6 May 1998
L. Denis Desautels, FCA
Auditor General Of Canada
Thank you, Mr. Chairman, for the opportunity to be here with you today to discuss Bill C-36, the Budget Implementation Act, 1998. During my term as Auditor General, this is the first time that I have been asked to appear before this Committee to answer questions on such legislation. I welcome the opportunity.
With me today is Mr. Ron Thompson, Assistant Auditor General in my Audit Operations Branch. Also in the room today are other officials from my Office – depending on the subject area of questions, I may call on these individuals to elaborate on my answers.
Mr. Chairman, my mandate as Auditor General does not allow me to discuss the merits of the government’s policies reflected in this Bill and I will therefore not be able to answer questions that deal with such matters. However, the Committee may have questions related to subjects in the Bill on which I have prepared reports since my appointment as Auditor General. I would be pleased to answer questions related to these reports if this would be helpful.
Mr. Chairman, the Committee is no doubt aware of my most recent report, tabled in Parliament on Tuesday last week. Chapter 9 of that report – Reporting Government Financial Results: The Importance of Complying with Objective Accounting Standards – is quite relevant to your discussions on Part 1 of this Bill.
Section 46 authorizes the Minister of Finance to pay $2.5 billion to the Canada Millennium Scholarship Foundation. The Minister plans to record this transaction as an expenditure of the government in the year ended 31 March 1998 even though this Committee has not yet finished its review of the Bill and Parliament must go through several subsequent stages before the Bill becomes law.
This method of accounting proposed by the government represents a significant departure from objective accounting standards recommended by the CICA’s Public Sector Accounting and Auditing Board. These standards have been developed, principally by people in government, to strengthen the credibility of government financial statements in Canada. This might seem like a simple disagreement between accountants, but it is much more serious. I hope that the government will reconsider its proposed accounting for the Millennium Foundation before finalizing its 1997-98 financial statements.
Mr. Chairman, to assist members of the Committee understand the technical arguments in the chapter, I have prepared a one-page summary that is appended to this statement.
I assure the Committee that this proposed accounting practice is definitely not followed by the private sector nor would the Government of Canada itself, in assessing corporate or personal tax returns, even allow such a practice by the private sector.
Mr. Chairman, as with last year’s Innovation Foundation, the Millennium Foundation represents quite a different method of delivering a major new program involving a significant outflow of public money. This raises a number of questions that the Committee may wish to consider.
As we read it, as soon as Bill C-36 receives Royal Assent , Section 46 would allow the entire $2.5 billion to be paid to the Millennium Foundation. Presumably, as was done with the Innovation Foundation, a Funding Agreement would be entered into between the Crown and the Millennium Foundation to elaborate on the investment and management of the amount and other administrative matters. As stated in the Budget, this principal amount together with investment income it generates, should provide about $325 million annually for scholarships over a 10-year period not starting until the year 2000. The Committee should be aware that the up-front payment of $2.5 billion differs from Treasury Board’s policy on transfer payments, that grants and contributions should not be paid to recipients in advance of need.
I am pleased to note that Sections 36 to 39 of the Bill address, for the Millennium Foundation, most of the concerns that I raised on accountability and parliamentary oversight in my December 1997 report on the Canada Foundation for Innovation. But this raises another question that I mention briefly in chapter 9 (paragraph 9.41).
Specifically, is it possible to put in place appropriate accountability and parliamentary oversight mechanisms for such foundations and still have them, in fact, operate at arm’s length from the government? Moreover, given the government’s right to appoint a significant number of directors to their boards; given the foundations’ only source of funding is the government and that it dictates how the funding shall be invested and spent; and, at least in the case of the Millennium Foundation, given the legal requirement for accountability to Parliament, are such organizations really at arm’s length from the government?
I intend to study these questions further in the course of my audit of the government’s March 31, 1998 financial statements.
If I may make a final comment, Mr. Chairman; in the 1997 Public Accounts, I recommended that the government and Parliament may wish to re-examine the continuing need for and utility of the Debt Servicing and Reduction Account. In the 1998 Budget, the government indicated that it would ask this Committee to review my recommendation and I hope the Committee will find time to do so.
Mr. Chairman, that concludes my opening statement and I would be pleased to answer your Committee’s questions.