Public Accounts Committee on Nov. 23rd, 2023

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Yes, I understand that, and I do appreciate the answer.

The CEO of the NCC also told the committee that there were “no concerns raised by the...Auditor General related to” the $8-million barn. He said that, “frankly,” in terms of “the audit record over the last five years”, there was “no general concern that required action or follow-up by the NCC.”

To me, that leaves the impression that your office did not see any issues with the NCC's spending $8 million on a barn. Do you agree with that statement based on his interpretations?

[Karen Hogan]

All I can repeat to you is that we did not audit this building project.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

I appreciate that, and I think I just needed to hear you say it twice.

[Karen Hogan]

I would like to point out that we did a special exam of the NCC in 2017. That special exam identified weaknesses in risk management practices—the comprehensiveness of risk assessments and information going to the board. It found a significant weakness in their asset maintenance.

There are things they need to work on when it comes to maintaining assets, but we did not audit that project. The financial transactions could be accurate. It doesn't mean a value-for-money audit was done. It was about whether or not they were accurately portrayed in their financial statement.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Thank you for that. I appreciate that answer.

Mr. Nussbaum told this committee that the barn came in under budget at $8 million. He said the budget authority was $8.6 million, with about $1 million in contingency risk.

I am not going to ask you this question, because I know the answer based on the other two.

My third question is for the Auditor General, as well.

We submitted a list of more than 30 questions to the NCC for written responses that representatives from Treasury Board and Public Works and Procurement were not able to answer. They told us to ask the NCC for answers. They told us the NCC is a Crown corporation that can act like a private company, with added flexibility in how it awards contracts. We asked about the number of contracts, including millions for a construction manager and subcontracts that were sole-sourced. We are now awaiting the NCC's response.

Do you recall whether that special 2017 audit recommended that the National Capital Commission spend $8 million on a barn?

[Karen Hogan]

We would not make recommendations about how a Crown corporation should spend its funding. That is included in the Crown corporation's corporate plan, which is then approved by the government. It's my understanding that the capital transaction was in their corporate plan.

Our special examination would look at whether or not they had processes in place to safeguard and maintain their assets. That's where they had a significant deficiency.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Thank you for that.

I appreciate the asset maintenance issue you noted.

My last question is, are there any red flags raised in your mind about the NCC spending $8 million on a barn?

[Karen Hogan]

It's very difficult for me to comment on a project or capital transaction I have not audited. I could point you back to whoever approved their corporate plan, what it said and how they carried that out.

I take it, Mr. Chair, that the committee is interested in this. We always consider what our stakeholders believe is important as we plan our future work.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Thank you.

[The Chair, Conservative, John Williamson]

Thank you, both, very much.

Mr. Chen, good day. It's nice to see you here today. You have the floor for five minutes.

[Shaun Chen, Liberal, Scarborough North, ON]

Thank you very much, Mr. Chair.

It's great to be back on the public accounts committee. I started off on this committee in the 42nd Parliament, along with Mrs. Shanahan. It is wonderful to join this committee once again.

I had hoped to say this is a full-circle moment, but it feels more like a revolving-door situation. When I was on this committee seven years ago, National Defence was, in fact, working on implementing a better inventory management system. It is now seven years later. At that time, the AG indicated the department was looking at a more modern scanning and bar-code system.

As a member, I think we're all very familiar with inventory tracking. In my parliamentary office, everything from the photocopier down to the coffee maker has a bar code, because public assets are incredibly important. Canadian taxpayers expect that we are spending their money wisely and ensuring their assets are well used and tracked.

Here we are.

I am looking at paragraph 52, Auditor General, under the section “Continuing observations requiring further action”. You examined the quantities, values and classification of inventory and assets our military has. In your sampling, you found that 17% of items recorded had errors. This is an increase from 15% in 2021-22, so the matter has become worse.

Auditor General, do you have any hope this issue, which has been on the books for the past two decades, can be resolved?

[Karen Hogan]

You are correct that we have been raising concerns about the quantities and valuations of National Defence's inventory for a few decades.

What I would comment is this: Every year, we see that error rate go up and down. It fluctuates. It will never be perfect. I think that has to be the premise everyone starts with, but a high error rate continues to raise concerns about the controls for entering the quantities and values.

The bar-coding system is something that should help this. I recognize that National Defence has inventory all over the country, but I am concerned about the fact that the project continues to be delayed. Will it be the solution, and will all these problems go away? It's not likely. There are always controls and processes that need to be maintained, especially when you have a decentralized inventory system.

[Shaun Chen, Liberal, Scarborough North, ON]

Auditor General, thank you for that response.

Your job is to ensure that the government's overall financial statements are not misstated. You do follow the recommendation from the Canadian Institute of Chartered Accountants of 0.5% materiality when we're dealing with significant errors in tracking what I am assuming for National Defence is everything from filing cabinets up to fighter jets.

Can you help put into context this fluctuating—as you have clarified—percentage of errors vis-à-vis the overall picture, in which you have to ensure that these financial statements are not misstated?

[Karen Hogan]

Overall the errors that remain are not errors that we think make the financial statements misleading, and therefore we can issue a clean opinion on them.

I can give you some assurances that when we do go observe the inventory counts and do our inventory testing, the Department of National Defence does a great job of managing those high-risk items, such as bullets and guns. Those things are very well managed. There are hundreds of thousands of inventory items, and they should all be well managed. Usually our errors lie in the other areas of consumables and other products. It's still concerning. These are public funds and they should be well managed. With better controls, inventory management could be improved.

[Shaun Chen, Liberal, Scarborough North, ON]

I agree with you, Auditor General.

I just want to share one little comment, which is that we had a network switch that was purchased in 2016 in my constituency office. It had not been used for several years. Along with my office team, I spent four hours finding that switch so that we could mail it back. The depreciated value was probably less than the postage, but it was important. I really do hope that we can make progress on this file.

[The Chair, Conservative, John Williamson]

Thank you, Mr. Chen.

Thank you very much.

This is our last round. I will just remind witnesses that a round consists of six slots. We will be done by 1:30.

I now turn it over to Mr. McCauley for five minutes.

You have the floor.

[Kelly McCauley, Conservative, Edmonton West, AB]

Thanks, Mr. Chair.

Mr. Forbes, how concerned are you about Canada's rising interest payments—I think the fall economic statement said they were going to be $326 billion over the next several years or almost a third of a trillion dollars just on interest—with respect to our ability to provide services and in terms of crowding out other spending?

[Chris Forbes]

I would say we obviously pay close attention to those numbers. Indeed that's why we're talking about fiscal anchors and fiscal targets in the documents, to make sure that debt to GDP is on a downward track and that deficits are on a downward track, because we certainly don't want to continue those.

[Kelly McCauley, Conservative, Edmonton West, AB]

You've been around for a while. Have you ever seen it this high?

[Chris Forbes]

When I was graduating with my master's degree many years ago, yes, our debt service charges were 30% of federal revenues.

[Kelly McCauley, Conservative, Edmonton West, AB]

I'm talking about the dollar value.

[Chris Forbes]

I think technically I have not in terms of dollar value.

[Kelly McCauley, Conservative, Edmonton West, AB]

What I'm getting at is that I understand what you're saying as a percentage, but if we look at the interest in actual dollars, it's double what we will provide to National Defence this year while at the same time we're cutting almost a billion dollars. It's equal to the health care transfers. Percentage is one thing, but you bank dollars and not percentages.

Is this $40 billion or $50 billion we're spending on interest crowding out our ability to provide funding for other priorities?

[Chris Forbes]

I take your point that the absolute number is important. It's a large number. It's not really a number that most people can get their head around. Forty-five billion dollars is a lot of money.

I think from a government standpoint, though, we do have to think about what our capacity to service that debt and to pay for it is, and that's where measures like debt cost as a share of GDP and debt cost versus revenues are important. I think while it is up, and those shares are up and those percentages are up versus where they were five years ago, by historical standards, they remain relatively low. That doesn't mean we can take it easy on that and not worry about it or not keep an eye on it. I think that's where ongoing fiscal prudence will be important.

[Kelly McCauley, Conservative, Edmonton West, AB]

Okay.

The public accounts talk about corporate revenue being up—and I'm going to quote—“supported by...robust profits”—which is wonderful—“notably in the resource sector.”

Do we know how much the strength and the increase in corporate revenue, in corporate income tax, is from the oil and gas sector, the resource sector?