Public Accounts Committee on Nov. 3rd, 2016

[Bill Matthews]

I think the question is, do we have a weakness in the system by not having the same control over loan guarantees as we do with loans? Guarantees, by their nature, are less risky than loans, but there is risk there. I'm not aware of other countries that actually legislate guarantee limits, but they do relate to our enterprise crowns. I know that when the Department of Finance is preparing the fiscal plans, they do have discussions with crown corporations around what their plans are, but I'm not aware of any other country that actually puts a legally authorized limit in place.

[Chandra Arya, Liberal, Nepean, ON]

Okay.

This is for the Auditor General.

The total insurance in force is about $1.67 trillion. This note states:

The Government expects that all four corporations will cover the cost of both current claims and possible future claims.

Are you fully satisfied with that statement?

[Michael Ferguson]

Certainly within the context of the audit. This is a note that's part of the financial statements. We did an audit on the whole financial statement, not just the statement of operations and the balance sheet, but also the notes. Of course, recognizing that we don't look at every cent but that we do it within a materiality limit, within that materiality limit we would have audited this note. We would have audited the numbers in the note, and we're satisfied that there would be no material error in that.

[Chandra Arya, Liberal, Nepean, ON]

At least for me, that's a very staggering amount, so I thought that this particular number would be looked at slightly in depth, because $1.67 trillion is only for the agent enterprise crown corporations.

[Michael Ferguson]

Again, certainly when we're doing the audit on the set of financial statements, we look at the different risks and at the different elements in the financial statements, and we apply the necessary tests that we feel need to be done in order to verify the numbers. Whatever is in that note, we would have assessed the risk in it and we would have applied the appropriate procedures, so we're satisfied with it.

[Chandra Arya, Liberal, Nepean, ON]

Mr. Rochon, coming back to the agent enterprise crown corporation CMHC, when was the last time the stress test was done, and what were the basic parameters that were used there?

[Paul Rochon]

The CMHC regularly undertakes stress tests. They publish those stress tests—or they have published those stress tests—in their annual report. The annual report provides the parameters for the stress tests.

There are varying degrees of stress, from what you might think of moderate—for example, a 10% reduction in house prices—to something that's really quite exceptional, such as the last episode in the United States. For a more moderate event like a 10% decline in house prices uniformly across the country, CMHC estimates that its net loss in income in total, cumulatively over a six-year period, would be $2.5 billion.

[Chandra Arya, Liberal, Nepean, ON]

You said $2.5 billion?

[Paul Rochon]

Yes, $2.5 billion.

[Chandra Arya, Liberal, Nepean, ON]

Suppose it goes back to the U.S. crash levels...?

[Paul Rochon]

That would be significantly larger, closer to $11 billion.

[Chandra Arya, Liberal, Nepean, ON]

Thank you.

For the AG again, what are the discount rates? You've said that there's an acceptable range in the market. What is that range? You did also mention, I guess, that any decrease by 1% will lead to the liabilities going up by $9.6 billion.

[Michael Ferguson]

The discount rates that the government uses—and perhaps the comptroller general can give you more details on that—would depend on the liability, right? The discount rate used on funded pension plans, for example, where there's an asset base behind it, would be based on the assumed rate of return for that pool of assets. For unfunded pension plans, the discount rate would be based more on the government's borrowing—

[Chandra Arya, Liberal, Nepean, ON]

Based on what you said, a 1% decrease will increase the liabilities by $9.6 billion. Is it 1%? Can it go to 1.5%?

[A voice]

It—

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Arya.

Go ahead, Mr. Matthews.

[Bill Matthews]

I think it might be worth the time to come back to note 8 of our financial statements for the pension, just to get into this. I just need to correct the record on loan guarantees. CMHC actually is governed by its own legislation in terms of the guarantee amounts. My colleague Diane has just pointed that out to me, so I wanted to get that on the record.

Thank you.

[The Chair, Conservative, Kevin Sorenson]

All right, thank you.

We'll go to Mr. Godin, then Mr. Harvey, and then back to Mr. Chen.

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

Thank you, Mr. Chair.

I am going to continue on the same question that was raised earlier about the Department of National Defence.

Mr. Matthews, you previously mentioned that the situation at the Department of National Defence stemmed from the existence of an administrative culture.

My question will be for Ms. Hogan, but perhaps you can then supplement her answer.

We know this is an inventory problem. For example, we heard from representatives of the agency that manages housing, that is to say the houses and rents of the Department of National Defence. In our discussions with the witnesses, even they had trouble telling us how many units they managed. In fact, when we talk about administrative culture, I think there is a considerable problem. This example is the tip of the iceberg, and the problem has been brought to Parliament's attention for 13 consecutive years.

I think the government in power will have to introduce the necessary measures to establish that it is Canadians' money the Department of National Defence is managing. A correction will be necessary to maximize the use of public funds.

Could you tell us how the problem that was identified 13 years ago has evolved? Are we halfway to solving this problem? Have there been improvements in this area? On the other hand, if there has been only a 5% improvement in a problem that was identified 13 years ago, is the reason that it has been postponed and put off from year to year?

Ms. Hogan, I would like to hear your opinion on the situation at the Department of National Defence.

[Karen Hogan]

Thank you for your question.

It is impossible for me to give you any details about what happened 13 years ago. However, I can tell you about the last four years, during which I was responsible for the financial statements of the Government of Canada. I have had occasion to interact with the department. I have observed improvements over the past four years. Coordination has changed and the culture has changed slightly. We have observed many quantitative improvements.

However, it is impossible for me to give you any precise estimate of that improvement. In fact, I am certain of nothing in this matter. However, it is very important that we are seeing continuous improvement. The department is working on several minor projects, from which we have not yet seen any results and which therefore have not yet had any impact on the financial statements or on inventory management. In short, the thing to do would be to give them a few more years. As Mr. Matthews mentioned, I am certain this observation will come up again in our reports, but, as long as there is improvement, we can only hope it will continue.

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

When you sense a significant improvement is being made, you may think you are on the right track. However, I simply want to be reassured as a parliamentarian. I do not want to know that we have been banging on the same nail for 13 years without there necessarily being any significant improvement.

Mr. Ferguson, I put the question to you because you may be in the best position to suggest indicators or methods we can use to do our job better and to ensure that improvements at the department advance at a faster pace.

What should we demand as parliamentarians?

[Michael Ferguson]

First, this is not just a matter of administrative culture. That is one of the factors, but there is also the issue of the tools that are used. I previously mentioned that the Department of National Defence used to have two systems for maintaining control of assets. It currently has only one. So that is a significant improvement. However, as Ms. Hogan mentioned, there is a problem with assets because they are really old.

You're dealing with very old assets, legacy assets. Some of these things aren't used that often. They're old parts to tanks that don't get used very often, so you don't see the turnover.

One of the tests I would like to see us put to DND is how they have done with the new inventory. We all understand that the old legacy things are an issue, but for new purchases, are we seeing improvements there?

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

I understand. I am interrupting you because I do not have a lot of time at my disposal.

Surely there are measures, actions, and methods that are used elsewhere, in other countries. Their tanks are aging too, and they have the same problem with the use of goods and equipment.

Do you think there is a cultural issue elsewhere too, or are there different methods that we could draw on for inspiration?

[Bill Matthews]

Do I have 30 seconds to answer the question, Mr. Chair?

[The Chair, Conservative, Kevin Sorenson]

Yes.