Public Accounts Committee on Jan. 26th, 2021

[The Chair, Conservative, Kelly Block]

I call this meeting to order.

I would like to welcome you to meeting number 14 of the Standing Committee on Public Accounts.

I would also like to acknowledge that we have some individuals who, I believe, are subbing in for our regular members. Welcome to all of you. We really appreciate being on this committee, and I think you'll enjoy your time here today. I also want to wish you all a happy new year. I know we're near the end of January, but since this is our first meeting, I wish you all the best in 2021.

The committee is meeting today in public to study the public accounts 2020. I'd like to take about five minutes at the end to discuss a bit of committee business, if that is agreeable with the members.

Today's meeting, of course, is taking place in a hybrid format. As we heard, nobody is in the room. It is also the first meeting of this committee to take place in a webinar format. This format is for public committee meetings and available only to members and their staff.

Members may have remarked that the entry to the committee was much quicker and that they immediately entered as an active participant. All functionalities for active participants remain the same. Staff will be non-active participants only and can therefore only view the meeting in gallery view. Staff will also remain on the webinar in an observer role during periods of suspension.

Although I know we are all familiar with how our meetings work, I would just like to remind members of a few rules to follow. They probably bear repeating now at the beginning of the session.

For all of us, interpretation services are available for this meeting. You again have the choice, at the bottom of your screen, of floor, English or French. Before speaking, click on the microphone icon to activate your own mike. When you are done speaking, please put your mike on mute to minimize any interference. When speaking, please speak slowly and clearly. Unless there are exceptional circumstances, the use of headsets with a boom microphone is mandatory for everyone participating remotely. Should any technical challenges arise, please advise me. Please note that we may need to suspend for a few minutes as we need to ensure that all members are able to participate fully.

I would now like to welcome our witnesses.

Joining us today from the Office of the Auditor General are Auditor General Karen Hogan; Chantale Perreault, principal; and Étienne Matte, principal.

From the Department of Finance, I would like to welcome Deputy Minister Michael Sabia, who hopefully will be joining us soon; Nicholas Leswick, assistant deputy minister from the economic and fiscal policy branch; and Darlene Bess, chief financial officer, financial management directorate, corporate services branch.

Also, from the Treasury Board Secretariat, we have the comptroller general of Canada, Roch Huppé; Roger Ermuth, assistant comptroller general, financial management sector; and Diane Peressini, executive director, government accounting policy and reporting.

Ms. Hogan, I will turn the floor over to you for your opening remarks.

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

Madam Chair, thank you for this opportunity to discuss our audit of the Government of Canada's consolidated financial statements for the 2019-20 fiscal year. With me are Chantale Perreault and Étienne Matte, financial audit principals.

The government's financial statements are one of its key accountability documents. Our audit of the financial statements matters, because it supports parliamentary oversight of the government, promotes transparency and encourages good financial management.

This year, our audit of the government's financial statements took approximately 33,000 hours to complete and involved most of our financial auditors. Our audit opinion on the Government of Canada's consolidated financial statements is on page 52 of volume I of “Public Accounts”. We found that you can rely on the information contained in the financial statements. In all material respects, the information is presented fairly and conforms with generally accepted accounting principles for the public sector. In other words, we issued a clean opinion.

A few years ago, we started to present an annual commentary report to Parliament that highlights important information about the results of our federal financial audits. In our current commentary on financial audits, we made three observations about the government's 2019-20 consolidated financial statements—one related to pay, one to National Defence's inventory, and a new observation related to payments made by the Department of Finance.

First, we once again found deficiencies in the government's internal controls for pay, which meant that we had to carry out detailed audit tests of the $26 billion in salaries and benefits processed through the Phoenix pay system. We selected a sample of pay files and tested the accuracy of basic pay and acting pay. Data quality problems continued to create pay errors for thousands of federal employees. We found that 51% of employees in our sample were paid incorrectly at least once during the 2019-20 fiscal year. Despite the significant number of individual pay errors, overpayments and underpayments partially offset each other. As a result, the pay errors did not significantly affect the government's financial statements. However, the underlying problems and the errors continued to affect thousands of employees.

Second, for 17 years we have been reporting on National Defence's difficulties in recording its inventory. This year we estimated that the department's inventory and asset pooled items were understated by about $759 million out of a total of $8.7 billion. National Defence continued to implement the long-term action plan it submitted to this committee in 2016. In our view, errors in reported quantities and values are likely to continue until the plan is fully implemented.

Third, we examined payments made by the Department of Finance Canada under a new long-term agreement. In our view, the department did not obtain the proper authority of Parliament before making these payments. One of Parliament’s fundamental roles is to approve all spending of public money to provide accountability and transparency to Canadians. We have recommended that the Department of Finance of Canada obtain the proper authority before making any other payments under the agreement, which was done in December for the current year.

In our commentary report, we also noted opportunities for organizations to improve their systems and practices. Again this year, we noted unresolved IT matters that could compromise the government's data integrity and affect financial reporting. These matters included system access given to people who did not need it, access retained by people who no longer needed it, and weaknesses in the controls over access granted between organizations.

Another important subject in our commentary report is the COVID-19 pandemic, which affected our financial audit work. We collaborated with the federal organizations we audit and with central agencies to better understand the challenges we all faced. We expect that the pandemic will also significantly affect the government's 2020-21 financial statements and our financial audits. We will adjust the nature, timing, and extent of our future audit work as needed.

Madam Chair, I would like to thank the comptroller general, his staff, and the staff of the many departments, agencies, and Crown corporations involved in preparing the government's financial statements. We appreciate their collaboration, particularly during these challenging times.

This concludes my opening remarks. We would be pleased to answer the committee's questions.

Thank you.

[The Chair, Conservative, Kelly Block]

Thank you very much, Ms. Hogan.

I would just like to ask the clerk if there is somebody else bringing remarks today.

[The Clerk of the Committee, Ms. Angela Crandall]

Yes. It's Mr. Huppé.

I believe he's back.

[Roch Huppé, Comptroller General of Canada, Treasury Board Secretariat]

I'm very sorry about that. We're having major IT issues, so we're just back. I have to say, I missed part of the Auditor General's comments. I'm sure they were captivating as usual. I will dive right into my comments if you will allow me.

Thank you, Madam Chair, for the opportunity to discuss the public accounts of Canada with the members of the committee.

Even though you cannot see them at this time, I am joined today by two of my colleagues from the Treasury Board of Canada Secretariat, Roger Ermuth, assistant comptroller general of the financial management sector, and Diane Peressini, executive director of government accounting policy and reporting.

The public accounts include the audited consolidated financial statements for the 2019-20 fiscal year, which ended on March 31, 2020, in addition to other unaudited financial information. They are part of a series of reports to Parliament and Canadians that outline how the Government of Canada spent the money that it requested from Parliament and how it generated revenues.

The consolidated financial statements are audited by the Office of the Auditor General, and I am pleased to note that, for the 22nd year in a row, the Auditor General has issued an unmodified or “clean” audit opinion of these financial statements.

As the former auditor general pointed out to the committee, not many national governments receive a clean audit opinion on their financial statements—let alone do so every year for two decades. I am very proud that the work of the financial management community is so strong that we can sustain this accomplishment year after year.

In particular in this unusual year, I must thank all the departments for the extra effort they put in to undertake the year-end work while working from home, with all the additional challenges that entailed.

It is a clear indication that the members [Technical difficulty—Editor].

[The Chair, Conservative, Kelly Block]

We seem to have some technical difficulty.

[Lloyd Longfield, Liberal, Guelph, ON]

We were just getting to the good part.

[Matthew Green, NDP, Hamilton Centre, ON]

Perhaps this is where he was going to talk about the IT audits.

[Lloyd Longfield, Liberal, Guelph, ON]

No, it's the deficit paragraph.

[The Chair, Conservative, Kelly Block]

Madam Clerk, how shall we proceed?

[The Clerk]

We can have the IT people call Mr. Huppé and see if we can get him back. Perhaps we could start the round of questioning. He had approximately two and a half minutes left in his presentation.

[Roch Huppé]

Good morning. Can you hear me?

[The Chair, Conservative, Kelly Block]

Yes, we can hear you.

[Roch Huppé]

I am back, by phone.

I'm really sorry about this. It seems we're having major issues with the Wi-Fi.

I'm almost done. If you'll allow me, I'll use the phone for now and quickly finish the speech. Sorry you can't see me.

Is that acceptable?

[The Chair, Conservative, Kelly Block]

Yes. Please proceed.

[Roch Huppé]

Thank you.

I would like to thank my colleagues from the Department of Finance and the receiver general for their continued co-operation and support in the production of the public accounts of Canada. In addition, I would like to thank the Office of the Auditor General for its continued co-operation and assistance.

Turning to the financial statements, as the committee will have noted, overall the government ended the year showing a deficit of $39.4 billion, up $25.4 billion from the previous year, and up $22.6 billion more than projected in budget 2019. The accumulated deficit rose $35.9 billion to $721.4 billion in 2020. At the same time, the ratio of accumulated deficit-to-GDP is 31.3%, up from 30.8% in the previous year.

Revenues increased by $1.9 billion from 2019, primarily reflecting increases in income tax revenues and introduction of the fuel charge.

Program expenses, excluding the net actuarial losses, increased by $23.9 billion from 2019, reflecting increases in all major categories of expenses, including fuel charge proceeds returned.

It is important to note that the March 31, 2020 results included the start of the COVID-19 pandemic, when costs such as two weeks of the Canada emergency response benefit and transfer payments were incurred, as well as impacts on estimates for loan loss provisions and tax revenues, which increased the total program expenses compared to the previous year and thus the annual deficit.

Those points are among what I would call the highlights. My colleagues and I look forward to discussing the results of this year's public accounts with the committee in more detail.

I would also like to engage the committee on how to improve the public accounts. There have been no significant changes to the form and content of the public accounts since the government moved to accrual accounting in 2003. With more, and timelier, online reporting of information, I feel that there would be merit in examining the current practice of presenting information annually in three volumes totalling over 1,200 pages. As well, I believe some of the thresholds of reporting have not been increased in 40 years and could be changed, such as in the sections on payments of claims against the Crown, as well as losses of public money and property.

I would appreciate your feedback on that.

Thank you for your attention.

[The Chair, Conservative, Kelly Block]

Thank you very much for your opening remarks.

We will now move to our first round of questioning. It's a six-minute round, and we will start with Mr. Lawrence.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Sorry, can we actually start with Mr. Webber?

[The Chair, Conservative, Kelly Block]

Absolutely.

Mr. Webber, go ahead.

[Len Webber, Conservative, Calgary Confederation, AB]

Well, Mr. Lawrence, that was very kind of you. Thank you very much for that; and thank you, Madam Chair.

I'm going to ask my first question to our wonderful Auditor General, Karen Hogan.

In your opening statements, you talked about how another important subject in your commentary report is the COVID-19 pandemic, which obviously affected your financial audit work, and that you had collaborated well with the federal organizations and with central agencies to better understand the challenges they've all faced and we've all faced.

You said you expect that the pandemic will also significantly affect the government's 2020-21 financial statements and your financial audits, and that you will adjust the nature, timing and extent of our future audit work as needed. That statement alone I find rather ambiguous. I need to get some clarity on that.

What exactly are you looking to do in the next audit? I know we're looking forward here into the next audit, but the government has gone through a significant spending spree and our debt has increased significantly. Is the audit going to be a three-year audit? Do you plan on releasing progress reports during this very unusual year of the pandemic?

Maybe you could just give us some more clarity on what your thoughts are for the upcoming audit on the 2020-21 financial statements that you indicated in your opening statement.

[Karen Hogan]

When we talk about the nature, extent and timing, it is really the types of testing that we will do. As you mentioned, there is an increased amount of spending, so we definitely see that being a larger bucket of money that we will have to figure out how to audit.

Our financial audits are done in a very tight time frame, with really close collaboration with all of the departments. This isn't going to make it longer. There might be a need for us to adjust timing, as we did this past year for the 2020 public accounts, in order to allow departments to finalize their books and gather the audit evidence that we need, and then in order to allow us enough time to look at that evidence.

It will simply be adjusting to new controls, new ways of looking at evidence as we all deal with remote work, and converting many controls to an automated form versus a paper form in the past.

I don't expect that it will cause any unexpected delays, but I think it was important to note that the pandemic continues to impact both the financial statements and our work.

[Len Webber, Conservative, Calgary Confederation, AB]

You don't see any significant delays, then, with this audit with your auditors all working from home and such. It's not going to be a long-drawn-out audit that we perhaps would get in three years or that kind of thing.

[Karen Hogan]

No, not at all. Financial statement audits are actually completed and wrapped up very quickly after year-end. As we saw in 2019-20, between the extra time that the departments and agencies and our audit needed, the audit was only delayed by about five or six weeks, and I don't anticipate that it would be anything bigger than that in the coming year.

It does require all of us to work together for a common goal.

[Len Webber, Conservative, Calgary Confederation, AB]

That's good to hear. Thanks for that.

You also mentioned that this year your financial statements audit took approximately 33,000 hours to complete and it involved most of your financial auditors. How does that compare to previous years' audits? Was this 33,000 hours significantly more or less? I anticipate it probably was more, but maybe you could give us some clarity there.

[Karen Hogan]

This is the largest financial audit that our office undertakes. As you can imagine, auditing the whole of the Government of Canada is a large endeavour.

In prior years, we would have seen our audit run anywhere from about 44,000 hours to a little less than 33,000, so we did see this year being a little bit more than a typical year, but less than the first few years when we had to deal with the increase in work when the Phoenix pay system first rolled out. This is about average, and I would expect it will take us perhaps the same amount of time or a little bit more next year.