. We could just go right to questions, and if anyone wants to hear further, they can ask you specific questions.

[James Ralston]

Certainly.

[The Chair, Liberal, Shawn Murphy]

The slides present in summary form the major changes in the financial position of the government from the fiscal year ending March 31, 2008, to the fiscal year ending March 31, 2009.

We're going to go to the first round of questions. Before we do that, I just want to remind members that if they're putting a question to any of the witnesses on these specific public accounts, refer to the actual page, because the page in the French documents might not be the same in the English documents.

That said, I'm going to go to the first round. It's eight minutes.

Mr. Lee.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

Thank you, Mr. Chair.

I think I should also commend the whole chain of command who have participated in the production of these public accounts. It's a massive undertaking; it has the seal of approval of the Auditor General, and I think that's tremendous.

Having said that, it's a two- or three-inch thickness of documents that detail the expenditure of more than a couple of hundred billions of dollars, so there's a lot of territory.

The fiscal year we're talking about ended more than half a year ago, so I note, as a highlight before I ask my questions, that the government managed to walk us into a deficit before the recession really started to bite. I could say that it's only $5 billion or $6 billion, but it's still a deficit, which may have been unexpected by a lot of Canadians.

In any event, one of the highlights of this, from my point of view, is the quantity of the lapsing, the money not spent in the fiscal year in which it had been planned to spend the money. The amount of lapsing is in the billions—maybe $5 billion, $6 billion, $7 billion, as I and my researchers have added it up—and I'm puzzled by that. I know that lapsing happens, and for a number of reasons, including administrative. I suppose when you're spending $230 billion-odd, you can have a hiccup and you don't get the money out the front door. But some of the lapsing here is in relation to programming that I would have thought the government and Canadians wanted spent, wanted to have out there.

I'm going to direct my question to the Comptroller General. He may not feel equipped to answer it, but I'm wondering whether there is any kind of pattern of lapsing visible here. For example, the language instruction for newcomers under Citizenship shows a 32% lapse of about $82 million; the apprenticeship incentive grant at HRSDC, a lapse of 46%, about $45 million; in the enabling accessibility fund—this is for Canadians who need accessibility—there's a lapse of 100%: the full $21 million of the program was not spent. The government talks the talk on the crime agenda, and yet when it comes to crime prevention, the crime prevention budget of $46 million left $12 million unspent. Grants in support of safer communities was 87% lapsed, with $5 million or $6 million unspent.

Let me ask the Comptroller General whether he has noted either an increase or a decrease in the incidence of lapsing, and what may be causing it. This programming is important. The stuff I just read through is important to many Canadians, and if anything, it ought to be torqued, but surely not lapsed.

[James Ralston]

Thank you, Mr. Chair.

As you noted, essentially the appropriation sets out an upper limit to spending and directs some general purposes to which the spending is meant to apply. Typically, I think the government does a fairly good job of planning to spend that money, but from time to time, as you noted, lapses occur.

My experience has been, certainly when I was in a department, that the explanations were rarely the same from year to year. Many different things can go into causing a lapse, and it's important to study the components of the lapse. You noted many different departments, and I'm sure there are many different explanations for each of those cases. I must confess that I'm not familiar with what the stories are in each of those instances. But I will say that we expect departments to try to plan and to do the very best they can to make good use of the moneys appropriated by Parliament.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

Well, sure, they do: they come to Parliament half a year before they come for the estimates, and then we go through the estimates and we authorize the spending and then we go through the whole fiscal year. So there's lot of notice here. But you're saying you haven't noticed a particular pattern.

The lapse rate, on a percentage basis, appears to be about 3%, and you could say, when you're spending $230 billion, “Who's going to miss $6 billion?” But I'm concerned that programming that Parliament approves—funding for programming that we have approved and that we expect should be out there—is lapsing; it's not getting done.

Is it ineptitude? Is it unforeseen events? We're getting shortchanged in programming for sure, and I'm in opposition, so I'll certainly be looking for some kind of cynical “bait and switch” whereby the minister can announce the great program—“We have thirty million bucks for this great program”—but actually isn't going to spend it. It's going to lapse and it gets shifted somewhere else or it pays down the debt.

So you haven't seen.... Has someone from Finance?

You're not going to admit to any kind of pattern here.

[Paul Rochon, Senior Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance]

Well, the last—

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

Mr. Rochon, are you? Do you see a pattern of lapsing?

[Paul Rochon]

There is a pattern in lapses. If one goes back, say, to the late 1990s, there is a pattern of increasing lapses from about 1999-2000 until 2007-08, and I would say that's largely a function of an expansion in spending over that period of time and of spending that takes some time to implement, either in an absolute sense, because they're federal programs that are being designed, or because they involve some partnership or negotiation with a third party—in particular, provinces and municipalities.

The lapse this year is down by somewhat over a billion dollars in aggregate compared with last year, and it is something that the Treasury Board Secretariat—not the Comptroller General, but the secretariat—is looking at when they prepare the estimates.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

Thank you, Mr. Chair.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Lee.

We're now going to go to Madame Faille.

Madame Faille, vous disposez de huit minutes, s'il vous plaît.

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

Thank you.

I have just spent the past two weeks going through these accounts. Indeed, I have to correct my colleague: the books are not three inches thick, they are eight inches thick. As the Auditor General is aware, our meeting last week focused on intellectual property. The Auditor General revealed government mismanagement of innovation.

I do not know whether you have as yet had the opportunity to read the committee blues, but a number of questions are raised. Among other questions, the cost to the federal government of this mismanagement was raised. Often, parties have to undertake legal action to protect their intellectual property.

I was wondering whether you have looked specifically at this question. A number of witnesses, including the deputy minister for Treasury Board, wanted this question to be brought to your attention.

[James Ralston]

I'll ask my colleague, Mr. Matthews, to respond.

[Bill Matthews, Assistant Comptroller General, Financial Management and Analysis Sector, Treasury Board Secretariat]

Thank you.

Yes, I have read the minutes of the committee meeting.

On that front, we know we have a little bit of research to do, but do the public accounts contain information that will point you to the amount of money that was lost through that process? No, absolutely not. This is an accounting of how the government spent its money.

We recognize that there is some work to do on that file, but the meeting was just last week, so we haven't had the time to do any great amount of research on that front.

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

Fine. So you will be able to do some research to give us an idea of how much the government's mismanagement will cost the Canadian taxpayers?

[Bill Matthews]

We're going to start by looking at our policies and making sure we support the process properly. When we get information on losses in the public accounts, when there's a loss due to damage or fraud, that will be reported. But when you're looking at what someone spent to protect intellectual property, I'm not convinced that our systems properly capture that information. So I'm not sure we'll be able to get back to you. We'll have to do some investigation.

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

Very well. Thank you.

I have a question concerning the Employment Insurance Fund. As of March 31, 2009, the accumulated surplus of the Employment Insurance Fund will reach $57 billion, or an annual increase of over $200 million.

How will the Employment Insurance Fund be affected by the recession? What is the expected impact on employee and employer employment insurance contributions?

[Paul Rochon]

The recession will have an enormous impact on the account. We foresee cumulated deficits of approximately $15 billion between 2009 and 2011. The 2009 contribution level was set at $1.73 for every $100 of taxable income under the account. The government froze the contribution level for 2010. Starting in 2011, the provision set out in Budget 2008 will come into force, i.e., the contribution rate will increase over a period of five years in order to balance the cumulative account.

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

Thank you.

The government speaks of a sustained spending increase on professional and special services.

Do you believe that the spending is justified? What measures could the government take to reduce that expenditure item? I have the same question concerning the procurement of materials and business inputs. What measures could the government take to reduce those expenditure items?

[James Ralston]

I think it's fair to say that the general approach to budgeting and resource allocation in the government is to focus on the programs, to make sure that spending is for appropriate purposes and directed at useful ends. The choice of particular business inputs, whether it's professional services, staff, or anything else is really a program decision that the deputy ministers of the departments involved would have to make. These decisions rest on their judgment of what combination of business inputs will best deliver the programs.

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

Thank you.

The reason why I asked these questions is that, last year, I focused on losses within government, including the loss of equipment such as BlackBerrys, laptop computers, suitcases and memory sticks.

In your response to the committee, which we received this morning, you state that improvements have been made to various internal controls. As well, the government has to incur a number of expenditures to rectify mistakes made by public servants.

An article in Ms. Thompson's newspaper compiles a long list of problems. Just think about the widely reported story of the lost gold bullions, the explanations that were reported recently in the newspapers and the amount of money that people were forced to pay. I have read that some $300,000 were paid to Deloitte & Touche to carry out audits.

Are those some of the changes that you suggested to the various departments in order for them to improve their controls?