Public Accounts Committee on Oct. 28th, 2010

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

“Canada has created over 420,000 net new jobs since July 2009”, and the next day, “...more than 420,000 net new jobs since the end of the recession”.

Mr. Baird said on the 25th, “...the creation of some 400,000 jobs in the last 16 months”.

Ms. Fraser, these are very definitive statements. They're not saying we have attempted to create these jobs or we suggest when we do the final accounting that we have created these jobs. They say they have created these jobs. Now, from what I understand, your report does not support these claims. There's no way to tell whether they have or not. What gives the government the right to pull the wool over the eyes of Canadians?

[Sheila Fraser]

Mr. Chair, we report in our audit that government did attempt to collect information program by program, but it was judged that in many cases it was unreliable or not complete, and as well, the nature of the data was quite varied, so it was very difficult to aggregate that. So instead the government has turned to macroeconomic analysis provided by the Department of Finance. We have not gone into any kind of assessment of that. I believe the Parliamentary Budget Officer is doing that kind of work, has made comments on this, and I presume will continue to do so.

In our second audit coming next fall we will be looking at the kind of information that has been reported, but this was simply here to say that they were unable to rely on the specific information program by program and instead went to this macroeconomic analysis. I can only presume this is where this 400,000 number came from.

[John Rafferty, NDP, Thunder Bay—Rainy River, ON]

Ms. Fraser, when you had a look at that, did you in your audit have any indication at all, any firm figures, as to how many jobs could have been created?

[Sheila Fraser]

All I can say is that the Department of Finance is producing this macroeconomic analysis, which is an accepted way of doing these estimations. I think we can recognize that trying to do it program by program is very difficult and can at times be very unreliable. So the alternative is to turn to these macroeconomic analyses, which is accepted in many areas as being a reasonable way to estimate the economic impact of these programs.

[John Rafferty, NDP, Thunder Bay—Rainy River, ON]

So you're suggesting that I and Canadians should be looking forward to your next audit? Is that--

[Sheila Fraser]

That, and I would say as well the assessment done by the Parliamentary Budget Officer, who is probably better placed to comment on that kind of analysis than we are.

[John Rafferty, NDP, Thunder Bay—Rainy River, ON]

Let me move on to some border issues. I'm very pleased you're here because I have been having a lot of trouble meeting with border services people about issues. I have three international border crossings in my riding, for example--lots of tourist issues and all sorts of other things. But I want to ask about the specific thing in your report.

We have an issue whereby in the United States they've received $9 billion in subsidies in the forest sector over the last three years. We've had virtually none and have lost 60,000 jobs in that sector. That's not imagined jobs, by the way; that's real jobs. If we can't be sure that Americans are paying tariffs, are paying the proper amounts coming across--in this particular case, pulp and paper, but on all sorts of goods that are coming into Canada--I guess we can't be sure we're even at a further economic disadvantage than we are. I mean in the case of pulp and paper, but also in general.

All three are certainly welcome to comment on this.

[Sheila Fraser]

Chair, what we found in the audit is that there are difficulties with the quality of the information that Canada Border Services has and with the processes they have to make sure the information that's being declared to them is accurate, and, consequently, of course, that people are paying the right duties and taxes.

One of the problems the agency has--and we report this even when we do our financial audits--is that many of the systems they have are still paper-based, and there is a need to invest in electronic systems so they can have better information. They also need to change the way they're doing their audits to be able to extrapolate and understand their error rates.

There are projects under way, we note in the report. We didn't go in to assess those particular projects, but certainly the agency gives us the assurance that those projects have been designed to try to address these problems and to be able to give them better information. We do see there is an issue. They did audits on about 3% of the shipments coming into Canada and assessed an additional $59 million of taxes. I would caution everyone that we can't extrapolate that because they do this on a risk basis, so they may have picked the highest risk, but they don't really know what the potential could be.

It is really about getting systems that can provide them with better information and then a more rigorous audit program to be able to assess what the lost revenues are.

[John Rafferty, NDP, Thunder Bay—Rainy River, ON]

I'm not sure you can answer this next question. Did you get a sense in your audit with Border Services that perhaps they're spending too much time, energy, and money turning back American tourists who have a 25-year-old DUI as opposed to making sure that Canada gets its due from goods coming across the border?

[Sheila Fraser]

That was not an issue we looked at.

[The Chair, Liberal, Joe Volpe]

Thank you, Mr. Rafferty.

I'm going to go to Mr. Saxton.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Mr. Chair.

Thank you, Madam Fraser and colleagues, for being here today and for the fine work you're doing on these reports.

I'd like to focus first of all on chapter 5, “Regulating and Supervising Large Banks”. As a former banker, I'm pleased to see that Canada's banking system is appropriately regulated. As you mentioned, Madam Fraser, Canada's economic well-being depends on the health and stability of the banking system. Over the last two years, during the global economic recession, this has been more important than ever, and it's been proven to be the case.

In your opinion, has the strict regulation of Canada's banking system played a role in Canada being able to avoid some of the problems that occurred in the United States, the United Kingdom, and other countries?

[Sheila Fraser]

I'm not sure there's an auditor general who can actually assess that, but certainly the experts in the area have pointed to the regulatory supervision of Canadian banks as being one of the successes in the recent economic downturn, and the stability of our banking system has been recognized worldwide, as we did not have the problems many other countries have had.

We were very pleased to see the results of this audit as well, but it basically confirms what a lot of people already knew.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

Can you briefly discuss the scope of this particular audit?

[Sheila Fraser]

We looked at the relationship between, essentially, the Department of Finance and the Office of the Superintendent of Financial Institutions, with, as well, the Canada Deposit Insurance Corporation, and very briefly with the Bank of Canada. What we were really looking at was how well they exchanged information and worked together in order to deal with crises that many countries have gone through. We found they worked very well. There was a good exchange of information, both domestically and internationally. They kept abreast of changing developments, new products coming onto the market, new requirements, and that really enabled them to be proactive and responsive to changing financial markets.

[Andrew Saxton, Conservative, North Vancouver, BC]

I believe you interviewed the six banks themselves during the audit. Did you have an overall impression of the banking regulatory system from your discussions with the banks?

[Sheila Fraser]

The banks were again quite favourable. They did raise some questions, obviously, about the paperwork they have to provide. They raised as well a concern about the ability of the government to recruit and retain the really high-quality professionals they need to be able to deal with these changing markets. But I would say overall they were positive.

[Andrew Saxton, Conservative, North Vancouver, BC]

Would you say that the difficulty in being able to retain and maintain these jobs is because of the competition with the banks themselves?

[Sheila Fraser]

Absolutely. I think these people are very sought after in financial markets. These are people who have quite unique skills and they are very much in demand. They'll go into the financial sector, and some may even go into political life.

[Andrew Saxton, Conservative, North Vancouver, BC]

Stranger things have happened.

Can you comment on the importance of cross-departmental information sharing?

[Sheila Fraser]

I think we show in this report that it was absolutely critical that they exchange information quickly. Things happen very, very quickly in financial markets, especially during these recent turbulent times.

It was very important that there be that good exchange of information between the various players and that we saw it was ongoing; they met regularly and worked very cooperatively together.

[Andrew Saxton, Conservative, North Vancouver, BC]

Would you say the development of derivative products and structured products over the last decade has led to some of the issues because of the complexity of these new products? Obviously they led to this financial crisis as well to some degree.

Has that been an issue?

[Sheila Fraser]

I think many experts would say there were a lot of products and that people really didn't understand what they were buying or getting into, and that it was one of the causes that led to many of the problems worldwide.

Again, what we come back to is that it's important that these institutions share the information about new products coming onto the market, that they be alert to them, and that they have the people who are able to understand the risks associated with them.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

Mr. Chair, how much time do I have left?

[The Chair, Liberal, Joe Volpe]

A minute and a half.