Opening Statement to the Standing Committee on Public Accounts

Report and Observations of the Auditor General on the 2003-2004 Financial Statements of the Government of Canada

28 October, 2004

Sheila Fraser, FCA
Auditor General of Canada

Mr. Chairman, thank you for inviting us to discuss the 2004 Public Accounts. With me today are Doug Timmins and Frank Vandenhoven, the Assistant Auditor General and the Principal who are responsible for the audit of the summary financial statements of the Government of Canada.

This is the second year that the Government has produced its financial statements using full accrual accounting. In last year's Observations, I indicated my view that this was a major step that placed Canada as a world leader in financial reporting. I further indicated that the financial community within the government could be justly proud of this accomplishment. I continue to hold that view.

My Report on the financial statements is included on page 2.4 of Volume I of the Public Accounts. For the sixth consecutive year I have been able to issue an unqualified or clean opinion on the Government's summary financial statements. This gives users assurance that the government's financial statements present fairly its financial position and the results of its operations.

It is important to note that while I have issued an unqualified opinion on the financial statements, I do continue to identify two other matters for Parliament's attention. These are long-standing issues that I have included in my Report for the past four years.

The first is the Employment Insurance Account, which grew by another $2 billion during the last fiscal year and now stands at $46 billion at March 31, 2004.

In my view, Parliament did not intend for the EI account to accumulate a surplus beyond what could reasonably be spent on the EI program. Hence, in my opinion, the Government has not observed the intent of the Employment Insurance Act.

I note that in the 2003 Budget legislation the Government indicated its intention to implement a new rate-setting regime through legislation for 2005. In the 2004 Budget legislation, the Government gave the Governor-in-Council authority to set the premium rate for 2005, in the event legislation was not passed in time.

Thus, I note with disappointment that this long-standing issue has not been resolved. This matter is discussed in more detail in my Observations on page 2.29 of Volume I of the Public Accounts.

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 2.27 of Volume I.

To date, the government has transferred $9.1 billion to foundations and recorded that amount as expenses, while $7.7 billion of that amount is still sitting in the foundations' bank accounts and investments for eventual distribution.

My staff is currently discussing with officials of the Treasury Board Secretariat the implications of the recent accounting standard on the government reporting entity, which is to be implemented in 2005-06. While TBS officials have indicated their view that their accounting for foundations would remain appropriate under this standard, we are not convinced. I remain hopeful that these discussions can lead to resolution of this issue with the Government. We also continue to monitor progress on another accounting project of the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants with respect to government transfers.

In addition to my concerns on the accounting for foundations, I have also expressed concerns about their accountability regime. I intend to issue a chapter in my February 2005 Report that will address, among other things, the Government's recent initiatives in this area.

Mr. Chairman, in my Observations, I also address the ongoing accounting challenges at National Defence and at the Canada Revenue Agency. These challenges involve the difficulty in accounting for Defence inventory, in one case, and tax revenue and receivables, in the other case, with systems that were not designed to support accrual accounting. This has required significant efforts at both organizations to derive appropriate accrual accounting information to support these items. Both organizations need to address the weaknesses in their financial reporting processes over these significant amounts and implementing solutions should be made a priority.

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