Public Accounts Committee on Dec. 5th, 2011

[The Chair, NDP, David Christopherson]

That's because your time is at 5:15. Unless you have something to say about public accounts 2011, you're out of order.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

I appreciate your taking the other members' points of order. I guess we'll proceed.

[The Chair, NDP, David Christopherson]

We will proceed, and nobody's point of order was approved.

Can we please move on with the meeting at hand? Thank you.

My apologies to the witnesses. Most of you have been around long enough that you've seen this before. But again, I do apologize.

Today we have with us the Office of the Auditor General, the Treasury Board Secretariat, and the Department of Finance.

I'd ask that you all be kind enough to introduce yourselves, and then we'll begin with Ms. Cheng's opening comments.

[Nancy Cheng, Assistant Auditor General, Office of the Auditor General of Canada]

My name is Nancy Cheng. I'm the assistant Auditor General, responsible for the public accounts. With me are Louise Bertrand, as well as Tammy Squires. They are co-principals on the public accounts audit.

[The Chair, NDP, David Christopherson]

Mr. Ralston.

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

I'm Jim Ralston, Comptroller General of Canada. With me is Tom Scrimger, who is the assistant Comptroller General, financial management sector; and Sylvain Michaud, who is the executive director, government accounting policy and reporting; and my colleague, Doug Nevison, who is the director of fiscal policy at the Department of Finance.

[The Chair, NDP, David Christopherson]

Great. Welcome.

Did that cover everyone? Okay.

Ms. Cheng, you have the floor.

[Nancy Cheng]

Mr. Chair, thank you for the opportunity to discuss our audit of the financial statements of the Government of Canada for the 2010 to 2011 fiscal year. As I noted, I am accompanied today by Louise Bertrand and Tammy Squires, the two principals who were responsible for the audit.

We are pleased that the committee is holding this hearing on the public accounts of Canada. This is an important accountability report of the government. The Comptroller General will be explaining to the committee the key points in the government's financial statements. I will focus on our audit opinion and observations.

Canadian standard-setters have adopted the International Standards on Auditing as the new Canadian auditing standards. The purpose is to ensure high-quality audit practices in Canada that are comparable with those of other countries. The standards came into effect this year, and we used them to audit the government's financial statements. Adopting these standards resulted in a number of changes, including the format and wording of the auditor's report.

Our independent Auditor's Report on the 2010-2011 financial statements can be found on page 2.4 in volume I of the Public Accounts of Canada. For the 13^th consecutive year, we have issued a “clean” audit opinion. Mr. Chair, this is a major accomplishment. We commend the government for its efforts and due diligence in preparing these statements.

I would also like to draw your attention to two items we have noted in the observations. First, I would like to address the question of parliamentary votes and the granting of spending authority. Two principal types of votes are used in Parliament to grant such authority: the capital vote and the operating vote. The issue relates to how departments and agencies charge their capital expenditures against these votes. Under current government guidance, significant capital expenditures are being charged to operating votes even when departments have a capital vote. As well, some entities that do not have a capital vote incur capital expenditures in excess of the $5 million threshold, which is used to determine if an entity should receive a capital vote or not.

In our view, the Treasury Board of Canada's secretariat needs to asses the circumstances in which capital votes are required, and the factors that determine which expenditures are to be charged to capital votes rather than operating votes. Doing so will ensure the framework is clear and remains relevant, in order to support parliamentary authority and government accountability to Parliament. The secretariat has agreed that such a review would be timely, and that it would conduct one during the next year.

Next, as a matter of principle, I would like to underscore the importance of having accounting standards that are developed and promulgated by a recognized and independent standard-setting body. The Public Sector Accounting Board of CICA, the Canadian Institute of Chartered Accountants, has promulgated a set of public sector accounting standards which is applicable for all levels of government, as well as government organizations.

The government's financial statements are prepared in accordance with stated accounting policies that conform to these accounting standards. Canada is a world leader in preparing high quality summary financial statements of a national government largely because we follow these standards.

We note that the government has issued a set of accounting standards, known as Treasury Board Accounting Standard 1.2 or TBAS 1.2. All departments listed under section 2 of the Financial Administration Act have to follow these government standards in preparing their financial statements. The government has full discretion to provide additional direction or guidance on financial reporting to departments and other government entities.

But, like the whole of government financial statements, the underlying accounting principles ought to be consistent with the public sector accounting standards. At present, there are some differences between TBAS 1.2 and the generally accepted accounting principles for the public sector.

We are currently working with the Secretariat to resolve these differences and hope to complete that this month. The observations also highlighted a number of other issues that we have reported in the past, including accrual based appropriations which we discussed with this committee last Monday. They are listed on pages 2.37 and 2.38 in volume I of the Public Accounts.

We thank the Comptroller General and his staff, as well as others in the departments who were involved in preparing these accounts. A great deal of work was involved, and we appreciate the cooperation and assistance provided to us.

Mr. Chair, this concludes my opening remarks. We will be pleased to answer the committee's questions.

[The Chair, NDP, David Christopherson]

Thank you very much, Ms. Cheng.

Mr. Ralston, please begin your opening remarks.

[Jim Ralston]

Thank you, Mr. Chair and members of the committee.

Thank you very much for the invitation to appear before this committee to discuss the Public Accounts of Canada.

For the 13^th consecutive year, the Auditor General has issued an unmodified opinion, formerly termed “unqualified opinion” on the government's financial statements. This testifies to the high standards of the government's financial statements and reporting.

I would like to thank the Office of the Auditor General for the continued professional working relationship 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, 2011.

We can go through the presentation, or if you would prefer, we can simply table the presentation and go straight to questions from the committee.

[The Chair, NDP, David Christopherson]

Let me test the will of the committee. On a quick show of hands, how many would like to have the slide presentation? And those who would like to go straight to questions? All right. It looks like we're going to go ahead.

Do you want to give us a quick run-through of your presentation?

[Jim Ralston]

Thank you, Mr. Chair.

I'm going to ask Mr. Michaud to give us the presentation.

[Sylvain Michaud, Executive Director, Policy and Liaison, Treasury Board Secretariat]

Thank you, Mr. Chairman.

I will begin on page 3, with the Public Accounts of Canada cycle. The cycle begins with the publication of the budget by the Department of Finance. Revenue projections and charges for fiscal 2010-2011 were included in the 2010 budget, which was published in March of that year.

The main estimates for 2010-2011 were also tabled in March 2010, and the supplementary estimates were tabled in May and November 2010.

As far as the supplementary estimates (C) are concerned, they were tabled last February, but votes were not authorized, since Parliament was dissolved on March 26 for the general election.

The budget plan of June 2011 contained an update of estimated results for 2010-2011. On October 12 last, the Minister of Finance made public the annual financial report for 2011. Lastly, the Public Accounts of Canada were tabled on November 3, 2011.

The next page gives you an overview of the Public Accounts of Canada. They are divided into three volumes.

The first volume contains a summary analysis of the government's financial operations. In fact, the first section, the analysis of the financial statements, presents an overview of the summary financial statements and important activities which influenced the financial statements in the course of the fiscal year. The financial statements of the Government of Canada, as well as the report and the observations of the Auditor General, are contained in section 2.

As for the second volume, it contains the financial operations of the government broken down by each departmental portfolio.

Lastly, the third volume contains additional information and analysis, including the financial statements of revolving funds and information required by the Financial Administration Act.

This leads me to talk about the financial results for 2010-2011, which you will find on page 5. As you heard, for the 13^th consecutive year, the Auditor General issued an unmodified audit opinion on the financial statements of the government.

In 2010-2011, the deficit stood at $33.4 billion, which represents a decrease of $22.2 billion from the $55.6-billion deficit recorded in 2009-2010.

Part of the deficit, a sum of approximately $16.5 billion, was due to measures taken under Canada's Economic Action Plan. The accumulated deficit stood at $550.3 billion on March 31, 2011.

The ratio of accumulated deficit to GDP was 33.9%, which represents a decrease of 0.1% from the previous year, and represents roughly half of its peak of 68.4% on March 31, 1996.

The next page compares actual results with results presented in the 2010 budget. I would like to point out the fact that the numbers contained in the 2010 budget were updated following a review of projections within the 2011 budget.

However, the budget amounts included in the financial statements are based on amounts originally budgeted for 2010-2011 in the 2010 budget, and are based on accounting standards.

The next page compares actual results to amounts presented in the June 2011 budget. Revenues exceeded projections by $1.5 billion, and this was due in particular to higher-than-expected revenues from corporate taxes and other sources.

Program charges were lower than estimates by $1.2 billion, and this was due to accounting adjustments at the end of the fiscal year, which were lower than projected.

The next pages compare the results from 2010-2011 to those of the previous year. Among other things on page 8, it should be pointed out that total revenues increased by $18.5 billion compared to the previous year. Over half of this increase is due to higher tax revenues from individuals, which totalled $9.5 billion.

Total program expenses decreased by $5.2 billion in 2010-2011, and this was due in particular to the one-time financial support package given to the automobile sector in 2009, and to the transition payment made to Ontario and British Columbia in 2009-2010 for the harmonized sales tax.

The accumulated deficit increased by $31.2 billion, compared to an increase of $55.4 billion in 2009-2010. This was due to the impact of the world economic recession and stimulus measures implemented to counter the effects of the recession.

Lastly, other comprehensive income or loss provisions increased by $2.1 billion. This is in large part due to the unrealized gains in the increase of the value of General Motors common shares held by the government.

Page 9 provides details on revenues, and more specifically with regard to the increase of $18.5 billion in revenues in 2010-2011.

First, tax revenues increased by $11.3 billion. The increase in personal tax revenues, in the amount of $9.5 billion, is due to an increase in personal income and to the end of the home renovation tax credit, on January 31, 2010.

Corporate tax revenues decreased by $0.4 billion, despite a significant increase in corporate profits. This decrease is in great part due to a lower tax rate and to other factors related to timing, which saw revenues increase in 2009-2010.

GST revenues increased by $1.4 billion. This increase is due to the increase of demand following the economic recovery. Other tax revenues decreased by $0.7 billion. They include the tax on energy, the income tax on non-residents, import duties and other custom fees and taxes.

EI premium revenues increased by $0.7 billion compared to the previous fiscal year, and this was due to the decrease in the unemployment rate and to the fact that premiums remained the same in 2011.

As for details on the main expenses by category, on page 10, benefits to seniors increased by $1 billion because of the increase in the number of seniors, and because benefits are indexed to the consumer price index.

Employment insurance benefits decreased by $1.7 billion because of the lower unemployment rate.

The main transfers to other levels of government decreased by $4 billion compared to the previous fiscal year, because of the one-time financial support of $5.9 billion given to Ontario and British Columbia in 2009-2010. This followed their decision to adopt the harmonized sales tax. This decrease was partly compensated by a legislated increase in various transfers.

Other transfer payments, including transfers to aboriginals, farmers, students and businesses, support for research and development, as well as for foreign and international aid, decreased by $3.1 billion compared to the previous fiscal year. This decrease is for the most part due to the one-time financial support given to the auto sector in 2009-2010.

Lastly, public debt charges increased by $1.5 billion because of the increase in the outstanding amount of interest-bearing debt.

The last page provides information on the interest-bearing debt. The interest-bearing debt was $801.8 billion on March 31, 2011, which represents an increase of $39 billion. This increase is mostly due to an increase of the unmatured debt, due mainly to financial requirements linked to the budget deficit. The unmatured debt represented 73.7% of the interest-bearing debt on March 31, 2011.

Pension liabilities and liabilities for other future benefits increased by $7.3 billion to $204.3 billion on March 31, 2011. Public sector pension liabilities represented 18% of the interest-bearing debt, and 7% of other future benefits for employees and veterans.

Lastly, in 2010-2011, the average effective interest rate on the public interest-bearing debt stood at 3.9%, which represents a decrease compared to 4% for 2009-2010.

That concludes my presentation, Mr. Chairman.

[The Chair, NDP, David Christopherson]

Thank you very much.

Unless someone has a reason to object, we'll now begin with our rotation questions. With that, Mr. Saxton, you have the floor.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Mr. Chair.

Thank you to our witnesses for being here today.

My first question is for the Office of the Auditor General. The public accounts state that due to many factors, the Canadian economy has had the strongest recovery to date among G-7 countries, and I quote: “Indeed, Canada is the only G-7 country to have recovered both all of the GDP and all of the employment lost during the recession.”

Can you please comment on the factors that contributed to this successful recovery?

[Nancy Cheng]

The question the member posed goes beyond the scope of the audit of the public accounts. For the purpose of the audit of the public accounts, we comment on the financial reporting and the fair presentation of the statements. So from this perspective, I'm not in a position to really answer that question.

[Andrew Saxton, Conservative, North Vancouver, BC]

Even though the report itself contains that very quote?

[Nancy Cheng]

We are not commenting on how well the government has performed. What we comment on is whether presentations of revenue numbers, the expense numbers, and the resulting financial position are fair.

[Andrew Saxton, Conservative, North Vancouver, BC]

Okay.

Can you confirm then that Canada has in fact recovered all of the employment lost during the recession, since it says that in the report?

[Nancy Cheng]

Maybe this is a good opportunity for us to express what we're actually commenting on. Just now, Mr. Michaud explained the three volumes of the public accounts. We are commenting on section 2 of volume I. Section 2 deals with the financial reporting. You'll see our audit opinion, and you'll also see the observations.

The various comments that you talk about on the performance are assertions from the Department of Finance, and it would be more appropriate if the Department of Finance representative addressed those. Those are not part of the audit scope.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you very much.

The government's clean audit, which I understand has been the case for 13 consecutive years, testifies to the high standards of the government's financial statements and reporting. Can you please share with the committee the requirements needed for a government to achieve this opinion? Are clean audits common in the rest of the world, and how do we compare with other nations?

[Nancy Cheng]

That, indeed, as I mentioned in my opening statement, is a major accomplishment. Very few jurisdictions in the first instance have whole-of-government accounts as we do, so we stand above a lot of countries even just for having whole-of-government accounts. Then to have the accounts come back with clean opinions, no modifications, no qualifications, and no reservations is really a big feat, and we don't see that happening very often in other jurisdictions.

Very few jurisdictions, as far as I know, can match what Canada has here. One of the driving factors is the due diligence that the government follows in preparing the accounts. There is also the due diligence exercised in making sure that we follow well-established standards. We follow the public sector accounting standards, and they are among the best in the world. I think we're comfortable in saying that.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you very much.

I'd like to congratulate you on successfully implementing the new Canadian auditing standards for the first time this year. Can you give us a quick overview of the new auditing standards and how they differ from those for previous years?

[Nancy Cheng]

Mr. Chair, I'll try to be succinct on this one, because explaining those could take up an hour and a half alone.

[Andrew Saxton, Conservative, North Vancouver, BC]

Feel free to continue.