Skip to main content
Start of content

PACP Committee Report

If you have any questions or comments regarding the accessibility of this publication, please contact us at accessible@parl.gc.ca.

PDF

GOVERNMENT DECISIONS LIMITED PARLIAMENT’S CONTROL OF PUBLIC SPENDING OF THE 2006 REPORT OF THE AUDITOR GENERAL OF CANADA

Observations and Recommendations

  1. Role of the Comptroller General

    In 2003 the Office of the Comptroller General was reestablished within Treasury Board Secretariat (TBS) as a distinct unit. The Comptroller General reports through the Secretary to the President of the Treasury Board. According to TBS’s departmental performance report, the Comptroller General has responsibility for:

    • overseeing all government spending, including review of and sign-off on new spending initiatives;
    • setting or reviewing financial, accounting, and auditing standards and policies for the Government of Canada; and
    • providing leadership to ensure and enforce appropriate financial controls and cultivating sound resource stewardship at all levels across the federal Public Service. [15]

    In this instance, the then Acting Comptroller General, John Wiersema, was of the position that he did not agree with the proposed accounting treatment. Though, the Committee heard conflicting evidence about the extent to which this disagreement was conveyed to other senior government officials. Nonetheless, his opinion did not carry the day. It concerns the Committee greatly that the advice of the senior official within the government responsible for financial and accounting standards was not followed. While the ultimate responsibility for financial reporting lies with a department’s deputy head, in this case the Commissioner of the Canada Firearms Centre, Mr. Baker, the opinions of the Comptroller General should be followed. If not, how else can the Comptroller General “enforce appropriate financial controls?”

    The current Comptroller General, Mr. St-Jean made a proposal to prevent this type of situation occurring in the future:

    These are quite unusual circumstances, and we have to make sure to prevent this kind of miscommunication or error from happening again. So we’ve put in place a number of action plans, including one in which the Comptroller General, the next time he or she is not in agreement with, say, the deputy minister, must advise the deputy minister in writing of the disagreement on the proposed accounting treatment. That will be part of the policy on financial reporting. [16]

    However, it is unlikely that written correspondence would have prevented the outcome in this instance. It would merely provide a written record of the disagreement; though, this would be an improvement given the lack of documentary evidence noted by the Auditor General.

    In this case, there appeared to be disagreement between the Comptroller General and the accountable deputy head. However, it was not clear how this disagreement should have been resolved or what the Comptroller General could do besides raising a concern. There also seemed to be some confusion as to the roles of various senior officials, given the ad hoc nature of the discussions and the intervention of the deputy minister of Public Safety and Emergy Preparedness Canada. Consequently, in order to ensure that proper accounting rules are followed within the government, the method of resolving disagreements needs to be clarified. The Committee recommends that:

    Recommendation 3
    The Treasury Board Secretariat develops a clear protocol for resolving disagreements on accounting standards and policies between the Comptroller General of Canada and deputy heads.

    In this instance, the advice of the person responsible for accounting standards within the federal government, the Comptroller General, was not followed. The Committee believes it is fundamental that the Comptroller General holds a status within the apparatus of government and exercises an authority that is commensurate with the importance of the responsibilities he or she is assigned. This suggests that the Comptroller General’s role should be strengthened. The Committee therefore recommends that:

    Recommendation 4
    The Comptroller General of Canada has the final word on the interpretation and application of accounting standards and policies within the Government of Canada.
    2. Top of Page
  2. Review of the Public Accounts by the Auditor General

    Each year the Office Auditor General (OAG) examines and the Auditor General gives an opinion on the summary financial statements of the Government of Canada, known as the Public Accounts of Canada. The OAG follows guidelines put forward by the Canadian Institute of Chartered Accountants (CICA) and reviews the financial statements with a materiality of 0.5%, or about $1 billion of about $200 billion in annual expenditures. (Materiality is the term used to describe the significance of financial statement information to decision-makers.)

    After the decision had been made to not seek supplementary estimates for the Canada Firearms Centre in 2003-04, the question still remained of how to record the liability for the $21.8 million. The government intended to record the liability as part of central allowance amount included in the summary financial statements. Officials from the Comptroller General St-Jean’s office brought the issue up verbally with officials from the OAG, including providing them with the legal opinion. However, officials from the OAG reviewed the appropriateness of the accrual and not whether it should have been charged against the Centre’s appropriation. Frank Vandenhoven, Principal at the OAG, said:

    I looked at [the legal opinion] from the accrual accounting perspective: was this a legitimate liability, an appropriate charge, if you will, to the surplus of the government for that point in time. I did not focus on the issue of whether it should have been charged from appropriation. [17]

    In addition, Ms. Fraser said, “We do not audit appropriations.” [18]

    Given the sensitivity of the Firearms Program and the 2002 report of the Auditor General on the Program’s cost escalation, it is unfortunate that the OAG was unable to pick up on the significance of this accounting treatment during its annual audit of the government’s summary financial statements. However, because the OAG reviews and makes an opinion on the fairness of the summary financial statements of the government as a whole, the $21.8 million would not have been material and would not have resulted in a qualified opinion on the financial statements. Also, the OAG’s rotational audit strategy for financial audits limits the work on selected departments to detailed work in high risk areas. This means that the financial records of the Canada Firearms Centre were only examined due to the follow-up performance audit for the May 2006 Status Report.

    Consultations with the external auditor are a common practice in the private sector but are not as common in the public sector, in part because the Auditor General acts as the external auditor on behalf of Parliament and not the government. The Comptroller General has developed a protocol to obtain audit opinions from the OAG for complex and significant accounting transactions prior to the transactions taking place. However, it depends on the government seeking the opinion of the external auditor on issues the government identifies as significant. The Committee believes that a more satisfactory solution must be found.

    The government has committed to move towards financial statements for each department and agency. This will lower the materiality level considerably, making it more likely that smaller amounts will be examined by auditors. As the Comptroller General pointed out to the Committee, the public sector operates in two worlds: the parliamentary and accounting worlds. It is important that the government’s external auditor, the Auditor General, examine financial statements both from an accounting perspective and an appropriation perspective. Consequently, the Committee recommends that:

    Recommendation 5
    The Government of Canada continues its movement towards financial statements for all departments and agencies. That the Treasury Board Secretariat provides the House of Commons Standing Committee on Public Accounts with a timeline for this project and reports progress in its departmental performance report.
    Recommendation 6
    The Auditor General of Canada be the external auditor for departmental financial statements. That the Office of the Auditor General of Canada be given adequate funds and, if required, a clear legislative mandate to do so. Parliamentary appropriations should be included in the audit program of those statements.
    3. Top of Page
  3. Ongoing Contract

    The Auditor General raised an additional accounting concern in her report. The contractor for the CFIS II project has been contracted to operate and maintain the system over 15 years. The Royal Canadian Mounted Police plans to record development and delay costs incurred against annual appropriations over the entire 15 year life of the contract. Unless, as noted earlier, Treasury Board’s Policy on Payables at Year-End is modified, this accounting treatment will not comply with the policy. The Committee recommends accordingly that:

    Recommendation 7
    The Royal Canadian Mounted Police records CFIS II development and delay costs against annual appropriations as they are incurred.
    4. Top of Page
  4. Documenting Key Decisions

    During the course of their audit, officials from the OAG had difficulty tracing the decision-making process regarding the recording of CFIS II costs in 2002-03 and 2003-04 because key decisions were not documented. In one instance in mid-February 2004, there appeared to be different interpretations of what was decided at a meeting discussing whether or not to seek Supplementary Estimates for the Centre in 2003-04. Given the unusual and sensitive nature of this issue, the Committee would have expected a greater effort to document decisions. The Committee was astonished, therefore, to learn that the documentation that should have accompanied decisions of such magnitude — particularly since they may have established precedents for future accounting treatment within government — was entirely lacking. It is also unfortunate that the meeting discussed earlier between officials from the Office of the Auditor General and the Office of the Comptroller General was not documented.

    The recording of key decisions is important not only for avoiding confusion over what has been decided, but also documentary evidence makes it possible to reconstruct the process of decision-making and allows for independent review and audit. Failing to make or keep documentary evidence makes the public service less transparent and has the convenience of avoiding accountability when decisions become controversial. The Committee is dismayed that it appears to be a regular practice at senior levels of the bureaucracy to not take minutes of important meetings or record significant decisions, since this is not the first serious incident of the failure to record decisions.

    Justice John Gomery encountered a similar difficulty during his inquiry into the Sponsorship Program. He concluded in his Report that, “A lack of transparency in the system made it possible for some individuals to subvert management processes and bypass lines of accountability.” [19] He felt that mandatory record keeping, the obligation to keep a “paper trail,” should be more than policy and should be enshrined in legislation. The Committee takes the lack of record keeping very seriously, but it is not quite willing to go that far. Rules, regulations, and even legislation are only as good as their enforcement. There is a policy that currently exists, but compliance with that policy appears to be optional.

    The failure to keep written records of key decisions reflects non-compliance with the Treasury Board’s Policy on the Management of Government Information, which states that departments must “document decisions and decision-making processes throughout the evolution of policies, programs, and service delivery.” [20] It is the responsibility of deputy heads to ensure the implementation of this policy. Yet, the Committee is not pleased that deputy heads do not appear to be held to account for enforcing this policy. There is no point of having rules and policies if there are no consequences for failing to follow those rules. Therefore the Committee recommends that:

    Recommendation 8
    If it becomes apparent that there was a failure to comply with Treasury Board’s Policy on the Management of Government Information, serious sanctions be imposed, up to and including dismissal from the public service.
Top of Page

Conclusion

The accounting treatment given to the CFIS II costs by the Department of Justice in 2002-03 and then by the Canada Firearms Centre in 2003-04 stands contrary to requirements set forth in statutes which support the core principles of parliamentary government in Canada. Two of these requirements can be found respectively in the Constitution of Canada and the Financial Administration Act. These statutes emphasize the importance of Parliament’s authorization before the government makes expenditures. [21]

It is profoundly disturbing to the Committee that those who made the final decisions in these cases appeared to be either oblivious to these larger considerations or ignored them entirely when they determined which approach to take. While on the surface these decisions may seem to involve narrow accounting and legal issues, they in fact seriously compromised Parliament’s control over the public purse and distorted the costs incurred by a highly controversial and politically sensitive program. Moreover, they bent, or even disregarded, proper accounting principles and the government’s own policy. The Committee strongly believes that the government must take action to ensure that this type of situation never happens again.

The Committee is cautiously hopeful that this incident will lead to greater care and probity in the recording of expenditures within the limits established by Parliament when it approves Estimates and adopts appropriations acts. This care and probity, the Committee believes, will be better assured through the implementation of the recommendations contained in this report.

[15]
Treasury Board of Canada Secretariat, 2004-05 Departmental Performance Report, October 2005, p. 70.
[16]
Meeting No. 5, 13 :15.
[17]
Meeting No. 5, 13:05.
[18]
Meeting No. 5, 11:40.
[19]
Commission of Inquiry into the Sponsorship Program and Advertising Activities, Restoring Accountability: Recommendations, p. 177.
[20]
Treasury Board of Canada, Policy on the Management of Government Information, 2003.
[21]
Section 53 of the Constitution states, “Bills for appropriating any Part of the Public Revenue, or for imposing any Tax or Impost, shall originate in the House of Commons.” Section 26 of the Financial Administration Act states, “no payments shall be made out of the Consolidated Revenue Fund without the authority of Parliament.”
Previous Page Table of Contents Next Page