Public Accounts Committee on Oct. 21st, 2010

[James Ralston]

Yes.

Again, we have to put things into the perspective of time. When we first undertook this effort with the 22 large departments to do this controls readiness assessment, it was in advance of the policy announcement that I've just referred to. So indeed, part of the cost that is being referred to is the cost of improving controls. In fact, that work contributes equally to the ability to produce the kinds of statements of internal controls.

It was just because of the state they were at, at that point in time. The work needed to be done. It is being done. It will be of advantage in our pursuits of the current policy direction. So what we're really talking about is not a change in objectives or goals, but a change of means only.

[The Chair, Liberal, Joe Volpe]

Monsieur D'Amours.

[Jean-Claude D'Amours, Liberal, Madawaska—Restigouche, NB]

Thank you, Mr. Chair.

I want to thank the witnesses.

Mr. Wiersema, I have a brief question for you. Is it true that, when you audit consolidated financial statements, when you go into the departments, you only look at samples and do not do full audits of each department. Is that true?

[John Wiersema]

Yes, Mr. Chairman. That would be a correct statement. If I may elaborate a little—

[Jean-Claude D'Amours, Liberal, Madawaska—Restigouche, NB]

That was a simple question, requiring only a yes or no. Thank you very much.

Here is why I am asking this question, Mr. Chair. It would seem that they are trying to find reasons not to do certain things, and that they try to use the example of other countries to justify the fact that they do not do those things.

Mr. Ralston, you stated a while ago that the Auditor General will audit the consolidated financial statements. You should not give this kind of example when you know full well that it will not be full audits of each department but only partial audits of samples picked here and there.

In your opening statement, you said that “the environment of 2010 is different from that of 2004... It was appropriate for the government to reevaluate the merits of the earlier plan in that light".

How can you say that it was appropriate for the government to reevaluate the merits of the earlier plan when no plan was ever implemented? Justice Canada is the only department which really met, in part, the request to produce its financial statements in 2009. No other department did so. I wonder when that will happen. I fail to see how this could be appropriate when the work was not ever done.

[James Ralston]

Mr. Chair, the goal before, in 2004, and the goal today, at both times, has not changed: better financial statements, better financial management, and better controls. The question is, how do you cause the system to deliver that?

[Jean-Claude D'Amours, Liberal, Madawaska—Restigouche, NB]

How can you say that things are improving, Mr. Ralston, when that was never implemented? We were not even able to verify with the Auditor General. How can you come here and say that things have improved when we do not even know what was done in the various departments? We are not even able to validate the data. If information cannot be validated, how is it possible to say that better things have been put in place? I am sorry but it is impossible.

[James Ralston]

It's not correct to imply that there has been no work being done by departments and that there has been no improvement. The efforts we've referred to, in terms of the efforts of the 22 largest departments, have gone on, continue to go on, and will continue to be monitored through the mechanism that I now describe, which is this statement of internal control. Indeed, the work is lengthy. I will not dispute the fact that it's a lengthy prospect, but again, we are dealing, in some cases, with very complex organizations.

So is that work done today? No.

[The Chair, Liberal, Joe Volpe]

Mr. Ralston.

[James Ralston]

Is there work under way? Yes.

[The Chair, Liberal, Joe Volpe]

Thank you.

Mr. Wiersema, it has to be a very brief intervention. I'm going to go to Mr. Kramp.

[John Wiersema]

Absolutely, Mr. Chairman, for only 30 seconds, I'd just like to make two comments in response to this discussion.

First, the Comptroller General I believe is quite correct in pointing out that, under their internal control policy, departments will be making assertions as to internal control. What won't be happening there is that there will be no independent external validation of those through an audit process like that done by the Auditor General.

The other comment I'd like to make is that there's been some discussion around the consolidated financial statements of the Government of Canada, which indeed, the Auditor General audits. As the committee is well aware, this is a $250-billion-a-year financial statement, which the Auditor General audits. Auditing that financial statement at that level is quite different from auditing the Department of National Defence as a separate entity or any other department as a separate entity.

Thank you, Mr. Chair.

[The Chair, Liberal, Joe Volpe]

Now we'll go to Mr. Kramp.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you.

I've been listening, and if we really try to boil this whole discussion down and bring it to a sense of direction for this committee to pass judgment on, the basic question is very simple. Of course, the committee will decide what answer we're going to get.

If we have a solid history and a level of clean reports, with adherence to basic principles, is it necessary to spend significantly more money to take it to a degree of adherence beyond what is there? In other words, if we have a problem, by all means let's go at it. I have no difficulty with that, none whatsoever. But if we don't have a clear, identifiable problem and a clear sense of direction, the other side of me says....

My role in this committee right from the very first day I came here was to ensure two things. Obviously, recognition of accountability and oversight is the purpose of this committee, but it's also to ensure that we spend money wisely. I think we have to balance that. We would all like perfection, obviously. I guess we can audit the auditors who can audit the auditors who will audit the auditors.... Where do we go? Where do we stop?

Are we getting value for money in what we are doing right now? I think that's the question that has to come before the committee.

I asked the auditor's office if they were relatively pleased. We heard today that with regard to the status of the audits that have come through, there's been a pretty fair level of acceptance and adherence. There haven't been any smoking guns, to use a quote, to show we have a problem.

There's another point I would like to make, but I hate to mention these words. Madame Faille's eyes will roll when I mention this word, but it's called “accrual accounting”.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Ah, ah!

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

We went on about this issue for almost a year, of course, but it's tied directly to the capacity to present reports, provide accountability, up-to-date information, and current assessments, and the ability to provide maybe easier access, and/or a quicker method by which to be able to validate, whether it's appropriations or the budgeting right now. Of course, in regard to the original cost of that, to do that effectively we might be looking at five to eight years to do it and maybe a cost of $500 million alone.

So where do we go? We've had some success by going partway there. Should we have gone all the way there? Should we mandate that we automatically do each and every budget of each of every department every year? Quite frankly, I think not. I just don't know if that's a wise choice for spending our dollars. If we have a problem and there is deemed to be a situation that is problematic, by all means go in and hang 'em high.

[The Chair, Liberal, Joe Volpe]

Thank you, Mr. Kramp. I guess you made the choice not to ask a question, but I think your point has been well made over the course of three minutes plus--

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

My apologies for not getting to the question.

[The Chair, Liberal, Joe Volpe]

We'll go to Madame Faille.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Thank you.

Here is an excellent question prepared by our researcher.

Under the the Financial Administration Act, section 16.4(1)(c), ”accounting officers are accountable before parliamentary committees for signing their organization's accounts", their financial records.

According to you, what is the meaning of "signing their organization's accounts"?

[James Ralston]

Is that question for me? Thank you, Mr. Chair.

I want to make reference to another policy. On the signing of the accounts, a couple of things are literally signed. In some departments, the balance sheet will be signed by the deputy head. There's also a signing of the statement of management responsibility. That is not audited, but accompanies the financial statement. It is pretty explicit about the responsibilities that the deputy head takes, for internal control in particular, and for other things. So the policy on internal control establishes that deputy heads must ensure the establishment, maintenance, monitoring, and review of the departmental system of internal control to mitigate risks in a number of categories.

So the accounts are signed. Management signs the statement of responsibility. We expect deputy heads to have systems in place, through the chief financial officers and through the internal audit departments, to assure the deputy. So the deputy is looking to his own or her own organization to be able to validate the soundness of control.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

I understand all that but if the financial statements of a department are not audited, what assurance can the accounts administrator have about the quality and correctness of the accounts he is signing? Furthermore, if we have no independent opinion, what assurance can we have, if nobody audits the accounts, does any follow-up and control? So far, we have seen no example of best practices at Treasury Board.

Earlier, you referred to the Department of National Defense, which is very topical since I have the last internal audits of that department. The first and main finding relates to noncompliance with section 34 of the Financial Administration Act. That is the section relating to ensuring that the goods we are paying for--here, they refer to payments to suppliers--have really been delivered and services provided, which is not insignificant.

According to their estimates, this applies to 1% of the funds. What is the budget of National Defense? Several billions of dollars, perhaps. Here, I see a reference to "ensuring that contractual obligations are defined and met". I look at the internal audit reports. What assurance do we have that those audits are used by someone? Who follows up?

On Tuesday, we met with people dealing with the modernization of human resources management. During that meeting, we asked how they used the internal audit reports and the recommendations made about human resources management.

[The Chair, Liberal, Joe Volpe]

Thank you, Mrs. Faille.

Obviously, we are having problems with the time granted for questions, today.

I apologize for all members; we're trying to stay within a particular timeframe and every one of us has exceeded it. It has been a little bit difficult. I know we want to get the questions answered, but I am interrupting because I want to let all of you know that we may go well beyond the time that we had allocated for this.

I think you will all agree that if we're going to elicit responses from our witnesses, we need to shorten our questions. Otherwise, they will be reflections--with all due respect--à la Mr. Kramp, who decided not to ask a question but did make his point. I'm saying that because I see the clock running away from me, and I do want to have our witnesses come to make a presentation or answer questions.

Mr. Ralston, if you would, please address Madame Faille's question in the briefest of fashions.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

I have a point of order, Mr. Chair.

[The Chair, Liberal, Joe Volpe]

Mr. Kramp.