Opening Statement to the Standing Committee on Public Accounts

Briefing on 2001 Public Accounts Report and Observations of the Auditor General

Report and Observations of the Auditor General
on the 2000-01 Financial Statements of the Government of Canada

Mr. Chairman, thank you for inviting me to this briefing on the 2001 Public Accounts, which include the government’s audited financial statements.

The Public Accounts are a key accountability report of the government. My opinion on the financial statements provides users with assurance about the fairness of the way the statements have portrayed the government’s summary information.

The financial statements contain important messages. I think it is important that the government explain them to this Committee.

A briefing like this, near the tabling of the Public Accounts, has never been done before and I congratulate the Committee on this initiative.

While my audit opinion on the government’s financial statements does not contain any reservations, I do have some serious concerns, and I have brought them to Parliament’s attention.

They may well generate public discussion and I welcome the opportunity to explain them to this Committee beforehand.

Page references throughout this briefing note apply to Section 1 of Volume I of the 2001 Public Accounts.

(Pages 1.5 and 1.6)

This year, I have presented my report in 3 main sections: my opinion, other matters for Parliament’s attention, and additional information.

My opinion on the Government’s financial statements contains no reservations. This is the ninth time in 12 years that the auditor general has given a “clean” opinion on the government’s financial statements.

My report raises two matters for Parliament’s attention.

First, I have been unable to conclude that the intent of the Employment Insurance Act was observed when the premium rates for 2001 were set.

Second, I am concerned that the way transfers to foundations are accounted for does not reflect the substance of what is happening; I also have concerns about the accountability and governance of these foundations.

The final section of my report refers the reader to my observations additional information that describes these and other matters in further detail.

Compliance with the Employment Insurance Act

(Page 1.29)

Employment Insurance premiums and benefits are included in the government’s financial statements.

As a legislative auditor, I must determine whether the government has complied with parliamentary authority in raising revenues and spending public money.

The Employment Insurance Act requires the Employment Insurance Commission to set EI premiums that provide enough funding to cover program costs and that will stay relatively stable throughout a business cycle.

Cumulatively, EI revenues exceeded benefits paid by $36 billion at March 31, 2001. This is well in excess of the $15 billion balance that the Chief Actuary of Human Resources Development Canada considers is necessary.

The Commission has not provided me with adequate justification for the size and continued growth of this excess.

I therefore stated that I was unable to conclude that the intent of the Act had been observed in the setting of premium rates for 2001.

The government is undertaking a review of the rate-setting process. I encourage it to complete that review expeditiously.

Transfers to Foundations

(Pages 1.29 to 1.34)

Several times over the years, we have raised concerns about the use of foundations.

In the past year, at least 6 new foundations were announced. Over $7 billion was granted to the 9 foundations listed in the table on page 1.30 of Volume I of the 2001 Public Accounts.

This amount has been recorded as expenditures of the government. Yet almost the entire amount, which includes earned interest, is still in the foundations’ bank accounts and investments. It has yet to be spent on the ultimate purposes intended for it by the government.

This accounting does not present the economic substance of the government’s spending.

In addition, it has been suggested that the way these foundations are funded achieves a desired accounting result by reflecting large spending initiatives toward the year end.

But government decision making should be driven by sound economic and policy analysis, not by a desire for a particular accounting result.

I therefore urge the government, consistent with its move to accrual accounting next year, to change its accounting for these foundations.

My observations also discuss concerns I have about the accountability and governance arrangements for the foundations. In essence, I am concerned that Parliament has only limited means of holding the government to account for the federal functions performed by the foundations.

Canada Foundation for Sustainable Development Technology

(Pages 1.34 to 1.38)

The Standing Senate Committee on Energy, the Environment and Natural Resources considered the government’s actions in establishing this foundation to be “an affront” to members of both Houses of Parliament and a circumvention of the parliamentary process.

When I appeared before that Committee to discuss the Bill that was introduced to establish the foundation, I stated that I had not audited this transaction. I now have, and my observations describe the results.

I could not determine why such a large payment $50 million was made to the not-for-profit corporation created to start the sustainable development initiative before Parliament had approved either the initiative or the payment.

I also found that the authority to make that first $50 million payment will not be approved explicitly by Parliament until it approves the next Supplementary Estimates. These payments were funded out of the government’s contingencies vote, an action that I find unusual.

Finally, although the general election in 2000 interrupted the government’s attempt to have the initiative approved by Parliament, it took a number of actions near the March 31, 2001 year end that enabled it to record the entire $100 million grant to the foundation as an expenditure, and payable.

In all, I found the process the government used to create and fund the foundation a very troubling one. I hope I will not see another situation like it again.

Other Matters Raised

I have noted that departments have a lot of work to do to meet the objective of producing next year’s financial statements using full accrual accounting. (Pages 1.38 to 1.40)

Departments will also be required to produce “auditable” financial statements next year. The TBS needs to revise its policy on these statements so they will present fairly departments’ financial positions, results of operations, and cash flows. (Page 1.40)

Several observations of the previous Auditor General have not yet been resolved. (Page 1.41)