:
Mr. Chair, thank you for the opportunity to discuss our audit of the financial statements of the Government of Canada for the 2010 to 2011 fiscal year. As I noted, I am accompanied today by Louise Bertrand and Tammy Squires, the two principals who were responsible for the audit.
We are pleased that the committee is holding this hearing on the public accounts of Canada. This is an important accountability report of the government. The Comptroller General will be explaining to the committee the key points in the government's financial statements. I will focus on our audit opinion and observations.
[Translation]
Canadian standard-setters have adopted the International Standards on Auditing as the new Canadian auditing standards. The purpose is to ensure high-quality audit practices in Canada that are comparable with those of other countries. The standards came into effect this year, and we used them to audit the government's financial statements. Adopting these standards resulted in a number of changes, including the format and wording of the auditor's report.
Our independent Auditor's Report on the 2010-2011 financial statements can be found on page 2.4 in volume I of the Public Accounts of Canada. For the 13th consecutive year, we have issued a “clean” audit opinion. Mr. Chair, this is a major accomplishment. We commend the government for its efforts and due diligence in preparing these statements.
[English]
I would also like to draw your attention to two items we have noted in the observations. First, I would like to address the question of parliamentary votes and the granting of spending authority. Two principal types of votes are used in Parliament to grant such authority: the capital vote and the operating vote. The issue relates to how departments and agencies charge their capital expenditures against these votes. Under current government guidance, significant capital expenditures are being charged to operating votes even when departments have a capital vote. As well, some entities that do not have a capital vote incur capital expenditures in excess of the $5 million threshold, which is used to determine if an entity should receive a capital vote or not.
In our view, the Treasury Board of Canada's secretariat needs to asses the circumstances in which capital votes are required, and the factors that determine which expenditures are to be charged to capital votes rather than operating votes. Doing so will ensure the framework is clear and remains relevant, in order to support parliamentary authority and government accountability to Parliament. The secretariat has agreed that such a review would be timely, and that it would conduct one during the next year.
[Translation]
Next, as a matter of principle, I would like to underscore the importance of having accounting standards that are developed and promulgated by a recognized and independent standard-setting body. The Public Sector Accounting Board of CICA, the Canadian Institute of Chartered Accountants, has promulgated a set of public sector accounting standards which is applicable for all levels of government, as well as government organizations.
The government's financial statements are prepared in accordance with stated accounting policies that conform to these accounting standards. Canada is a world leader in preparing high quality summary financial statements of a national government largely because we follow these standards.
We note that the government has issued a set of accounting standards, known as Treasury Board Accounting Standard 1.2 or TBAS 1.2. All departments listed under section 2 of the Financial Administration Act have to follow these government standards in preparing their financial statements. The government has full discretion to provide additional direction or guidance on financial reporting to departments and other government entities.
But, like the whole of government financial statements, the underlying accounting principles ought to be consistent with the public sector accounting standards. At present, there are some differences between TBAS 1.2 and the generally accepted accounting principles for the public sector.
We are currently working with the Secretariat to resolve these differences and hope to complete that this month. The observations also highlighted a number of other issues that we have reported in the past, including accrual based appropriations which we discussed with this committee last Monday. They are listed on pages 2.37 and 2.38 in volume I of the Public Accounts.
[English]
We thank the Comptroller General and his staff, as well as others in the departments who were involved in preparing these accounts. A great deal of work was involved, and we appreciate the cooperation and assistance provided to us.
Mr. Chair, this concludes my opening remarks. We will be pleased to answer the committee's questions.
:
Thank you, Mr. Chairman.
I will begin on page 3, with the Public Accounts of Canada cycle. The cycle begins with the publication of the budget by the Department of Finance. Revenue projections and charges for fiscal 2010-2011 were included in the 2010 budget, which was published in March of that year.
The main estimates for 2010-2011 were also tabled in March 2010, and the supplementary estimates were tabled in May and November 2010.
As far as the supplementary estimates (C) are concerned, they were tabled last February, but votes were not authorized, since Parliament was dissolved on March 26 for the general election.
The budget plan of June 2011 contained an update of estimated results for 2010-2011. On October 12 last, the Minister of Finance made public the annual financial report for 2011. Lastly, the Public Accounts of Canada were tabled on November 3, 2011.
The next page gives you an overview of the Public Accounts of Canada. They are divided into three volumes.
The first volume contains a summary analysis of the government's financial operations. In fact, the first section, the analysis of the financial statements, presents an overview of the summary financial statements and important activities which influenced the financial statements in the course of the fiscal year. The financial statements of the Government of Canada, as well as the report and the observations of the Auditor General, are contained in section 2.
As for the second volume, it contains the financial operations of the government broken down by each departmental portfolio.
Lastly, the third volume contains additional information and analysis, including the financial statements of revolving funds and information required by the Financial Administration Act.
This leads me to talk about the financial results for 2010-2011, which you will find on page 5. As you heard, for the 13th consecutive year, the Auditor General issued an unmodified audit opinion on the financial statements of the government.
In 2010-2011, the deficit stood at $33.4 billion, which represents a decrease of $22.2 billion from the $55.6-billion deficit recorded in 2009-2010.
Part of the deficit, a sum of approximately $16.5 billion, was due to measures taken under Canada's Economic Action Plan. The accumulated deficit stood at $550.3 billion on March 31, 2011.
The ratio of accumulated deficit to GDP was 33.9%, which represents a decrease of 0.1% from the previous year, and represents roughly half of its peak of 68.4% on March 31, 1996.
The next page compares actual results with results presented in the 2010 budget. I would like to point out the fact that the numbers contained in the 2010 budget were updated following a review of projections within the 2011 budget.
However, the budget amounts included in the financial statements are based on amounts originally budgeted for 2010-2011 in the 2010 budget, and are based on accounting standards.
The next page compares actual results to amounts presented in the June 2011 budget. Revenues exceeded projections by $1.5 billion, and this was due in particular to higher-than-expected revenues from corporate taxes and other sources.
Program charges were lower than estimates by $1.2 billion, and this was due to accounting adjustments at the end of the fiscal year, which were lower than projected.
The next pages compare the results from 2010-2011 to those of the previous year. Among other things on page 8, it should be pointed out that total revenues increased by $18.5 billion compared to the previous year. Over half of this increase is due to higher tax revenues from individuals, which totalled $9.5 billion.
Total program expenses decreased by $5.2 billion in 2010-2011, and this was due in particular to the one-time financial support package given to the automobile sector in 2009, and to the transition payment made to Ontario and British Columbia in 2009-2010 for the harmonized sales tax.
The accumulated deficit increased by $31.2 billion, compared to an increase of $55.4 billion in 2009-2010. This was due to the impact of the world economic recession and stimulus measures implemented to counter the effects of the recession.
Lastly, other comprehensive income or loss provisions increased by $2.1 billion. This is in large part due to the unrealized gains in the increase of the value of General Motors common shares held by the government.
Page 9 provides details on revenues, and more specifically with regard to the increase of $18.5 billion in revenues in 2010-2011.
First, tax revenues increased by $11.3 billion. The increase in personal tax revenues, in the amount of $9.5 billion, is due to an increase in personal income and to the end of the home renovation tax credit, on January 31, 2010.
Corporate tax revenues decreased by $0.4 billion, despite a significant increase in corporate profits. This decrease is in great part due to a lower tax rate and to other factors related to timing, which saw revenues increase in 2009-2010.
GST revenues increased by $1.4 billion. This increase is due to the increase of demand following the economic recovery. Other tax revenues decreased by $0.7 billion. They include the tax on energy, the income tax on non-residents, import duties and other custom fees and taxes.
EI premium revenues increased by $0.7 billion compared to the previous fiscal year, and this was due to the decrease in the unemployment rate and to the fact that premiums remained the same in 2011.
As for details on the main expenses by category, on page 10, benefits to seniors increased by $1 billion because of the increase in the number of seniors, and because benefits are indexed to the consumer price index.
Employment insurance benefits decreased by $1.7 billion because of the lower unemployment rate.
The main transfers to other levels of government decreased by $4 billion compared to the previous fiscal year, because of the one-time financial support of $5.9 billion given to Ontario and British Columbia in 2009-2010. This followed their decision to adopt the harmonized sales tax. This decrease was partly compensated by a legislated increase in various transfers.
Other transfer payments, including transfers to aboriginals, farmers, students and businesses, support for research and development, as well as for foreign and international aid, decreased by $3.1 billion compared to the previous fiscal year. This decrease is for the most part due to the one-time financial support given to the auto sector in 2009-2010.
Lastly, public debt charges increased by $1.5 billion because of the increase in the outstanding amount of interest-bearing debt.
The last page provides information on the interest-bearing debt. The interest-bearing debt was $801.8 billion on March 31, 2011, which represents an increase of $39 billion. This increase is mostly due to an increase of the unmatured debt, due mainly to financial requirements linked to the budget deficit. The unmatured debt represented 73.7% of the interest-bearing debt on March 31, 2011.
Pension liabilities and liabilities for other future benefits increased by $7.3 billion to $204.3 billion on March 31, 2011. Public sector pension liabilities represented 18% of the interest-bearing debt, and 7% of other future benefits for employees and veterans.
Lastly, in 2010-2011, the average effective interest rate on the public interest-bearing debt stood at 3.9%, which represents a decrease compared to 4% for 2009-2010.
That concludes my presentation, Mr. Chairman.
:
One of the differences we highlighted is indeed in the format and the wording of the independent auditor's report.
If I can draw members' attention to page 2.4 of the public accounts in volume II, you see there is an audit opinion signed by Mr. John Wiersema as the interim Auditor General.
There are differences between this audit and audits from the past. In past audits, what you see are by and large three paragraphs. One paragraph talks about the scope, what it is we are commenting on with respect to our audit opinion. A second paragraph talks a little bit about what the audit comprises. The third paragraph contains any opinion, as far as that goes.
You'll notice here that it is longer. The first paragraph is not very different. Again, it tells you what the scope is--in other words, what we have audited and what the audit covers. Then it has a paragraph that deals with the government's responsibility for the financial statements, so it's specifically providing a heading to highlight the responsibility of management vis-à-vis that of the auditor. It's up to management to actually make sure they have internal control over financial reporting and that they take responsibility and ownership for the financial statements.
Then we go into the auditor's responsibility, and we have multiple paragraphs here. If you go back a year, you'll see only one paragraph. Here we actually emphasize quite distinctly that we are independent and that we follow ethical requirements. Those things are stated right up in the first paragraph under auditor's responsibility.
The paragraph that follows is a little more elaborate than before, but it speaks to the kinds of procedures we follow for an audit. We seek reasonable assurances, not absolute assurance. We have also a separate paragraph that indicates that we've received sufficient audit evidence to support the opinion. That is a specific assertion that is now inserted in the independent auditor's report.
Then finally the opinion paragraph has its own title, and it indicates what the opinion is. It's different from the report on other legal and regulatory requirements. If there are, for example, some other matters that we want to draw the readers' attention to that do not bear on the fair presentation opinion, they are very distinct and the readers can quickly tell that this is additional information the auditor would like them to pay attention to, or would like to draw attention to, but that it doesn't affect the fair presentation opinion.
That is just one difference. The other aspect is—
:
Thank you. I would be happy to respond to that.
I think I'll just first take a step back and remind members of the economic situation we've been in for the last couple of years. It has been a time of very high economic uncertainty. To be honest, that has made forecasting, both economic and fiscal forecasting, a bit challenging over the last two years.
You're right: there's a significant difference between the budgetary balance forecast for 2010-11, at $49 billion, versus the actual outcome, which was $33.4 billion. That reflected a number of factors. Some of it had to do with economics, and some of it had more to do with the fiscal and the accounting side.
To start, we saw stronger economic growth in 2010 than we expected when we did the March 2010 budget. I'll remind members that when we do our economic forecasts, they're based on an average of private sector forecasts. At that time, the private sector average was forecasting nominal GDP growth; nominal GDP is sort of the broadest single measure of the tax base in the Canadian economy. They were forecasting growth of just under 5% in 2010-11 and the actual number came out closer to 6.3%. So we saw growth on that front that was quite a bit stronger and that helped contribute to some of the results. I think I would agree that it was a good-news story.
We also saw, related to the economic downturn, that unemployment or EI benefits came in lower than we had projected, in part because of that strength of the recovery. We also saw a couple of one-off measures in 2009-10. For example, there was the HST transition assistance to B.C. and Ontario in the March 2010 budget. That was allocated as an expense consistent with the payment schedule, and subsequent to finalizing the public accounts it was determined that this should be expensed all in one year. So that's another factor.
So a number of factors led to the result, but all in all, I would tend to agree that it was a good-news story.
Thank you.
:
Mr. Chair, I'll give a few very brief answers.
First of all, in terms of the G-8 and G-20 legacy fund, there is no specific reference, aside from in the individual departments and ministries, where you can see how money was actually spent against that particular purpose. The public accounts weren't set out to deal with that kind of accountability framework. It tends to be more ministerial accountability in terms of reporting back to Parliament.
From what I understand, the public accounts is not set out to do that type of reporting. The requirement for what is reported in the public accounts is really at the pleasure of Parliament. If Parliament chooses that it wants certain information, it could require that and then the government could furnish that information to be included in the public accounts.
The other quick comment I would make is that there is one place in the notes to the financial statements where there is an authority issue that the government addresses year after year. If you turn to page 2.12, which is in section 2 of volume I—again, volume I is the only volume we audit—within the public accounts itself, in note 2, you see the right-hand column, under ii, after two paragraphs on that page.
Mr. Chair, if members are able to find that particular page—again, it's 2.12, in volume I—you'll see there is something called “Over-expenditure of spending authorities”. So where you've actually set a limit you say the vote authority is x, and where an entity has overexpended, the government would then choose to report that. And we do look at that. That is one piece of a compliance issue, I guess, that does get brought forward to Parliament.
Aside from that, with some of these other authority issues it's not obvious to me how they're really reported in the public accounts.
As far as appearing as a witness, we're at the committee's pleasure. Obviously if you would like us to appear on whichever subject we would be happy to do so. It's at the call of the committee.
Thank you, Mr. Chair.