Proceedings of the Standing Senate Committee on
National Finance
Issue 37 - Evidence
OTTAWA, Tuesday, April 23, 2002
The Standing Senate Committee on National Finance met this day at 9:35 a.m. to examine the Main Estimates laid before Parliament for the fiscal year ending March 31, 2003, Treasury Board Vote 5 — Government Contingencies.
Senator Lowell Murray (Chairman) in the Chair.
[English]
The Chairman: Colleagues, this committee undertook to pursue in greater detail a number of issues that we flagged in various of our reports to the Senate on government Estimates. One of those issues is the Treasury Board Vote 5, the so-called contingencies vote. It is that issue that we will concentrate on today and for the next several meetings.
I may say that there is a related but separate issue, which is the funding of and accountability of arm's-length foundations for the purpose of pursuing the government's public policy objectives. However, while these are related and there is some overlap, we have decided to treat and report on these two issues separately.
Today, with your cooperation, honourable senators, we will focus specifically on Treasury Board Vote 5, the contingencies vote.
There may be other matters that you want to raise with our witnesses. If so, I would ask you to wait until the second round. On the first round, I would like us to concentrate solely on the Treasury Board Vote 5.
Our witness, as you know, honourable senators, is the Auditor General of Canada. I want to thank Ms Fraser for accommodating us, as she has. We put her to some considerable personal inconvenience, including the cancellation of out-of-town engagements, in order to be here this morning. I do want to express our appreciation for her kindness and understanding in that respect.
Without further ado, I will invite Ms Fraser to make her opening statement.
Ms Sheila Fraser, Auditor General of Canada: Mr. Chairman, I should like to thank the committee for inviting me to appear today. This is my first time before this committee. I appreciate the invitation and hope that we will have other hearings together.
With me today are two principals in my office. They are responsible for preparing this audit observation on the government contingencies vote, which appeared in Chapter 8 of our April 2002 report. Anne-Marie Smith is a lawyer in our legal services division, and John Hodgins is a chartered accountant and is responsible for our annual audit of the Public Accounts of Canada.
This may seem like a strange combination, a lawyer and an accountant, working together on an audit, but in this case it made perfect sense. Vote wording and departmental mandates can be complicated and legalistic, and the actual transfer of authority and payment of grants can be confusing without a background in accounting.
This audit observation is somewhat technical, though we did take great pains to write it as simply as possible because the basic principle at the root of our concerns is also simple: Spending by departments must have the prior sanction of Parliament.
Mr. Chairman, we were fully aware, in preparing this audit observation, that this committee has had a keen interest in the government contingencies vote and that it also has plans in the near future to work on this and other related matters. For this reason, the audit observation is a bit longer than others that we usually make. We provide a history of the use of the vote, including the evolution of its present wording, and some of my office's previous comments, as well as certain Speakers' rulings related to the vote.
We have also summarized some of this committee's discussion of the government contingencies vote. We hope that this will be useful to members who may not have been part of the committee in the years when this matter was discussed.
We are concerned that government spending on grants under interim authority from the government contingencies vote may be falling outside Parliament's intent.
[Translation]
Before elaborating on our concerns, Mr. Chairman, I thought it might be useful to describe very simply how the Vote operates. Again, please keep in mind that I am describing its operation only for grants.
Departmental vote wording for grants is very specific — ``the grants listed in the Estimates.'' When an event occurs that requires grant payments and a department does not have the spending authority in its grants and contributions vote, it can seek authority through the Supplementary Estimates process or, if the need for the payment is urgent, ask the Treasury Board for interim authority from Vote 5.
In reviewing such a request, the Treasury Board Secretariat uses eight guidelines to determine whether it should submit the request to the Treasury Board. Those guidelines are listed in Exhibit 8.5 of the audit observation.
If the Board approves the request, the department is informed that it has been granted interim authority from Vote 5 to make the payment. The department then makes the grant payments citing its own grants and contributions vote as the authority.
In the next Supplementary Estimates, Parliament will normally provide retroactive authority for the grants.
With that background, Mr. Chairman, the concerns I raised in the audit observation come down to two matters.
First, the wording of the Government Contingencies Vote is extremely broad, and the words ``miscellaneous, minor and unforeseen expenses not otherwise provided for'' have not been defined in any way by the Treasury Board Secretariat. This wording has provided the Secretariat with considerable latitude over the years in the way it interprets the spending authority.
I do not question the use of this vote in government spending for minor and unforeseen expenses or in emergency situations when no other spending authority exists. As the audit observation says, the government cannot be expected to anticipate every type of expenditure that may come up in a fiscal year, and it therefore needs some flexibility to cover unforeseen expenses. Nevertheless, I think it is important that the Treasury Board Secretariat clarify what is meant by ``miscellaneous, minor and unforeseen.''
The grants we reviewed in our audit that received interim spending authority from Vote 5 were, in my view, anything but miscellaneous, minor and unforeseen.
The $50 million in grants for sustainable development technology were foreseen 13 months before the payments were made; the $12 million grant for Clayoquot Sound was foreseen 14 months before the payment was made. And the $95 million in grants to the airline industry, while unforeseen, surely cannot be considered miscellaneous and minor.
The Treasury Board Secretariat analysts we spoke with during the audit all had different views on the meaning of miscellaneous, minor and unforeseen.
Mr. Chairman, we have therefore recommended that Parliament may wish to consider examining the wording of the Government Contingencies Vote to ensure that the government uses it as Parliament intended, and that the Treasury Board Secretariat respond to any recommendations from this Committee and the House of Commons Standing Committee on Public Accounts.
[English]
My second concern is a more technical matter, the difference between spending authority and legislative authority. Using the grants for sustainable development technology as an example, it is clear, in my view, that Environment Canada and Natural Resources Canada had the legislative authority to enter into arrangements for the grants, but did they have the spending authority required to make the payments?
To answer this, we looked at the vote wording of the departments' grants and contribution votes. In both cases, Parliament had authorized spending authority for the grants listed in the Estimates. It amounted to $2.85 million for Environment Canada and $600,000 for Natural Resources Canada.
Further, our reading of the classes of grants described in the Estimates for the two departments was that grants for sustainable development technology had not been contemplated by Parliament. Therefore, in our view, the $25 million in grants that the two departments paid for sustainable development technology had not received spending authority from Parliament when the payments were made.
Mr. Chairman, we have therefore recommended that the Treasury Board secretariat submit to the Treasury Board a formal policy or guidelines governing the use of the government contingencies vote for grants to ensure that spending authority is obtained before such payments are made. We further recommend that any exceptions to that policy be reported to Parliament in the Supplementary Estimates.
In its response, the Treasury Board secretariat indicated that it would update the guidelines and present them to the Treasury Board ministers for approval. However, it did not indicate whether the update would deal with the use of the vote for grants. You may wish to ask secretariat officials to clarify their position on what is meant by miscellaneous, minor and unforeseen. Do they intend to continue using Vote 5 authority for grants, even when the grants have not been listed in the Estimates under the related departmental votes?
You may also wish to discuss with them the merits of including an obligation to report to Parliament in the Supplementary Estimates any exception to the updated policy or guidelines.
Mr. Chairman, that concludes my opening remarks. We would be pleased to answer questions committee members may have.
Senator Lynch-Staunton: A number of my questions have already been answered in your presentation, which I found direct and to the point; unfortunately the answers are the ones that I feared. I shall continue the discussion with a representative of Treasury Board.
On this interpretation of miscellaneous, minor and unforeseen, our briefing book includes an exchange on this subject between Senator Stewart and Mr. Darling in 1989. The interpretation given there is that there are two elements, minor expenses and unforeseen expenses of any size. That is the way they were defining it then.
Is that the way Treasury Board is using the interpretation, which does not read that way but which is being interpreted with respect to unforeseen expenditures that there is no limit but minor expenses are minor expenses?
Ms Fraser: To the best of our knowledge, the Treasury Board secretariat is using no definition. We have interpreted it to mean all three conditions. If you read the wording, there are no commas between the words, and it is ``and'' and not ``or.'' We believe the secretariat should clarify how it interprets that.
Senator Lynch-Staunton: I cannot wait for the second round because I want to ask you questions on the foundation, but I will follow the directive of our distinguished chairman.
The Chairman: Foundations will be next month.
Senator Lynch-Staunton: I thought you said second round.
The Chairman: No, I did not.
Senator Lynch-Staunton: Well, since the Auditor General did refer to the foundations, can you make an exception?
The Chairman: We are doing separate study on that.
Senator Lynch-Staunton: Perhaps you will come back.
The Chairman: We hope to have the Auditor General back.
Senator Stratton: That is the question.
The Chairman: Yes, yes we are organizing that now.
Senator Lynch-Staunton: Speaker Milliken in his ruling on the identification of funds for the Canada Foundation for Sustainable Development Technology in Supplementary Estimates (A) ruled that they were improperly presented but gave the government a chance to make the correction in the Supplementary Estimates. The debate continued, as you recall, and then the sups were voted without any corrections being made. The corrections came in Supplementary Estimates (B). Am I right in interpreting that to mean that, when we voted Supplementary Estimates (A), we voted items that should not have been there?
Ms Fraser: I will ask my legal adviser to respond to that question.
Ms Anne-Marie Smith, Principal, Office of the Auditor General of Canada: Yes, essentially, that was the first appearance. There was a description of a grant to a fund, but the grant was made to a foundation, a non-profit organization. It was because of the discrepancy in the description that the Speaker ruled that there was not sufficient authority to use the descriptions and the grant listings in the Supplementary Estimates to refund the amounts to the Treasury Board Vote 5.
However, those Supplementary Estimates continued, and in Supplementary Estimates (B) we see another item, which, now that it has been passed, will allow for the refund or topping up of the contingency vote.
Senator Lynch-Staunton: Yes, the correction was made in (B), but should it not have been made in (A)?
I am arguing that, when we voted the Supplementary Estimates (A), we disregarded Speaker Milliken's ruling and went ahead; and according to his advice, I conclude that we improperly voted those Estimates. Whether it is just a question of wording, the correction should have been made prior to the vote on (A). The Minister of the Treasury Board said, ``Oh, we will do it in (B),'' and just dismissed the whole thing, which I found rather cavalier.
I do not want you to comment on my political statement, I want you, as a lawyer, to support my argument or say, ``No, it is quite all right, perhaps they should have done it in (A) but it is all right to do it in (B).''
Ms Smith: The net effect is that at this moment $150 million has been voted for sustainable development technology.
Senator Lynch-Staunton: That would be $50 million in (A) and $100 million in (B), yes, whereas the original authority requested only $100 million.
Mr. John Hodgins, Principal, Office of the Auditor General of Canada: Mr. Chairman, the original Estimates voted $100 million to the Foundation for Sustainable Development Technology; $50 million had already been paid to the corporation. In effect, therefore, $150 million was out there, but the Treasury Board froze the department's ability to make $50 million in payments. Although the parliamentary authority was there, Treasury Board reacted by freezing the department's ability to make $50 million in payments.
Senator Lynch-Staunton: Therefore, Treasury Board authorizes payments without parliamentary authority and then once parliamentary authority is given it can disregard the parliamentary authority.
Ms Fraser: I think we can all conclude that it would have been preferable had Supplementary Estimates (A) been correct from the beginning.
Senator Banks: A few minutes ago something was mentioned that I would ask you to comment on, and it is the wording contained on page 1-54 for Vote 5, when commas and the like were referenced. I am reading the English sentence. This seems to be pretty unrestrictive. The same thing would be true in 1-7 of the ``Introduction to Part II'' of the Main Estimates, which refers to a government contingency vote and says:
This Vote supplements other appropriations to provide the Government with the flexibility to meet unforeseen expenditures until Parliamentary approval can be obtained...
Then the Treasury Board secretariat guidelines, in the introduction, says this with respect to government contingencies:
Subject to the approval of the Treasury Board...to supplement other appropriations for paylist and other requirements and to provide for miscellaneous minor and unforeseen expenditures...
In reading the English, I would say that those are three separate things and that other requirements could be practically anything.
Senator Stratton: The whole budget.
Senator Banks: Yes. In fact Senator Stewart, in the hearing to which Senator Lynch-Staunton referred, asked the Secretary of the Treasury Board of the time whether hypothetically it was possible for the government to simply make a contingency vote and then that would be it. Of course, that is purely hypothetical and no one ever suggested anyone would do such a thing.
Would you please comment on what I have just said? Anyone who operates a business knows that it is inappropriate to do so without a contingency; one cannot. Would you comment on the wording that ``subject to the approval of the Treasury Board'' the contingency votes may be used ``to supplement other appropriations for paylist and other requirements and to provide for miscellaneous minor and unforeseen expenditures.''
What I am getting at here is that we are paying a great deal of attention to the words, ``miscellaneous minor and unforeseen.'' I am not just reading this convinced that the present wording means that miscellaneous minor and unforeseen are words that apply to other requirements, which seems to be pretty wide open.
Ms Fraser: We have interpreted that there are two elements in this vote, one when we talk about ``supplement other appropriations for paylist and other requirements,'' which means the ongoing operating expenses and the normal expenses for which departments have authority during the year. The concern we are raising here is with grants. Grants do not fall into ``other appropriations for paylist and other requirements.'' Many of these grants that we have mentioned specifically were not authorized prior to it being used by Vote 5, and so it would fall into the second category, which we read as ``miscellaneous minor and unforeseen expenses.''
Our reading of that is that the three conditions have to apply, that it is not ``miscellaneous minor or unforeseen expenses.'' Hence, we are questioning some of the grant payments that have been made by asking whether they were really unforeseen and whether they are really minor, and we think more clarity should be given to the kinds of grant payments that would fall under that category.
Perhaps Ms Smith could add something.
Ms Smith: I think the Auditor General has explained the situation. We view the vote wording in two parts, and the problem is the way the funds are transferred. Treasury Board transfers funds to the departmental votes, and it is actually the wording of the departmental vote that we look at to see whether there is authority to make the payment at the time the money goes out the door.
Admittedly, with respect to the second part of the vote wording, which talks about provision for ``miscellaneous minor and unforeseen expenses,'' there is no reference there to the wording of other departmental votes and, indeed, we view that as separate from the part that authorizes other departmental votes or appropriations to be supplemented.
Theoretically, if the funds for, say, the foundation had been paid directly by Treasury Board from this vote to the recipient corporation, we would not have an authority question because, as Senator Banks has pointed out, that wording is indeed extremely broad. It just comes to an analysis of whether it is minor, miscellaneous or unforeseen.
Ms Fraser: We agree fully that the government does need some vote to deal with unforeseen expenses. It needs to have that latitude, if you will, because obviously with the size of the budget it is not possible to foresee with certitude everything that will happen during a year.
Senator Banks: I know that I am asking a semantic question but it has a lot to do with your explanation.
Do I gather, then, in respect of your report, that grants do not fall under the words ``appropriations for paylist and other requirements'' but rather under ``and to provide for miscellaneous?'' Am I right in that?
Ms Fraser: Grants could fall into the first part of the text if there were a specific appropriation in the department. For example, with respect to the one on sustainable development, one of the departments only had an authority to spend $600,000 on grants and gave a $25-million grant, and the other was less than $3 million. There was not a specific authority in the departments to pay those grants. If there had been an authority to pay grants for, say, $100 million and then that was used that to pay these it would have been supplementing an appropriation that already existed.
Senator Banks: The appropriation can be used for expenditures that do not subsequently receive parliamentary approval, in which case they would be made a permanent part of the contingencies votes, according to some notes that I have here; is that correct?
Ms Smith: I believe it is only top-ups to paylist that will form a permanent charge on the Vote 5.
Senator Banks: I have a note that says otherwise. I wish to understand exactly what we are talking about. This note says that the principles that must be met in situations where contingency funding is being sought for authority to make a payment are, in part, as follows: One, that the item is within the authority of the contingencies vote wording and that it be a miscellaneous minor and unforeseen expense not otherwise provided for, which could legitimately be a permanent charge to the contingency vote if Supplementary Estimates are not approved.
Is that correct?
Ms Fraser: Yes, that is one of the secretariat's eight guidelines.
Senator Banks: Theoretically, an expenditure could be made under a contingencies vote and stay as a contingency vote and be made a permanent part of the contingency vote and never be approved by Parliament; is that correct?
Ms Smith: If they were relying on that phrase ``miscellaneous minor and unforeseen expenses,'' that is correct.
Senator Stratton: The question I have follows along that of Senator Banks. Does the definition need to be tightened up? It virtually means that, with these grants, you could drive a truck through it; you could theoretically approve the whole budget if you wanted to.
Senator Banks: That is only theoretical.
Senator Stratton: To give the government the degree of flexibility it needs, does the definition need to be tightened or changed, and if so, how?
Ms Fraser: We have recommended that the definition be clarified and that the Treasury Board secretariat should submit to the Treasury Board a formal policy that would have guidelines on the use of the vote. In particular, how do we define ``minor''? Is it in relation to the contingencies vote itself, which is $750 million? Is it in relation to departmental votes?
I must admit that when we did the audit, Treasury Board analysts themselves had different interpretations of what ``minor'' is. We think there needs to be clarity around how to define ``minor'' expenditures.
Senator Stratton: Do you see that as being possible? It is in the mind of the beholder as to what is minor. In my mind, it could be $5 million, and according to the chap across the way, it could be $500 million. How do you define that?
Ms Fraser: I agree that there could be varying interpretations, which is why it is necessary that there be one interpretation that is clear for everyone. There should be a guideline. It could be a percentage of the total vote. It could be in relation to departmental votes. There could be different guidelines. However, I think it important to have clarity.
Senator Stratton: Have you suggested how this definition could be refined, or are you leaving it entirely in their hands?
Ms Fraser: We have left that to the Treasury Board secretariat.
Senator Stratton: You would not venture there?
Ms Fraser: No.
Senator Tunney: I have a two-part question. I ask it because I am quite confused about what I have been hearing and reading since your report.
I should like to ask you to comment on a comment made by Paul Martin, our Minister of Finance, who contradicted one statement in your report, that after the funds go to a foundation there is no opportunity for you to audit. He contradicted that. He said that the Auditor General is wrong in that respect.
The Chairman: We will come to that matter next month, senator, with a special study. It is the contingencies vote we would like to deal with here.
Senator Tunney: The other part of my question — you may not want to answer the first part — is this: If the government pays $150 million into a foundation, as we know they did, does that $150 million result in a $150 million reduction in our surplus?
Ms Fraser: The answer to the senator's second question is yes. The government statements are basically on a cash basis of accounting, so when the money is transferred outside government to one of these foundations the amount is recorded as an expenditure and would reduce the surplus for the year.
Senator Tunney: I have just a comment here. I think it is ironic that we have a Minister of Finance who may almost be a little bit embarrassed by the surpluses. I am wondering if it is partly a thrust to reduce some of that surplus. You need not comment on that, of course.
The Chairman: I think the Auditor General in her report makes the point that decisions should not be made on the basis of achieving a particular accounting result but that they should be made on sensible policy ground.
[Translation]
Senator Bolduc: I have read and I appreciate the comments you made in your observation. I have also read the background documents that were provided to us.
I've been here since 1988. I heard the discussions with Senator Stewart on all these matters. I have come to the following conclusion and would like to hear your views on it.
Historically, we first had the Constitution. Up until 1960, expenses always had to be authorized by Parliament. It was a basic requirement. Previously, an unforeseen expense had to be extraordinary so that either authority was finally given in Parliament's absence, when Parliament was not sitting, or a contingency vote was authorized. However, it was really for unforeseen expenses.
Ever since public sector collective bargaining began in 1963-1964, the government realized that it could not include estimated amounts for required salary increases to public servants because it would signal to unions, ``Come and get it, we have 3 per cent or 4 per cent for you.'' So, the government then said, and that is where the expression ``paylist'' came from, that should a collective agreement be reached, it is tantamount to an agreement by the Department of Foreign Affairs, or an agreement that will be later ratified by Parliament. Everyone has agreed to this because government must have confidentiality when it negotiates. We understand that.
Over the past 20 or 25 years, I have noticed a tendency to add all sorts of things to this so that today, even with Treasury Board Secretariat guidelines, of which only four out of eight have been approved by the Treasury Board, the government can spend as much as it wants whenever it wants. That is the point of view that is now held.
The Treasury Board Secretariat (and I do not blame the public servants in this regard because they are pressured) tends to find ways to make it work. We have, among others, the example of the technology fund.
It is now time to straighten this situation out. I think the general idea of your proposal is to revise the wording of Vote 5. Is that correct?
Ms Fraser: The Senator knows more about the history and evolution of this vote than I do. Our concern is in fact that the vote is used for several grants. Is that really what Parliament had envisioned when it enacted this legislation? Either the legislative enactment should be changed or clearer guidelines developed to properly define how it is to be used. We do not propose to change the law but rather the guidelines.
Senator Bolduc: And perhaps a change in wording?
Ms Fraser: It is up to the members of Parliament to decide whether or not that would be appropriate.
Senator Bolduc: I believe that this tendency will increase. We are now at $750 million. That represents 1 or 1.5 per cent. People say that in England, they have 1.8 per cent, and in Australia, they have 2 billion. I think that is like putting a bag of candies in front of children and telling them: ``If you want some you can have them but we recommend you don't.'' Please! We know what will happen.
That is my point of view and I would like to know if it matters to you whether the law is changed or the wording is modified if Members of Parliament think it appropriate.
Ms Fraser: We believe that clearer guidelines that are better understood by everyone would be sufficient.
[English]
Senator Cools: With respect to the use of contingency Vote 5 and the definition of ``miscellaneous minor and unforeseen,'' in your view, could a general election and the disruption to government it causes be viewed as an unforeseen set of circumstances?
Ms Fraser: I do not know that I could comment on that. Special warrants are given when Parliament has been prorogued; that is another mechanism available to the government.
Ms Smith: In order to obtain a special warrant, the government is required to certify that no other appropriation is available, so that if an election were called, the government's first recourse for funds would be to the contingency vote.
Mr. Hodgins: We have noted in the audit note that in 2000 the use of the contingencies vote was larger than normal due to the call of the federal election.
Senator Cools: I am wondering because governments must deal with large numbers of political questions and political realities. I was trying to ensure that they were noted.
However, the process with respect to TB Vote 5 and special warrants are different processes. I do not think we should introduce special Governor General's warrants here, perhaps later.
I hear you saying that Treasury Board has its own definitions of miscellaneous minor and unforeseen. I am also hearing that you have a remarkably different opinion of what those words mean, and you also have some learned opinions on what those words should mean.
Obviously, you have a different opinion, and I sense a major disagreement between you and Treasury Board on the definitions of these words. To what extent is your disagreement with Treasury Board a policy question, a substantive question, and to what extent is that disagreement an audit question?
Ms Fraser: As you know, it is not the place of the Office of the Auditor General to question policy, but rather the implementation and administration of policy. In this case, the Treasury Board secretariat does not have a definition of minor, unforeseen and miscellaneous expenses, and we were raising that issue here. They have categorized some of these grant votes as minor, miscellaneous and unforeseen. We question that according to our definition. They could have, and rightly so, a definition or interpretation that is different from ours. We are saying there is a need to define what that is, and then, of course, as auditors, we could see whether the payments made meet the definition that has been there. However, because there is no clarity, we are there to question whether, in our judgment, these are minor, miscellaneous and unforeseen.
The Chairman: On the point of how and why certain expenditures qualify under this vote, I do not know, Auditor General, whether you looked at specific cases. If not, we will move on, and, in any case, I will put these questions to Treasury Board officials when we have them here.
Colleagues have at tab 5 of their briefing books examples of major items under this vote, going back to 1996-97. I see, for example, under the Department of Canadian Heritage, $15 million for the establishment of the Canadian Information Office. I see, under Privy Council, $10 million for the establishment of the Millennium Bureau of Canada. I cannot believe they did not see the millennium coming.
I see, under National Capital Commission, $40 million for the revitalization of Sparks Street; under Health, the Canadian Institutes of Health Research, grants for research projects, et cetera, $67.8 million; Department of Public Works Canada Information Office, support for citizen-focused approach to government communications, $23.6 million.
Did you look at these specific cases, or should we just move on here? On the face of it, I would find it difficult to justify those as minor, miscellaneous and certainly not unforeseen items.
Ms Fraser: We did not look at those particular payments. We did have a few examples that were mentioned in our audit observation, but we did not go back that far.
The Chairman: We will leave it at that.
On another matter, however, honourable senators will find at tab 4 a document that Treasury Board supplied the committee in 1989, when Senator Stewart and his colleagues were in hot pursuit on this issue. At the first paragraph on page 3, which I find intriguing, it reads:
In theory the Treasury Board has complete authority to use the Contingencies Vote within the restrictions of the Vote wording itself, without returning for further Parliamentary authority. Parliament would of course be advised of the use made of the Contingencies Vote in Public Accounts, but all such charges could be made as permanent charges to the Vote. Although a later section of the vote provides authority to reuse sums which are repaid from other appropriations, there is no requirement that such sums be repaid or that the items funded be included in Supplementary Estimates. An opinion from the Treasury Board Acting General Counsel, on the 18 July 1978 stated ``...it would still be perfectly competent in law to pay out money, in terms of the preceding words of the Vote, up to the amount voted. At that stage, as in the case of any other Vote, the appropriation would be exhausted and no more payments permissible, but there would be no need in law to replace the money from Supplementary Estimates.''
Several statements are in that paragraph, as you will have observed, and it occurs to me that Treasury Board is saying this: ``You think we are exceeding our mandate. On the contrary, we are relatively restrained, given the latitude that the law allows us.'' Do you agree with the opinion stated by Treasury Board at that time?
Ms Fraser: Yes, Mr. Chairman, we do. I would call your attention to one of the guidelines of the Treasury Board Secretariat. It is the second guideline, and it states: ``As a general rule, permanent charges will not be made to the vote for requirements other than paylist shortfalls or awards under the Public Service Inventions Act. All other advances from the contingencies vote should be considered temporary advances...''
Therefore, their general practice is that it would not be permanent charges to the vote.
The Chairman: However, the legal situation is otherwise.
Ms Fraser: That is correct.
The Chairman: Should we take under advisement whether the legal situation ought to be changed and tightened up?
Ms Fraser: That is a decision for parliamentarians to make and not for the Auditor General to comment on.
Senator Bolduc: It is the legal interpretation by the Treasury Board. It is not necessarily the legal situation.
The Chairman: No one has challenged them until now.
Senator Cools: I have two points, Mr. Chair. I think we should also get an update on this particular opinion because the opinion that you just read of the acting general counsel of the Treasury Board was dated July 18, 1978. That is quite some time ago; in addition, this document came out of the Senate committee study on Treasury Board Vote 5 around 1987 or 1988. At the time I was a member of the committee as well. It would serve the committee well to get an update on this opinion.
The Chairman: We will ask the officials when they come whether that view still holds, in their opinion.
Senator Cools: I know that before this committee the Treasury Board people have said again and again that they are quite constrained and restrained and that whenever they do use Vote 5 they ensure that they follow it up by inclusion of whatever those items were in the next set of Estimates, which differs slightly from what was said here. The point is well taken and we should look at it with some seriousness. The first thing we should do is ensure that this is drawn to their attention.
Senator Lynch-Staunton: When we were studying the Supplementary Estimates (B), some question was raised as to under what authority the Minister of Transport authorized up to $160 million in aid to airlines and others related to the industry directly affected by the tragedy of September 11. We were referred to section 4.2(l) of the Aeronautics Act, which reads that the minister may ``provide financial and other assistance to persons, governments and organizations in relation to matters pertaining to aeronautics.''
I find that a bit of a stretch. Perhaps you have already answered my question when the chairman asked you whether you had an opportunity to look at specific grants — and this one being a more recent one, if you have not, will you? I doubt whether Parliament at the time could envision in its authority an event such as the one we went through six or seven months ago, and certainly it was not a minor expenditure, by any definition — unforeseen, yes — but was the authority there for it?
Ms Fraser: To the best of my knowledge, we did not look at the specific vote used by Transport Canada to pay these amounts. We will, though, be auditing this program as part of our normal audit of the Public Accounts of Canada.
I would just add that that brings up the issue we are raising. If the Treasury Board had paid that money directly from Vote 5, it would have had the authority to do so, but because it is supplementing a departmental vote then the department has to have the spending authority, and in some cases it can be questionable whether the department has that spending authority. I know it is a bit of a technical difference, but we think it is important that that be looked at as well.
Senator Lynch-Staunton: Mr. Cappe, when he came before the committee in 1993, then with Treasury Board, stated that the normal requirements for Vote 5 would be approximately 1 per cent of total appropriations. As Senator Bolduc has pointed out, that percentage figure has been increasing in the last few years much faster than the appropriations. The figure I have for last year is 1.43 per cent; this year's figure is 1.33 per cent.
Is there any commitment to the 1 per cent figure, or should it be 1 per cent? Or should the government, as it seems to be doing, increase it, because it is relying more and more on Vote 5?
Ms Fraser: We have not looked at this issue, nor do I have any comments with respect to how much should be in the government contingencies vote.
Senator Lynch-Staunton: It is something we can bring up with Treasury Board.
[Translation]
Senator Bolduc: In other words, on the one hand, you have ministerial responsibility and on the other, legislative authority for a programme. If legislation establishes a programme, the votes that enable its execution should also enable the appropriation for the grant.
In that context, does Vote 5 authorize an expense before the financing of the programme is voted upon? That is my basic question.
[English]
Ms Fraser: That is exactly the issue we were raising vis-à-vis the difference between spending authority and legislative authority. If for grants the Treasury Board had paid the money directly through Vote 5, it would have had the spending authority. What it is doing is transferring money to supplement departmental votes, and in the case of grants the authority to spend is set as being the grants listed in the Estimates. However, in the cases we looked at there was no specific mention made in the Estimates of the kinds of grants for which that the money was being spent. We questioned if the departments really had spending authority even though they may have had legislative authority. I know it gets a little technical.
Senator Banks: I am going to ask one of those wonderful hypothetical questions. As you heard earlier, I am not entirely convinced that the words miscellaneous, minor and unforeseen — I should not even be asking this question of you — apply to ``and other requirements,'' and I will pursue that to find out if I am all wet.
In respect to what Senator Lynch-Staunton brought up, for example, the airline question, there are those who say that government should operate like a business, but government is not like a business. You have said that we should circumscribe somehow what contingency means and institute some kind of limit. I understand that it would be convenient to accountants — with all respect — and to everyone else it would be very neat too. Sometimes, though, government is not neat.
Have you given thought to the question of whether circumscribing contingencies is really practically applicable when the Crown must govern, after all? I am leaving aside the grants to sustainable development. However, as to the grant to the airline, assuming for the sake of the argument that there is ministerial authority to spend $152 million, the events that brought that about could not possibly have been contemplated by anyone. The amounts that might have been involved if those things had happened in this country rather than somewhere else could have been $152 billion.
There is no possible way of doing the kind of prudent forecasting with respect to contingency that I can do if I am a contractor building a building. I can say that if I get a 10 per cent contingency on this, I am safe, or 15, or whatever the number is, whatever business undertaking I make. Are you sure, when you say that we ought to put limits on contingencies, that that is really practically possible when it comes to the question of government?
Ms Fraser: I agree with you, senator, that it is impossible to predict all the expenditures. The government needs to have flexibility, and it is important that it have a contingencies vote such as this.
We are particularly concerned about grants. When we talk about paylist and other requirements, those are appropriations that already exist, and supplementing those is like the normal course of business, if you will. That, I think, is fine. Our issue here is with grants that have not been foreseen in other appropriations or may not have been foreseen in other appropriations. We think there should be clearer guidance on what is acceptable and what is considered ``minor'' in those cases.
Again, we recognize that there will be or could be situations that will fall outside. Everything cannot be neat and fall within the rules that accountants may like. We have suggested that there should be clearer guidelines and that, if exceptions need to be made to that, they be reported to Parliament and the reasons for those exceptions be given. We do recognize that there could be situations that will fall most definitely outside any guidelines that could be developed.
Senator Banks: The guideline could say, ``Here is the ceiling on contingent expenditures,'' and an unforeseen expenditure could arise that exceeds the guideline and occurs when parliamentary approval for the expenditure is not possible to achieve, such as prorogation, September 11 or whatever. What if the Government of Canada had been faced with an immediate urgent expenditure?
Let us say we had a limit of 2 per cent of the Main Estimates on contingencies, and something happened on September 11, God forbid, or some other date, that required the government to make, without being able to have recourse to Parliament, expenditures of $15 billion, exceeding 2 per cent. There must be some authority for the government to be able to do that. If there were a ceiling on the contingency, the government would simply have to say: ``We cannot respond because we have no parliamentary authority. We have reached the ceiling of the contingency vote.'' To be absurd, it would be like saying: ``I am sorry your house is on fire, but there is nothing we can do about it.''
Ms Fraser: I would ask Ms Smith to elaborate, but there is a limit on the contingencies vote now of $750 million. The government would not have authority to spend more than that amount.
Ms Smith: That is correct. They could spend up to the $750 million, but until Supplementary Estimates are passed and it is reimbursed —
The Chairman: The fact that it is a revolving fund and that the vote is replenished has led to a situation. We have the numbers here in that old 1989 document that take us from 1974-75 to 1987-88. In the last of those years, the level of the vote, which was .95 per cent of Main Estimates, was $360 million, but allocations from it were $593 million. In every year between 1974-75 and 1987-88, the allocations very considerably exceeded the actual vote level because of the replenishment.
Senator Bolduc: We must distinguish here between unforeseen expenditures and Supplementary Estimates. Of course, when the fall budget is prepared for the following February, proposals of the various ministries are analyzed. We know that when it is closed, let us say on December 15, the process goes on for other expenditures that will come. We do not discuss that because I think it is a normal thing. Parliament is not there.
The problem is that we spend money without parliamentary authority, or we use Vote 5 with such a large interpretation that we can do what we wish, and that is not acceptable. That is my feeling.
Senator Mahovlich: I do not know if this is a question for your legal counsel or not. What changes would you recommend in the phrase ``miscellaneous minor and unforeseen expenses''? What would you recommend to government, or do you feel that it is not up to you to recommend anything?
Ms Fraser: We are not proposing that the law itself be changed. We are proposing that there be clearer guidance to the Treasury Board secretariat. When we did our audit, each analyst had his or her own interpretation of what that meant, so we think there should be a standard guidance interpretation given to analysts, a guideline, if you will, as to how to interpret that phrase.
Senator Mahovlich: Do any grants go out as loans? For example, if the airlines turn things around, would they return the $150 million? Has that ever happened?
Ms Fraser: This program was a grant to the airlines, not a repayable loan. It was to compensate for certain costs or losses they had incurred during the time that the airspace was closed. It is not a repayable loan.
Senator Cools: I was just saying to my friend Senator Mahovlich that ``grant'' has a particular meaning in Parliament. It is a gift with conditions on it.
Senator Tunney: You may be aware that the government seemed to have been generous in their grant to Air Canada as a result of September 11. I think yesterday's press carried a story that the government was asking for quite a block of it to be returned. However, here is the difficulty in estimating or foreseeing a lot of things. I am thinking now of the Ice Storm. There was immediate need for governments to get in there and provide some relief. I am thinking of last summer's drought, when farmers, especially in the Prairies, were devastated and needed money to get them through, even until the time when the federal government could appropriate. Do you think there should be exceptions allowed, to exceed what we consider unforeseen and minor or to go over the perception of minor?
Ms Fraser: We are aware of the program to the airlines. As you may have seen, we were asked to review the claim made by Air Canada or Transport Canada's interpretation of some of the rules around that. That was a very specific program that allowed certain expenses to be compensated, if you will, by the government. In that case, because of the urgent need for the money, the department paid out a percentage of the claim immediately, then conducted the audit, and then made a final payment to the people who were claiming. In the case of Air Canada, that initial payment was higher than the amount that was finally determined at the end, which was I presume a pretty unusual situation. I think in most cases there was an additional final payment that went out. That seems to me an appropriate way of managing for an extraordinary event like that. They have to get the money out quickly.
As to the contingencies vote, as we mentioned earlier, the total of the vote is $750 million. We are asking that some guidance be given with respect to each individual grant as to what would be an appropriate amount, what is minor and how minor is defined in this context.
Senator Tunney: Would you consider a limit being placed on the total sum of expenditures or on each expenditure, or do you have a preference about how that would go?
Ms Fraser: Because the vote itself is $750 million, a total is placed on the amount that can be spent without receiving additional parliamentary approval to replenish the vote. We are suggesting, especially with respect to the question of grants payments, that guidance be given as to what is considered minor or miscellaneous.
The Chairman: On this technical issue that you raise, if I understand correctly, your suggestion is that in some of these cases, if Treasury Board simply wrote a cheque and sent out the money, that would be kosher. However, Treasury Board advancing the funds to a department that did not have spending authority in that particular instance creates a problem. I suppose that is a technical issue for Parliament.
On the other hand, I would not want to encourage the kind of practice you suggest, that is, Treasury Board writing cheques directly. It seems to me that could fudge somewhat the question of ministerial accountability. Treasury Board is a committee of cabinet. At least when money flows through a department, it flows through a department, and one can call to account a minister.
I would also be concerned about the direct flow of funds in that way so long as the guidelines and so forth are not considerably tightened up.
Do you have any comment on that?
Ms Smith: I do not have any.
The Chairman: Is how it flows a serious issue for you?
Ms Fraser: We raised the issue with the question of grants that were, we would speculate, not foreseen. When looking at the sustainable development ones, in a department that had a budget for grants of $600,000 and then made a grant of $25 million, one could question what authority that department had to make that grant to spend that money. We are raising the issue in that specific context. I would hope that these transactions are few and exceptional, but it would be worth having those cases brought to the attention of Parliament when there is an anomaly like that.
Senator Cools: I wanted to follow up on Senator Banks' question and the statement from the Auditor General that the contingencies vote quantum is limited to $750 million. I also believe that that quantum is determined as a percentage of a total. I believe the total is 1.4 per cent or 1.3 per cent, or something like that, of Main Estimates. That is something we should reacquaint ourselves with. I may be wrong, but I know I am absolutely correct on the $750 million. However, we should know how that sum is arrived at because it is important that we know these processes.
To clarify my earlier question about disagreements on substantive issues, my concern is that the audit tool is a very powerful one, and the term ``audit'' conjures up in the public mind all manner of negatives about corruption, graft, probity and so forth. It is such a powerful tool that we must be careful and sensitive when at this committee we speak under the rubric of audit to not conjure up negativities, when, in fact, we are trying to look at better ways to be able to deliver this business of governance.
I wanted to make that clear because some of the headlines I read a few days ago on the launching of your report terrified me. One of them even said $7 billion lost, or something like that. It has nothing to do with you, but I am mindful of the atmosphere we work in. We all share the goal of wanting to do a good job, and we want Treasury Board, Parliament and our committee to do the best job.
We are dealing with a difficult balancing act. In respect of the principles, we are balancing, on the one hand, what we used to call the ``financial initiatives of the Crown'' — what the government, the King, can spend. That spending is also balanced on the other side by the phenomenon of parliamentary control of the purse and ministerial responsibility. I wanted to clarify that in case I had created some confusion.
Senator Banks: Senator Cools and others raised earlier the limitation on the contingency vote. It is arbitrary to Parliament; is it not? That is to say, theoretically, Parliament can move that percentage of its Main Estimates, which will be contained in the contingencies, up or down. Am I right? It is different all the time.
Ms Fraser: That is correct. I do not know how it was determined; however, you are correct, senator, Parliament can determine if there should be more or less in that vote.
I agree fully with Senator Cools that audit, by its nature, tends to focus on things that need improvement, and when in the public domain they become sensationalized, we may pick up more the negative than the positive. It is important for us to strive in our reports to be balanced and to indicate where there is good practice.
Senator Cools: I am aware of that.
Ms Fraser: I appreciate your concern.
Senator Cools: Disagreement is good. I believe that opinions should come forward, and they should be welcomed and well received. I just wish to be clear on what the disagreements are founded upon.
The Chairman: Ms Fraser, I do not want you to leave without giving you the opportunity to comment, if you wish to do so, on the remarks of Professor Donald Savoie, both about you — that is, your office — and about us. About you, about your office, he says:
...too many people forget the Auditor General's Office is a ``bean-counting'' outfit and that the recommendations on government policy should be taken with a grain of salt.
The article further quotes Mr. Savoie as saying:
``Everyone assumes that the Auditor General is the good guy, or gal,'' he continued. ``That's the basic assumption. But often [Auditor General reports] are misguided and unprofessional.''
Then, more seriously, he says that ``Parliament is no longer capable of playing such a role,'' the role to which Senator Cools refers, of holding the government accountable. He says:
``The greater question is that whether she should be making the case that everything must be voted and held accountable....We spend about $160-billion a year. Who pretends Parliament still holds everybody to account for [that money]? Who are we trying to kid here? It worked 100 years ago when the government was small and accessible and understood.''
Arguing that today most issues fall ``outside the purview of Parliament,'' he added that ``Parliament was designed for an era when things were simple and manageable. That's when Parliament and government worked well together.''
Senator Cools: Who wrote that article?
The Chairman: The article was written by a reporter who quotes Professor Donald Savoie. It is in the April 22 edition of The Hill Times.
Ms Fraser: I have many comments I could make on that article. I would encourage the senators to read the editorial in the same edition, which takes a different view. I have no difficulty with people criticizing the office. That is part of becoming better.
I do take great exception to being called ``unprofessional.'' In every audit we do, we agree on our criteria with the departments before we audit. We review all our findings with departments. We review the tone of our reports with them. I would suggest that in almost 90 per cent of our audits departments are in agreement with our findings.
Professor Savoie did not review his comments with us before he made them.
Senator Cools: If the Auditor General wants to respond further, we should give her full opportunity to respond. I have not looked at this.
The Chairman: She will be back another day.
Senator Cools: I will certainly now take a look at it. Honourable senators should know that the Auditor General's office works in constant consultation with Treasury Board, and these facts are not always known or understood by large numbers of people. There is constant exchange, dialogue and meetings, from what I understand.
Senator Doody: Has the Auditor General's office had an opportunity to compare the Canadian government's use of contingency Vote 5 with contingency votes in other jurisdictions? Australia or the United Kingdom probably has contingencies, too, from time to time. Do you know whether their use of the vote would be somewhat different from ours?
Ms Fraser: We did not conduct that kind of research when we did this audit.
Senator Bolduc: Would it be possible to have in a few years a comparative view in that respect?
Ms Fraser: Perhaps. I do not want to commit to delivering a product, but it could be interesting to look at in a few years.
Senator Bolduc: It would be a wonderful opportunity for one of your principals to go to Australia in February.
The Chairman: Thank you, witnesses. As usual, this has been an insightful and interesting morning.
The committee adjourned.