Public Accounts Committee on May 19th, 2016

[The Vice-Chair, NDP, David Christopherson]

I declare this 15th meeting of the public accounts committee now in order.

Colleagues, we are here to study the “Public Accounts of Canada 2015”. As per our procedure, we have before us our Auditor General, Mr. Ferguson, as well as Mr. Matthews, the comptroller general of Canada.

My understanding is that both of you have opening remarks.

With that, I will turn the floor over to our Auditor General, Mr. Ferguson.

You now have the floor, sir.

[Michael Ferguson, Auditor General of Canada, Office of the Auditor General of Canada]

Mr. Chair, thank you for the opportunity to discuss our audit of the consolidated financial statement of the Government of Canada for the 2014-15 fiscal year. I am accompanied today by Karen Hogan, principal, who is responsible for the audit of the Government of Canada's consolidated financial statements.

The audit of the Government of Canada's consolidated financial statements is an important aspect of government accountability. It is the responsibility of the government to prepare the consolidated financial statements. It is our responsibility to express an opinion on whether these consolidated financial statements are fairly presented.

The comptroller general will address any questions related to the government's consolidated financial statements. We will focus our comments on our audit opinion and our observations.

The public accounts of Canada are tabled in three volumes. Our independent auditor's report and our observations are contained in section 2 of volume 1. Unless otherwise noted, the information in all other sections of this volume and the two other volumes is unaudited.

Our independent auditor's report on the 2014-15 consolidated financial statements can be found on page 2.40 in volume 1 of the public accounts.

This marks the 17th consecutive year in which we have expressed an unmodified audit opinion.

For the year ending on March 31, 2015, the government adopted a new public sector accounting standard on liabilities for contaminated sites. Over the past few years, the government has started recording its liabilities for contaminated sites in anticipation of this new standard. Therefore, the adoption of the new standard did not increase the recorded liability but did result in more comprehensive note disclosures.

During the audit, and as we discussed in our observations, we noted that the government has an extensive inventory listing of contaminated sites and of possibly contaminated sites, which supports the estimated liability.

We concluded that there was room for improvement in the timeliness and refinement of the estimation process for contaminated sites. Regular updates are required as sites are remediated, as changes in environmental standards emerge, and as estimation techniques improve.

In addition, our observations over the past several years have highlighted concerns about the financial reporting of inventories at National Defence. Although the department continues to make progress on several initiatives to improve its financial reporting capabilities, we continue to find errors.

For 12 years, we have been reporting concerns about inventories at National Defence, which are significant to the government's consolidated financial statements. This year, we noted a reduction in quantity errors, but we continued to find errors related to obsolescence and inaccurate pricing of inventory.

We were pleased to see increased awareness of these issues and coordination by the department's senior managers, who are beginning to take the steps needed to implement improved financial management controls. Strong internal controls reduce the risk of misstating the consolidated financial statements and making decisions without accurate information.

The audit of the Government of Canada's consolidated financial statements is a large and extremely important one for our office. The time devoted to this audit is approximately 48,500 hours of work across several departments and agencies, which is carried out by more than half of our financial auditors.

This work adds value by strengthening oversight, promoting transparency, and encouraging continuous improvement, all of which support the accountability relationships among departments, agencies, and elected officials.

We thank the comptroller general and his staff, and others in the departments, agencies, and crown corporations who were involved with the preparation of these statements. A great deal of effort and work was required, and we appreciate the co-operation and assistance provided to us.

Mr. Chair, this concludes my opening remarks.

We would be pleased to answer the committee's questions.

Thank you.

[The Vice-Chair, NDP, David Christopherson]

Thank you, Mr. Ferguson.

Now over to Mr. Matthews.

Welcome, sir. It's good to see you again back at our committee. You now have the floor for your opening remarks.

[Bill Matthews, Comptroller General of Canada, Treasury Board Secretariat]

Thank you, Mr. Chair.

Good afternoon to you and to all the members of the committee.

Thank you for this invitation to appear before you this morning to talk about the public accounts of Canada for the year ended March 31, 2015.

I am really pleased to be here in my role as Comptroller General of Canada. With me today is Diane Peressini, executive director, Government Accounting Policy and Reporting, and Nicholas Leswick from the Department of Finance.

Public accounts include the audited consolidated financial statements of the Government of Canada, as Mr. Ferguson has just mentioned, for the 2014-15 year in addition to other unaudited financial information.

These are part of a series of reports to Parliament and the Canadian public providing information on the state of the government's finances.

Every year the government presents the consolidated financial statements to the Auditor General of Canada who audits them to provide an independent opinion to the House of Commons.

Mr. Chair, Canadians can be confident in the accuracy of the public accounts.

For the 17th consecutive year, the Auditor General has provided an unmodified or clean opinion on the government's financial statements. This testifies to the high standards and quality of the government's financial statements and reporting, and is an achievement of which all Canadians can be proud.

I would like to thank the members of the government's financial community for all of their work in helping prepare these consolidated financial statements. This is truly a piece of work that goes across the government.

In addition, I would also like to thank the Auditor General and his staff for the continued professional working relationship that we have enjoyed.

Mr. Chair, I am aware this will be the first time that some members of this committee will have been exposed to the public accounts. For that reason, we have tabled with the committee a short presentation to provide members with a quick overview—but I do understand there was an information session already provided.

If it does please the chair, I would be happy to spend a few minutes to walk through the presentation, or the alternative is simply to leave it tabled with members and they can use it to ask questions as they wish.

I would like to make two other points before I close.

If members are asking questions that are specific to a certain page number in the public accounts, if you could be kind enough to provide us with that page number, then we can also find the equivalent page number

in the French or English version,

as applicable.

I have one final plea. I did mention that these are a series of financial reports provided to the House of Commons and the Canadian public at large. If Diane and I had brought all of the relevant copies of reports for today's appearance, you would not be able to see us. We would literally be hiding behind a wall of reports.

Every year we ask that if there's information we're providing in the public accounts that members do not find useful, please tell us. Volume 3 of the public accounts contains information that you will not see published by any company in Canada. This is unique to the public sector. We are reluctant to propose reductions in information, in the interests of maintaining openness and transparency, but if there are things the committee sees, whether it's a threshold that seems too low, or information you truly don't find useful, please let us know when you do your study.

Thank you very much.

[The Vice-Chair, NDP, David Christopherson]

Very good. Thank you, Mr. Matthews.

I'm in the hands of the committee as to the presentation you have. I suggest to colleagues that we wait until we've done our rounds and then evaluate how much time we have and whether we want to receive it or move into a session.

Mr. Arya.

[Chandra Arya, Liberal, Nepean, ON]

If it does not take too much time, I would prefer to have that upfront now with the comptroller general walking us through it rather than waiting until the end.

[The Vice-Chair, NDP, David Christopherson]

Sure. Okay. I'm in your hands. It's up to the committee.

How long would the presentation be, Mr. Matthews?

[Bill Matthews]

I'm in your hands there. I can do it in five minutes, or I can do it 10.

[The Vice-Chair, NDP, David Christopherson]

Great. It's a good opportunity for the public also to get part of this briefing.

By all means, Mr. Matthews, we are going to take you up on your offer to make your presentation. Then I'll take a few questions on that presentation to conclude that, and then we'll return to our usual rotation.

[Bill Matthews]

Mr. Chair, I'm sensing that maybe not everyone has a copy of the presentation.

[Chandra Arya, Liberal, Nepean, ON]

It's not here.

[The Vice-Chair, NDP, David Christopherson]

It's on your iPad. There aren't copies available. There wasn't an expectation that they would be needed.

How quickly can we get copies?

[Mike Bossio, Liberal, Hastings—Lennox and Addington, ON]

We can share.

[The Vice-Chair, NDP, David Christopherson]

Monsieur Godin, you're good?

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

I just want to make sure that we are talking about the document entitled, “Presentation to the Standing Committee on Public Accounts”.

[The Vice-Chair, NDP, David Christopherson]

Is everybody okay and has a copy or a shared copy?

Very good.

[Mike Bossio, Liberal, Hastings—Lennox and Addington, ON]

Good.

[The Vice-Chair, NDP, David Christopherson]

I see that all colleagues are good. There are no further interventions.

Mr. Matthews, would you be good enough to begin?

[Bill Matthews]

Thank you, Mr. Chair.

I will go through this quickly and just hit the highlights. Thank you for the opportunity.

I've already covered the material on slide 2, so I'm going to start on page 3 of the presentation.

Just to give you a sense of what is in the Public Accounts of Canada, we have broken this down for you in a pie chart of where expenses are happening as well as the assets held by the government. There are three big buckets here for us.

The biggest one is departments and agencies. That represents $272.2 billion in spending and expenses during the fiscal year. The other two you'll see here relate to crown corporations. On the upper left you'll see something called “Enterprise Crown Corporations”. Those are organizations like Canada Mortgage and Housing Corporation and Export Development Canada that are basically self-sustaining. The final bucket, which is a smaller one with expenses of $8.3 billion, relates to crown corporations such as museums, CBC, and VIA Rail.

The reason we've split those for you is to give you a sense of the spending; but also we account for those things differently. We account for the organizations, or the crowns, that are self-sufficient as assets. If you look in the public accounts statement of financial position—or balance sheet, if you are from the private sector—you would see the crown corporations like CMHC rolled up into an investment line. I wanted to highlight that for you.

On the next page, we see that the government's fiscal year begins on April 1 of each year and ends on March 31. As I already mentioned, today, we are looking at the public accounts for the year that ended on March 31, 2015.

I want to give you a sense of the government's financial reporting cycle. If you feel like you're in three fiscal years at once, you're understanding what's happening. We are wrapping up the year-end at March 31, 2015. This is the final piece of that. The public accounts were tabled back in the fall, but the public accounts committee's study of those is important. We are now in the process, with our colleagues from the Auditor General, of getting ready for the audit for the year that just ended March 31, 2016. At the same time, Parliament has already seen a budget, the main estimates, and supplementary estimates (A) for the current fiscal year, the year that started March 31, 2016. There are three things going on at once.

Perhaps you are wondering why it takes several months to prepare the government's financial statements. It is important to understand that the fiscal year ends on March 31.

We table the public accounts in the fall.

We have a good sense of expenses several months after year-end, but nailing down the revenue numbers is what takes the longest, and it's because our friends at the Canada Revenue Agency have to process a certain number of tax returns before we can get a good estimate. We also have to give our colleagues at the Auditor General's office some time to go through that information and properly audit us.

The other piece, of course, is that we do wait until Parliament is sitting before we table the Public Accounts of Canada.

Look at page 5 for roles and responsibilities, because they are a little confusing. It is a team effort, as I mentioned earlier. The Receiver General, which is part of what used to be called Public Works and Government Services Canada, and is now Public Services and Procurement, compiles the data. They run the systems that produce these things, and they're responsible for the printing of the documents.

The Office of the Comptroller General takes care of the government's accounting policies

in terms of what the standards are, how to interpret them, and preparing the note disclosure for the financial statements.

The Department of Finance—and as I mentioned, Mr. Leswick is here—is responsible for section 1, which is the overview discussion and analysis of the financial results.

Those are the three organizations involved in the preparation.

The Auditor General's office is responsible for giving an audit opinion on those financial statements themselves.

Maybe we'll wrap up with slide 6, because I don't think there's any point in going through the numbers. We'll get to those later. There are three volumes, as was mentioned.

Volume 1 is the consolidated financial statements of the Government of Canada. What that means is that it's a statement of financial operations, which is what some older people would call an income statement. It's revenues and expenses. You will see a statement of financial position, which some of us from the private sector many years ago would call a balance sheet. That means assets and liabilities. We're like the private sector in that regard. You'll also see a statement of net debt and a statement of cash flow. That's what the Auditor General audits.

Volume 2 is where we get back to Parliament and tell them how much money it voted for each department and how much was spent. Volume 2 relates back to the estimates. It's where Parliament gets a chance to see what was voted, how much was spent, and what gets carried forward.

Volume 3 is the volume 1 mentioned in my opening remarks, which is the volume you will not see anywhere in the private sector, where we have additional disclosures and information that is out there for your information.

I think with that we'll wrap it up. I want to flag for you there is some technical language here. At the end of this presentation, we do have a series of definitions that may help you if you're looking for technical terms. Before that, we have some financial highlights to focus your attention. One point you will notice is that there is a budget that we compare to the financial results achieved, both the initial budget that was tabled as well as the results achieved the year before. That's for the expenses and revenues. It give you a sense of what the budget was and what the actuals were. Then we have information on assets and liabilities. You'll notice that there is no budget for those. It's just the results. The budget numbers are only relevant for revenues and expenses, and not for assets and liabilities.

I will stop there, Mr. Chair.

I would be pleased to answer any questions the committee members may have.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Matthews, and thank you to our Auditor General and his department for being here.

I should welcome Mr. Leswick back, from the Department of Finance.

If we do have questions, we have the Treasury Board and Auditor General's office present, as well as the finance department.

We'll move into the first round of questioning.

Thank you for the overview of public accounts. As you mentioned in your briefing, we have had other representations that have gone through the public accounts volumes with us. As new members of Parliament, many would have received last fall a package with these three big volumes, opened it up, and wondered, “Wow, what now?” Thank you for helping us to understand a bit more about them.

We'll go into the first round of questioning.

Mr. Lefebvre, please, for seven minutes.

[Paul Lefebvre, Liberal, Sudbury, ON]

Good morning everyone. Thank you for being here this morning.

I have a question for the Auditor General.

We reviewed the documents of the public accounts. One of the main concerns I have is your observations with respect to DND. After looking at this for 12 years, you're saying that there's been some improvements with respect to their inventory. Around $6 billion of the $7 billion in government inventory is with DND, and yet for the past 12 years they've had some major challenges in determining the pricing and the obsolescence of some of their materials.

What improvements have you seen?

My next question after that is, are you intending to do a full audit down the road, or has an audit already been done in the past and some recommendations have been given in the past?

[Michael Ferguson]

Certainly, it's been an observation, as you said, that we've been making for a number of years. We have been seeing some improvements—I'll ask Ms. Hogan to give you some details on that—remembering that these observations are based on the bigger audit we're doing of the consolidated financial statements of the government. We do not get down into the level of detail of an audit, like a performance audit, or something specifically about DND inventory. That's something that we could consider.

I'll ask Ms. Hogan to provide some details about some of those improvements or changes we've seen in the past.

[Karen Hogan, Principal, Office of the Auditor General of Canada]

Over the past year we've been happy to see that senior management at the Department of National Defence is now much more coordinated and focused together. There's an increased awareness of the concerns and the issues related to inventory. We're happy to see that the public servants and the military are now talking and working toward improving the financial reporting around inventory.

One of the things we did also notice was a reduction in errors when it came to the quantity of the items on hand. We chalk that up to the fact the department has started to do a lot more stocktaking of high-risk items. They do it on an rotational basis. We're definitely seeing improvements there, because they're taking a much more active interest in counting it.

[Paul Lefebvre, Liberal, Sudbury, ON]

In the past 12 years we've known this is an issue. Why hasn't a performance audit been done on this?

[Michael Ferguson]

To this point we have continued to raise it as part of the audit observations. It's something we can consider, whether there would be more value if we looked at it more in depth in a performance audit. To this point, at least in my memory, we haven't done one, and certainly not in recent years, but we'll take it as a suggestion to consider.