PACC Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Public Accounts

EVIDENCE

CONTENTS

Tuesday, November 26, 2002

¹

1530

The Chair (Mr. John Williams (St. Albert, Canadian Alliance))

Mr. Philip Mayfield (Cariboo—Chilcotin, Canadian Alliance)

The Chair

Mr. Philip Mayfield

¹

1535

The Chair

Mr. Odina Desrochers (Lotbinière—L'Érable, BQ)

The Chair

Mr. Mac Harb (Ottawa Centre, Lib.)

Mr. Mac Harb

The Chair

¹

1540

Mr. Shawn Murphy (Hillsborough, Lib.)

Mr. Philip Mayfield

The Chair

Mr. Shawn Murphy

The Chair

Mr. John Bryden (Ancaster—Dundas—Flamborough—Aldershot, Lib.)

The Chair

Mr. Alex Shepherd (Durham, Lib.)

The Chair

Ms. Beth Phinney (Hamilton Mountain, Lib.)

Mr. Philip Mayfield

Ms. Beth Phinney

The Chair

Mr. Philip Mayfield

¹

1545

The Chair

Ms. Beth Phinney

Mr. Philip Mayfield

The Chair

Mr. Odina Desrochers

Mr. Mac Harb

The Chair

The Chair

Ms. Val Meredith (South Surrey—White Rock—Langley, Canadian Alliance)

Mr. Mac Harb

Ms. Val Meredith

Mr. Mac Harb

The Chair

Mr. Mac Harb

¹

1550

The Chair

Mr. Mac Harb

The Chair

Mr. Mac Harb

The Chair

Ms. Val Meredith

The Chair

Mr. Mac Harb

Ms. Val Meredith

The Chair

Mr. Mac Harb

The Chair

Mr. Mac Harb

The Chair

The Chair

Mr. John Bryden

Mr. Mac Harb

Mr. John Bryden

Mr. John Bryden

The Chair

Mr. John Bryden

The Chair

Mr. Richard J. Neville (Deputy Comptroller General, Treasury Board of Canada Secretariat)

¹

1555

º

1600

º

1605

The Chair

Ms. Sheila Fraser (Auditor General of Canada, Office of the Auditor General )

º

1610

The Chair

Mr. Philip Mayfield

Mr. Richard Neville

Mr. Philip Mayfield

Mr. Richard Neville

Mr. Philip Mayfield

Mr. Richard Neville

Mr. Philip Mayfield

Ms. Sheila Fraser

Mr. Richard Neville

The Chair

Mr. Philip Mayfield

The Chair

Mr. Philip Mayfield

º

1615

Mr. Richard Neville

Mr. Philip Mayfield

Ms. Sheila Fraser

Mr. Philip Mayfield

Ms. Sheila Fraser

The Chair

º

1620

Mr. Philip Mayfield

Ms. Sheila Fraser

The Chair

Mr. Philip Mayfield

The Chair

Ms. Beth Phinney

Ms. Sheila Fraser

Ms. Beth Phinney

Ms. Sheila Fraser

Ms. Beth Phinney

Mr. Richard Neville

Ms. Beth Phinney

Ms. Sheila Fraser

The Chair

Mr. Odina Desrochers

Mr. Richard Neville

Mr. Peter DeVries (Director, Fiscal Policy Division, Economic and Fiscal Policy Division, Department of Finance)

º

1625

Mr. Odina Desrochers

Mr. Peter DeVries

Mr. Odina Desrochers

Mr. Peter DeVries

Mr. Odina Desrochers

Mr. Peter DeVries

Mr. Odina Desrochers

The Chair

Mr. Odina Desrochers

Mr. Richard Neville

Mr. Odina Desrochers

Mr. Richard Neville

º

1630

Mr. Odina Desrochers

Mr. Richard Neville

Mr. Odina Desrochers

Mr. Richard Neville

The Chair

Ms. Sheila Fraser

The Chair

Mr. Richard Neville

The Chair

Ms. Beth Phinney

Mr. Richard Neville

Ms. Beth Phinney

Mr. Richard Neville

Ms. Beth Phinney

Mr. Richard Neville

Ms. Beth Phinney

Mr. Richard Neville

Ms. Beth Phinney

Mr. Richard Neville

Ms. Beth Phinney

º

1635

Mr. Richard Neville

Ms. Beth Phinney

Mr. Richard Neville

The Chair

Mr. Richard Neville

Ms. Beth Phinney

Mr. Richard Neville

Ms. Beth Phinney

The Chair

Mr. Mac Harb

Mr. Peter DeVries

Mr. Mac Harb

Mr. Peter DeVries

Mr. Mac Harb

Mr. Richard Neville

Mr. Mac Harb

Mr. Richard Neville

The Chair

Ms. Sheila Fraser

Mr. Mac Harb

Mr. Richard Neville

Mr. Peter DeVries

º

1640

The Chair

Mr. Peter DeVries

The Chair

Mr. Richard Neville

The Chair

Mr. Peter Stoffer (Sackville—Musquodoboit Valley—Eastern Shore, NDP)

Mr. Richard Neville

Mr. Peter Stoffer

The Chair

Mr. Peter DeVries

º

1645

Mr. Peter Stoffer

Mr. Peter DeVries

Mr. Peter Stoffer

Mr. Richard Neville

Mr. Peter Stoffer

Mr. Richard Neville

Mr. Peter Stoffer

Ms. Sheila Fraser

Mr. Peter Stoffer

Ms. Sheila Fraser

Mr. Peter Stoffer

Mr. Richard Neville

The Chair

Ms. Sheila Fraser

Mr. Peter Stoffer

º

1650

The Chair

Mr. Richard Neville

Ms. Sheila Fraser

Mr. Peter Stoffer

Ms. Sheila Fraser

The Chair

Mr. Philip Mayfield

Mr. Richard Neville

Mr. Philip Mayfield

The Chair

Mr. Philip Mayfield

Ms. Sheila Fraser

Mr. Philip Mayfield

Ms. Sheila Fraser

Mr. Richard Neville

Mr. Philip Mayfield

Mr. Richard Neville

Mr. Philip Mayfield

Mr. Richard Neville

Mr. Philip Mayfield

Mr. Richard Neville

Mr. Philip Mayfield

Mr. Richard Neville

Mr. Philip Mayfield

The Chair

º

1655

Mr. Richard Neville

The Chair

Mr. Odina Desrochers

Mr. Peter DeVries

Mr. Odina Desrochers

Mr. Peter DeVries

Mr. Odina Desrochers

Mr. Peter DeVries

Mr. Odina Desrochers

Mr. Peter DeVries

Mr. Odina Desrochers

Mr. Peter DeVries

Mr. Odina Desrochers

Mr. Richard Neville

Mr. Odina Desrochers

Mr. Richard Neville

Mr. Odina Desrochers

Mr. Richard Neville

Mr. Odina Desrochers

Mr. Richard Neville

Mr. Odina Desrochers

The Chair

Mr. Peter DeVries

The Chair

»

1700

Mr. John Bryden

Mr. Peter DeVries

Mr. John Bryden

Mr. Richard Neville

Mr. John Bryden

Mr. Peter DeVries

Mr. John Morgan (Executive Director, Financial Management and Accounting Policy Directorate, Comptrollership Branch, Treasury Board of Canada Secretariat)

Mr. John Bryden

Mr. Peter DeVries

Mr. John Bryden

»

1705

Mr. Peter DeVries

Mr. John Bryden

Ms. Sheila Fraser

Mr. John Bryden

The Chair

Mr. Shawn Murphy

Mr. Richard Neville

Mr. Shawn Murphy

Mr. Richard Neville

Mr. Shawn Murphy

Mr. Richard Neville

Mr. Shawn Murphy

Mr. Richard Neville

Mr. Shawn Murphy

Mr. Richard Neville

Mr. Shawn Murphy

Mr. Richard Neville

»

1710

Mr. Shawn Murphy

Mr. Richard Neville

Ms. Sheila Fraser

Mr. Shawn Murphy

Ms. Sheila Fraser

Mr. Richard Neville

The Chair

Mr. Peter Stoffer

The Chair

Mr. Peter Stoffer

»

1715

The Chair

Ms. Sheila Fraser

The Chair

Mr. Richard Neville

The Chair

Mr. Alex Shepherd

Mr. Richard Neville

Mr. Alex Shepherd

Mr. Richard Neville

Mr. Alex Shepherd

Mr. Richard Neville

Ms. Sheila Fraser

Mr. Alex Shepherd

Mr. Richard Neville

Mr. Peter DeVries

»

1720

Mr. Alex Shepherd

Ms. Sheila Fraser

Mr. Richard Neville

The Chair

Ms. Val Meredith

Mr. Peter DeVries

Ms. Val Meredith

Mr. Richard Neville

Ms. Sheila Fraser

Ms. Val Meredith

»

1725

Ms. Sheila Fraser

Mr. Richard Neville

Ms. Val Meredith

Mr. Richard Neville

Ms. Val Meredith

Mr. Richard Neville

Ms. Val Meredith

Mr. Richard Neville

Ms. Val Meredith

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Mr. Richard Neville

The Chair

Mr. Richard Neville

The Chair

Ms. Sheila Fraser

Mr. Richard Neville

The Chair

Mr. Richard Neville

The Chair

»

1730

Mr. Richard Neville

The Chair

Mr. John Bryden

Mr. Richard Neville

Mr. John Bryden

The Chair

Mr. John Bryden

Mr. Richard Neville

Mr. John Bryden

Mr. Richard Neville

Mr. John Bryden

Mr. Richard Neville

Mr. John Bryden

Mr. Richard Neville

The Chair

Mr. Philip Mayfield

Mr. Richard Neville

The Chair

Ms. Sheila Fraser

Mr. Philip Mayfield

Ms. Sheila Fraser

The Chair

---

CANADA

Standing Committee on Public Accounts

---

NUMBER 004

l

2nd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Tuesday, November 26, 2002

[Recorded by Electronic Apparatus]

¹  (1530)  

[English]

    The Chair (Mr. John Williams (St. Albert, Canadian Alliance)): Good afternoon, all.

    The order of the day, pursuant to Standing Order 108(3)(e), is consideration of the public accounts of Canada of 2001-02. Our witnesses are from the Office of the Auditor General.

    With us are Ms. Sheila Fraser, the Auditor General of Canada; Mr. John Wiersema, assistant auditor general at the Audit Operations Branch; and Mr. Clyde MacLellan, principal of the Office of the Auditor General.

    We also have witnesses from Treasury Board Secretariat, and they are Mr. Richard Neville, deputy comptroller general at the Comptrollership Branch; and Mr. John Morgan, executive director of the Financial Management and Accounting Policy Directorate at the Comptrollership Branch.

    Finally, from the Department of Finance, we welcome Mr. Peter DeVries, director of the Fiscal Policy Division at the Economic and Fiscal Policy Division.

    Also on the orders of the day is consideration of a notice of motion from Mr. Mayfield. I thought it would be better that we deal with that notice of motion first. Therefore, at no later than 4 p.m., we will continue by moving on to consideration of the public accounts of Canada.

    As I said, at the last meeting, in accordance with the 48-hour rule, a motion was made by Mr. Mayfield that this committee call Mr. Charles Guité back for an in camera meeting, to continue his comments with this committee and receive questions from its members.

    Mr. Mayfield, you moved that motion. Do you want to address the motion, please?

    Mr. Philip Mayfield (Cariboo—Chilcotin, Canadian Alliance): Yes, Mr. Chair, I would like to address that motion.

    The Chair: Mr. Mayfield, because you only gave us a notice of motion, include in your remarks that you are moving the motion, too.

    Mr. Philip Mayfield: Okay.

    Mr. Chair, I intend to move this and then address it, with your permission.

    I move that this committee call Mr. Guité back for an in camera meeting, to continue his comments with this committee and receive questions from its members.

    Mr. Chair, the reason for doing this is that Mr. Guité has been talking in the media about the situation he was involved with in the department and why he did some the things he did. These are items I consider to be important for this committee to have on record, and they are items that were not included in his testimony. I therefore believe it would be appropriate for this committee to call Mr. Guité back and give him an opportunity to express to us, in a quiet and confidential way if he so chooses, the continuance of information for our records; and also for committee members to ask him questions with regard to the situation he was involved in and to continue questioning him on the information that he brings in this meeting that I'm calling for.

¹  (1535)  

    The Chair: Thank you very much.

    Is there any other debate?

    Monsieur Desrochers.

[Translation]

    Mr. Odina Desrochers (Lotbinière—L'Érable, BQ): Thank you, Mr. Chairman.

    I too support the motion that my Alliance colleague is moving, because I have copies of articles published in The Globe and Mail from Saturday October 12, as well as October 3, which clearly show that Mr. Guité said more there than what we heard here, at the Public Accounts Committee. So I think it would be a good idea to call Mr. Guité back, so that we can have all of the necessary information regarding the work that was undertaken a few weeks ago by the Public Accounts Committee. Therefore, I think it would be important for Mr. Guité to be called back so that he can give us some clarification on what he told the media and what he neglected to tell us here, during the meeting last July.

[English]

    The Chair: Mr. Harb.

    Mr. Mac Harb (Ottawa Centre, Lib.): It's quite amusing, Mr. Chair. We've gone back to the old days. We have a situation in which members of the opposition are again asking for someone who is under police investigation to appear before the committee on an in camera basis, to answer questions about something he may or may not have said in public.

    Mr. Chair, I just want to take you back a little bit to when this committee unanimously agreed to call in Mr. Guité, along with his lawyer, for an in camera meeting, in order to answer questions of the committee members. He was given assurances that his comments before the committee would be protected and would not be released and that he would be covered by parliamentary privilege, only to have us find out, immediately after the witnesses left the room, that some of the opposition members—more than one, that is—went out and spilled the beans. In fact, they had spoken about what they perceived of stuff that had taken place here in camera.

    As a result of this, the lawyer representing Mr. Guité wrote a letter to the committee sometime in July, asking the committee to explain itself. The letter was sent to the chair and was copied to all members of the committee. It stated what he was told about his client's privileges and what his client would face, and how all the information his client would give to the committee in camera would be protected.

    As of today, Mr. Chair, frankly and unfortunately, not even an acknowledgment has gone to the lawyer representing this individual. Not even a response has taken place. There has not even been some sort of investigation by our committee to find out whether or not any members of this committee—namely, the opposition members of the committee, or more than one of them—

    An hon. member: It was not only the opposition.

    Mr. Mac Harb: —have broken the rules of the committee, and have in fact broken the rules of the House. In fact, in my view, they—more than one—were in contempt not only of this committee, but also of the House of Commons.

    Mr. Chair, I asked during the last meeting that action be taken, that legal counsel review all of the transcripts of both the print media as well as the broadcast media, both television and radio, and that they come back to the committee to tell this committee whether any rules of the House or of the committee have been broken. In addition to this, Mr. Chair, you have undertaken that you will be speaking to the individual members who made comments in public and that you will be reporting to this committee.

    Now, faced with this motion that this committee again call Mr. Guité for an in camera meeting, I am to conclude, Mr. Chair, that this is frankly nothing short of a joke and nothing short of an insult to the members of the committee. If anything, it will put the credibility of the committee into question. I would therefore suggest that this motion either be withdrawn or be voted against.

    Once we have dealt with this motion, Mr. Chair, I would further ask that you give us a report on your discussion with the members in question. Based on that, we will see whether or not further action is required.

    The Chair: Thank you, Mr. Harb. I'll give you the report now.

    I talked to one member you are speaking of, and he said he'll be here today to speak for himself. I will not speak on behalf of any other member of Parliament.

    The other one, I understand, has a serious illness in the family and is not in Ottawa. Therefore, he is unable to be here today to speak on his own behalf, and as I said, I will not speak on behalf of any member of Parliament.

    As a member of the steering committee, you have heard the report made to the steering committee by the law clerk of the House of Commons, in camera, on what we can or should or perhaps don't do with the letter that we received from Mr. Guité's lawyer.

    That is, of course, all a separate issue compared to Mr. Mayfield's motion. Based on what Mr. Guité has been saying in the papers, Mr. Mayfield feels we should have another meeting.

    Mr. Murphy.

¹  (1540)  

    Mr. Shawn Murphy (Hillsborough, Lib.): Thank you very much, Mr. Chairman.

    As Mr. Harb has indicated, this is an unusual request. It's my understanding that the gist of Mr. Mayfield's motion is that there's a discrepancy in the evidence that Mr. Guité gave before this committee and the subsequent interview he gave in the media.

    Mr. Philip Mayfield: That's not correct.

    The Chair: I should also mention—and I discussed this with Mr. Mayfield, and I give this advice to all committee members—that the testimony we received in camera was confidential. Therefore, you cannot use such words as, “What we read in the paper contradicts the information that we heard in camera.” That would suggest that we heard the converse to what is printed in the paper. You may refer to the fact that we didn't hear this information or something like that, but do not allude to or infer the testimony that was received in camera.

    Mr. Shawn Murphy: Okay, Mr. Chairman.

    Just to continue, if the only way in which we can responsibly deal with this motion that has been tabled is by going back in camera in this committee because we have a transcript of the evidence that was given by Mr. Guité and we also have a report from the media, then we'd have to consider that.

    The second point I'd make, Mr. Chairman, is that if we were to consider and approve Mr. Mayfield's motion, I hope it would be understood that if Mr. Guité ever was invited back here, it would be within a very narrow scope. The only questions would be on the discrepancy only. We're not going to go on another fishing expedition.

    I can't consider this motion responsibly right now. I don't have any transcript, and I don't have any—

    The Chair: No, let's hear the full discussion, if that is your position there.

    Mr. Bryden, you're next.

    Mr. John Bryden (Ancaster—Dundas—Flamborough—Aldershot, Lib.): Thank you, Mr. Chairman.

    With all due respect to my colleagues opposite, it seems to me that you can't exactly ask your witness to come forward to speak in camera for something he has already said on the record. It would seem to me that, because he has spoken about this in public, all we need to do is direct the researcher to take those comments that are on the record—those that were reported in the newspapers—and add them to the researcher's consideration of the information that has been presented in camera.

    There will come a time when we, as a committee, will receive a draft report from the researcher. If there are contradictions of any kind between what was spoken on the record and what was spoken in camera, the researcher will draw them to our attention and we can decide what action to take at that time.

    I would suspect that we probably wouldn't want to call him back. I think it would be enough to point out that there are inconsistencies and that we on the committee would draw appropriate inferences from those inconsistencies. But I really do not see how you can practically ask anyone to come to speak to us in camera when he has spoken on the record. If you're going to ask him to come to speak on the record before the committee, that's another thing, but that collides with other investigations that are ongoing, of course. So I think you're in a quandary here.

    The Chair: Mr. Shepherd.

    Mr. Alex Shepherd (Durham, Lib.): I haven't spoken on this issue before, but it has bothered me for some time since last summer. My conclusion, quite frankly, is that you can't have an in camera meeting with a lot of politicians. The simple reality is that if people wanted to respect the in camera provisions of the committee, they simply would not talk to the media after the event. This is something that people have been totally unable to resist, and I think the net result has been that it has cast aspersions on the whole committee system and on the credibility of this committee. This motion is just to do some more of the same, and I think it's absolutely ludicrous.

    The Chair: Thank you.

    Ms. Phinney.

    Ms. Beth Phinney (Hamilton Mountain, Lib.): Thank you, Mr. Chair.

    As Mr. Mayfield explained, he said it's not because he wants...because the article contradicts—

    Mr. Philip Mayfield: There is no contradiction.

    Ms. Beth Phinney: Mr. Chair, would you please ask Mr. Mayfield to explain why he's asking for this?

    The Chair: Mr. Mayfield, can you reiterate again your rationale for the motion?

    Mr. Philip Mayfield: Yes, and I will use illustrations if you'd care for me to do so. I'm concerned when I read comments such as, “The trick, he said, was organizing a competition that pitted the government's agency of choice with a bunch of weaklings.” He is referring to the former Conservative government there, but he also goes on to say that “the new, supposedly open bidding process under the Liberals was also ‘bent’”. I would like to know what he meant by that, because we questioned him pretty closely about these events, and I don't remember him even acknowledging anything. I remember he was very cautious in his comments.

    It seems to me that he has said, “I can talk to you about what I want, but when I go to committee, I don't have to say anything to them if I don't choose to.” I really think the committee has been dealt with in a less than satisfactory manner by this gentleman, and I would like for him to have an opportunity to explain what he meant about weaklings being pitted against big ones, and what he meant about the bent process. I think these are issues that we need to understand as a committee if we are going to hold departments accountable for the best government that can be provided to our citizens. Those are the kinds of things I'm concerned about, and I would like answers from him about them.

¹  (1545)  

    The Chair: Okay, Mr. Mayfield.

    Ms. Phinney, that should answer your question. What was your next point?

    Ms. Beth Phinney: There seems to be enough concern about this. I'm just wondering if our legal counsel should come with all the papers, with everything that's involved, including everything that has been involved in the newspapers or the things that were said in the committee. He should look at it all, and then come here and speak in front of the committee about the in camera business, etc., and get it all straightened out. After he has given his report, we can then decide—it might only take one more meeting—if we can ask somebody to come in camera if we're not going to follow the in camera rules. What's the point of having somebody appear in camera when he already knows people are going to...?

    Maybe we should have legal counsel come in after having looked at all the material.

    Mr. Philip Mayfield: If it were possible—

    The Chair: No. Mr. Desrochers is next.

[Translation]

    Mr. Odina Desrochers: I want to go back to the point of view I expressed at the start of the meeting. Did Mr. Guité say things that he did not say here, at the Public Accounts Committee? During his appearance—I was here—he often invoked the famous Public Service Employment Act to state the he had to keep certain passages confidential. He continually hid behind that act. However, in the interview he gave, he repeated a bit...

[English]

    Mr. Mac Harb: On a point of order, Mr. Chair, here we go again. We are here in a very public forum, with members of the opposition speaking about an in camera proceeding that has taken place. I'm at a loss. I would like to see whether or not the clerk can give us direction on whether or not that is permissible.

    The Chair: Okay, Mr. Harb.

    I will caution everybody again that you cannot in any way, shape, or form, suggest the substance of something that was said at the committee, nor can you allude to it or even use such words as, “This is a contradiction to what was said”, as that would allude to the fact that the opposite was heard before the committee. You must be very judicious in any remarks that would allude to whatever was said at that in camera meeting.

    I think we should perhaps just bring this discussion to a close, because I don't see any more information coming on the table. We have suggestions that perhaps the motion should be amended, as Mr. Murphy said. We have also had ideas that perhaps the motion should be deferred. Of course, it can always be approved, and it can also be defeated as well.

    In the absence of a motion to defer or a motion to amend—

    An hon. member: [Editor's Note: Inaudible]

    The Chair: Is a motion to defer or a motion to amend coming forward? There is none?

    Ms. Meredith.

    Ms. Val Meredith (South Surrey—White Rock—Langley, Canadian Alliance): I'll move that this motion be deferred until legal counsel has a chance to look at the necessary documentation and can bring it forward before the committee.

    Mr. Mac Harb: May I make a suggestion? I would suggest that legal counsel—

    Ms. Val Meredith: Actually, I moved that amendment.

    Mr. Mac Harb: Yes, but I'm going to say something you might like.

    Provided legal counsel—

    The Chair: It's Ms. Meredith's amendment. She is amending the motion by saying that the motion should be deferred until such time as we hear the facts from legal counsel.

    Mr. Mac Harb: It should include the facts that surround the in camera meeting; the discussions that have taken place after the in camera meeting; whether or not any member of the opposition or any member of the committee who has spoken publicly has in fact broken any rules of the House or any rules of the committee; and that the report be brought to the committee. We'll be happy to sit down and look at that.

¹  (1550)  

    The Chair: At a report by the law clerk?

    Mr. Mac Harb: Yes, and my understanding is that this was—

    The Chair: We will have a verbal report by the law clerk.

    Mr. Mac Harb: No, I would like a written report, Mr. Chair.

    The Chair: Well, Ms. Meredith's motion is not necessarily to include a written report by the law clerk.

    Ms. Val Meredith: It wasn't. It was just to have him review all the necessary documents and then report back to us.

    The Chair: Do you want a written report from the law clerk?

    Mr. Mac Harb: What do you have to lose?

    Ms. Val Meredith: If he's able.

    What we have to lose is time. If it takes him a lot of time to come up with a written report, then maybe he could do a verbal report and follow it up with a written report.

    The Chair: There you go.

    Mr. Mac Harb: Okay, so it's a verbal report followed up by a written report.

    The Chair: If that's our decision.

    Okay, the clerk needs some clarity here.

    Ms. Meredith has moved that this motion presented by Mr. Mayfield be deferred until such time as we have a verbal report from the law clerk on all of the issues surrounding the in camera meeting, including what was said by members after the meeting and what was reported in the media after the meeting. If we feel the verbal report is insufficient, then we may decide to ask for a written report.

    Mr. Mac Harb: Of course, that will include whether or not any rules have been broken.

    The Chair: Yes, it will include the breaking of any rules.

    So there it is. There's a motion to defer.

    (Motion agreed to)

    The Chair: Mr. Bryden.

    Mr. John Bryden: Just on one small thing that is related to this, Mr. Chairman, may I ask that the researchers be directed, in the preparation of the report, to take into account, into consideration, the public comments of the witnesses who appeared before us in camera?

    Mr. Mac Harb: Yes, we said that.

    Mr. John Bryden: Is that done?

    An hon. member: Not so far.

    An hon. member: Not the researchers, but the law clerk.

    Mr. John Bryden: No, I'm talking about the researchers who are in the process of preparing a report.

    The Chair: I don't mind your suggestion, Mr. Bryden. The only problem is that what is mentioned in the media is not evidence before a committee.

    Mr. John Bryden: Point taken, Mr. Chairman.

    The Chair: Okay, that matter is now closed.

    We'll now move on to the second item on the agenda, the public accounts of Canada. We ask the Auditor General, the deputy comptroller general, etc., to come forward.

    Mr. Neville has an overview presentation that he is just going to skim through, unfortunately. He'd like to spend some time on it, but that would take half the afternoon. I have therefore asked him to be brief, and he has promised that he will be brief.

    Does everybody have a copy of the overview document? It's entitled “Public Accounts 2002: A Presentation to the Standing Committee on Public Accounts”.

    Mr. Neville, go ahead whenever you're ready.

    Mr. Richard J. Neville (Deputy Comptroller General, Treasury Board of Canada Secretariat): Good afternoon, Mr. Chairman and members of the committee. Thank you for the invitation to attend this briefing on the 2002 public accounts of Canada and, in particular, the financial statements contained within volume I.

    With me are Mr. John Morgan, executive director of the Financial Management and Accounting Policy Directorate within the Treasure Board Secretariat; and Mr. Peter DeVries, director of the Fiscal Policy Division within the Department of Finance.

[Translation]

    I would like to thank you very much for the opportunity to review with you today the financial results of the government along with a number of matters which I think are of particular importance to this committee. This is the second year for such a presentation and I trust that you will find it both informative and useful.

    I would also like to thank the Auditor General and her staff for the professional working relationship we have enjoyed together over the last year. We certainly share the same objectives and are working very hard to achieve them.

    You will note that the government has received an unqualified or "clean" audit report on its financial statements from the Auditor General. While this is very good news, we recognize that the Auditor General has highlighted a number of concerns. We do take these very seriously and are actively engaged in resolving them.

¹  (1555)  

[English]

    Mr. Chairman, I would now like to highlight a few items of significance that are contained within the slide presentation that has been distributed to the members. What you have before you is a presentation with respect to the public accounts for 2002. Turning to page 2, there are five broad themes. I'll try to go through each one very quickly in order to meet the time constraints.

    The first theme deals with the explanation of the public accounts and other accountability documents. The second deals with the financial results for the past year. The third touches on the implementation of full accrual accounting and what it means for the public accounts. We dealt with this last year, but it's more of a reminder and a refresher course. The fourth theme is accrual budgeting and appropriations, again a very difficult subject that we've been dealing with over the last several meetings. And last but not least, we have the observations of the Auditor General.

    Turning to page 3, dealing with the first theme, in February 2001, there was no budget in the traditional sense of what we normally have or in terms of what normally precedes the tabling of the main estimates. What we did have, though, was an economic statement and budget update in October 2000. That was then followed by the main estimates in February 2001 and supplementary estimates A and B, in December 2001 and March 2002 respectively. We then had the annual financial report that was tabled on October 15, 2002, and the 2002 public accounts that were tabled on October 24.

    In terms of the public accounts, again just as a quick refresher course, volume I contains a summary report and financial statements, plus historical information and detailed analyses of the financial statements. It's very summary, high-level information, and very important.

    Volume II, part 2, contains additional information analyses by department. If you're looking for specific information as it relates to a particular department's appropriations, you'll find it in volume II, part 2.

    I should have started with volume II, part 1, which contains details of expenditures and revenues. It's the one that has basically all of the departmental information. Volume II, part 2, has additional information analyses, as per the requirements of the Financial Administration Act and parliamentary committees.

    In terms of the second theme, 2001 financial results, there was a surplus of $8.9 billion. I think it's important to note that the net debt dropped by this amount, from $545.4 billion in 2000-01 to $536.5 billion in 2001-02, and there was also a restatement that occurred as a result of an error with the mutual fund trust capital gains refunds, although this was corrected and I believe the Auditor General has agreed to that correction.

    Net debt to GDP is found on page 6. I'm showing a number of ratios there. Net debt to GDP measures the ability of Canada's taxpayers to finance our net debt. What we're seeing is a significant decrease from 1998, when it was 65.6% net debt to GDP, to 49.1% in 2002. I'd also like to point out that, in 1996, this was as high as 70.9%, so there has been a significant decrease.

    On net revenues to GDP, here we're talking about the ratio of revenues to GDP. This ratio measures the overall tax burden on the economy through both tax and non-tax revenues, the lower the better. In 1998, the net revenues to GDP were 17.4%. That figure has now dropped down to 15.9%.

    In terms of the net program expenditures to GDP, found on page 8, when we're talking about net program expenditures, these again exclude public debt charges. From 1998 to 2002, there has been a decrease from 12.3% to 11.6%, whereas it was as high as 19.5% back in 1975-76.

    If we were to include the debt charges, it would be 15% in 2002, which is the lowest in the last forty years.

    Public debt charges to revenues are a ratio that measures the amount of every revenue dollar that must be used to pay interest on interest-bearing debt. You would like to see that coming down, and you do. In 1998, it was 26.7%, and it's down to 21.8% in 2002.

    We thought it would be appropriate to show you a comparison between the budget and actuals. If you look at the actual total net revenues, they were at $173.3 billion, versus a budget of $174.5 billion, so there was a decrease. In terms of net program spending, there was an increase in net program spending, to $126.7 billion, as compared to $124.6 billion. Public debt charges did come down. The actuals were $37.7 billion, versus the budgeted $41.7 billion. So as you can see, the actual surplus is $8.9 billion.

    If you want to compare the 2001-02 figures to those of the previous year, 2000-01, you can again see that there has been a decrease in net revenues, an increase in the total net program spending, and a decrease in the public debt charges, resulting in a surplus of $8.9 billion for 2001-02, as compared to $18.1 billion in the previous year.

    I'm going to quickly talk about the financial results summary. It's very high-level. Basically, for revenues, you can see there has been a decrease in 2001-02 from 2000-01. In terms of expenditures, there has been an increase. In terms of the surplus, then, as you can appreciate, there would have been a decrease for 2001-02 versus 2000-01.

    I think it's also important to note the accumulated deficit. If you go back to 1999-2000—this is at the bottom on the right-hand side of the page—you had an accumulated deficit of $563.5 billion, and it has now decreased to $536.5 billion.

    I'm going to skip over the next several pages for revenues, expenditures, and debt, and move to page 16, which shows how Canada compares in terms of its consolidated statements. At this point, Canada is on what is called a modified accrual basis. We are seriously considering moving to full accrual. When you refer to the G-7 countries, two countries are on full accrual today, the U.S. and the U.K. However, I think it's fair to state that with respect to the U.S., the comptroller general has refused to even give an opinion. He has in effect given a denial of opinion in terms of their financial statements. And the U.K. is moving to full accrual in 2003-04.

    The next page shows how Canada compares for net debt to GDP in the G-7 countries. Canada right now is at 43.6% if we're using a national accounts basis. Understand that if you were to follow what the OECD has commented on, we could be behind the U.S. by the end of the 2002-03 fiscal year.

    Moving to the third theme very quickly, that being implementation of full accrual accounting, it's fair to say that when we talk about accrual accounting, we are talking about reporting activities based on their economic events. The key term there is “economic events”, as opposed to reporting them when the expenditures have actually taken place, i.e., in terms of payment. You're moving to a much more appropriate way of accounting when you move onto a full accrual basis.

    I'm going to move past accrual accounting. The information is there for those of you who are interested.

    I'd like to just touch on page 21, where we talk about the accounting policy changes. Basically, what we've tried to show you is the impact of each one of our accounting policy changes on, one, the net debt, and two, the accumulated deficit. You'll see some increases and decreases.

    In terms of the impact of full accrual accounting on the public accounts, there would be an impact. We would be reporting new assets and new liabilities. The revenues and expenses would also change, so there would be a significant impact on the public accounts per se.

    In terms of the fourth theme, accrual budgeting and accrual appropriations, I know we've dealt with this over the last several meetings. As you know, however, it still is a very complex issue. There are different international practices. We have dedicated a specific resource. Internal consultations are progressing, including those with the Office of the Auditor General, and making a recommendation to Parliament on this particular initiative is something we still have as an objective.

º  (1600)  

    That brings me to the last theme, Mr. Chair, that being the specific observations of the Auditor General. Obviously, time doesn't permit me to go through each and every one of them, but there have been a number of observations. We have tried to summarize them in terms of what the observations are and what the individual responses are from our perspective. We will be more than pleased to respond to any one of these.

    I trust that allows me to stay within my time constraint, Mr. Chair.

º  (1605)  

    The Chair: You did pretty good.

    Ms. Fraser, could we have your opening remarks, please?

    Ms. Sheila Fraser (Auditor General of Canada, Office of the Auditor General ): Thank you, Mr. Chair, for inviting us to discuss the 2002 public accounts of Canada. With me are John Wiersema and Clyde MacLellan, the assistant auditor general and principal who are responsible for the audit of the summary financial statements of the government.

    I believe Mr. Neville, while doing so rapidly, has given us an excellent overview of the government's financial results for the year ended March 31, 2002. I believe the practice of a separate briefing on the public accounts was initiated by this committee last year. I believe it is a good practice, and one that enables the committee to better inform itself about the content of both the government's financial accounts and the audit opinion on them. I would encourage the committee to continue this practice.

    My report on the financial statements is included on page 5 of volume I of the public accounts. It includes my overall opinion, and two matters for Parliament's attention.

[Translation]

    My opinion gives users assurance that the government's financial statements are a fair presentation of its financial position and the 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 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. 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 observes 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 underway 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 analyses as well as the target date for the completion of this work.

[English]

    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 I. To date, the government has transferred $7.5 billion to foundations and has 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 public sector accounting board of the Canadian Institute of Chartered Accountants 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 it is important for committee members to know what has happened to these funds.

    Mr. Chair, in my observations, I'll address several other matters as well. They include the government's progress in implementing accrual accounting and the process used to develop management estimates. 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 fully explained on page 39 of volume 1.

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

    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 discussions and analyses? And what can we learn from other jurisdictions about reporting by senior levels of government?

    Mr. Chair, that concludes my opening statement. We welcome any questions that committee members may have.

º  (1610)  

    The Chair: Thank you very much, Ms. Fraser.

    I omitted to mention that the deck Mr. Neville used will of course be deposited with the clerk. To anybody who wants a copy, it's available from the clerk.

    Mr. Mayfield, for eight minutes, please.

    Mr. Philip Mayfield: Thank you very much, Mr. Chairman.

    Mr. Neville's report is comprehensive, and perhaps more comprehensive than my non-accounting background picks up quite as readily as some of the accountants around here. But I was wondering about something on page 11.

    You list the total net revenues. Do those include in them the amount that is taken in from employment insurance premiums?

    Mr. Richard Neville: Yes, they do, Mr. Chair.

    Mr. Philip Mayfield: So that money is in there, then.

    Mr. Richard Neville: That's correct.

    Mr. Philip Mayfield: How about the $40-billion surplus? Where does that come into this total figure?

    Mr. Richard Neville: The $40-million surplus has accumulated over time, since the beginning of when the account was set up, so it is in effect—

    Mr. Philip Mayfield: It's $40 billion, isn't it?

    Ms. Sheila Fraser: Yes.

    Mr. Richard Neville: —an accounting for the revenues that have been received, less the expenditures that have been paid out.

    The Chair: Mr. Mayfield, you said page 11. Was that page 11 of the public accounts?

    Mr. Philip Mayfield: It's on page 11 of the slide show that Mr. Neville presented.

    The Chair: Okay.

    People, if you're making a reference, please be clear as to what—

    Mr. Philip Mayfield: Under total net revenues, where the top line says 173.3, that's $173.3 billion, I presume. Is that correct?

º  (1615)  

    Mr. Richard Neville: That's correct.

    Mr. Philip Mayfield: I want to perhaps go from the front door to the back door in this questioning, and consider the Auditor General's response concerning compliance by the government regarding this EI surplus.

    Last year, the government surplus was $8.9 billion. The EI surplus was $4 billion, which was almost half the entire surplus. The EI account is now at about $40 billion, yet the Auditor General continues to claim—and this is probably not her number, but probably that of some person who understands these—that a $15-billion surplus would make it viable.

    The Prime Minister has been quoted in the House as saying that any surplus would be applied to the debt. The Auditor General has subsequently reported—to refute the PM's statement—that at the October 25, 2001, meeting of the HRDC committee, the minister and her officials were unable to give the committee an idea of where the EI accounts stood. They could only point to a projection of a $7.8-billion coming surplus for the year. Yet the minister stated that she had to hang on to any surplus in case of a downturn in the economy, in order to keep the EI program viable.

    No specific numbers were made available to that committee despite the fact that its members were pressing for them, because the minister stated it was a notational account. Yet the MPs were assured the account was sound. It's quite evident the minister and the commission knew the account was rolling toward a surplus and was not complying with the intent of the act, as outlined by the Auditor General.

    We have research ongoing for the premium-rate setting, but we have no public consultations. We have this EI slight of hand, as I describe it, with regard to the account.

    Auditor General, you're quoted as saying voters should see the full debate on any surplus. I want to ask you if the EI problem is now sufficient justification for a major debate on this subject, in your opinion, madam?

    Ms. Sheila Fraser: If I might, Mr. Chair, I'd go back over a couple of issues. I think I'd like to explain the EI account first of all.

    For accounting purposes, employment insurance is a program like any other government program. The premiums paid go into the revenues. The premiums paid out as the payments to the beneficiaries come out as an expenditure. EI is included in the financial statements of the government, and that is appropriate accounting treatment.

    In the act originally, there was this notion of how to set the rates. One can interpret that to mean that over a certain period of time, the revenues collected, the premiums collected, should equal the payments paid out. The rate-setting mechanism would lead one to believe that.

    The EI account, if you will, is a way to keep track over time, since the beginning of its time, how much revenue has been collected and how much has been paid out. There is no separate bank account. It's only a tracking account, if you will, to keep track of those amounts of money.

    Mr. Philip Mayfield: That's what you mean by a notational account, I presume.

    Ms. Sheila Fraser: It's a notational account. That's right. It was initially to be used to help set the rate for the current years.

    The debate about this started a few years ago, when the account began to generate very large surpluses and more revenues were collected in a year than amounts were paid out. At that time every year, the chief actuary of HRDC would produce a report that would give an indication of what the rate should be for the coming year and what he believed would be a sufficient reserve, if you will, immediately before a recession. It was a maximum amount that was needed before a recession.

    We became concerned because the program continued to generate a surplus, if you will, with more revenues collected than amounts paid out. Over time, as of the end of this past March, this has reached $40 billion, which is far in excess of what the actuary has said was necessary.

    We question if this was really the intent of the act, and whether those revenues are being set in accordance with that law. We can't conclude on that, because we have not been given any explanation as to why these additional amounts are needed for that program, because it's very specific that amounts paid out of this account can only be for certain specified uses. Why is this additional revenue being collected, then?

    Of course, this amount for the current year—$4 billion—forms part of the overall surplus of $8.9 billion. When you look at our report, at the observations on the public accounts, you will see that the employment insurance surplus goes in line with the government's overall surplus. That's on page 1.31, for those who are interested.

    On the question of the surplus going to pay down the debt, the point that we are making in our observations is that there would appear to be an impression that there is a law that the amount of the surplus, or an equivalent amount of cash, has to be used to pay down debt, which is not the case. No law or accounting requires that an equivalent amount of cash be used to pay down debt.

    I think there is confusion about terms, because we talk about an accumulated deficit. The accumulation of all the debts and surpluses the government has realized since Confederation is, in accounting terms, called the net debt. Of course, the surplus for the year is added to the previous net debt and it becomes a new net debt. But it's just an accounting term, it's not actual payment of debt.

    The Chair: You have time for a very brief question, Mr. Mayfield.

º  (1620)  

    Mr. Philip Mayfield: Just for clarification, Mr. Chairman, does that mean we have a $40-billion surplus in the EI, but the total surplus is $8 billion? Is the balance the money that's not there?

    Ms. Sheila Fraser: If I can refer to Mr. Neville's presentation, on page 12, he shows that the surplus for 2001-02 is $8.9 billion. Included in that is about $4 billion worth of EI. And then there is what we call the accumulated deficit. That's the accumulation of all the surpluses and deficits, year by year, since Confederation. The total amount at the beginning of the year was $545 billion, and now it has been reduced to $536 billion. If you take the $545-billion accumulated deficit from the beginning of the year and add the $8.9 billion, it becomes $536 billion. If you will, the $40 billion from EI is netted against the $536 billion. So there's a $40-billion surplus in the EI account, but in all the others, it would be a $576-billion deficit. So it's a net. It's just an accumulation of numbers over time.

    The Chair: There we go.

    Mr. Philip Mayfield: That $40 billion doesn't mean a lot under the circumstances, does it?

    The Chair: Ms. Phinney has a very small point of clarification.

    Ms. Beth Phinney: This is for Mr. Neville and Ms. Fraser.

    On page 5, you talk about the debt being $545.4 billion. On page 12, you're calling it accumulated deficit. I thought we had no deficit.

    Ms. Sheila Fraser: Oh, no, there's a very large deficit.

    Ms. Beth Phinney: Is the deficit the deficit, or is the deficit the debt, or is the debt the deficit?

    Ms. Sheila Fraser: In accounting terms, net debt is the same thing as accumulated deficit. What we all think of as debt is a different thing.

    Ms. Beth Phinney: It can't be a debt on one page and a deficit on another. Your definition of “deficit” is not the same as ours.

    Mr. Richard Neville: No, it's just that when we talk about just debt—don't put the word net in front of it—

    Ms. Beth Phinney: Yes, $545.4 billion.

    Ms. Sheila Fraser: Look at page 15. What we all think of as the debt is $583.4 billion.

    The Chair: I think what we will do is have a little, private lesson after the meeting is over, in order to explain net debt and accumulated deficit.

[Translation]

    Mr. Desrochers, you have eight minutes.

    Mr. Odina Desrochers: Thank you, Mr. Chairman.

    I would like to start by thanking Ms. Fraser and Mr. Neville for their presentations.

    Mr. Neville, in her comments, the Auditor General said that she cannot conclude that the setting of the premium rates observed the intent of the act. I am obviously talking about the EI account. In response to that, you say that the commissioners respected the criteria set out in the Employment Insurance Act.

    Tell me how it is that the Auditor General cannot conclude that the setting of the premium rates observed the intent of the act, when the commissioners respected the criteria set out in the Employment Insurance Act. What are the criteria? How can they be respected if we have trouble understanding how the premium rates for EI are established?

    Mr. Richard Neville: Mr. Chairman, we anticipated that this question would be asked; I am therefore very happy that Mr. DeVries, from the Department of Finance, is here. He is the expert on the account. I am going to ask him to share his comments with us.

[English]

    Mr. Peter DeVries (Director, Fiscal Policy Division, Economic and Fiscal Policy Division, Department of Finance): Thank you, Mr. Neville.

    In terms of how the Auditor General came up with her conclusion, I'll leave that for the Auditor General to explain. However, the EI Act does have in it two provisions on how to set the premium rate. Those provisions were in effect until 2001, including 2001. They were suspended for calendar years 2002 and 2003. Of those two provisions, the first one is that there should be enough revenues to cover program costs over an extended period, over a business cycle, however one wants to define that. The second one is that the premium rates should be kept relatively stable over time.

    Once you get into a situation whereby the surplus starts to build up in the EI account, those two conditions are contradictory. That was recognized by the House finance committee, which undertook a review of this issue back in 1999, as part of its pre-budget consultations for the 2000 budget. They concluded that the current rate-setting provisions, as set out in the EI Act, were flawed, and that the government should undertake a study in order to change them. They actually made recommendations on what the government should do in examining how it could be changed.

    The government took that under consideration and decided that for 2002-03, it would suspend the conditions of the criteria set out in the EI Act and allow the EI premium rates for those two years to be set by order in council. That's what it did this year, and that's what it will be doing again next year.

º  (1625)  

[Translation]

    Mr. Odina Desrochers: Who sets the rates?

[English]

    Mr. Peter DeVries: The Minister of Finance, as well as the Minister of Human Resources, will fix the rate for both 2002—

[Translation]

    Mr. Odina Desrochers: You are saying that when there is a surplus, you submit the problem to the government. But it seems to me that the Minister of Finance and the Minister of Human Resources Development, who set the rates, might understand the need for bringing these rates to a normal base rate, given the very high level of the surplus. At present, one could be led to believe that the Minister of Finance and the Minister of Human Resources Development are accomplices in that they arrange it so that employment insurance brings in enough money to reduce the deficit.

[English]

    Mr. Peter DeVries: I wouldn't say they're accomplices in keeping the rates high, Mr. Chairman. What I would point out, however, is that the current provisions of the act give the authority to the government to set the rates for 2002-03, during which time the government will undertake or is expected to undertake a consultation process.

    As I said, a net rate-setting process will be in place prior to setting the rate for 2004. If a new process is not in place for setting the rate in 2004, then the old provisions of the act come back into force. That means the commissioners will again be setting the rates, and they'll be setting the rates according to the provisions that are set out in the EI Act.

[Translation]

    Mr. Odina Desrochers: The situation, as it appears to us, Mr. Neville and Mr. DeVries, is that all of the surplus employment insurance premiums are going directly to the deficit.

    But if there were to be a crisis in employment insurance tomorrow morning and the funds were required to deal with it, would there still be money in the account or would it be empty?

[English]

    Mr. Peter DeVries: If the fiscal situation turns out to be worse than currently projected, then the government does have at its disposal the contingency reserve that it includes in each of its forecasts—a reserve of $3 billion per year—as well as economic prudence, which is a set-aside in its budget forecast. That then gives it a buffer of $4 billion each year, in the first year of its budget plan, in order to ensure that it continues to meet its budget targets. Of course, budget targets are balanced budgets or better.

    So flexibility is built into each of the budget plans through contingency reserves and economic prudence, to ensure that if there is a shortfall in EI premiums because of a downturn in the economy, the government will not go back into deficit because of it.

[Translation]

    Mr. Odina Desrochers: Mr. Chairman, how much time do I have left?

[English]

    The Chair: Yes, you have two and a half minutes.

[Translation]

    Mr. Odina Desrochers: Good. I want to go back to Mr. Neville. The transfer of the foundations has been widely discussed, and we have been told that a lot of money is leaving the Department of Finance; no control is exercised in that regard and there are questions about how it is working. But you are saying that there are foundations and non-profit organizations that operate at arm's length from government. Who will be controlling the billions of dollars that are leaving government if no one is in a position to say what is happening to that money?

    Mr. Richard Neville: The issue is not that we are unable to exercise control over the money.

    Mr. Odina Desrochers: We are accountable to taxpayers.

    Mr. Richard Neville: There is no doubt about that, Mr. Chairman, but we must not forget that the decision to endorse the concept of foundations was made by this government; the amounts were transferred, and these are truly arm's length organizations. In this context, we made some decisions and we have established formal agreements with each organization. That is how the issues are managed, but the fact remains that we cannot control these organizations. If that were the case, they would absolutely have to be part of the organization.

º  (1630)  

    Mr. Odina Desrochers: But in a situation like that, don't you have the impression that your government is using foundations to take billions of dollars out from under the scrutiny of the Auditor General?

    Mr. Richard Neville: No. What I wanted to explain is that this is the way the government decided to manage its programs more effectively. After having given the matter a lot of thought, we came to the conclusion that this was the best approach.

    Mr. Odina Desrochers: But you were saying that the federal government is investing billions of dollars in these foundations. As for me, if I were investing that much money, I would want to know what is happening to it. According to what you were saying, you have put in place some mechanisms; but things seem very vague in terms of supervision.

    Mr. Richard Neville: But do not forget that each department, at the start of the fiscal year, tables a report to Parliament called the Report on Plans and Priorities. This report contains an explanation on how the funds are used as well as details on management. After that, in reports at the end of the year, each department must account for how it has managed its programs. These reports include a section devoted to the foundations.

[English]

    The Chair: Ms. Fraser has something to add.

[Translation]

    Ms. Sheila Fraser: Mr. Chairman, with all due respect for Mr. Neville, I must clarify the following facts: if these are truly arm's length organizations, it does not seem relevant to me for departments to include that in their Report on Plans and Priorities. As you know, we have raised several concerns with respect to reviewing these accounts and the follow-up mechanisms for these foundations. In our April report, there is a chapter that the committee has said it is in a position to examine; I already anticipate what a pleasure it will be to discuss it with you.

[English]

    The Chair: Thank you very much, Ms. Fraser.

[Translation]

    Thank you very much, Mr. Desrochers.

[English]

    It's now back to Mr. Neville for a closing comment.

    Mr. Richard Neville: If I could, Mr. Chair, more and more I think it's a question of accountability. We do not control these foundations, and we do not wish to control them. Therefore, we're trying to accommodate good management practices. We do believe that, in the RPPs and DPRs, there should be some reference back to the individual foundations.

    The Chair: Well, I think the Auditor General was clearly pointing out that accountability is an important thing. If we lose accountability, we lose all kinds of things—this is an editorial report that's a chairman's prerogative—so I'm very glad she has raised the issue.

    We're now going to thank Mr. Desrochers and move to Mr. Harb and Ms. Phinney, who are splitting the time, with Ms. Phinney going first.

    Ms. Beth Phinney: On page 14, Mr. Neville, why do you only mention Defence by itself? Is that because of its high percentage. Where you have “Other program spending”, Defence is the only one for which you've gone into any detail.

    Mr. Richard Neville: That's traditional, Mr. Chair. Under “Other program spending”, we have always shown the Department of National Defence as a separate line item, while all the other departments are regrouped under “All other departments”.

    Ms. Beth Phinney: Is it possible to find out what that total would be for each one of the other departments?

    Mr. Richard Neville: Yes. If you go back to the public accounts, they're quite specific.

    Ms. Beth Phinney: Is that under the deficit or the debt?

    Mr. Richard Neville: It adds up to $29 billion, Mr. Chair.

    Ms. Beth Phinney: And you're going to explain the other business to me at some other time?

    Mr. Richard Neville: Yes, I'd be more than pleased to do that offline.

    Ms. Beth Phinney: Under the figures on page 17, you say, “Excludes government employee pension liabilities in order to be more comparable with other countries debt measures.” Don't other countries have pension liabilities? Do they just not include them, and why?

    Mr. Richard Neville: Not all countries do account for pensions in the same way we do. Although most countries have said they will come to account for them in the way that we do, they don't as of yet. To put it on a more comparative basis, we therefore used the national accounts basis of accounting. In this case, you're therefore seeing how Canada compares to the G-7 countries in terms of net debt to GDP, and you're seeing us at 43.6%.

    Ms. Beth Phinney: I could go into accrual accounting, which I still find confusing, but I won't go into that.

    Second from the bottom on page 19, you say this is the method followed by the private sector, and you're talking about how great the accrual system is. Did Enron and WorldCom use the accrual system? Are they good examples, or...?

º  (1635)  

    Mr. Richard Neville: Let me just make sure we're crystal clear. Let's put this in perspective.

    All private-sector corporations, whether you're talking about IBM, Royal Bank, AT&T, Bell Canada, Canadian Pacific, or—

    Ms. Beth Phinney: You have to find some good ones.

    Mr. Richard Neville: I'm just making a point. All private-sector corporations use accrual accounting as their method of accounting.

    The Chair: That's the law, by the way.

    Mr. Richard Neville: Yes, that's right.

    Ms. Beth Phinney: Does what has happened to those two companies indicate that some change needs to be made, or that some oversight or something that hasn't been there in the past needs to be done?

    Mr. Richard Neville: Steps have certainly been taken in both the United States and in Canada to strengthen the private-sector oversight role that is played by the professional accounting institutes.

    I will also add, by the way, that a number of provinces in Canada are using full accrual accounting as their method of accounting today. It's very much de rigueur.

    Ms. Beth Phinney: It's all yours.

    The Chair: Mr. Harb.

    Mr. Mac Harb: I'm going to start with the easy questions first.

    On page 15, you note the 6.9% average rate of interest that the government pays on debt. For any portion of that debt that we pay interest on, perhaps the Treasury Board or Department of Finance could look at the possibility of paying it off through the issuance of new bonds or through some sort of other mechanism so that we can have a cheaper rate. Are there any penalties? Has anybody done any study of this? Interest rates are now at 2% or 3%.

    Mr. Peter DeVries: Mr. Chair, the department is continually looking at that. They are continuing a process of buying back bonds and swapping bonds in order to get the best possible price.

    There are two reports that the department puts out. One is a debt management strategy, and the other one is a debt operations report. They contain considerably more information on how the government conducts its debt management, what its strategy is, how it goes into the bond market, what bonds come up for renewal, and how it tries to manage those.

    Mr. Mac Harb: Do you have anything ready-made that you could drop off? I'm a bit curious.

    Mr. Peter DeVries: I can get you copies of those reports.

    Mr. Mac Harb: I think this second question will be a little more difficult, and it's for Mr. Neville.

    There has been a unanimous report made by this committee, and I honestly believe there is a very strong will in the House of Commons from all political parties, without exception. The Auditor General has been calling for this for quite some time. We have gone to extreme lengths in calling on Treasury Board, as well as on the government as a whole, to implement full accrual accounting.

    For whatever reason, I'm sensing some sort of resistance. I want to find out what the cause of that resistance is. Why are you dragging your feet, your heels, or both? When are we going to see it taking place? Tell me.

    Mr. Richard Neville: The sooner, the better, Mr. Chair.

    In all fairness, I think we have to be very prudent in how we proceed. We would like to ensure that the numbers we go to the public with, in terms of a full accrual basis of accounting, are appropriate. We would like to have them auditable at that point in time, and we would love to have the Auditor General tell us that she concurs with what we are planning to do. We want to make sure that when we go with the official numbers, they are right.

    Mr. Mac Harb: When?

    Mr. Richard Neville: As soon as we can get validation of the numbers.

    The Chair: We are also going to ask the Auditor General for a comment on whether she concurs in that or not.

    Ms. Sheila Fraser: I would concur with Mr. Harb. I hope the government would move there sooner rather than later. It has been delayed a year.

    I would just like to apprise the committee that we have a report coming out next week. One of the chapters in it will deal with accrual accounting and the issue of accrual budgeting, which I think is moving a little slower than accrual accounting, quite frankly. The committee might wish to take that up in future hearings.

    Mr. Mac Harb: The rate-setting provisions of the EI Act were suspended for 2002 and 2003. You are in the process of consulting before you come back. I want to find out when that consultation will be completed.

    Mr. Richard Neville: I'll ask Mr. DeVries to address the EI question.

    Mr. Peter DeVries: The Minister of Finance and the Minister of Human Resources Development will surely be making an announcement on the premium rate for 2003. That has to be established before the end of December so that the Canada Customs and Revenue Agency can inform employers about what they should be deducting beginning January 1. As far as the consultation process is concerned, it is still under review by the ministers, and hopefully an announcement on that will be made shortly. As I said earlier, a new rate-setting process has to be in place by this time next year, or we revert to the old rate-setting mechanism that was in the previous legislation.

º  (1640)  

    The Chair: I presume the government could introduce an extension of existing rules, isn't that correct, Mr. DeVries?

    Mr. Peter DeVries: There's always that possibility, yes.

    The Chair: Mr. Neville.

    Mr. Richard Neville: I think the question was asked earlier, but in the economic and fiscal update distributed October 30, there is a chapter, annex 5, that is quite specific as to our progress with respect to accrual accounting and what the government's intentions are. I would like to ensure that document, annex 5, is part of the proceedings.

    The Chair: That will be tabled with the clerk. If anybody needs further information, you can either get it from the clerk or get it from the deputy comptroller general's office.

    Mr. Stoffer, please, for eight minutes.

    Mr. Peter Stoffer (Sackville—Musquodoboit Valley—Eastern Shore, NDP): Thank you very much, Mr. Chair.

    I try to do this in the way that my constituents approach me, because I admit I'm not a financial wizard in this regard. They always ask me how much we owe as a country in terms of the national debt. I tell them what figures I receive. They then ask me who we owe it to. Of course, we have a breakdown on page 1.9 of the public accounts.

    What I'm trying to ascertain for them—and please put it in very simple language that I can put in the householder so that someone in my riding can understand it—is how much of the debt is foreign-controlled. How much do we owe foreign lenders, and how much do we owe domestically? Are the interest rates that we pay for foreign loans different from the interest rates for domestic ones?

    Mr. Richard Neville: I can answer part of those questions. First of all, the debt in foreign currencies at this point is $27 billion. That is significantly lower than it was in 2000. At the end of March 31, 2002, it was $27 billion, whereas it was $32.6 billion at the end of March 2000. As a percentage of the total market debt, I think it's important to know here that it's only 6.1%. Also, it's very important to note that there has been a significant reduction in the percentage of debt held by non-residents. In other words, the lower the percentage of debt held by non-residents, in theory, in political science terms, the less influence outside parties will have on the government's policies. I think that's very important.

    We then have the interest-bearing debt. That's broken into three components again, and I'd like to share those with you. There's market debt, which is $442.3 billion. That's what we actually owe to a third party. There are the public sector pensions. Those are the pension accounts on which a debt is still required to be paid, as per the pension account act. That debt is $126.9 billion. And then there is “other”, at $14.2 billion. That brings us to a total of $583.4 billion, which is again significantly less than it was back on March 31, 2000, when it was as high as $597.9 billion at that point.

    Mr. Peter Stoffer: One person asked me this: If we owe x number of dollars to foreign control, as you say, to foreign individuals, is it possible to get an account of who they are? In here, it says we owe $27 billion in foreign currencies.

    The Chair: Mr. DeVries has the report on debt, and, again, I think that should be available to all members.

    Could you distribute that to all members of the committee afterwards, Mr. DeVries?

    Mr. Peter DeVries: We have made copies of the annual financial report available. In it, there is a discussion of net debt and market debt and how that debt is broken out.

    I've also left copies of the fiscal reference tables, which go into a lot more detail as to how the debt is broken out by the various components—how much is market debt, how much is Canada Savings Bonds, how much is treasury bills, and how much is foreign-denominated debt.

    It's important to note that all of the foreign-denominated debt is held in the foreign exchange fund account. It's not used to finance general government operations, it's used solely in order to manage the fluctuations in the Canadian dollar. It is also offset by corresponding assets. We have a liability in borrowing that money, but at the same time we have an asset in our calculation of net debt in terms of how much we have borrowed. That sits in offshore bank accounts in order for us to use it in the event that we have to manage the fluctuations of the dollar.

º  (1645)  

    Mr. Peter Stoffer: That information is out there, is it?

    Mr. Peter DeVries: That information is there as well. Also, as I promised the chairman, I will make available copies of the debt operations report, which goes into that in a lot more detail. But all that information is available, yes.

    Mr. Peter Stoffer: I'm not normally on the public accounts committee—for very good reason—but one of the things I get is that this is a public accounts committee. The Auditor General is hired to account for the public dollars. I understand that some crown corporations are not under her observation. I know that's done through legislation, but I find it rather astonishing that Canada Post, for example, which handles public dollars, is not under the auspices of the Auditor General for her scrutiny. I'm asking why that is so?

    Mr. Richard Neville: Each crown corporation has its own legislation, Mr. Chair. Based on the legislation that has been approved by Parliament, the external auditor is chosen by the board of directors, or, if so instructed in the legislation, is stated specifically. It really comes down to the fact that the individual legislation controls the selection of the external auditor, Mr. Chair.

    Mr. Peter Stoffer: Mr. Neville, in this age of transparency, would you agree that quite possibly all crown corporations and foundations should fall under the auspices of the Auditor General for scrutiny, and not just some?

    Mr. Richard Neville: Mr. Chair, I think it's Parliament's decision as to what Parliament deems to be best in terms of who the external auditor is.

    Mr. Peter Stoffer: Madam Fraser, if I may, I'll throw that question to you.

    Ms. Sheila Fraser: Quite frankly, Mr. Chair—and this may surprise you—I would not press to be the auditor of all crown corporations. However, I would like to be able to have access if needed. If there was something in particular, I would like my office to be able to find it. Again, though, as Mr. Neville said, I think it is up to Parliament to make that decision. There are certain crown corporations that are more commercial in nature and do not depend on appropriations from the government to do business. They may not be significant in the overall public accounts of Canada, and I would not see that I would have to be named auditor of all of those corporations.

    Mr. Peter Stoffer: The reason I ask, madam, is that $7.5 billion has gone to foundations. Those are taxpayers' dollars that went to foundations at the whim of the government, yet they're not held up to the same scrutiny as other departments. I'm a parliamentarian trying to explain this to my constituents, who pay a lot of taxes and who are rather ticked at the level of taxes they pay and at the waste of their tax dollars—and Bill C-68, the gun legislation, is just one that comes to mind. When they hear that $7.5 billion of their dollars have gone to pet projects of the government and to foundations, and when they hear that those things are not under the scrutiny of the Auditor General, they get rather concerned about that.

    Ms. Sheila Fraser: I agree with Mr. Stoffer, Mr. Chair. In our audit that we issued in April, we did indicate that we felt the Auditor General of Canada should be the auditor of foundations that involve large sums of public money like that. In the earlier conversation, I thought we were talking about crown corporations, which are subject to quite a rigorous accountability process and do have to table reports and all the rest of it in Parliament. But, yes, when we're talking about those sums of money, I think the Auditor General of Canada should be the auditor.

    Mr. Peter Stoffer: I have one last question, if I may.

    This morning, I was in the finance committee, which met with the people who are now running our Canada Pension Plan Investment Board—as she closes her eyes when I ask the question. I didn't ask them who actually is going to do their auditing, so I'm going to put this to Mr. Neville, out of ignorance.

    Who will audit this new pension board, which will handle the billions and billions of dollars of Canadian taxpayers' pension money? Who will do the actual audit of that new board?

    Mr. Richard Neville: I'm not sure I understand the question exactly.

    The Chair: Ms. Fraser.

    Ms. Sheila Fraser: If we are referring to the Canada Pension Plan Investment Board, it will be a private-sector auditor, it will not be the Auditor General of Canada.

    Mr. Peter Stoffer: That's under legislation, and I can appreciate that you didn't do the legislation yourselves, Madam Fraser and Mr. Neville. That comes from Parliament. But would you not agree, sir and madam—if I could ask you both very quickly—that a board that is going to handle that amount of money for the pensions of the people in this country should come under the auspices of the publicly funded Auditor General?

º  (1650)  

    The Chair: Please make it a brief response.

    Mr. Richard Neville: I'm not familiar with that piece of legislation, Mr. Chair.

    Ms. Sheila Fraser: I could add one piece of information, Mr. Chair.

    We are the auditors of the Canada Pension Plan—

    Mr. Peter Stoffer: Yes, but not the board.

    Ms. Sheila Fraser: —and an increasingly significant portion of the assets will be held by the board. That does create issues for us in our audits of the Canada Pension Plan. We are discussing with Finance and with the board itself how we will resolve those audit issues.

    The Chair: Thank you very much, Mr. Stoffer.

    We're now in round two, and it will be a four-minute round, beginning with Mr. Mayfield, please.

    Mr. Philip Mayfield: Thank you very much, Mr. Chairman.

    I want to pick out a detail or two from where we left off last time, and maybe then I can understand this. It seems to me that we have a projected EI account and surplus of about $40 billion. In the financial results, I think you've shown about $8.9 billion, Mr. Neville, isn't that correct? It's right there on page 5.

    Mr. Richard Neville: Yes, a surplus.

    Mr. Philip Mayfield: Does that mean that for the money that has been collected for the employment insurance fund, a significant chunk of it has been used for other purposes? If there was a surplus of $48.9 billion, then I would know where that EI money is. But I look at $8.9 billion and I wonder if we are collecting unemployment insurance money for other projects besides employment insurance. Is that why it's down to this? Am I mistaken in that?

    The Chair: Is your question to Mr. Neville?

    Mr. Philip Mayfield: I see Ms. Fraser shaking her head. I don't think I'm on the right track given the look on her face, but I'd like the question answered.

    Ms. Sheila Fraser: I would just clarify for Mr. Mayfield that the $8.9 billion is the surplus of the government for the year. The $40 billion is the accumulation of all the surpluses and deficits in the employment insurance account since the beginning of the account.

    Mr. Philip Mayfield: That's right, but that's a notational account.

    Ms. Sheila Fraser: But the $40 billion is not in the $8 billion.

    Mr. Richard Neville: The easier way to answer the question, if I could, Mr. Chair, is to say that every dollar that is collected from individuals through their salary deductions for EI is credited to the consolidated revenue fund, so it goes into a large account.

    Mr. Philip Mayfield: I understand that there is a credit, but where's the money?

    Mr. Richard Neville: The money is used for whatever the government expenditures of the day are. Similarly—

    Mr. Philip Mayfield: So it is in fact correct to say that we collect employment insurance money, pool it with tax money, and spend it, is that right?

    Mr. Richard Neville: In effect, whatever is in the consolidated revenue fund is spent for whatever the programs—

    Mr. Philip Mayfield: So our workers and employers are subsidizing the taxes with their premiums, is that correct?

    Mr. Richard Neville: Mr. Chair, I think the best way to phrase it is that the collected revenues are credited to the consolidated revenue fund, which is the...we do call it a bank account, if you wish. It contains all of the revenues of the government. Similarly, all of the expenditures are accounted for out of that same bank account, with the net result being that we had an $8.9-billion surplus at the end of the year.

    Mr. Philip Mayfield: But you see, Mr. Neville, in an HRD committee meeting on October 25, 2001, the minister was asked about why there was a need for so much money. She said that

given that the economy is in this turbulence, the concern that Canadians have is that there will be a program there to support them should they need it. I would also remind you that it wasn't so long ago—certainly before our government—when a surplus was very quickly turned into a deficit when the economy went from a solid position into a softening position.

What we take heart from is the fact that we've been able to effectively manage our fiscal circumstances....

And she goes on from there.

    It seems to me that if there is a downturn in the economy, you have $8.9 billion to work with, not $40 billion, as some people seem to think, because that is only a notational account. The real money has already been depleted and we don't have that kind of money to fall back on anyway. That's what concerns me.

    Mr. Richard Neville: Mr. Chair, the $8.9 billion—

    Mr. Philip Mayfield: There's a difference between a notation and money in the bank, and we don't have $40-some billion in the bank.

    The Chair: I think we certainly have a lack of communication here. Mr. Mayfield is correct in saying the money doesn't exist, and as with Ms. Phinney on the accumulated deficits and net debt, I think a little private conversation is needed here. But the final analysis is that Mr. Mayfield is correct. There is not $40 billion sitting anywhere that can be spent on EI. It was consolidated with the revenues, as he said. It was combined with taxes and paid the bills, and when all the bills were paid and all the revenues were collected right across the government, there was an $8.9-billion surplus over the year.

    It's not for me to explain it. What I'm saying is that if you have a problem explaining it to this committee, Mr. Neville, then the government may have a problem explaining it to the country.

º  (1655)  

    Mr. Richard Neville: Mr. Chair, I have an opening in my comptrollership branch if you care to apply, having given us that explanation.

    Some hon. members: Oh, oh!

[Translation]

    The Chair: Mr. Desrochers, please, you have four minutes.

    Mr. Odina Desrochers: Thank you, Mr. Chairman.

    My question is for Mr. DeVries. Earlier on he said that there were consultations underway on a possible rate-setting process. Are these consultations private or public? How are these consultations taking place?

[English]

    Mr. Peter DeVries: That whole issue is being discussed right now by the government, and hopefully they'll be in a position to make an announcement on it in the very near future.

[Translation]

    Mr. Odina Desrochers: But who is being consulted?

[English]

    Mr. Peter DeVries: They hope to consult with the stakeholders in the whole EI issue.

[Translation]

    Mr. Odina Desrochers: Will the unemployed be consulted?

[English]

    Mr. Peter DeVries: This is still an issue under consideration, Mr. Chairman. The final decision has not been made yet.

[Translation]

    Mr. Odina Desrochers: I am taking your approach very seriously. You say that you are going to consult and that you are going to do this or that, but there's nothing concrete. What type of consultations are you undertaking? In addition to that, you have the nerve to tell us that if it is not working, you're going to revert back to the other system, which led to the huge surpluses in the employment insurance account. In the end, who is going to resolve this problem?

[English]

    Mr. Peter DeVries: What the government has announced, Mr. Chairman, is that it will be undertaking consultations. It needs to have those consultations completed before it sets the rate for 2004, otherwise it reverts to the old mechanism. I cannot say more than that at this time. It's under review by the government, and hopefully a decision will be made on that shortly.

[Translation]

    Mr. Odina Desrochers: I want to know when these consultations will start.

[English]

    Mr. Peter DeVries: All I can say is that they have to start consultations and have them completed before we set the rate for 2004, which will be done around this time next year.

[Translation]

    Mr. Odina Desrochers: But who is in charge of these consultations? Is it the Department of Finance? Is it the Department of Human Resources Development? How can we follow this file if you keep being so vague? You are telling me that it is going to start and that it is going to end. That is a very clear answer!

    Mr. Richard Neville: Mr. Chairman, I think that Mr. DeVries has been quite clear, but I am going to repeat the information to be sure that it has been fully understood.

    Mr. Odina Desrochers: I hope so.

    Mr. Richard Neville: The consultations are currently...

    Mr. Odina Desrochers: Being discussed, I suppose.

    Mr. Richard Neville: Yes, discussed in detail. A decision will be announced...

    Mr. Odina Desrochers: Mr. Neville, who is being consulted? Can you tell us that? Who is leading the consultations? Who is holding the discussions?

    Mr. Richard Neville: As part of the discussions that are underway, we are currently deciding who will be consulted and how we will consult people. We are discussing the timing. That is all part of the discussions that we are currently having in order to make a decision with regard to the consultations.

    Mr. Odina Desrochers: It's incredibly complicated, Mr. Neville. We'll never get through this!

    I am done.

[English]

    The Chair: Let me ask a simple question here.

    The legislation says it has to be roughly balanced over a period of time through the business cycle. There is a $40-billion accumulated surplus in that notional account. Under the current legislation, will it be required that this money be repaid to the employees and employers through deficit financing in the EI account? Is that required under the legislation at this point in time?

    Mr. Peter DeVries: No, that is not required. The legislation says nothing about the balance in that account or how big it should be. It sets no minimum or maximum levels.

    The Chair: So there's no requirement placed on the government to “repay” that money.

»  (1700)  

    Mr. John Bryden: In light of your response to Mr. Stoffer, is there any point in my asking why expenditures in crown corporations have been increased by $1 billion in one year? I refer you to page 14 in your own deck, which shows an increase from $4.7 billion in 2000 to $5.5 billion.

    More interestingly, in the summary of the annual financial report, in table 4 on page 13—a lucky number, I'm sure—it shows that expenditures on crown corporations have increased from $95 million to $1.189 billion. That's an increase of $1 billion or thereabouts. Do we know why that occurred?

    Mr. Peter DeVries: Mr. Chairman, the reason for that is the payments that the government makes to crown corporations. This category not only includes the direct appropriations that the government makes to these crown corporations—what are known as appropriated dependent crown corporations, such as CMHC, the CBC, VIA rail, or ones of that nature—it also includes the net gains or losses of enterprise crown corporations, such as Canada Post and the like.

    In 2000-01, which was a very good year for enterprise crown corporations, they actually paid the government a fairly large sum of money. Well, I won't say they paid it, but when we consolidated their activities in our financial statements, it was a positive for the government. In 2001-02, because of the economic environment, it wasn't as large a positive. It was still a positive, but it wasn't as large as it was the year before.

    Mr. John Bryden: I note, though, that on page 9.15 of volume I of the actual public accounts, enterprise crown corporations all appear to have made a profit except, rather spectacularly, the Cape Breton Development Corporation, which seems to be losing money hand over fist and now has a deficit equity of $455 million.

    Mr. Richard Neville: What page are you referring to, Mr. Bryden?

    Mr. John Bryden: I'm referring to page 9.15 of volume 1 of the public accounts. These are various tables that deal with enterprise crown corporations.

    Mr. Chairman, it's very difficult to make sense of the information, but I note that it says in the preamble that, in terms of this information, “For those corporations having other year ends, the data are based on unaudited interim financial statements”.

    Now, I go back to Mr. Stoffer's question. How in heck can anyone know what the heck is going on—you or we—when the public accounts base their data on unaudited financial statements? These companies have lost money. I believe the witnesses just said that. Surely to heavens, as Parliament, we have to have some mechanism to monitor how in heck they lost money.

    Mr. Peter DeVries: Mr. Chair, I'll ask Mr. Morgan to answer that.

    Mr. John Morgan (Executive Director, Financial Management and Accounting Policy Directorate, Comptrollership Branch, Treasury Board of Canada Secretariat): Mr. Chair, every crown corporation is subject to audits, and they would table their annual reports in Parliament. What may happen is that a crown corporation may have a December 31 year end. Therefore, what we do is take those financial statements plus unaudited information for the first quarter of a calendar year, and we use that information to adjust the accounts of Canada.

    The Auditor General will also look at the information and verify that it looks reasonable in terms of the consolidation exercise. When she expresses an opinion on the financial statement, she ensures that it is materially correct.

    Mr. John Bryden: Well, if I understand this correctly, the bottom line is that the crown corporations lost $1 billion. Am I to understand—

    Mr. Peter DeVries: Mr. Chairman, I would not say they lost $1 billion. What I would say is that their net income was $1 billion lower than it was the year before. If you look at last year's public accounts, there was still a larger positive number in that category.

    Mr. John Bryden: Then why does it come up as net budgetary expenditures? Is this money that's going out or is it not money that's going out?

»  (1705)  

    Mr. Peter DeVries: We present our financial statements on a consolidated basis, and the activities of these enterprise crown corporations are included.

    Mr. John Bryden: Then if I may make a suggestion, Mr. Chairman—and I know we don't have much time, but you leave me to the last and I have so much to say—then building on what Mr. Stoffer had to say, the bottom line here is that, whatever is happening, we're not getting enough information. I would suggest to the witnesses that perhaps the answer—and this would be a good answer for Enron and WorldCom—is to make the crown corporations subject to the Access to Information Act so that we can perhaps see how they earn or don't earn their money.

    Do any of the witnesses—and especially you, Ms. Fraser—have a comment on that?

    Ms. Sheila Fraser: Mr. Chair, what is subject to access is a policy decision of the government, of course. I would just say that all of these crown corporations do table audited financial statements in Parliament, or I would think all of them do.

    Mr. John Bryden: If I may make one observation, Mr. Chairman, it is that WorldCom and Enron had audited financial statements, too, as I understand it.

    Thank you, Mr. Chair.

    The Chair: Thank you, Mr. Bryden.

    Mr. Murphy, for four minutes.

    Mr. Shawn Murphy: Thank you very much, Mr. Chairman.

    I want to pursue the issue of the movement toward full accrual accounting. It's my recollection that when Finance Minister Martin tabled his budget last December, he made the comment that the move would be delayed a year. I assume now that when Minister Manley tables his budget in February, he will be making a similar statement and it will be deferred for another period of time. Would that be correct?

    Mr. Richard Neville: No, because we have not made a decision. The government has certainly not made a decision at this point in regard to what it will say in the budget or what it will not say in the budget. I think it's a question of us trying to validate the numbers so that when we do go out with the final numbers, they hold. And we'd obviously like the Office of the Auditor General to participate in that process.

    Mr. Shawn Murphy: It would appear to me that unless somebody makes a decision and sets a deadline that we're going to cross the Rubicon on April 1, 2003, or April 1, 2004, it probably won't be done. There are a thousand reasons to delay and very few reasons to move forward.

    Mr. Richard Neville: The best way to answer that, Mr. Chair, would be to come back to annex 5 of the fiscal update of October 30. If you have the opportunity, I would recommend that you look at the presentation that was included in that document. It's pretty clear on what the government's intentions are, and it's more positive than negative.

    Mr. Shawn Murphy: I want to pursue something with you, Mr. Neville, just to clarify how things will take place when we do go to full accrual accounting. Will there be a total restatement of the government's accounts? I'm talking about the assets on the books. Will they be taken in as assets, along with all of the native land claims, the environmental claims, and the like? Are we going to have a major restatement of government accounts?

    Mr. Richard Neville: Yes, it would be the most significant change since Confederation.

    Mr. Shawn Murphy: I can see that now.

    I know you probably can't answer this question, but is that going to create a tremendous surplus in a certain year, a tremendous deficit, or...?

    Mr. Richard Neville: If you were to look at the proposed changes to the various accounting policies that we have, it gives you an indication of what it would do to the net debt and to the accumulated deficit. On page 21 of the deck used for the presentation today—

    Mr. Shawn Murphy: Yes, I read that, but it doesn't give any—

    Mr. Richard Neville: Well, we are still finalizing the actual numbers.

    If you were to look at the capital assets, we would in fact be setting up in the books of Canada, for the first time, capital assets that have traditionally been expensed. Where we have written them off in the year in which we acquired them, we would be going back to determine their value and would put them on the books. In effect, that would be creating an asset where there wasn't one before, so we'd be changing the financial statements significantly in terms of the balance sheet. As well, in terms of the revenues, we would be accounting for tax revenues that we're not accounting for today. Similarly, we would be accounting for some of the expenditures in terms of some of the contingent liabilities that haven't been provided for.

    Mr. Shawn Murphy: Let's take a specific example. Let's take native land claims. Would you be accounting for all those contingent expenditures in the year that we restate our financial statements?

    Mr. Richard Neville: To a certain extent, we have been providing for those where they're specific and where we have confirmation from the department concerned plus the Department of Justice, that there is in fact a contingent liability. We do share that information with the Office of the Auditor General, who, as a result of the audit, has either agreed or disagreed over the years. For this past year, she has obviously agreed, since there's no qualification. So we do have a provision.

    Having said that, when we move to full accrual accounting, we will be more inclusive in terms of what we put into all of our contingent liabilities.

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    Mr. Shawn Murphy: After you make this transfer to full accrual accounting, do you foresee issuing parallel financial statements—the full accrual plus the way you previously stated them—for three or four years down the road?

    Mr. Richard Neville: We're discussing the pros and cons of doing exactly that, but we haven't decided yet at this point.

    Ms. Sheila Fraser: Mr. Chair, for the benefit of Mr. Murphy and others, I thought it might just be useful just to have on the record what it does say in annex 5 about the government's intention. It states:

It is the Government’s intention to implementfull accrual accounting in the upcoming budgetprovided it is able to finalize and verify the accrualaccounting amounts by late fall.

    Mr. Shawn Murphy: It's late fall now.

    Ms. Sheila Fraser: They're in the process of doing so.

    Mr. Richard Neville: I did say it was more positive than negative, I believe.

    The Chair: Mr. Stoffer, for four minutes.

    Mr. Peter Stoffer: Thank you, Mr. Chair.

    Madam Fraser, first of all, on behalf of the folks in the military—which is my critic area—I want to thank you very much for your report on the military that described the shortness of expenditures. I know the men and women of the military appreciated your report even though some bureaucrats were denouncing your report—not the bureaucrats currently present—were wiping it off, and were saying it was just allegations. The reality is that the military is in a mess, and the government has its own theme on its ability to pay for future equipment purchases, for example, and insurance and stuff like that.

    I want to thank you for that, as well as for your stand on health care and the fact that Ottawa still doesn't have the ability to police where the money goes. When you hear stories of lawn mowers and other purchases, or staff or consultation purchases, as I call them—meaning you hire x number of people to look at another issue—yet that's not what the money was meant for.... It says the government cannot police the Canada Health Act properly, and that it's in violation of it. We couldn't agree with you more, and we just want thank you for pointing that out.

    We only wish the federal government would understand its responsibility to the taxpayers of Canada. When it gives money to a province and that province is supposed to spend the money on a particular item and not just whither it away on a little pet project, the federal government should have some teeth in its bite and clamp down on these provinces, as Monique Bégin, the former Minister of National Health and Welfare, used to be able to do. We've lost that courage in the federal government.

    Again, I go back to the issue of public accounting. This Canada Pension Plan Investment Board—again, we were meeting with them this morning in the finance committee—is going to have an asset base and cash base of an awful lot of money. They're going to have $40 billion and more. My concern is that they may not or will not be under the auspices of the Auditor General. I don't know about you, Mr. Chairman, but that makes me very nervous.

    The fact is that I asked John MacNaughton and Gail Cook-Bennett this morning if my pension money could be invested right now in companies that produce tobacco and sell tobacco. They said, yes, it could be, because they're legal companies so there's nothing ethically wrong with that. There is no ethical screen in that board to stop them from spending money or investing in tobacco companies. That's not their mandate.

    Then I asked them about foreign contributions, about investing in foreign companies. Technically, my pension dollars and those of my constituents can go into a company in the United States that builds and produces land mines. Because the United States did not ratify the land mine treaty, the United States produces, builds, and sells land mines. If it is a profitable venture and is traded on the stock market under the auspices of another company—because they're all owned by so many others—my pension dollars could be going into a foreign company that produces, builds, and sets land mines, even though Canada signed the land mine treaty. And none of that will fall under the auspices of the Auditor General for audit purposes, because it will go to a private organization that does the audit.

    I don't know about you folks, but that really pisses me off and it pisses off my constituents.

    The Chair: That's not quite parliamentary language, Mr. Stoffer.

    Mr. Peter Stoffer: Okay, then it originates from the south end of a northbound cow, if I can put it in those terms. They're parliamentary.

    The fact is that it is simply wrong. I would like your opinion, gentlemen. Are you going to the government to say this is wrong, that the Canadian people should have more authority over, more accountability for, and more transparency in these types of investments and expenditures and what they're doing. I'd like a response from both of you on that.

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    The Chair: Please make it a very brief response.

    Ms. Sheila Fraser: I think many of the issues Mr. Stoffer has raised are policy issues, Mr. Chair.

    I would like to perhaps clarify two points. First, on National Defence, we have often been quoted as saying we're proponents for increased funding to National Defence. What we have said is that there is a gap between the expectation and the funding provided, that the gap has to be closed, and that there are many ways of doing that. That's one.

    On the question of health care funding, the issue that we referred to was the Canada health and social transfer, which is block funding. Again, that mechanism was put in as a policy decision in order to give more flexibility to the provinces. The specific funding to health care is not known.

    On the issue you raised about medical equipment, there is accountability in that case, or there should be, at least. There is a mechanism to have accountability, because the money was targeted for health care. We haven't specifically looked at that particular program, but there should be in health care.

    On the appointment of an auditor, that's up to government.

    The Chair: You're on the record on that one.

    Mr. Neville, very briefly please.

    Mr. Richard Neville: Very briefly, we're here to defend the public accounts for 2002, Mr. Chairman. I'm not sure that's relevant to the issue at hand.

    The Chair: Mr. Shepherd, for four minutes, please.

    Mr. Alex Shepherd: Yes, thank you.

    Mr. Neville, essentially the Auditor General was saying your financial statements are not user-friendly. One of the basic comments is that the whole concept is to complete the circle of accountability, from the budget through the estimates process and so forth. One way to do that would be to make these financial statements comparable to budgeted figures. Why aren't they?

    Mr. Richard Neville: There are several reasons. One of them is that, at this point, the budget is prepared on a net basis. I believe the Auditor General is asking us to prepare our financial statements on a gross basis, so that is an issue.

    In terms of complexity in regard to the public accounts, I will say we are looking at some changes to be made at the same time when we implement full accrual accounting, and we'd be more than pleased to work with colleagues—be they in the Office of the Auditor General, be they with Public Works and Government Services, or be they in the Department of Finance—to try to streamline the public accounts to make them more meaningful.

    Mr. Alex Shepherd: Are you telling me you don't have the capacity now, or haven't had it in the past, to actually prepare these against budgeted figures?

    Mr. Richard Neville: The annual financial report, the AFR, does have a comparison between the budget and the financial information contained in the financial statements. In our financial statements, though, we don't show budgets against actuals. That information is available in the AFR.

    Mr. Alex Shepherd: Isn't that part of the reason why they're not user-friendly? I have to go to a second document to get the budgeted figures.

    Mr. Richard Neville: I thought the context of the comment “not user-friendly” was made in the broader sense that there's a lot of information. There are three documents in two volumes. It's hard to get through all of the material and have a good understanding of it. I think that was the context of them being non-user-friendly.

    I defer to the Auditor General for a comment on that.

    Ms. Sheila Fraser: That is correct. If we take it that this is the information that somebody has to go through, then for the general public, I don't think anybody's going to go through that exercise. There should be some easier way. Even the annual financial report tends to be targeted to people with more understanding of these things. There should be an easier way to communicate to Canadians in general the comparison with the budget and what it all means. For some of the information Mr. Neville presented this morning—for instance, some of those ratios—it should be easier to explain what is happening in the financial situation and to give a little more information that people can easily understand.

    Mr. Alex Shepherd: Is that easily done?

    Mr. Richard Neville: I think we should be looking at it, although I'm not sure it's easily done, to be quite honest. Some work has to go into that kind of an analysis, but we are willing to go down that road and discuss with colleagues an approach that would make it easier for Canadians to understand the statements.

    Mr. Peter DeVries: Mr. Chairman, the various ratios that the Auditor General alludes to are all included in the annual financial report. Those that are relevant to the federal government are all in this document. They are also in all of our budget documents, and we attempt to explain them the best that we can. However, we're always looking for other suggestions to make the document even better, and I will entertain any suggestions that come forward from this committee.

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    Mr. Alex Shepherd: I'd like to get back to the EI account. I suppose you're going to argue that it's a policy decision, but something that has always escaped me is why you defend the current practice of consolidating the EI account in the current government financial statements, as opposed to having a segregated EI fund.

    I've never seen the significant difference between that and the Canada Pension Plan, where you also have employers contributing money. Presumably, it's a trust, and it seems to me that it should be maintained as a trust fund. If it was a segregated trust fund, you wouldn't have all this debate going on. We've been debating for the last ten years or more on the EI fund, so why have you been intransigent about not accepting the concept that it should be segregated?

    Ms. Sheila Fraser: There is a very large, significant difference between the EI account and the Canada Pension Plan, in that the Government of Canada does not control the Canada Pension Plan. The provinces are very active in that, so it is not controlled; whereas for the EI account, the government sets the premium rates and determines the benefits. Therefore, it's basically a program like any other program. That's why we say it has to be included in the Government of Canada's financial statements. For the Canada Pension Plan, the Government of Canada alone does not have that control.

    I don't know if Mr. Neville wants to add anything.

    Mr. Richard Neville: No, I agree 100%. I was just going to add that the Canada Pension Plan cannot be included in the entity because it's controlled outside of the sphere of the government. The accounting is therefore completely separate from that of the consolidated revenue fund.

    The Chair: That's an interesting point, because we have all these crown corporations included in the whole entity when they're outside the government, too. Anyway, we'll leave that question for another time.

    Ms. Meredith.

    Ms. Val Meredith: Thank you, Mr. Chair.

    I apologize for having missed a bit of the meeting. I hope my questions weren't answered then, but I want to raise a couple of points.

    First , I sat on the human resources development committee almost two years ago, and we heard at that time that the EI account was being put under this review and that the report would come back. Are we talking about the same process? Are we at the same stage now that we were at two years ago on that account?

    Mr. Peter DeVries: I regret to say that we are, Mr. Chairman.

    Ms. Val Meredith: Well that's comforting.

    Secondly, I want to follow up on what Mr. Murphy was raising. Once the accrual process comes into play, you then look at all the assets and all the liabilities that the government has, right? How far in advance do you take in the liabilities with commitments like land claims issues and settlement issues with the schools? It goes on and on. These are legal commitments that the government has made. How far in advance do you bring them into the accounting process?

    Mr. Richard Neville: That's a very valid question, Mr. Chair.

    We look at each liability on its own, in terms of its complexities. There are some similarities, but there are some differences. We work with the department concerned, whether it's the Department of the Environment on environmental liabilities, the Department of Indian Affairs on land claims, or other departments for residential schools. We basically work with the department concerned, as a starting point, and we may even spend—as we have in some instances—a year to a year and a half getting all of the raw data, so that we can then do a proper analysis.

    We also discuss the legal implications with the Department of Justice, file by file, and then we consolidate those and discuss things with the central agencies, with the Privy Council Office, and the Department of Finance. We also ask the staff at the Office of the Auditor General to vet the information we put before them in order to see that it's appropriate. We'll then actually make the entry.

    So we can go into the future quite...[Editor's Note: Inaudible].

    Ms. Sheila Fraser: I just wanted to say that to book any liability or to set up any liability, there are two conditions that have to be met. One is that there has to be an obligation to pay or a likelihood that you're going to pay. The second is that you can estimate an amount. There could be cases in which you have a very large lawsuit against the government, for instance. The government might even think it could lose something but would be unable to estimate what the amount would be. In those cases, you can't book anything, so it's those two conditions that would make the determination.

    Ms. Val Meredith: But do you book it in the year it's paid out? In other words, do you book it in ten-year increments or twenty-year increments?

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    Ms. Sheila Fraser: No, it's when you meet those two conditions.

    Mr. Richard Neville: At that point in time, for that fiscal year, you book it. If it's retroactive, then you have other options. But you book it in that year if you're looking into the future.

    Ms. Val Meredith: You can't book the full amount in that year, though. That's what I'm getting at.

    Mr. Richard Neville: Yes, you do.

    Ms. Val Meredith: So if you have a land settlement agreement that's going to be put into place over, say, 25 years, you're going to book the whole liability in the one year?

    Mr. Richard Neville: Be careful. If you have a land settlement agreement that is over 25 years, and if that has actually been signed and agreed to, you would book it in the year that it's applicable, i.e., the year you're talking about. But if there are some conditions for payments to made in future years, you want to make the payments in the future years. Let's make sure we're clear on that. We're talking about contingent liabilities here.

    Ms. Val Meredith: As the payments are made, then, the contingent liability is lessened and it would be taken off.

    Mr. Richard Neville: Exactly. Does that make any sense?

    Ms. Val Meredith: Yes, it does.

    Do I have any more time?

    The Chair: No, you don't.

    I have a couple points. On page 1.30, we find the following statement—and I think this is the Auditor General's observation:

This year, the Government made material unanticipated changes to management estimatesalmost six months after year end. In my view, it is essential that the Government strengthen theway it develops management estimates, in order to produce timely and reliable informationthroughout the year and in its financial reports.

    Ms. Fraser, you made that comment.

    Ms. Sheila Fraser: That's correct, Mr. Chair.

    The Chair: First of all, how big are the changes we're talking about, more or less? How much are these “material unanticipated changes”?

    Ms. Sheila Fraser: There were adjustments for hundreds of millions of dollars.

    The Chair: Billions?

    Ms. Sheila Fraser: Billions? Close, yes.

    The Chair: Was this increasing the surplus or decreasing the surplus?

    Ms. Sheila Fraser: It was an additional expenditure, so it was decreasing the surplus.

    The Chair: It was decreasing the surplus.

    These were unanticipated expenditures that were charged in the fiscal year—as Ms. Meredith was just talking about—that cropped up unanticipated, six months after year end, or late in the process.

    Ms. Sheila Fraser: They were changes to estimates, and they were made late in the process.

    The Chair: And you felt they were legitimate?

    Ms. Sheila Fraser: Yes. We did not qualify the financial statements, so we accepted those adjustments. We are concerned, however, that these large adjustments were made so late in the process. That makes one question how reliable the financial information is throughout the year.

    The Chair: I have a couple of other quick questions.

    Mr. Richard Neville: May I comment on that, Mr. Chair?

    The Chair: Yes, very quickly, Mr. Neville.

    Mr. Richard Neville: We have already undertaken to try to change our processes so that we will, at least on a semi-annual basis, go over the management estimates with the Office of the Auditor General, in order that we are not in a similar situation in the future.

    The Chair: You had to restate the previous two years' financial statements because of that huge issue of tax collection agreements at the CCRA. They were called mutual fund trust capital gains refunds. It says here:

In addition, the Government announced that it would protect equalization-receiving provinces from any negative impacts the recovery of overpayments would normally have on equalization program payments.

In other words, in terms of having to repay this to the federal government, the impact has been negated as far as equalization payments are concerned.

    Is that legal?

    Ms. Sheila Fraser: I presume so.

    A voice: What's wrong with that?

    Mr. Richard Neville: I think so, too.

    The Chair: Okay, you may want to check on that.

    One final question is for Mr. Neville, on the appropriations. Has a decision been made on accrual appropriations yet?

    Mr. Richard Neville: No, a decision has not been made on accrual budgeting and appropriations. We're still looking at the ramifications. It's a very complex issue, as you are aware. Again, if you were to ask a number of progressive countries, they have a different understanding of the issue, they have different terminology, and they have taken different approaches.

    The Chair: This final question might be a rather niggling question.

    Bernard Dussault was paid $365,000 as wrongful dismissal compensation. It's in the public accounts. He was chief actuary of HRDC, and he was also the gentleman who got into problems regarding some comments he made about his actuarial assessments. What was the basis on which Mr. Dussault was paid a wrongful dismissal suit? Were his figures correct?

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    Mr. Richard Neville: I think that question would best be put to the department concerned, Mr. Chairman.

    The Chair: Mr. Bryden, go ahead with one quick question.

    Mr. John Bryden: On page 14 of the deck, under “Expenditures of Crown corps”, there is $800 million year over year. Surely that's an actual expenditure and not a budgetary expenditure on that particular deck. We're talking about an $800-million increase.

    Mr. Richard Neville: Yes, that's right.

    Mr. John Bryden: Just going back to Mr. DeVries, then, just to make it clear for the record, crown corporations have increased in actual expenditures by $1.2 billion over two years. That's in your deck, on page 14. That is correct, right? I'm square on that.

    The Chair: John, I'm going to give the last question to Mr. Mayfield, just to balance it out here.

    Mr. John Bryden: I just have one other point. I'm sure the witnesses will hang in just to clear things up here.

    I wanted to ask a question with respect to foundations. Maybe it was explained earlier, but in terms of the money that has now gone to the foundations, was that move into the foundations mandated by the legislation? Or is that something being done by the government?

    Mr. Richard Neville: The largest foundations have been approved by legislation, hence it's as per legislation.

    Mr. John Bryden: So the money went in there as per legislation.

    Mr. Richard Neville: That's correct.

    Mr. John Bryden: So it has to be corrected by legislation, if anything.

    Mr. Richard Neville: That's correct.

    Mr. John Bryden: Thank you.

    Oh, by the way, if I may, whoever prepared that deck should be congratulated. I thought the deck was very good. It comes very close to addressing the concerns of the Auditor General, so whatever official did that for you did a good job, Mr. Neville.

    Mr. Richard Neville: It was a collaborative effort. Thank you.

    The Chair: Finally, Mr. Mayfield will have the last word...actually, the second last word, because the Auditor General always has the last word.

    Mr. Philip Mayfield: I'd love to continue arm-wrestling, but I have something else in mind.

    Following on your conversation with Ms. Meredith, I'd like to ask what the problematic components for you folks are in the implementation of the accrual accounting process. The question that goes with that is this: In your mind, what would be a reasonable timeframe to see the completion of this process?

    Mr. Richard Neville: At this point, the most problematic component would probably be the tax revenue issue for us. We have never accrued tax revenues in the past, and you can appreciate that they're a significant number. They're half of the equation, so to try to arrive at a tax accrual is problematic. We have a methodology that the Office of the Auditor General has agreed to, so it's now a question of making sure the systems are robust and that the information we receive is auditable. At the end of the day, these statements will be subject to audit, and we would certainly appreciate the Office of the Auditor General agreeing with the numbers we are putting forward.

    So that would be one. There are a few other components, but that would be the biggest item.

    The Chair: Okay, we're going to get the closing comments from our Auditor General.

    Ms. Sheila Fraser: Thank you, Mr. Chair.

    I think this has been an interesting hearing. I would perhaps suggest that if the committee members are interested in learning more about accounting, we could maybe do a briefing for members at some point. I think that might be helpful. We tend to use a lot of terminology as auditors, and people obviously aren't familiar with it. We can give you Accounting 101, and that might help.

    Mr. Philip Mayfield: That's a good idea, but I think I do understand what we were talking about today.

    Ms. Sheila Fraser: Also, as I mentioned earlier, we have a report coming out next week that will talk about accrual accounting, budgeting, and all of those issues. I look forward to discussing that report in more detail with the committee in future hearings.

    The Chair: Thank you very much, Ms. Fraser, Mr. Neville. It's unfortunate that we only have two hours devoted to $170-odd billion worth of revenue, $170 billion worth of expenditures, and the whole complexity of the Government of Canada. We in the public accounts committee have the responsibility of overseeing what goes on, and we rely to a great degree on the witnesses who are before us today.

    We thank you very much for your competence and for your dedication to ensuring that we are one of the few countries that does have an audited financial statement, unlike the U.K., the U.S., and others that are still many years away. We congratulate all of you. Keep up the fine work, and be assured that we will always be looking over your shoulder.

    The meeting is adjourned.