:
I now declare this 37th meeting of the Standing Committee on Public Accounts in order.
Colleagues, before we turn our minds to the public accounts, which we're here to deal with, I want to bring you up to speed on a little bit of business.
You might recall that the clerk and I were given certain parameters for scheduling going forward for the next few weeks. I can advise you that it is coming together. It looks like we'll be able to get a fair bit done of what we had hoped to do by the end of this sitting.
The way it is right now, next week there will be two meetings of report writing. That gives us a chance to catch our breath and then go into the last sprint. We have a couple of public hearings that we'll try to get in before we rise at the end of the year.
So for next week, for planning purposes, you'll get copies of the draft report, and perhaps you could be ready to start going through that. That will be our business next week.
The only other thing I want to mention is that one of our presenters today, Mr. Matthews, had asked if instead of using his time for his opening remarks he could do a bit of a presentation. I thought that was an excellent idea. I've given him the okay. We will append his opening remarks so that they're still there as part of the record, and can be drawn upon when we're doing our draft report. But I think it will help if we do a bit of a briefing session, particularly since this is public. It gives the public an opportunity to understand more of what we're doing. Of course, today is public accounts day—the name of the committee—so it's important business.
Today, representing the Auditor General, we have Assistant Auditor General Nancy Cheng.
Nancy, welcome. It's good to have you here again. I'll call upon you in a moment to give us your opening remarks and introduce your delegation.
Mr. Matthews, you've returned again. It's good to have you back. I'll look to you shortly for your presentation and the recognition of your delegation.
Mr. Leswick, from you, the general director of economic and fiscal policy at the Department of Finance, we have no opening remarks, but apparently you're making yourself available to answer any questions that might come up during our discussions.
Colleagues, that's the lineup. We're ready to go. Unless somebody has an intervention at the last minute, we'll get going.
Seeing none, you now have the floor, ma'am.
I want to thank you for the opportunity to discuss our audit of the consolidated financial statements of the Government of Canada for 2013-14.
I am accompanied today by Louise Bertrand and Karen Hogan, co-principals responsible for the audit.
We thank the committee for taking an interest in the Public Accounts of Canada.
This is an important government accountability report. It is the responsibility of the government to prepare the consolidated financial statements, and it is our responsibility to express an opinion on whether these consolidated financial statements are fairly represented.
I will focus my comments on our audit opinions and observations.
As you are aware, the Public Accounts of Canada are tabled in three volumes. Our independent auditor's report and our observations are contained in section 2 of volume 1. Unless otherwise noted, the information in all three sections of this volume and the two other volumes is unaudited.
The independent auditor's report on the 2013-14 consolidated financial statements can be found on page 2.4 in volume 1 of the Public Accounts. This marks the 16th year that we have expressed an unmodified audit opinion.
[English]
As required by section 6 of the Auditor General Act, we provided an opinion on the government's consistency of application of its accounting policies. Our independent auditor's report signalled a change in the government's accounting policy for premiums and discounts arising from the buyback of bonds. This change has been properly presented and disclosed in note 2 to the consolidated financial statements.
Our observations over the past several years have highlighted concerns about the financial reporting of inventories and asset-pooled items at National Defence. Last year we indicated that National Defence was working on several initiatives to improve its financial reporting capabilities. This year, although some progress has been made, we continued to find errors.
Since 2003 we have been reporting concerns about inventories and asset-pooled items at National Defence. The department needs to address several fundamental concerns with the proper recording and valuation of these assets. Strong financial management controls reduce the risk of misstating the consolidated financial statements and making decisions without accurate information.
We thank the Comptroller General and his staff, as well as others in the departments that were involved in preparing these accounts. A great deal of work was involved. We appreciate the cooperation and assistance that was provided to us.
Mr. Chair, this concludes my opening remarks. We would be pleased to answer the committee's questions.
Members of the committee, good afternoon.
We are pleased to be here to answer questions on the Public Accounts for the fiscal year that ended on March 31, 2014.
As you already mentioned, I am joined today by two colleagues: Michel Vaillant, Acting Executive Director, Government Accounting Policy and Reporting; and Nicholas Leswick, representing Finance Canada.
[English]
As you indicated, Mr. Chair, I would be happy to go through this presentation. I hope it will be helpful to you.
There are two main parts to this, and I'll start with slide 3. I'll give you a quick overview of the results in terms of what we found this year in our financial statements, and then at the back end I'll spend a bit of time on the two restatements that we've made adjustments for in this year's public accounts. Those are the main themes.
On slide 3, as my colleague from the Auditor General mentioned, we have an unmodified or clean audit opinion for the sixteenth year in a row. That's something we are very proud of, and all members of the finance community in the Government of Canada should be proud of that. I cannot mention the audit opinion without thanking my colleagues from the Auditor General. This is a great deal of work that requires excellent collaboration, and we had that again this year.
The annual deficit, as you are likely aware, was $5.2 billion this year. That represents a decrease of $13.2 billion from what was originally forecast in Budget 2013.
As I go through my remarks in this presentation, I will do a lot of comparisons between the initial numbers in the budget, which according to accounting standards are what are to be compared with our financial statements, as well as results from the previous year. It's always interesting to see what has happened in one year versus the next. The accumulated deficit, which is the difference between our net assets and liabilities, is $611.9 billion, and that is an increase of $2.5 billion.
For those of you who are into accounting things, you might be wondering how an annual deficit of $5.2 billion got us to a change in accumulated deficit of $2.5 billion. The difference is something called “other comprehensive income”, which in this year's case impacted accumulated deficit. It relates to changes in fair market values and things like that—other things related to our benefit liabilities, etc.
The other thing I should highlight is the accumulated deficit-to-GDP ratio of 32.5%. That's a decrease of 1% from the previous year. Finance Canada does have a long-term target for this number, and I'm sure my colleague Mr. Leswick will be happy to talk about that if that's of interest to the committee.
Slide number 4 has the high-level financial results. You'll see that total revenues are basically up over the previous year, as well as up over what was forecast in the budget, so $271.7 billion. While you're looking at these comparisons I will tell you that revenues were up across the board, personal and corporate. I will have some more detail on that in a moment.
Program expenses were $248.6 billion. That is slightly up over the previous year, but lower than what was forecast in the budget by a bit. Then you have public debt. There are slight changes there, but it is largely on track with what was forecast.
With regard to annual deficit, as I've already mentioned it came in at $5.2 billion, which was significantly lower than originally forecast in Budget 2013. There is the restatements number of $7 billion on there, and I will give you some additional information on that in a few moments.
If I could take you to slide 5, this gives the breakdown of revenues. As I mentioned, revenues are up across the board. We've shown personal, corporate, GST, and other. I will highlight personal tax for you here, and as I mentioned, it is up. It represents about 48% of total revenues. As a percentage, that is down slightly from the previous year, but it is largely a consistent sort of relationship.
If you're wondering what's driving the increase under “other”, that is primarily driven by two things. The government disposed of some shares in General Motors on which it realized a gain, as well as the disposal of assets; our embassy in England, our chancellery, as sold. The gain on sale is in that number as well.
EI premiums are there. They represent about 8% of our total revenue. To sort of round out the big amounts, corporate tax is 13.5% and GST is about 11.4% of the total revenue mix. The message on revenues is that they're up across the board over the previous year and what was forecast in the budget.
If I could take you to slide 6, what you'll see here are fairly small changes on the expense side of the House: Benefits for the elderly up over the previous year, but slightly below what we were tracking for in the budget, but this is not a new story; program benefits for the elderly increasing because of our aging population; EI benefits largely consistent with the previous year; and children's benefits up very slightly.
The only other thing I could mention here is maybe total program expenses; when you look at those numbers, those include the expenses of ministries. There's been some media attention the last couple of days on lapses, which is the amount departments can spend or did spend relative to the amount of spending they were authorized. I'd be happy to take questions on explaining those numbers if that's of interest to committee.
The second part of this is the focus on the two restatements. The first one is slide 7 and that's the bond buyback. The background on this one—and I have mentioned the importance of comparing or being able to compare the financial results from one fiscal year to the next, and my colleague from the Auditor General mentioned that part of their opinion is on the consistency of our accounting policies. When the government bought back debt or bought back bonds, we were following an old accounting policy that was essentially no longer relevant; and the history here is that when you're doing financial statements, you look to accounting standards set by an independent body. In our case, we look to the public sector accounting standards. When they're silent, you look to other sources, so you would look to the standards of other countries. We were married to a standard from the U.S. that is basically no longer in play.
When we looked at that, we recognized that when there's a discount or a premium on a bond buyback, if the debt is extinguished, the new accounting standards require you to take that into income or expense immediately as opposed to amortizing it over a period of time. So we've made that change and done it retroactively as well, so the two years of financial results are comparable. You see here on the slide the effect of that change. Here, my colleague from the Auditor General has mentioned that they found it to have been done properly, but I did want to highlight that change for you, as well as one other change I'll speak to, which is on slide 8.
This one's an interesting one, it's the valuation allowance for social housing programs. Essentially, what we have here are some programs administered by Canada Mortgage and Housing Corporation and effectively, they were giving loans and then the recipients of these loans were funded to pay them back. I think you would all agree—and I will over-simplify here to make the point— if I gave you a loan and then gave you money to pay me back, you really haven't paid me back. I'm effectively giving you a gift, not a loan.
When we made those loans, we had factored in an evaluation allowance to reflect the fact that those loans weren't all being paid back, some were being paid back with money the government was flowing through appropriations. We realized we had not taken into account all the loans of that nature. So we broadened the scope of that allowance to capture all the loans in question and again, we have applied that change retroactively to make sure that these statements are consistent. So that's a $1.6 billion increase in the opening balance of accumulated deficit and a $0.2 billion decrease in the annual deficit; not a huge amount, but I did want to highlight those two changes for you so you would be aware of them. Both have been done on a consistent basis from the previous year.
Mr. Chair, before I conclude, I will ask if members have questions that relate to a specific page of the public accounts—the page numbers in English and French are slightly different—so if you can give us the page number, that would help and then give us a moment to find the equivalent page numbers on the—
[Translation]
the French or English version
[English]
—depending on the nature of the question, and we would be happy to provide it to all committee members so they may follow along.
With that, we're happy to take your questions.
I think it was wise for you to take the time to do that as opposed to reading your statement, as important and informative as that is too. [See appendix]
I also just want to say at the outset, before we begin the rotation, that this is the committee that Canadians rely on to keep an eye on the treasury, both to make sure the money that's supposed to come into the treasury does and to monitor how it's spent and what it's spent on, as well as the proper procedures from within. We try to do this in as non-partisan a way as our DNA will allow.
It needs to be said—and I want to say it—that receiving the 16th clean audit in a row—and that takes in more than one party—says a lot about the way that finances are run in Canada. I can't say that so much about the political decisions; we make those in a different way.
Some of us have been to countries in which the money is stolen from the people before it even gets to the treasury. A clean audit at the very least, in my view, tells us as Canadians that we're not being ripped off, at least not in the same way that some countries have their treasury taken and siphoned off into a Swiss bank account or somewhere else offshore long before the people even know the money's there, let alone any risk of it being misspent
On behalf of all the members of the committee, and particularly on behalf of all Canadians, I want to thank all those who were involved in giving us what we call a “clean audit”, meaning that at least the macro-pieces of the money that this nation has and should have in our treasury are there. Then we can start dealing with some of the details of how that money is spent and whether or not it was spent appropriately.
At the very least it's good to know that our treasury is not being stolen, ripped off, or diverted, and that the money that should be there is there.
I just want to say in a non-partisan way, as the chair of the committee, that we're very proud of all those who played a role in giving us that reputation. We're proud of our reputation, and you're the ones who, day to day, give us that. So thank you all very, very much for any role that anyone has played in giving us that clean audit.
That's the good news. We will now move on from there, starting with our first vice-chair, John Carmichael.
Sir, you have the floor now.
:
Thank you, Mr. Chair. That was articulately stated, if I might add.
Thank you to our witnesses for being here today.
To that opening comment by the chair, I'd like, first of all, to add my thanks to Mr. Matthews for the deck. I think it's very helpful. For comparative purposes, I think this type of information is very helpful to the committee and, I'm sure, to those watching. It helps everybody to better understand the work we're trying to understand and truly deliver on behalf of all Canadians.
So thank you for that.
Ms. Cheng, I'd like to begin with you and ask you a few very brief questions with regard to the clean audit. Before I do, I just want to read your economic highlights briefly for the record.
On page 1.3 in section 1 under the highlights, you make the following comment:
Five years after the global recession, the global economic environment remains fragile. Despite the challenging external environment, the Canadian economy has been resilient. For instance, Canada has led all other G-7 economies in real GDP growth over the recovery. This has translated into one of the strongest job creation performances over the period, with over 1 million more Canadians now working than in July 2009, when the recovery began....
I think this truly gives us a good standard from which we can launch into the next year. We talked about the clean audit and the quality of the work that you and your people are performing, which I applaud. For the sixteenth consecutive year the Auditor General's report has issued an unmodified opinion of the Government of Canada's consolidated financial statements. That's something I think we should all be very proud of.
You mentioned it briefly in your opening comments, but could you just comment on what a clean audit means for Canada?
Having 16 years of unmodified and clean audit opinion is indeed an exceptional accomplishment. I did get my staff to take a quick look at other G-8 countries to see what the situation might be with respect to their financial reporting and the status of audit results. Some of them don't even have what we call whole-of-government accounts, where all ministry information is brought together, so that you have a portrait of the country as a whole. For example, Germany and Italy don't have whole-of-government accounts.
Once you get past that, you look at the nature of the audit results and whether the countries get a clean opinion. We have a denial of opinion in the United States from as far back as 2007 up to the current state. They have many exceptions, qualifications, and modifications in saying what might not be fairly presented with respect to the whole set of financial statements, for example.
What we saw was that Australia and New Zealand, for example, are the ones that have a clean opinion. We went as far back as 2007, and they seemed to have consecutive years, but I wouldn't know whether they have a record like Canada's with 16 years of clean opinions. Indeed, this is an exceptional accomplishment on the part of Canada, and we do have high-quality financial statements.
I just have one point of clarification, Mr. Chair. The member referred to page 1.3, section 1. Section 1 is financial analysis that is prepared by the Government of Canada through Finance Canada. Those are not audit comments, and if members have questions or wish to have further deliberation about that, this should come from the Department of Finance.
Thank you.
Yes, National Defence has been a subject that we have been observing for a number of years, as I mentioned in my opening statement. Here, when we talk about the “compensating controls”, it's because the department actually has filed an action plan with the public accounts committee to indicate a number of initiatives they're going to undertake to improve inventory management.
But if we look at that particular action plan, we see that it's going to take us out to 2016. In the interim, they still hold significant inventory for the Government of Canada, hence the term “compensating controls”. In the interim, what are you going to do? What are some of the things that can be done to make sure that financial reporting is properly respected so that we can continue to earn and keep our clean opinion? That is important, right?
Hence, we identify a number of things. We've made a number of suggestions to the department in terms of things that perhaps they could consider doing. As you pointed out, on page 2.41 in English,
[Translation]
and on page 2.43 in French,
[English]
we identify several steps that perhaps the department can consider.
In terms of that first step, the physical inventory count, we did observe some progress, so the department is moving in the right direction. What they've been trying to do is improve their inventory count. They haven't quite got it to the point that we can derive sufficient assurance from it to rely on it for the existence and conditions of the inventory, but they're moving in that direction. That will be a long journey, because ultimately it may not be achievable to try to count everything that National Defence has on March 31 from coast to coast. There is that practicality that kicks in as well, but certainly we feel that there's more they could have done in that area.
With respect to some of the other suggestions, they're not as taxing in some ways. Sometimes what we observe on, for example, pricing differences, is a sort of a lack of awareness of how to capture some of the information. One of the differences that we saw on the extreme side, if you will, is the pricing for some washers. Instead of putting down the unit price, which is less than a dollar apiece, they put in the price from the box, which is $70,000. All of a sudden, you've inflated your inventory value significantly.
Those are some of the things. Maybe it's training. Maybe it's awareness.
The other thing is that there isn't necessarily a culture there to try to examine what is the cause of these problems. When we have a difference, what's causing it? It's about trying to see if that can be rectified as they move forward, or whether there are similar items that might be subject to this kind of error condition, because what we did was a sample, and a sample is really just pulling a number of items, of amounts, a mass of inventory items, that DND might have.
A lot of these suggestions are being shared with the department. There will be a more detailed management letter from the component audit team to help National Defence understand some of our points, to try to work with them, and to encourage them to make improvements. But certainly there is still a lot that needs to be done before we can claim success on this one.
:
Mr. Chair, it's always a pleasure for me to work with my colleagues on improving financial reports, instead of trying to remedy deficit problems.
My first question is about the economic highlights set out on page 1.3.
The commentary provided is quantitative, but over the past few years, it has been said—and here I am specifically thinking of American universities—that a qualitative commentary also needs to be provided.
Your document states that 1 million jobs have been created since the recession, but the fact that 650,000 jobs were lost during the recession seems to be easily forgotten. This means that, from 2007 to now, 350,000 jobs have been created.
In its comparison of taxpayers' average incomes between 2008 and today, the Canada Revenue Agency notes a significant drop. In other words, for a given number of work hours, people are now earning less money. In the manufacturing sector, 300,000 very important jobs have been lost.
Why has no qualitative commentary been provided on the economic highlights? That would help us figure out how to remedy the situation—perhaps by creating better paying full-time jobs instead of low-paying part-time jobs.
:
Thank you very much, Mr. Chairman, for those kind words and for allowing me the floor.
Ms. Cheng, on pages 1.45 to 1.49 of volume II, in the summary tables, you've outlined the $7.4 billion in lapsed spending from various government departments.
As Mr. Allen did, I'd like to focus on one of them just for the moment, which is National Defence. Obviously military procurement is something that's particularly important for a government to do well. It provides our men and women in uniform with important equipment and makes them safer, obviously, and allows them to do their jobs. It can help create jobs and spur research in Canada. Yet this government has talked a lot more about procurement and equipment than it has actually delivered, especially when you think about the ships they've been talking about lately.
In 2006 the promised that three Arctic icebreakers would be in service by the end of 2014—that would be this year. That promise, of course, became one icebreaker by 2022, and six to eight smaller Arctic offshore patrol vessels.
Now the Parliamentary Budget Officer is actually telling us that with the current budget, the government can only afford four Arctic offshore patrol ships, and only three if they delay another year. In a case like this, where we're seeing $1 billion lapsed from the defence budget, and we're seeing this pushing off of these expenditures, and apparently reductions in what we're going to get for those expenditures, what does that mean in terms of greater expense to the taxpayer, in terms of value for money?
:
I can comment on the lapse in general, and I will get back to your specific question.
The lapse in general is not well understood. I do want to make one very important point. When Parliament authorizes spending, it's an “up to” amount. It's not that you must spend a hundred; it's an “up to” or a maximum. It is against the law to overspend, so some degree of lapsing is actually expected, because if departments are right up to the penny, they're risking going over. So we do expect some degree of lapsing.
When you look at the lapsing, it's down this year over the previous year on a whole-of-government basis, and what we like to look at is whether the lapse was planned or unplanned. So if you go back years ago, we do vote money year by year. If you didn't spend it, it evaporated and you had to reapply for it.
Departments are allowed to carry forward five per cent of their unspent operating into the next year. They're allowed to carry forward 20 per cent of their capital spending unspent into the next year. So it's not lost money. In the case of National Defence, that money isn't going away. It will be back in the reference levels, but Parliament does vote money year by year.
But you've raised an interesting point on the shipbuilding. What you'll see for projects that are long term in nature and complicated is there are often delays, as you have mentioned. The prices and the costs of those projects are often in the case of shipbuilding at the mercy of prices of steel. So if you delay five years, ten years, whatever, at the end of the day you actually get less steel for your money than you did when the project was first conceived.
So when these projects are managed, there are really two ways to do it. You can set aside money for the department to build a certain number of ships, or if you know it's a long-term complex project, you can set aside a certain amount of money and say to the department, you need to live within that envelope and you figure out how many ships you're going to get.
I can't speak to the Parliamentary Budget Officer's methodology, but there is an erosion of dollars over time because of inflation as the projects are delayed. With complex projects like shipbuilding, it's quite normal that they will slide a bit from their initial focus. But to your comment on Defence, that money that they lapsed is all within their carry forward limits or reprofiled, they're not going to lose that money.
:
Thank you for the question.
I have a couple of thoughts on that. The table, which in the English version is on page 1.24 if you're trying to follow along, presents a 10-year history. That's the reason we stopped at 2005 in this case. We gave a 10-year history, which is a nice comparator.
The importance of the year 2000, which the member has mentioned, is that is the point when the government decided to fund part of its pension plan. In the pre-2000 period, the government used to track the pension obligation on its books, but there was no separate asset to match the liability as you would have in the private sector. From the year 2000 on, the government decided to fund that liability, and that is why the investment board that we were talking about earlier was created. It was to manage those investments.
Regarding the Supreme Court decision that was mentioned—I should close the loop on that—there was a surplus in the government's bookkeeping account pre-2000, and there was a court challenge launched by the unions about who should have access to that. It was in effect a bookkeeping account, but it was a surplus, and the government had basically used it against the bottom line on general revenues. The Supreme Court concluded that the Government of Canada was the risk holder, and therefore if the pension was in deficit, it had the risk; if it was in surplus, that was the government's money. The court challenge was denied and there was no money required to go back to the unions.
If you look at the government's financial statements, we have substantial disclosure around the pension plans, both funded and unfunded. From my own perspective, it's too much; it's an awful lot to get through.
If I could take you to the notes on the pension plans, which start on note 7, on page 220 in the English version, and page 221,
that will go through the benefits and the plans for both funded and unfunded. You have a description of both. There are different discount rates in play. That's disclosed.
The other thing you will see here for your information, on page 225, which is likely page 226 en français, is a sensitivity analysis. You will not see this type of analysis in all pension plans if you compare us to other countries...assumptions like the discount rates, both for funded and unfunded. If you get a 1% change in the discount rate up or down, we disclose what that does to our liability. If you get a 1% change up or down in the inflation rate, you see what it does to the liability. It the same with wages. All the major assumptions that affect the pension plan, whether funded or unfunded, also have this disclosure here.
If I can go further, there's a whole additional section later on in volume 1 with additional information on pension.
[Translation]
in the French version,
The questions posed to us are not falling within the scope of the public accounts audit.
I should use this opportunity to once again clarify that our audit work is strictly on the consolidated financial statements, and that's only in section 2 of volume 1.
Many of the questions of interest to members are in section 1. This is primarily the government's own explanation as to what's happening with its finances and the financial performance of the government over the fiscal year.
The member is now posing questions on volume 2, and we would not have touched any of the tables or data in volume 2.
We are looking at these numbers for the first time just as you are when you're referring to them. We know where to find the numbers, but, again, it's not based on audit work, and I would be very reluctant to speak to them.
As you know we do performance audits, and from time to time we'll be selecting some of these subjects, and that gives us a much more in-depth opportunity to study the issue and then be able to come back with reports.
We will note your interest, Mr. Chair, in what the member's asking, but at this point it wouldn't be right for me to try to speculate and provide a response.
:
It's amazing, but Mr. Leswick and I were discussing this by email last night.
Our financial statements are driven by externally set accounting standards. It's important to compare results against budgets. That just makes them meaningful. In the way the accounting standards are written, basically the comparator is the initial budget. For the year 2013-14, which ended on March 31, 2014, the first budget was Budget 2013. That's where we first set out the plan for that year.
For Budget 2013, I don't remember the exact date, but it was probably February 2013. A lot happened between that and the year in question: things like the changes we made to the retiree health care plan, the pension plan changes, and the Alberta floods, which I mentioned earlier. As for what Finance will do, they have things like the fall economic update, and then they also have Budget 2014, so for any chance they have to update the economic forecast before the financial results, they'll take that opportunity to say, “Here's our updated forecast.”
In the analysis here, they quite rightly compare it to Budget 2013, which is our starting point, but when they did Budget 2014 they came along and said that some things had changed, and they factored those into their forecast. That's why you get both reference points.
Mr. Leswick can add to this, but Finance always has an amount they set aside for risk. I think it was $3 billion in Budget 2013. I think that by the time Budget 2014 came along, that amount had been reduced, because things were on the upswing and things were looking better.
They make those types of changes.
Do you want to add to that, Nick?
Let me take you back to something. My friend Mr. Regan talked about the lapsed funding. I have the numbers, and I heard your comment in the newspapers and all that stuff, so I won't go down that road.
I understand lapsed funding. As an ex-municipal person who used to work in corporate finance when I was an elected official, I understand that you can take funding of 5% when the operating says 20% in the capital sense. But I have two questions here.
One, when you move the capital...and not the operating, because I'm not concerned with that. Operating is operating. You may have changes in operating next year, so you just move the money. In the capital sense, does it stay with the same project?
Second, does the lapsed funding you looked at concern you, just looking at the ballpark number? If yes, you'll tell us that, but if not, does any one particular department's lapsed funding concern you in the sense that it may be larger than what it ought to be?
I get what you said from the very beginning, Mr. Matthews, that when we actually allocate money budget-wise for the government ask, it's an “up to”. If you spend 105%, you need to come back and see us. So I'm not arguing whether they did a good job or not, but rather a good job simply from an accounting procedure. When people are crafting budgets, are they doing a good job? That's really what I want to know.
:
Your first question, with regard to the capital and whether it stays with the same project, is a fascinating question. From a parliamentary control perspective, Parliament controls on the total vote. It's just one global number for capital. You're not approving certain projects. So from a parliamentary control perspective, no.
From an operational perspective, departments basically are tracking their projects. They have capital attached to them. If one is under budget and another is overbudget, can they move that money around? Yes, they can.
Two, are there any departments whose lapses concern me? No. The interesting thing about government is that the lapse is lower this year than the previous year. Typically speaking, when there are cutbacks or reductions in budgets, departments are so worried about overspending that they put the brakes on too hard. Ironically, in years when we're cutting back, lapses are typically higher than in years when we're not. It's kind of a strange phenomenon, but it speaks to the importance of not overspending your budget.
In this fiscal year, when you actually look at the net lapse, the vast majority of it is planned: capital carry-forward, operating carry-forward. We didn't talk about grants and contributions. Two major grants and contributions programs really accounted for the bulk of the lapse on that side—infrastructure, which is complex negotiations, so no big surprise; and our friends at Indian and Northern Affairs, where again, negotiations can be difficult stuff, so you often see large lapses there.
:
Sorry, but the time has expired. I actually let a little time go by there.
Colleagues, that exhausts our usual rounds of questioning. At this time I will thank our guests for being here.
If I might, I have just one last comment before we close. There is lots of credit to go around for the clean audit, but as the longest-serving member of this committee in Parliament—I've been on this committee now since 2004—I can say that we continue to have an issue with National Defence. It's a chronic issue. It's a lot like health and social services for first nations people and other aboriginal Canadians. It's chronic. It just goes on and on. It crosses party lines. It is a management issue as much as it's a political issue. It's been over 10 years. That's long enough. There needs to be some resolution.
Mr. Matthews, I understood when you talked about the lapsing, especially in the case of defence, because of the big numbers. We've been through this before many times. The auditors are very much aware that there is that kind of latitude, yet we continue to get this notice both when we're doing public accounts and on certain chapters.
National Defence needs to know that this committee and the Auditor General's office are going to continue to stay focused on this until it ups its game and gets to where it needs to be. We're very proud of the things that are good, but we need to stay focused on the things that aren't, so that we can continue to earn that reputation. National Defence needs to up its game in this area. It's not good enough. I hope that gets carried back.
With that, I want to thank you all very much.
Mr. Matthews, I particularly want to thank you. There's a divide here, between the auditor folks and the folks who are working for the government, yet during a question from Mr. Allen, when you thought he might need to get a question in there.... I've seen so many bureaucrats come in. They can play the game. They can run the clock. But you actually paused and said, “I think there was maybe another question you wanted.” That's appreciated. Notwithstanding that you're here representing the government's interests, as the chair of this committee, I want to tell you that's exactly the kind of professionalism that underscores how proud we are of the work we do. That was very good, sir. I hope to see more of that from senior people who come here.
Colleagues, with that, this committee is ready to stand adjourned, with thanks to our guests. All in favour of adjournment, please leave.
Some hon. members: Oh, oh!
The Chair: The meeting is adjourned.