Opening Statement to the Standing Committee on Public Accounts

Report and Observations of the Auditor General on the 2001-02 Financial Statements of the Government of Canada

26 November 2002

Mr. Chairman, thank you for inviting us to discuss the 2002 Public Accounts. With me today are John Wiersema and Clyde MacLellan, the Assistant Auditor General and the Principal, responsible for the audit of the summary financial statements of the Government of Canada.

The practice of a separate briefing on the Public Accounts was initiated by this Committee last year. I think it is a good practice, one that enables the Committee to better inform itself about the content of both the government's financial accounts and the auditor's opinion on them. I encourage the Committee to continue the practice.

My report on the financial statements is included on page 5 of Volume 1 of the Public Accounts. It includes my overall opinion and two matters for Parliament's attention.

My opinion gives users assurance that the government's financial statements present fairly its financial position and results of its operations. It is a "clean" opinion. My Office has been able to issue such an opinion in the past four years. I would be very pleased if this trend continued.

But just like last year, my report identifies two matters that I believe require Parliament's attention.

The first is that I am still unable to conclude that the setting of Employment Insurance premium rates observed the intent of the Employment Insurance Act. This matter is discussed in more detail in my observations on page 31 of Volume 1 of the Public Accounts.

The surplus in the EI account grew by another $ 4 billion in the last fiscal year, and it is still growing. At March 31, 2002, the surplus was $40 billion—$25 billion higher than the government's Chief Actuary has said is the maximum amount needed.

I question if this was Parliament's intention with respect to the Employment Insurance Act, even after taking into account recent amendments to the Act. These amendments suspended the requirement that premium rates be set at an amount that would provide enough revenue to cover program costs and maintain relatively stable rate levels throughout a "business cycle". Because there is no decision on what the balance of the EI account should be, how long it should take to reach that balance or what other factors should be considered in setting premium rates, I am obligated as Parliament's auditor to point out that I cannot conclude that the setting of the premium rates observed the intent of the Act.

These rate setting requirements are suspended for the 2002 and 2003 premium years. During this period, the government is to review the rate-setting process and conduct public consultations about the process. To date, we are advised that internal analysis is under way but no public consultations have occurred.

I hope the Committee will encourage the government to complete its review of the rate setting process as quickly as possible. Very little time remains before setting premium rates for the 2004 premium year.

It is time for the government to complete the necessary analysis and consultations, and reach a conclusion on this important matter. Committee members might want to ask the government about the status of its consultations and analysis as well as the target date for completion of this work.

The second issue I raised in my report is my continuing concern about transfers of money to foundations. This topic is further explained on page 34 of Volume 1.

To date, the government has transferred $7.5 billion to foundations and recorded that amount as expenditures, while $7.1 billion of that amount is still sitting in the foundations' bank accounts and investments for eventual distribution to the intended recipients.

In my view, this accounting is questionable. The CICA's Public Sector Accounting Board is studying the issue and is expected to soon make its recommendations public. We will continue to monitor and report on this matter because we believe that it is important for Committee members to know what has happened to these funds.

Mr. Chairman, my observations address several other matters. They include the government's progress in implementing accrual accounting (page 36 of Volume 1) and the process used to develop management estimates (page 37 of Volume 1). There is one additional matter, however, that I would like to briefly mention: the government's communication of financial results in these Public Accounts and in the Annual Financial Report. This subject is explained fully on page 39 of Volume 1.

Mr. Neville provided several key indicators of the government's financial condition. Most of this information, however, is not easily accessible in the current Public Accounts and the Annual Financial Report (AFR).

It is time to examine how to explain to Canadians the government's financial results and financial position. The tremendous amount of detail provided currently is important to some users but is not an effective way to communicate the financial results of an organization with an operating budget of $180 billion to the general public.

I encourage the Committee to become involved with and influence this process. Questions that you might want to consider are: Can the Public Accounts be simplified and streamlined? Can the AFR be made more understandable? Where should the government publish its financial discussion and analysis? What can we learn from other jurisdictions about reporting by senior levels of government?

Mr. Chairman, this concludes my opening statement and we welcome any questions that the committee may have.