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Opening Statement to the Standing Committee on Public Accounts

Report and Observations of the Auditor General on the 2006-07 Financial Statements of the Government of Canada 

20 November 2007

Sheila Fraser, FCA
Auditor General of Canada

Mr. Chair, I am pleased to be here today to brief the Committee members on my report on the audited 2006–07 financial statements of the Government of Canada. With me today is Doug Timmins, Assistant Auditor General, and Marian McMahon and Michael Pickup who are responsible for the audit of these financial statements.

We are pleased to see that the Committee is holding this hearing on the Public Accounts, a key accountability report of the government. The Comptroller General will be explaining the main points in the government’s financial statements to the Committee. I will focus on the highlights of my audit opinion and observations.

My report on the 2006–07 financial statements is included on page 2.4 of Volume 1 of the Public Accounts. My opinion provides Parliament with the assurance that the government’s financial statements are fairly presented in accordance with the government’s stated accounting policies, which conform with Canadian generally accepted accounting principles. It can be referred to as a “clean” opinion. Our Office has been able to issue such an opinion on the government’s financial statements in each of the past nine years.

We commend the government for producing financial statements that are fairly stated in conformity with Canadian generally accepted accounting principles. Parliamentarians and all Canadians can be assured that the financial statements provide sound financial information. In our view, Canada continues to demonstrate leadership in financial reporting for national governments.

I would now like to discuss several issues that we have presented in our Observations (see Page 2.30 – 2.36 of Volume 1 of the Public Accounts).

First of all, the government’s financial results include significant amounts related to transfers to other levels of governments, individuals and other parties. Four point five billion dollars ($4.5 billion) of these expenses related to initiatives announced in the March 2007 Budget. We focused our audit effort on these expenses and liabilities as they require more judgement in determining the appropriate accounting treatment. During our audit, we concluded that the government’s accounting for these transactions was acceptable.

Secondly, in relation to departmental financial statements, as announced in 2004, the government’s plan to transform public sector management included measures to strengthen comptrollership and oversight. One of the initiatives was to have the annual financial statements of all departments audited. The Office of the Comptroller General’s strategy to implement this initiative is to first focus on the 22 large departments. We understand that in the near future, the government will be re-examining its priorities and strategies for matters related to financial management, including departmental financial statements.

This year, we reviewed the progress that these 22 departments have made toward meeting this objective and have identified key areas where work needs to be done—by departments and by the central agencies—in order to be ready for audited departmental financial statements. Based on the information provided to us, many departments have a long way to go before achieving the goal of readiness for an audit of their financial statements. For example, while the majority of the 22 departments have completed an initial assessment to determine their level of readiness, many have not yet implemented an action plan to address areas where they are not yet ready. In addition, the Office of the Comptroller General needs to re-evaluate the overall strategy, including the expected timelines for audited departmental financial statements, and reinforce with the departments the original objective of this initiative. We will continue to work with the government as it moves toward this goal.

Thirdly, there is the question of accrual-based budgeting and appropriations by departments and agencies. The Standing Committee of Government Operations and Estimates issued a report on accrual budgeting and appropriations and made numerous recommendations including that the government adopt full accrual accounting for budgeting and appropriations. This Committee also issued a report and recommended that the government present to Parliament for discussion and debate a model, including projected costs and benefits, on extending full accrual accounting to budgeting and appropriations within the next year.

We understand that a parliamentary working group was formed with members of both standing committees to discuss a number of models developed by the Treasury Board of Canada Secretariat. Discussions of these models have also begun with my Office.

The government has committed to presenting a model to Parliament by March 2008. We encourage the government to continue working to resolve this issue.

In our Observations, we also provided comments on the government’s methodology for accruing tax revenues. As the largest and most significant management estimate affecting the Government of Canada’s financial statements, it is important that the government regularly monitor the reliability of its estimation process and modify it, where necessary, to improve the accuracy of its estimates. At the present time, there is evidence of a continued understatement of tax revenues when compared to actual results, particularly in the area of corporate tax revenues. With more than four years experience in identifying causes of variances between actual and estimate amounts, it is time to implement improvements in the estimation process.

Lastly, we also commented on the lack of clarity regarding the nature of expenses that are to be charged to an appropriation. Our concern is that a liability in substance may not be recorded because it does not meet the legal definition of debt as per section 37.1 of the Financial Administration Act. We understand that Treasury Board will be updating several of its policies including PAYE policies in the future.

These matters are discussed in more detail in our Observations, which are found starting on page 2.30 of Volume 1 of the Public Accounts. In these observations, we have also provided an update on issues raised in previous years. This Committee may be interested in monitoring the progress that the various organizations make (e.g. Treasury Board, Canada Revenue Agency) in responding to the Observations.

In conclusion, we would very much like to thank the staff of the Office of the Comptroller General and in all of the departments involved in this work. The actual tabling of these accounts reflects many hours of painstaking work.

Mr. Chair, we would be pleased to answer any questions the Committee may have.