Report and Observations of the Auditor General on the 2019–2020 Consolidated Financial Statements of the Government of Canada

Opening Statement to the Standing Committee on Public Accounts

Report and Observations of the Auditor General on the 2019–2020 Consolidated Financial Statements of the Government of Canada

26 January 2021

Karen Hogan, Chartered Professional AccountantCPA, Chartered AccountantCA
Auditor General of Canada

Madam Chair, thank you for this opportunity to discuss our audit of the Government of Canada’s consolidated financial statements for the 2019–2020 fiscal year. With me are Chantale Perreault and Etienne Matte, financial audit principals.

The government’s financial statements are one of its key accountability documents. Our audit of the financial statements matters because it supports parliamentary oversight of the government, promotes transparency, and encourages good financial management.

This year, our audit of the government’s financial statements took approximately 33,000 hours to complete and involved most of our financial auditors.

Our audit opinion on the Government of Canada’s consolidated financial statements is on Link opens a PDF filepage 52 of Volume 1 of the Public Accounts.

We found that you can rely on the information contained in the financial statements. In all material respects, the information is presented fairly and conforms with generally accepted accounting principles for the public sector. In other words, we issued a clean opinion.

A few years ago, we started to present an annual commentary report to Parliament that highlights important information about the results of our federal financial audits.

In our current commentary on financial audits, we made 3 observations about the government’s 2019–2020 consolidated financial statements: 1 related to pay, 1 to National Defence’s inventory, and a new observation related to payments made by the Department of Finance Canada.

First, we once again found deficiencies in the government’s internal controls for pay, which meant that we had to carry out detailed audit tests of the $26 billion in salaries and benefits processed through the Phoenix pay system.

We selected a sample of pay files and tested the accuracy of basic pay and acting pay. Data quality problems continued to create pay errors for thousands of federal employees. We found that 51% of employees in our sample were paid incorrectly at least once during the 2019–20 fiscal year.

Despite the significant number of individual pay errors, overpayments and underpayments partially offset each other. As a result, the pay errors did not significantly affect the government’s financial statements. However, the underlying problems and the pay errors continued to affect thousands of employees.

Second, for 17 years, we have been reporting on National Defence’s difficulties in recording its inventory. This year, we estimated that the department’s inventory and asset pooled items were understated by about $759 million out of a total of $8.7 billion. National Defence continued to implement the long-term action plan it submitted to this committee in 2016. In our view, errors in reported quantities and values are likely to continue until the plan is fully implemented.

Third, we examined payments made by the Department of Finance Canada under a new long-term agreement. In our view, the department did not obtain the proper authority of Parliament before making these payments. One of Parliament’s fundamental roles is to approve all spending of public money to provide accountability and transparency to Canadians. We have recommended that the Department of Finance Canada obtain the proper authority before making any other payments under the agreement, which was done in December for the current year.

In our commentary report, we also noted opportunities for organizations to improve their systems and practices. Again this year, we noted unresolved information technologyIT matters that could compromise the government’s data integrity and affect financial reporting. These matters included system access given to people who did not need it, access retained by people who no longer needed it, and weaknesses in the controls over access granted between organizations.

Another important subject in our commentary report is the COVID‑19 pandemic, which affected our financial audit work. We collaborated with the federal organizations we audit and with central agencies to better understand the challenges we all faced. We expect that the pandemic will also significantly affect the government’s 2020–2021 financial statements and our financial audits. We will adjust the nature, timing, and extent of our future audit work as needed.

Madam Chair, I would like to thank the Comptroller General, his staff, and the staff of the many departments, agencies, and Crown corporations involved in preparing the government’s financial statements. We appreciate their collaboration particularly during these challenging times.

This concludes my opening remarks. We would be pleased to answer the committee’s questions.