:
It is 3:30, and I'm certainly very pleased that everyone's here. I want to welcome everyone to this meeting.
This meeting of the Standing Committee on Public Accounts has been called pursuant to the Standing Orders to deal with the Public Accounts of Canada 2008.
We are pleased to have before the committee today, on behalf of the Auditor General of Canada, John Wiersema, Deputy Auditor General. Welcome, John. John has been before the committee many times. He's accompanied by Doug Timmins, Assistant Auditor General, and Tammy Squires, principal. Welcome to you all.
From the Treasury Board Secretariat we have Mr. Rod Monette, the Comptroller General of Canada, who again has been before the committee many times; John Morgan, Assistant Comptroller General, financial management and analysis sector; and Bill Matthews, executive director, government accounting policy and reporting. In the case of both Mr. Morgan and Mr. Matthews, this experience is not new to them.
Colleagues, I should point out we also have with us Ms. Cheryl McMullin, coordinator of fiscal policy with the Department of Finance. The regular finance department official is not here. Ms. McMullin is here not so much to answer questions as to take any questions under advisement and get back to the committee in writing.
Before we go any further, witnesses, on behalf of the committee I want to thank you all very much for coming and for being prepared on such very short notice. This committee was constituted only on Tuesday. I know you people didn't get very much notice. You agreed to be here today, and on behalf of the committee I want to extend to you our appreciation.
Colleagues, before we call upon Mr. Wiersema for his opening comments, I want to make a few remarks. This is an annual meeting of the public accounts committee. You could state that it's probably our most important meeting. It's not the most contentious. It's the meeting to deal with the consolidated public accounts of Canada for the fiscal period ending March 31, 2008. Normally, this meeting would be held in October or November of the same year. We are running three months late, for reasons of which everyone is aware.
This is the final step in the government fiscal and accountability cycle starting with the budget and followed by the estimates, the supplementary estimates, the departmental reports on plans and priorities, the departmental performance reports, and of course the final document, the audited statement of government operations, which includes more or less $242 billion coming in and approximately $242 billion going out.
Having made my opening comments, I turn the floor over to you, Mr. Wiersema.
:
Good afternoon, Mr. Chairman. Thank you for the invitation to be here this afternoon.
Mr. Chairman, because our December 2008 report was tabled earlier today in the House of Commons, the Auditor General is not able to be with us this afternoon. On her behalf, I would like to extend our congratulations to all of you on having been elected to this 40th Parliament, and a particular congratulations to you, Mr. Chairman, on having been re-elected to the chair of this committee. We look forward to working with each and every one of you over the course of the coming weeks and months.
I am pleased to be here today to brief the committee members on the Auditor General's report on the audited 2007-08 financial statements of the Government of Canada. As you indicated, Mr. Chairman, I'm accompanied today by Mr. Doug Timmins, Assistant Auditor General, and Tammy Squires, the principal. They are responsible for the audit of those financial statements.
[Translation]
We are pleased to see that the committee is holding this hearing on the Public Accounts, a key accountability report of the government. The Comptroller General will be explaining the main points in the government's financial statements to the committee. I will focus on the highlights of our audit opinion and observations.
The Auditor General's report on the 2007-2008 financial statements is included on page 2.4 of Volume I of the Public Accounts. The opinion provides Parliament with the assurance that the government's financial statements are fairly presented in accordance with the government's stated accounting policies which conform with generally accepted Canadian accounting principles. It can be referred to as a “clean” opinion. Our Office has been able to issue such an opinion on the government's financial statements in each of the past 10 years.
[English]
We commend the government for producing financial statements that are fairly stated, in conformity with Canadian generally accepted accounting principles. In our view, Canada continues to demonstrate leadership in financial reporting by a national government.
I would now like to discuss several issues that we have presented in our observations. Those can be found on pages 2.32 to 2.39 of volume 1 of the Public Accounts of Canada.
First of all, a project to develop a new methodology for the government's allowance for doubtful tax receivables began in the fall of 2006. Delays were encountered in finalizing the estimate for the year-end 2008. In our view, improvements are still required for the government to have a reliable methodology for estimating its allowance for doubtful tax receivables. We have received a plan from the government that addresses these concerns, and we therefore expect it to deliver on those commitments in the plan.
Second, in March 2008 this committee asked for modifications to the tax revenue estimation methodology, the largest and the most significant management estimate affecting the Government of Canada's financial statements. In response to this, changes were made to the methodology and were reflected in the March 31, 2008 tax revenue estimates. The impact of these changes on the overall accuracy of the government's reported tax revenues will only be known in the future, when tax assessments are completed. It is important that the government continues to regularly monitor the reliability of this estimate and to identify improvements on a timely basis.
Third, in relation to departmental financial statements, as announced in 2004, the government's plan to transform public sector management included measures to strengthen comptrollership and oversight. One of the initiatives was to have the annual financial statements of all departments audited. The strategy of the Office of the Comptroller General to implement this initiative continues to focus on the 22 large departments.
We reiterate one of our comments from last year, that when departments are ready for an audit, our office will gladly play its part in the process. It is our view, however, that most departments have much work to do to achieve the goal of readiness for an efficient audit of their departmental financial statements.
In our observations, we also raised the question of accrual-based budgeting and appropriations by departments and agencies. The government has outlined the plan to phase-in accrual-based budgeting. The implementation plan will start with a two-year pilot project involving ten departments.
After many years of studying this issue, we are disappointed that the models proposed by the government all have an annual focus that still does not include long-term budgeting for assets and liabilities and that the government has yet to make a commitment to an implementation date for accrual appropriations.
[Translation]
Other matters are discussed in more detail in our observations, which are found starting on page 2.32 of Volume I of the Public Accounts. In these observations, we have also provided an update on issues raised in previous years.
In conclusion, we would very much like to thank the staff of the Office of the Comptroller General and those in all of the departments involved in this work. The preparation of these accounts reflects many hours of painstaking work.
Mr. Chair, we would be pleased to answer any questions the Committee may have.
:
Thank you very much, Mr. Chairman.
We do appreciate the invitation to appear before the committee to discuss the public accounts this afternoon.
As you've mentioned, Mr. Chair, I have two members of my staff with me: Mr. John Morgan, the assistant comptroller general, financial management and analysis sector; and Mr. Bill Matthews, the executive director, financial management and analysis sector.
For the tenth consecutive year, the Auditor General has issued an unqualified opinion on the government's financial status.
[Translation]
Mr. Chair, we have tabled a slide presentation outlining some of the key financial results for last year as well as our preliminary comments on the Observations of the Auditor General included in Public Accounts 2008. If you like, we can go through the presentation. I believe you indicated that you would like to see it. I'd be happy to oblige.
[English]
Before concluding, I would like to thank the Auditor General and the Office of the Auditor General for the continued professional working relationship that we have enjoyed.
Thank you, Mr. Chair.
If you wish, I could go directly to the presentation.
Members of the committee, please turn to the blue presentation, entitled “Public Accounts of Canada 2007-2008”, and flip to page 2 for the presentation overview. I thought it would be useful to provide you with some information on the process we use around public accounts and to talk a little bit about the results for the year 2007-08 along with some of the observations of the Auditor General.
Page 3 of the presentation outlines the financial accountability process. A number of steps in the accountability process are worth mentioning. The first one is that before the year starts, of course, there is a budget. Now, of course we're talking about the year 2007-08, so that would start in April of 2007 to go to the end of March in 2008. So the budget would be a couple of months beforehand, just as the budget now prepares us for the upcoming year.
Then, the government always has an economic statement at some point during the year. That can influence what happens as well.
During the year, there are estimates that you vote on, of course. The main estimates are tabled just before the year starts, to get the year ready.
Then there are the supplementary estimates, which are tabled during the year as well, for unforeseen items.
The budget for 2008, which was actually in February 2007.... Although it tends to focus on the next year, sometimes there are actually things in that budget that affect the last couple of months. That was the case this last year as well.
Then, as Mr. Murphy has said, finishing off the cycle, a couple of things happen. One is that the finance department tables its annual financial report. That is usually the report where you hear what the surplus or the deficit would be. For example, this year it was done in September. That's when you would have heard the surplus figure for last year.
Mr. Chair, am I going into too much detail here? No? Okay.
[Translation]
The fourth page of the presentation provides a description of Volumes I, II and III of the Public Accounts of Canada. Volume I contains the government's financial statements, the Auditor General's report and observations, as well as financial statements analysis and discussion.
[English]
You have the volume I document in front of you. There is a number at the bottom of each page, in the corner. If you were to turn to page 2.4, for example, you would see the start of the report of the Auditor General. Every page has first a section number then a page number; there are various sections in it. So this is kind of the big report for the whole of government at the consolidated level.
[Translation]
Volume II contains comparisons of actual spending by departments to spending projections contained in the Estimates.
[English]
This is a much bigger document, because what it does is it shows all of the information on a department-by-department basis. At the front of it is a table of contents that shows all the ministries. Just as an example, if you were to turn to the table at section 2, you would find all of the information and details on Agriculture and Agri-Food Canada. And you will find that for each department.
[Translation]
Volume III contains the financial statements of revolving funds as well as special information, such as information required by the Financial Administration Act.
[English]
It contains special information if, for example, you are interested in something like the real property acquisitions. For example, land, buildings, and works would be in there, as well as public debt charges and transfer payments. So it's really extra information in support of the other documents.
The fifth page of the presentation talks about the financial results for 2007-2008. It says there has been a clean opinion on the financial statements for the tenth year. Of course, since last year ended March 31, 2008, there was a surplus of approximately $9.6 billion, which at that time represented the eleventh consecutive year of surplus, and also it shows that the deficit has in fact gone down by about $105 billion from its peak in 1996-1997.
Slide number six shows the comparison of the actual results to what had been in the budget. You'll see that there are a few differences. Probably the most significant one is in the revenue. The budget had estimated revenues of about $236.7 billion, and the actual revenues were about $242 billion. That probably accounts for the surplus being a little bit higher than it had been in the budget documents.
Page number seven compares the financial results from the year before to those for this year, so from 2006-2007 to 2007-2008. A couple of numbers jump out there. For one thing, if you look at total program expenses, you'll see that in 2006-2007 they were about $188 billion, and the year after, 2007-2008, they were about $199 billion. So that went up about $11 billion, which was probably one of the more significant changes there.
If you look to the middle of the page where you see surplus, you'll see that the surplus in the year 2006-2007 was about $13.8 billion, and of course in 2007-2008 it was $9.6 billion.
Page number eight looks at all of the revenues, so it shows you where they come from. An interesting part of this table is that it shows that quite a big chunk of the revenue comes from personal taxes. It's about 46% to 47%. That has been fairly constant over the years. You can see the distribution among the various sources there, and at the very bottom the total revenues of approximately $242 billion.
Page number nine shows the financial results on the expenses side of the ledger. I think an interesting part of this presentation is that if you look about halfway down, where you see “total transfers”, it's interesting to note that that is actually over half of what we spent. So 56%, or about $131 billion, relates to transfers for things like benefits for the elderly, employment insurance, children's benefits, transfers to other levels of government, and so forth. Then you can look down at the bottom and see the total expenses of $232 billion.
Page 10 shows the financial results on the debt side. Probably one of the more significant numbers there is the unmatured debt, which is the biggest component of that figure. It represents about $390 billion, down from $414 billion the year before. If you look down at the very bottom, you'll see a couple of statistics. An interesting one is the percentage held by non-residents, which is about 12%.
[Translation]
Slide number eleven shows the Auditor General's observations, the first being management estimates with respect to the allowance for doubtful accounts.
As my colleague mentioned, a project is underway to improve the methodology for estimating the allowance for doubtful tax receivable. We have submitted a plan to the Auditor General and we have a commitment to this plan that will help improve the provision for estimating the allowance for doubtful tax receivable.
[English]
Page 12 has to do with the tax revenues and that scenario where we have tried to make some improvements every year to that figure. Of course that's a big figure on the revenue side. A lot of those improvements have to do with looking at statistical analysis of what's happened in the past and using that to project forward. We'll have a look at these changes we've made over the last three years, and hopefully we'll continue to improve them.
Page 13 is on the audited departmental financial statements. Here we have plans for all the large departments. Although, as my colleague has said, a lot of work on the documentation and systems is required, we're very pleased that we were able to get a little bit of investment funding in the budget this year to work on some of our systems to improve that. I think that will be very helpful as we move toward doing that work.
Page 14 is on the accrual-based budgeting and appropriations. We're phasing in the accrual-based budgeting starting with the estimates documents for next year, which will be tabled in about a month or so. We're starting off with five departments, a mix with some big ones. I think the Department of Public Works is in there, and a few other big ones, and we're moving ahead with that. I do have personal views on some of the issues around accrual appropriations, and I'd be pleased to have that discussion.
Page 15: these are the international financial reporting standards. The committee will be chaired by my colleague Mr. Wiersema of the Public Sector Accounting Board in about two months. This group decides how these standards should be applied. We are having a discussion now in terms of some of the implementation to make sure it's appropriate for crown corporations, and we are working with the crown corporations just to make sure they're moving ahead with that.
Mr. Chair, I hope I haven't taken too much of your time by going through that. I'd be pleased to answer any questions.
I'd like to thank you all for being here. It must have been a long day for you all.
This is interesting. We've got three volumes to go through, and we've all been appointed just recently, so we had to scatter through. So you'll have to bear with us if we ask you questions that you may have already addressed.
As you stated, the Public Accounts of Canada is a major accountability report, and I see that for the tenth year in a row we've had an unqualified statement, which is very good. And in the past we've had surpluses with good economic management and good forecasting predictions so we can pay down the debt, which has been slowly coming down, which is a good thing, and we want to be able to put some money into contingency. But I have a question. This question pertains to paragraph 1.11, where you talk about risk and uncertainties. When one looks at the past, when we had to move from the real problematic situations the government was in in 1993, it had to do a proper projection, it had to take risks into consideration, it had to ensure that the management or the competency with which it predicted its figures were well taken care of, because otherwise programs would be at risk.
When we looked at the fall economic statement, which predicted a surplus despite the fact that we were aware that the economic downturn in the United States was going to affect us, and that the financial institution was going through a downturn, what sort of methodology or what were some of the parameters you used at the Treasury Board that gave the government the thought process that it was going into a surplus, and then suddenly projected a deficit a few weeks later of $30 billion? Could you just explain that to me?
Thank you.
:
This is going to get into the details of accounting standards in Canada.
The crown corporations in Canada, pursuant to the Financial Administration Act that was first passed in 1984, were required to prepare their financial statements in accordance with what was called “generally accepted accounting principles in Canada”. In 1984, generally accepted accounting principles in Canada existed only in private sector standards, private sector accounting standards for commercial enterprises. So crown corporations in 1984 were legislated to follow the same accounting standards that apply to commercial enterprises in the private sector.
Since then, the Public Sector Accounting Board, on which both the Comptroller General and I are members, has become far more active. We now have generally accepted accounting standards for governments as well. So with respect to these financial statements, they're prepared in accordance with public sector government accounting standards set by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants.
With respect to the private sector and the crown corporations, they follow commercial standards, and the commercial standards are harmonizing or converging towards international accounting standards set by the International Accounting Standards Board. Those standards are called IFRS, international financial reporting standards. So most crown corporations, or at this point, all crown corporations in Canada, will be moving towards adopting those standards for year-ends in 2011, as I recall. The issue, however, is under study by the Public Sector Accounting Board. There is some move afoot to suggest that perhaps some crown corporations shouldn't follow those international standards but should continue to follow Canadian standards.
So at present there are basically two sets of standards that are followed by government organizations in Canada: CICA standards, which will eventually converge towards IFRS; and public sector accounting standards that are used by the government.
:
Thank you, Mr. Christopherson.
Before we go to the second round, there's one issue on which I want to get the opinions of Mr. Monette and perhaps Mr. Morgan and Mr. Matthews too.
This morning we had the report of the Auditor General. I'm sure you're aware of the government trusts, the $37 billion that was sent out in the last four or five years. As it's told to Parliament, it's sent to the provinces on the auspices that it's being spent on certain very specific purposes.
An example is the $1.5 billion clean air and climate change trust fund. As you people know, when it reaches the provinces there's absolutely no accountability. They don't have to spend it in that manner, and in some cases--probably in most cases--they don't. It leaves Ottawa as an apple, and it arrives in the province as an orange. There's no consistency in the ten provinces.
As a member of Parliament, I find that extremely troubling. I think Parliament is being misled, and the Canadian public is being seriously misled as to what's going on. It's contrary to the principles of accountability. I think it's also contrary to the fundamental principles of accountancy. There's no consistency. The statements do not fairly reflect the underlying economic nature of the transactions that have occurred.
I know the reason is that these are the Public Sector Accounting Board's standards we're following. But as a member of Parliament, I have a real problem with these standards. I think this body is controlled by the provincial senior financial officers.
Do any of you, Mr. Monette, Mr. Morgan, or Mr. Matthews, have any problem with these standards? Do you share the concerns that I have?
I thank the members of the Auditor General's office and the Treasury Board Secretariat. It's nice to meet you all for the first time.
In fact, I was newly elected to the House of Commons this past October and it's my second committee meeting. I'm very impressed by the proceedings, and I thank my committee members for their indulgence. You've already had a very long day.
I just want to qualify that I have an MBA, but I am not an accountant, so I need some indulgence there too.
I want to better understand how the financial reporting works. I just bring your attention to page 1.3 of volume 1 of the public accounts, to the financial highlights there.
It just seems to me that the government is understating their projected revenues. Of course, in my riding of Mississauga—Streetsville, we would be concerned about that for program funding. For instance, you see that between the budgeted and the actual revenues for 2007-2008, there seems to be a $6.5 billion gap. Does that mean there could have been an additional $6.5 billion that could have been invested in things like social programs for the vulnerable, or infrastructure for cities—my city, in particular, Mississauga, has great infrastructure funding needs, and a large deficit—or for the Public Health Agency of Canada, or affordable housing and transportation?
So what does that gap represent?
:
Thank you very much, Mr. Kramp, for that opportunity.
I'm starting to worry that we're building a system that's so complex that people just don't understand it. I'm feeling that as accountants, and I'm one of them, we're building a system where it's right on paper, all the theory is right and it's good for all those reasons, but it's very difficult for people to understand it. I'm not saying I'm against it, but, for example, with accrual appropriations—and I know your background, that you've studied this with the operations committee and are very knowledgeable on it—saying that you're voting a level of depreciation, even as an accountant I have to wrap my mind around exactly what that means. I'm always asking myself if there is a way to get the same objective, which is better information and better management, without building a system that is going to be so complex that there are not going to be too many people other than we accountants who get the thing.
If you look internationally, for example, in Australia the head of their finance department just said very recently in terms of the appropriation that if they knew then what they know now they probably wouldn't have gone as far down the accrual line. And I'm all for accrual accounting; I think this budgeting is great.
I know it looks as if we're being slow, but I honestly feel it's something you really have to be careful with. I'm concerned, but I don't make the decision, I just keep providing advice on this. My perspective would be, if asked, that we have to be really careful before putting accrual appropriations in place.
I also think—and I do apologize for being long-winded on this—that there are other ways to get some of the good information for decision-making that are maybe less complex. I think some departments, like the Department of National Defence, for example, are already doing that.
The Auditor General tabled a report on user fees about nine months ago now. I'm familiar with that because I was before this committee testifying on user fees.
My colleagues can jump in here if I don't have this right, but what the Auditor General found was that some departments, like Parks Canada, for example, actually do a very good job with their user fees. Then there are other departments, such as the passport office, and I think another one was foreign affairs--the consular fees--where there are problems.
One of the things that has caused the problem is that user fees now, according to the User Fees Act, must come to Parliament and have a review to have the fees increased, but not everybody is going ahead and doing that. We have to encourage them to do that. In fact, what has happened in many cases is that the costs have gone up but the fees haven't. I think that's the general situation. So actually in most cases right now, not all of them, but most, the costs are actually more than the fees. I think that once the fees start coming through, you actually start to see some equalization of that.
Now, on your comment on the systems, you're absolutely right: some of the systems are not very good at setting out the costs. Some of that, again, is this issue we were talking about with Mr. Christopherson, and that is the issue of systems being able to talk with each other and share information. It's something we are working on, and I believe that on user fees you will see improvements in that file over the next the year or two, I would say, as we fix some of these systems issues.
I also want to thank the representatives for being here today, particularly for your great presentations. It helps with our first time on this committee.
I'll just start off with my first question. It goes to page 7 and page 9 in the presentation deck you have. They talk about our total program expenses as we moved from 2006-07 and 2007-08. Actually, those expenses have gone up $11.2 billion. If you go to page 9, the transfers to other levels of government represent a higher percentage in 2006-07 and higher than that in 2007-08.
I want to thank our chair, Mr. Murphy, for raising the question, because I think it is a significant one. First, could you make comments on the transfer of those expenses with respect to the concern about the trust funds to which most transfers were made? In Budget 2009 we have taken the appropriation of specific funds to transfer payments rather than to trust funds.
I'll be honest with you, when I first read it, the names were misleading. When you hear “trust fund”, you tend to think that there are funds put in trust that actually will be accountable. But it's quite the opposite. So I'm wondering if you could comment on that.
Second, I'm going back to the comments you made, Mr. Monette, regarding the building of systems that are so complex. Who's responsible for wanting to initiate those complex systems? The reality is that we in our constituencies need to be able to understand a little bit about how to explain the accounting process to our constituents. If we have accountants who can't explain it, then I'm wondering why we aren't...? I mean, all kinds of businesses use accrual methods that are accepted and go through audits for CRA that are well accepted and easy to understand. Why are we so persistent, it seems, in building systems that are so complex that nobody can actually understand them? If you're going to have trouble wrapping your minds around them, then I think you've left 98% of the people who are even in the business out of it.
I'm just sort of wondering how we get past that, because we're going to be criticized for building a bureaucracy that is so deep and complex. That's what we battle. People say you're building this big bureaucracy to keep it complex so nobody understands it but them. We need you to help us get away from that for your benefit and ours. How do we remedy that?
:
Thank you, Mr. Chairman.
Perhaps I just will briefly refer to my opening statement again.
Once again, congratulations to the government on a good set of accounts. This is ten years of successive clean opinions from the Auditor General's office.
We encourage the government to continue to work on the revenue numbers. The revenue numbers are the biggest estimate and the hardest to get right for the public accounts, both the total revenue estimate and methodology for the total revenue estimate, as well as the allowance for doubtful accounts. There are big numbers there, and we encourage the government to continue to work on those.
On departmental financial statements, we're moving forward slowly. We encourage the government to continue to make sure that departments move forward for audited departmental financial statements, not only because we think it's better information for Parliament, but because it's going to drive better controls, better systems, and better information for ongoing management of the department.
Finally, with respect to accrual appropriations, with all due respect to my colleague here, the issue has been under study for a long time. I believe the Auditor General first raised it, as Mr. Kramp indicated, in 2004. We are now in 2009. We still haven't entirely figured out the way forward. I take the Comptroller General's point that we need to move cautiously and carefully, but it shouldn't take quite that long, in our opinion.
The final comment, Mr. Chairman, if I may, is that Mr. Timmins has been in charge of the audit of the Public Accounts of Canada for some four or five years now. He's announced that he'll be retiring this summer, so next year Mr. Timmins will not be here to represent the office on the public accounts audit. On behalf of the office, I want to thank him for all the work he's done on this audit--
Some hon. members: Hear, hear!
Mr. John Wiersema: --as well as the many other audits he looks after in the office.