Public Accounts Committee on Dec. 5th, 2011

[Nancy Cheng]

Mr. Chair, there are two things.

In terms of the opinion on the public accounts, first and foremost we comment on the fair presentation of the financial statements. Essentially, where money has been collected, money has been dispersed, revenue that should have come in, the financial position, the annual deficit, the budgetary balance, we express a view on the financial performance to say whether it follows the stated accounting policies, which are in line with the public sector accounting standards. That's one aspect.

The other aspect we would report to Parliament is on anything we felt might be significant or of a nature that should be brought to your attention. There, the latitude is much broader. It could be some of these authority issues. If we do see things that we think are of a level of significance that should be reported, we would include it in the observations. The observations are where we have highlighted the issue of the use of the vote—the capital vote vis-à-vis the operating vote—and then there were a couple of other issues that I highlighted in my opening remarks.

In terms of the performance audit reports, there is a different reporting mechanism, as you can appreciate. I don't think we went as far as using the term “unlawful activities”. It's not something I would be too familiar with and go too far into the subject itself.

[Jay Aspin, Conservative, Nipissing—Timiskaming, ON]

So I guess I would be right in describing that this comment of my colleague opposite was entirely misleading and false to accuse the government of spending money unlawfully.

Is that correct?

[Nancy Cheng]

I think you are asking me to comment on the subject of another audit, and I would like to be quite prudent in how I answer that question.

I believe the concern was the use of the vote wording in terms of describing those activities. I don't believe we went as far as talking about unlawful activities.

[Jay Aspin, Conservative, Nipissing—Timiskaming, ON]

Thank you for that clarification.

The public accounts state that throughout 2010 growth in Canada was fuelled by a strong rebound in consumer and business expenditures. Can you comment on how Canada's action plan or the low interest rates or strong federal fundamentals have fostered this growth?

[Nancy Cheng]

Mr. Chair, I would ask the that the finance representative perhaps answer that question, because that's not part of the financial statements in section 1 or section 2.

[Doug Nevison]

Mr. Chair, if I may, the recovery in Canada has been driven by a couple of factors.

First off, going into the global recession the Canadian economy had some very strong fundamentals, a very sound banking sector, and budgetary surpluses at the federal level, and most provincial governments had budgetary surpluses as well. That last aspect allowed both the federal government and the provincial governments to respond with a significant stimulus package. It was roughly equivalent to about 4% of GDP over two years, so $60 billion in total. That combined with the fact that the Bank of Canada cut interest rates quite significantly.

Those two, both on the monetary policy side and the fiscal policy side, gave a very significant stimulus. It showed up in terms of domestic demand in Canada, so consumption and business investment have been very strong. We've seen nine consecutive quarters of positive domestic demand, and that's a reflection of both—as I said—the strong fundamentals and also the stimulus that was put in place.

[Jay Aspin, Conservative, Nipissing—Timiskaming, ON]

If I may, Mr. Chair, I have one final question.

I note that the cumulative deficit, as a percentage of GDP, was 33.9%, say 34%. Could you give me an idea relative to other countries—this number, relative to other countries?

[Doug Nevison]

A first point would be that the numbers that are presented here for accumulated deficit are for the federal government, and as you said, it was 33.9% of GDP in 2010-11. When international comparisons are done, they tend to be taken on a total government basis, so they bring in all levels of government—the federal government and the provincial and territorial governments—and in Canada's case it also reflects the CPP and QPP. Converting to that, if I use the most recent IMF numbers, the September Fiscal Monitor, on that basis Canada's total government net debt was 32.2% of GDP. The G-7 average was 75.3%.

So our net debt-to-GDP ratio is quite significantly lower than other G-7 countries.

[The Chair, NDP, David Christopherson]

I'm sorry, the time has expired. Thank you both.

We'll go over to Mr. Allen. You have the floor, sir.

[Malcolm Allen, NDP, Welland, ON]

Thank you, Chair.

Thank you, everyone.

Perhaps I will start with Madam Cheng on this issue about voting and how we look at what exactly we're voting for, whether it be a capital expenditure or an operation expenditure. You pointed out that there are weaknesses in the system in the sense that quite often capital expenditure is actually in a vote that's not a capital expenditure; it's locked into it.

As parliamentarians, one of the things we do is not only collect folks' money, but we actually spend it, and the only way to do that is to vote on the expenditure. If we don't know what the expenditure is for, in the sense of its being in an operational line when it turns out to be a capital line, are we really being well.... I shouldn't use the word “advised”, but are we at least being well looked after in the sense of understanding what we're voting for if it's hidden in somewhere else?

On the other side of it, when money gets transferred that's been approved in a vote at a capital expenditure and ends up elsewhere, is there a mechanism you would see that helps us understand that it moved, other than trying to find it on page whatever in section whatever of volume III? Ultimately we voted for something, and not knowing where it ended up makes it extremely difficult to understand that it went somewhere else.

[Nancy Cheng]

There are two points here. First and foremost, you set up a capital vote for a reason. You want to set a certain ceiling to the amount of capital expenditures you want to have incurred for a particular entity. If there is to be a change, I believe there is a process you can follow through the estimates process. They will rectify that in a supplementary estimate to adjust it so they can move money between votes. But it is a decided exercise, because Parliament will have voted on it in the first instance, and it's not a trivial matter to try to adjust it. So it does require a fair bit of work behind the scenes from the public service to make sure it gets corrected if there is a need for a change.

Second, if you see fit to put in some kind of capital ceiling, you want to know that the capital expenditures are flowing through that. Right now the mechanism is set up in such a way that there is inconsistency in practice, and some major expenditures can flow through the minor capital.

We're not suggesting any element of wrongdoing; it's just the way the system is set up. It's not conducive to your oversight, if you choose to exercise that oversight. So in what's before you, it is not necessarily easy for you to see that various capital expenditures are falling below the limit you've set out for that department or agency.

We suggest that perhaps it's time to take a look at how they actually set up those votes, who should get capital votes, and who shouldn't. Right now there's a $5-million limit, but at the end of the day, by the time you do financial reporting you see that there are patterns of departments that will be exceeding the $5 million, but they didn't get a capital vote in the first place, so no separate ceiling was set up for capital expenditures, and then everything is flowing through capital.

There are a few things in the system itself, in the framework, but there are also parameters they use that perhaps would be helpful if the government could take a look at it. Our understanding is that the government is in agreement and said they would take a look at that framework in the coming year.

[Malcolm Allen, NDP, Welland, ON]

Thank you for that.

Mr. Ralston, if one looks at the Department of National Defence, for instance, if we look back for three years in the public accounts we can see a pattern of lapsed funding. In 2009 it was substantially less than in the public accounts of 2010-11, where we are looking at $1.5 billion. It's a substantial amount of money in lapsed funding, and it has increased exponentially since 2009-10.

Are you concerned about that, Mr. Ralston? Should we be concerned about that? It seems to me that's an exceedingly large amount of money that has lapsed, not counting the operating side, where there is not quite the equivalent amount--about 80% of that, or about $930 million. That's in excess of almost $2.5 billion of lapsed funding.

[Jim Ralston]

In general, it's difficult to comment on a lapse without understanding how and why it occurred. Often with capital projects it has to do with the pace of the project that may have been affected for any number of reasons. You really can't speculate on it. It would require going to the department and getting an analysis. I'm sure they have an analysis of why the lapse occurred. Then you'd be able to judge the reasons for it. That would be informative. But just simply looking at the number in its raw form can only point you toward asking the first question; it doesn't necessarily answer the question.

[The Chair, NDP, David Christopherson]

Thanks to you both. Your time has expired.

Madam Bateman, you have the floor.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Thank you very much, Monsieur le président.

Thank you to all of our witnesses for being here today. This is certainly a subject that interests me greatly. As a chartered accountant, I take such pride when I see in a professional journal that the work you have influenced in the Government of Canada is getting international recognition. Not just the work of the Government of Canada, but the work of the Office of the Auditor General is regularly noticed internationally for leadership in this area.

I have a question for both Madam Cheng and Mr. Ralston.

First, to the Office of the Auditor General, you were interrupted when you were talking about public accounts--just because the time had moved on. On the public sector auditing standards, this is the first year you referred us to that tiny little paragraph that probably has so much roll-up going into it it's not even funny. My understanding is that you have implemented the public sector auditing standards for the first time this year. Can you take a minute or two to outline the key pieces that have changed?

[Nancy Cheng]

Earlier I was able to talk about the change in the independent auditor's report, but even prior to the change, Canadians had very good standards. So in essence and in principle, things have not changed that much in terms of what we do with respect to audits. The new international standards call for more rigour in documenting what we've done, and in documenting decisions and conclusions in our audit files. So that particular aspect is not as evident to either the management, in this case government, or to the committee, but we would see that a fair bit in our own files.

The other aspect is that the standards require that we have good interaction with those charged with governance. In this particular case, that means we would have to further demonstrate how we have dialogued with the Comptroller General's office, with the Deputy Minister of Finance, the Receiver General, as well as the Secretary of the Treasury Board, to make sure we apprise them of our plans, what we do in terms of the audit, but also on audit findings.

There is an emphasis to say that if we come across any significant deficiencies on controls, the auditors need to and shall report back to those charged with governance. So all those things have more rigour, if you will, in terms of how we interact and communicate with the government department, as well as those who sign the statements on behalf of government.

The standards themselves are quite voluminous, so certainly there is a lot of rigour to the standards themselves.

I think I will stop there, unless you have something more specific to ask. Otherwise, it could take a fair bit of time.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

I appreciate that, and perhaps that's a subject for a subsequent meeting at this committee, because certainly it's an important international leadership piece, and we're very proud to be Canadians.

Moving over to the Office of the Comptroller General, and Mr. Ralston, all these big volumes are your babies, right? You created these books. I'm curious, because I remember way back when I wrote the unform evaluation exams, you did the consolidation work, and I loved it. Pepper and salt--not everybody loved those consolidations. Could you enlighten this committee, and perhaps give us the tools so we could share with our constituents what's involved in this? This is an incredibly huge consolidation process, is it not? Could you enlighten us briefly? Or take us along as you want, because I'm really interested in this.

[Jim Ralston]

I'll be very brief, Mr. Chair.

First, all three volumes of the public accounts are compiled by the Receiver General housed in the Department of Public Works and Government Services Canada. There is a large compilation, but in the sense that you refer to it, consolidation, the only consolidation that occurs is in section 2 of volume I, which is the summary-level financial statements of the government. So for the consolidation process, all departments, all the consolidated entities, have to supply the information in a prescribed format. We do all the things you would remember--elimination, entries to get rid of internal transactions--the idea being that we want to present the government at the end of the day as one entity in its transactions with the outside world, with all internal transactions washed out.

[The Chair, NDP, David Christopherson]

Your time has expired. Thank you both.

Over now to Mr. Byrne. You have the floor, sir.

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

Thank you, Mr. Chair.

I want to follow up on your expression, Madam Cheng, about the lawfulness or unlawfulness. Spending has to occur within the context of the Financial Administration Act--is that correct?

[Nancy Cheng]

Yes, sir.

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

The Financial Administration Act describes that Parliament--and unfortunately I don't have the section here, but I will have it shortly--is required to vote or to approve expenditures for purposes for which they are intended. The fact that the border infrastructure fund was used, admittedly, as a vehicle or conduit for the G-8 legacy fund--the gazebos, the skating rinks, and so on.... I understood the Auditor General found that Parliament was not properly informed, and quite frankly was misinformed of what it was voting on, what it was approving, or authorizing. Do you feel as though that was a contravention of the Financial Administration Act?

[Nancy Cheng]

This is not a subject I've prepared for in terms of the briefing, nor was it my audit file, so I'm answering to the best of my knowledge in terms of what I know.

I believe the office position was that this is not a case of non-compliance with the law. The concern that we highlighted is along the line of how the expenditure was being described in terms of vote spending and that it was different in the end. I don't think we went as far as indicating that these activities were unlawful—that is, outside of the FAA—and that the funding should not have been expended.

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

Understood.

Those relevant sections of the Financial Administration Act that describe what particular activities are being offered to Parliament in terms of description versus what it's authorizing, do you have something for me on that? Specifically, I'm referring to section 28, part 3, public disbursements:

Where an appropriation is made for any purpose in any Act of Parliament for granting to Her Majesty any sum of money to defray expenses of the federal public administration for a fiscal year, no payment shall be made pursuant to that appropriation out of the Consolidated Revenue Fund unless a warrant, prepared on the order of the Governor in Council, has been signed by the Governor General authorizing expenditures to be charged against the appropriation...

Also, section 27,

All estimates of expenditures submitted to Parliament shall be in respect of payments during the fiscal year to which the estimates relate and expenditures that will be incurred during that fiscal year.

In terms of public disbursements, the Financial Administration Act is fairly clear that what is described to Parliament must, indeed, be held to account, and if it's not described to Parliament it's not lawful. Is that not a fair representation of the act?

[Nancy Cheng]

Mr. Chair, I would think it would be more appropriate to have my colleague who was responsible for the file to actually answer that question. It wasn't a section that I had studied at length and it would be inappropriate for me to try to interpret that for this hearing.