Proceedings of the Standing Senate Committee on
National Finance
Issue 2 - Evidence - Meeting of November 3, 2004
OTTAWA, Wednesday, November 3, 2004
The Standing Senate Committee on National Finance met this day at 6:20 p.m. to examine the Main Estimates laid before Parliament for the fiscal year ending March 31, 2005.
Senator Donald H. Oliver (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, I would call this third meeting of the Standing Senate Committee on National Finance to order. As you are aware, this committee was created in 1919. At that time it had the name of the Committee of Finance. In 1968, it became the Committee on National Finance. When asked what this committee does, I say that basically, this committee's main interest is government spending, either directly or indirectly, through estimates or bills.
This evening, honourable senators, we are quite honoured to have the Auditor General appear as the witness before this committee as we continue our review of government estimates. Auditor General Sheila Fraser has appeared before this committee on several previous occasions and we are hoping that tonight she will look at government estimates and such issues as accountabilities, transparency and government reporting to Parliament. Following your presentation, Ms. Fraser, we hope that you will agree to take questions from honourable senators. You now have the floor, and welcome.
Ms. Sheila Fraser, Auditor General of Canada: We thank you for the opportunity to meet with the committee this evening to discuss a number of issues related to accountability. With me are Doug Timmins, Assistant Auditor General, who is responsible for the audit of the Public Accounts of Canada, and Tom Wileman, a principal in our office, who looks after accountability issues.
This evening I would like to bring accountability issues to your attention for consideration as items for future study. Accountability relationships in the public sector are changing, posing challenges to governance and to parliamentary scrutiny of government spending.
When I last appeared before your committee early in 2003, the changing face of public sector accountability was apparent. The government is increasingly delivering programs and services through arrangements involving other governments, the private sector and non-governmental organizations. In particular, this is happening through government-sponsored foundations.
Since that time, our reports on the Office of the Privacy Commissioner, on the sponsorship program and on other aspects of governance have raised important accountability issues. We have expressed concerns about a breakdown in the proper conduct of governance at two levels: overall program management and the conduct of individual officials. Consequently, this evening, I would like to present three issues for consideration. First, there is a need for an enhanced approach to accountability, as we reported in 2002; second, I have several comments on foundations; and third, I would like to touch on accountability and ethics within government.
[Translation]
Chapter 9 of our December 2002 report presented an enhanced definition of accountability. This approach stresses the importance of the means used as well as the results achieved while maintaining public sector values. It points to the obligations of all parties. It underlines the need for review of performance by managers and by Parliament. It emphasizes the importance of transparency in governance. Finally, it takes into account managing for results, innovation and the sharing of accountability among partners.
Effective accountability requires holding to account. Parliamentarians must be able to review and approve the government's plans for spending and its performance expectations, and then scrutinize the results of that spending. To do this properly, Parliament needs integrated information about costs and expected results.
In March 2003, my Office provided parliamentarians with a document entitled ``Parliamentary Committee Review of the Estimates Documents,'' which updated a 1998 document. I suggested that Parliament could challenge the government to provide clear plans and priorities and enhance its holding the government to account by scrutinizing performance information. The document is designed to help you review the Estimates documents. It outlines the Estimates cycle and discusses the role of government departments, the Treasury Board Secretariat and the Office of the Auditor General. It also identifies lines of inquiry that committees might pursue.
In my March 2004 report, I noted that the Treasury Board and its Secretariat play a lead role in developing the government's management agenda, which includes transparency and accountability, as well as setting the tone from the top. That is, maintaining interest in, and support for, the management agenda among ministers, senior officials and parliamentarians. This includes improving the Estimates documents.
[English]
Mr. Chairman, honourable senators, in terms of accountability to Parliament, foundations raise a number of issues, including credible reporting of results, effective ministerial oversight and adequate external audit. In our April 2002 report, Chapter 1, ``Placing the Public's Money Beyond Parliament's Reach,'' we reported that all three of these accountability requirements were not being met. In 2002, we found that reporting was not adequate for parliamentary scrutiny. In addition, weak oversight of foundations limits ministers' answerability to Parliament. The government also had limited means of strategic monitoring of foundations or for making adjustments, should things go wrong, or where there was a need for a course adjustment in a public policy area.
I am concerned that no provision has been made for performance audits of foundations, that is, what used to be known as value-for-money audits that would be reported to Parliament. As of March 31, 2004, the government had transferred $9.1 billion in public funds to foundations. In my view, given the materiality of these transfers, performance audits are essential to provide Parliament with information and assurance with respect to propriety, compliance with authorities, the adequacy of internal controls and verification of performance information.
I also believe that the Office of the Auditor General, as Parliament's auditor, should be appointed as the external auditor of foundations, with a few exceptions. In the 2003-04 budget plans, the government announced measures to improve the accountability of foundations, and I plan to report on the government's progress in my February 2005 status report.
As in earlier years, my observations on the government's financial statements in the 2004 public accounts raise concerns about the accounting for transfers to foundations. The government has recorded these transfers as expenses, although most of the funds remain in the foundations' bank accounts and in investments accumulating interest. I note that the accounting and accountability issues are linked. At issue is whether the foundations are controlled by the government. If they are, then payments to them could not be recorded as expenses, since the foundations would be within what we call the accounting entity.
Accountability improvements that increase government control may raise the question of consolidation within the accounting entity under the accounting standards set by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants.
[Translation]
My third point today relates to accountability and ethics within government. Chapter 2 of our November 2003 Report addresses these issues. It follows a study we did in 2000, that recommended a comprehensive approach to enforcing responsibility for ethical conduct, on the part of parliamentarians, ministers and heads of federal entities.
The government has since issued a series of documents, including guidance for ministers and deputy ministers, and a code of values and ethics for the public service. We examined these documents. We found that they attempted to define principles such as responsibility, accountability and answerability.
However, they fell short in describing how these same principles will be implemented. Similarly, the code of values and ethics calls for conflicts to be resolved in the public interest, but does not offer much guidance on how to determine that public interest. The challenge for public sector managers is to integrate the code's principles into decision-making. They have to set an example. Unless they do, rank-and-file public servants will lose faith in the code.
That concludes our brief overview of these three issues. We would be pleased, Mr. Chairman, to answer any questions that the committee may have.
[English]
The Chairman: Thank you for that excellent overview. I have two quick questions before I turn to other honourable senators.
On page 2 of your presentation, you said that your office provided parliamentarians with a document entitled ``Parliamentary Committee Review of the Estimates Documents.'' As you know, I am fairly new to this committee, but I received the document and I read through it this afternoon. One of the things that struck me about that particular document is that it was really designed for the other chamber of Parliament, the House of Commons, and not the Senate. It often referred, in the singular, to ``that committee,'' being the Commons committee, and there are some major differences between the way this committee operates and the other committee. Some of those differences, I felt, could usefully have been pointed out in that report. Nonetheless, for someone who is new, such as me, it was a useful document, although I did want to point that out to you.
Ms. Fraser: Thank you, senator. It is a point well taken. We can certainly amend the document to include the considerations of the Senate committees as well. That would be excellent.
The Chairman: The first witness we heard from when we began this examination of the government's estimates was the President of the Treasury Board, Mr. Reg Alcock. He brought with him the new Comptroller General for Canada. In his remarks to us, the President of the Treasury Board said that the new Comptroller General of Canada will:
...provide overall leadership in ensuring that departments comply with Treasury Board policies for strong expenditure control and rigorous stewardship of public funds. The Comptroller General will review and sign off on policy proposals to ensure that expenditure plans are sound. Re-establishing the Office of the Comptroller General is a key part of our effort to strengthen financial oversight across the federal government. One of Mr. St- Jean's most important responsibilities is to promote the stronger financial controls that are essential to ensure rigorous stewardship of public funds and value for money.
He went on to explain, in response to questions, that the Comptroller General will actually control the appointing and firing of the various comptrollers general in each department.
Could you give us, as the Auditor General for Canada, your overview of this new office and how it has been put in place?
Ms. Fraser: I must admit, senator, that we have not specifically done any work on this office because it is so new. We certainly support any initiative that would increase the importance of and the attention to financial controls within government.
I know that the Comptroller General function always existed, but it was combined with the Secretary of the Treasury Board, and now has been separated. That person or that function always had the responsibility of naming the comptrollers within departments. This is not new. They will perhaps be more active and will be looking for people with higher qualifications. Some of the expectations have changed as to what comptrollers will do in departments.
We will be coming out with a report in February on some of our concerns around financial management, which is a derivative report from our audit of the public accounts, where we will be looking at some of the issues on qualifications of people in senior financial positions within government. This is an issue we have raised in the past, that there were actually very few. Governments have certainly indicated that they are aware of that concern and are moving forward on it.
I am not convinced at this point that the role of the Comptroller General has been fully detailed. I think it will take some time before this function assumes its full capacity and role. He has only been in the position since June. While we can be impatient, we perhaps have to give him a little time to find his way. He has several challenges. For example, he is also responsible for the internal audit function within Treasury Board and there are several areas that he is working on trying to bolster.
Senator Comeau: Like the chairman, I went over the document that you sent to us on Parliamentary committee review of the estimates document. I found it extremely useful. I look forward to having it geared for the Senate.
I would like to draw attention to page 14. There are a couple of areas there under ``Government Policy and Direction.'' It asks whether the strategic outcomes of directives and costs of the program are reasonable.
Further down, on the subject of benefits for Canadians, one of the questions that struck me was what factors, other than the program's activity, could affect the results discussed; for example, external economic and social factors.
That led me to a question that I have been asked for some time now. Committee members are probably tired of hearing about this, but I have been trying to find out whether the government, when it put together the program for Aboriginal access to the fisheries on the East Coast of Canada, had at any time done any kind of impact study of its actions on those communities that had historically depended on these resources. Thus far, I have not been able to get any department to indicate that they had evaluated the impact.
Over the past two years, under the departmental estimates we were intending to spend something over a quarter of a billion dollars to implement the programs put together by the government. As far as I know, no impact study has been done to determine the impact on these communities.
Would the government not need to know the impact on all the people, the fish plant workers, the crew members and so on, who are displaced by the transfers? Would the government not need to know how to mitigate the impact on these people? Should that not be done? If not, does the Auditor General ask these kinds of questions when looking at departmental estimates? We are talking about a quarter of a billion dollars in two years.
Ms. Fraser: Mr. Wileman could perhaps help me on some of this, but it is my understanding that when a new program is put in place, there is a requirement to do longer-term assessments of impact, and also to do evaluations of the actual impact. One would expect that they should be doing that. If we were to do an audit, those are the kinds of questions we would ask: ``Have you done those things?''
We do not have a mandate to do an evaluation ourselves. We look simply to see if the government has done it and we would report if that were the case. I must admit that in many of our audits where we do look at that, we come to the conclusion that there was no evaluation done. You are right; one would expect them to have done an assessment of the potential impacts of the program.
Senator Comeau: I am still hopeful. The interpretation of the court decision on which the government based its program, and the way in which it proceeded with the implementation, did indicate that there should be at least a mindfulness of the impact on those communities. I will continue to flog the horse until I get some kind of a response. Hopefully, you might be able to help along that line.
You mentioned the code of conduct for public office-holders and how we should look at this. One of the groups that has probably more access to information than any of us, including yourself, and who seem to be left out — we look at ourselves a lot and say how good a code of conduct we should have — those people who actually are in the know, are ministers' assistants and people who work in ministers' offices.
Has anyone ever looked at this? These people go from the private sector back to ministers' offices and so on. We are under the full scrutiny of lights, as you can see. Every word we utter is written for posterity. These people seem to work in obscurity and nobody seems to look at them.
Ms. Fraser: The senator is right. It is my understanding that the code does not apply to ministerial staff; it would only apply to people who are in what we will call the public service. This is probably a good question to raise.
Senator Comeau: That begs the second question: Should we not raise it and should we not raise it forcefully?
Ms. Fraser: Yes.
Senator Harb: I have a couple of questions. In your report you talk about a number of issues, one of which is Employment Insurance. This is not a new issue. You have raised the subject a number of times in the past.
The government made a decision that they wanted to do some consultations on the matter and then come back to Parliament and set up some sort of a mechanism whereby they will establish what the contribution rate would be.
Nonetheless, on the books now, there is a proposal that calls for the Government of Canada to take the surplus from the EI and give it back to the employees.
Knowing what you know about the way the government works in terms of the General Revenue Fund — the fact that every time you collect money from the public, whether in terms of a contribution or taxes, it normally goes to the General Revenue Fund — do you think a proposal such as the one now on the table is feasible for the government without perhaps introducing a specific law?
Ms. Fraser: Perhaps I will give you some of the senator's context. In the Public Accounts of Canada for 2004, the audited financial statements of the EI account show that there is again a surplus, at March 31, 2004, of $2 billion, and the accumulated surplus is now at $46 billion.
We have to be careful when we talk about surpluses because the EI account is not a bank account. It is what we call a notional account. There is a requirement in the EI Act to keep an accounting of all the revenues collected and all the premiums and expenses paid. It is largely for rate-setting purposes, and there was a provision in the act that the rate should be set to be consistent over a business cycle and that the revenues would essentially equal the expenses and the premiums paid over that business cycle. That account was established in the act as largely a mechanism for setting rates.
All of the revenues are deposited into the Consolidated Revenue Fund and all of the premiums and expenses are paid out of that. There is no separate bank account with any $46 billion sitting in it. It is really a mechanism for setting the rate.
Obviously, our major concern going forward is the government has indicated in budget speeches that they want to set the rate so that the premium revenues collected equal the benefits paid and that there will be more of a balancing within the account on a year-to-year basis. Our concern is still what happens to this accumulated surplus and the fact that $46 billion more in premiums has been collected than, in fact, benefits and expenses paid.
That is an issue that we really think must be resolved going forward.
On the question of paying it out, I suppose, theoretically, that is an option. I would look at the practicalities of that and say, who do you pay it to, because this has been accumulated over many years, from different employees, different employers. It is possible to think of that, but I cannot imagine the logistics of it and there is the issue that the $46 billion is not sitting in a bank account.
Senator Harb: Anybody who advances the theory, while the intention might be good, probably has not thought it out in a proper and logical way. As you just said, this money has gone into the account and it is an extremely complex issue for any government to say, ``Now I have a surplus of $46 billion, $48 billion, $49 billion or whatever it is, I want to pull it out and redistribute it among Canadians, because in essence, it does not matter how you slice it, it is Canadian money.''
Ms. Fraser: It could probably be done. We have to be mindful that there are lawsuits before the courts in which individuals are claiming an alleged overpayment. Depending, obviously, on what happens to all of that, I would not say it would never be done. It could be done, but it would be difficult.
The Chairman: It could be done with the $2 billion that is there now, which is not yet notional.
Ms. Fraser: The $2 billion is in last year's surplus.
Senator Harb: One final question on one of your reports, back in 2002, on page 16, chapter 9.68. I will read this paragraph for you and then ask whether you think that is still relevant today.
In order to innovate, take reasonable risks, and learn from mistakes, managers need a degree of discretion and flexibility to act. However, accountability for too many or unneeded rules and procedures can impede innovations and lead to inefficiencies, ineffectiveness, and frustration. Certain rules and regulations, laws, and guidelines — a basic set of controls — are indispensable to sound administration and accountabilities. In our view, basic administrative rules should be few, easily understandable, and consistently applied.
Can you comment on that?
Ms. Fraser: I most certainly agree with that. If anything, it is perhaps even more relevant today than it was at the time we wrote it. Sometimes when we have issues that attract a lot of public attention, the pendulum tends to swing to more control, less risk-taking, more, some would say, red tape, more paperwork, and in fact the system slows down, and I do not think that that is helpful to anybody.
Especially in the case of audits, one of the unintended consequences is that it results in more controls and more rules being brought in. In many cases, the existing rules are fine. We do not need more rules. We just need people to respect the rules that are in place. If rules were simpler and clearer, perhaps that would help in some cases.
We also have to recognize that in any organization, and especially in an organization as large and complex as the federal government, things will go wrong. We need to learn from things that go wrong and try to improve. We have to develop more of a learning attitude rather than just be critical.
The Chairman: Following on from Senator Harb's questions, I would like to ask about this notional surplus again. Is one of the options for the government to actually run a deficit — in other words, not collect as much as they need to fund the program and run some kind of a deficit, say, of a $1 billion a year over many years, or is that bad accounting?
Ms. Fraser: That is an option that is available to the government. Of course, a deficit within the EI program impacts on the overall results of the government because the EI account is a government program like any other for accounting purposes. If there are more benefits paid than premiums collected, it would of course have a negative impact and other revenues would have to supplement that. It is obviously a possibility.
The Chairman: On the other side of the balance, you could say we are now repaying some of this $46 billion surplus.
Ms. Fraser: Yes.
The Chairman: It is a notion.
Ms. Fraser: It is a notion, yes.
Senator Murray: The employment insurance fund is a legal fiction, is it not, because your predecessor told us that he would not sign our books unless we integrated the so-called UI fund, as it was then, into the Consolidated Revenue Fund?
Ms. Fraser: That is right.
Senator Murray: Therefore we did. Then we started using the fund or the revenue, the money, not just for passive payments to those unemployed, but for the active creation of employment. It went into training and, I think, various community employment measures and so forth.
Senator Cools: Some of us did not like that, remember?
Senator Murray: Some of you did not like it, but once you got into office you greatly broadened it and you drove a truck through the small loophole.
Senator Cools: And I objected to it.
Senator Murray: This has happened. Meanwhile, although the so-called fund is really part of the nation's accounts, the government is still bound by these various provisions in the act, to which you referred, in terms of rate setting and one thing or another. Year after year they let themselves out of those obligations by putting an escape clause into the budget implementation bill or whatever.
We have jurisdiction over unemployment insurance by reason of a constitutional amendment back in 1940 or 1941, I think it was. I may be out a year or two. I do not know whether that is a factor, but why do not you recommend that the government just call it a payroll tax, have done with it and do away with those provisions of the EI Act? You talk about accountability and transparency, Auditor General. The simple thing to do would be to treat it as a payroll tax.
Senator Cools: It is.
Senator Murray: It is a payroll tax — and run the program, as you say, the way you would any other program.
Ms. Fraser: I would partially agree with you. Many people have called it a payroll tax. I am no constitutional or legal expert, but I have been told that the federal government cannot impose a tax on a provincial government. How do you collect employment insurance premiums from provincial governments and their employees?
Senator Murray: So we have to continue maintaining a fiction.
Ms. Fraser: The study that has been going on for several years would hopefully lay out these various realities.
Senator Murray: I will leave that for the moment.
You do want to talk about accountability and I think this is part of it, how the government presents its accounts and the transparency of its dealings with the taxpayer. I see that you mention the government's document on guidance for ministers and deputy ministers. I have a vague recollection of having read that recently. However, I confess I do not think I have read the code of values and ethics for the public service to which you referred in your opening statement. You go on to say that they fell short in describing how these principles will be implemented and, similarly, that the code of values and ethics calls for conflicts to be resolved in the public interest, but does not offer much guidance on how to determine that public interest.
Please reassure me that you are not suggesting that we need to codify and codify in great detail. The 10 commandments have served us pretty well over the years, and those with an informed conscience know what they mean. I hope you do not mean that we should have binders full of codification.
Ms. Fraser: No, I agree with you. It comes back to the previous discussion we had about being clear and having fewer rules. However, the Privy Council Office has brought forward some important concepts that need to be clarified. They talk, for instance, about accountability, answerability. For example, on ministerial accountability, it is the current minister who is answerable for actions of a previous minister. What does that mean exactly — is answerable for that and is accountable to take action to fix things? Then you say, if something happened under the reign of previous ministers, who is accountable? It would appear that nobody is accountable. There are concepts like that.
They say clearly that deputy ministers are not accountable. Yet, when you read some of the documents, they talk about how ``deputy ministers must give an account to Parliament of....'' There is a contradiction there.
There are some contradictions. There are some notions being introduced by the Privy Council Office that in talking about accountability, answerability, perhaps do not make the discussion very clear and could be more explicit on who is accountable for what, and what is the responsibility and accountability of senior officials. We talk about ``in the public interest''; what does that mean?
Maybe examples could be given. There is the whole question of training that has to go on at the same time, and discussions. A lot of these issues are not black and white. There is a need, in many ways, to have more discussion around these things.
Senator Ringuette: This is the first time that I have met you and I am very pleased to do so.
I have looked at the list of audits that you have to perform: 70 federal government departments and agencies; 40 Crown corporations; 10 departmental corporations; 60 other entities; and special audits where you would like to have more information — areas of responsibility shared by more than one department, issues that affect the entire government, for example, personnel matters or the issue of computers; the governments of Nunavut, the Yukon and the Northwest Territories; some 15 territorial agencies; and some UN agencies. That is quite a list. I am impressed. It takes a lot of discipline to be able to look into all these issues.
You have made a recommendation to us here tonight to look into the foundations. I suppose you already know that this Senate committee has an interest in finding out more about accountability for and the distribution of these grants for research.
There are some federal-provincial agreements — and I will give you an example, federal-provincial agreements on labour training — that entail 100 per cent federal funds going to the provinces. I am told that within the language of the agreements, there is no requirement for those provincial governments to be accountable in regard to the projects that are being funded, what kinds of activities, et cetera.
I would like your comments on this particular kind of audit, and where your group stands in regard to accountability in this kind of issue.
Ms. Fraser: It is a very interesting question, and one that we have begun to pose ourselves. We have given many reports that talk about accountability. We have issued several reports on federal-provincial programs. We have done, for example, a report on the infrastructure program. We did a report on the Canada Health and Social Transfer, CHST, the block funding.
The CHST is probably, in many ways, equivalent to the labour-market agreements and the provincial manpower training ones that you were referring to, where it is a transfer of funds from the federal government to the provincial government. There is no accountability back to the federal Parliament. One would expect that there should be some accountability.
There is, of course, an accountability of that provincial government to its own population, and through its own legislature; there is a provincial auditor general who audits those accounts.
The same question comes up in much of the health funding in recent years. We mentioned, in the public accounts last year, there was the medical equipment fund. Even though the stated purpose was medical equipment, there was no accountability or no requirement that it actually be spent on medical equipment. There was no direct accountability back.
If the committee has any suggestions, we are starting to look at what is an effective accountability in that kind of relationship, because the federal Parliament should have some information. What would be an appropriate level, and how do you receive it without disrupting the system between the federal-provincial levels?
All we can do is audit the cheque that leaves the federal government. We have no mandate vis-à-vis the provinces.
We are starting to do increased work with our provincial colleagues.
We undertook a number of concurrent and collaborative audits when we studied the infrastructure program. We worked with the auditors general of two provinces to audit those programs.
Just this past week, we issued a report on salmon that was contained in the report of the Commissioner of the Environment and Sustainable Development. The auditors general of British Columbia and New Brunswick also released reports on the same day on salmon. We did a joint preface to our reports.
We are starting to work more collaboratively. If it is clearly, if you will, a transfer from the federal government to the provinces with no accountability back, then there is really little role for us to play other than to observe the payment being made.
It is posing an interesting question for us that we have to look at with our provincial colleagues as well.
There are some programs to which I can refer. In health, for example, there has been a recent initiative to issue a performance report on health indicators. All of the governments — provincial, federal and territorial — issue a report on a common set of indicators. All these reports are audited by legislative auditors. The first ones came out in 2002. The next ones will be coming out shortly.
Perhaps there is a solution to be found in that type of performance reporting. It is an issue on which we need to do some research in order to come up with a proposal.
Senator Ringuette: I am bringing this up because in the last six months I have been meeting groups in the different provinces to discuss seasonal employment. There is no such agreement in Ontario. As for the agreements in Eastern Canada, we have heard good reviews of what being done with the money in Quebec. We have had extremely bad reviews from New Brunswick, Nova Scotia and Newfoundland. We have good feedback on what the provincial government of P.E.I. is doing with that money.
Those levels of dissatisfaction and satisfaction got me thinking about how we can ensure that these federal funds, for which the federal government and we parliamentarians are accountable because they are federal tax dollars, are well invested when we do not have any tools within these agreements to make sure that they are.
Perhaps you can understand where I am coming from.
Ms. Fraser: I very much do.
We were starting to do some work on some of the federal programming for children. Of course, much of that money is transferred to the provinces. We were starting to question how to ensure that there is proper accountability back to the federal government. We realized that under the current system, there is no such requirement.
We have to do some research and ask people what could possibly work in these areas.
Senator Ringuette: In the past, have you recommended to the federal government that it include conditions so as to follow the money?
Ms. Fraser: No, we have not.
One must realize that while there are specific programs like that, there are large sums of money paid, for example, under equalization and the CHST. The whole concept with those programs is not to have strict accounting.
Senator Murray: It is within their jurisdiction.
Ms. Fraser: Yes.
Senator Murray: And they, the provincial governments, are accountable to their electors. That is the principle. When I was on the other side of the table in New Brunswick — and I should not be intervening here — we were involved in sectoral economic agreements in which the federal government paid 50/50, 70/30, or whatever it was. There was a whole series of agreements in agriculture, tourism, forestry, et cetera, under DREE, which was the name of the old department.
In all those cases, there was a provision in the agreement for evaluations after a couple of years. It was not hard to follow the money because it went right into the A base budgets of the relevant departments in the province.
The Chairman: Evaluation meant audit?
Senator Murray: It was more of an evaluation of the effectiveness.
The Chairman: Here, we are talking about audit and being able to follow the money.
Senator Murray: I do not think you will be able to do that in the kind of detail you are talking about. It just will not happen. Either the government will have to use the spending power directly in payments to persons, which will create a great deal of difficulty, or —
Ms. Fraser: It would be inappropriate for the federal Auditor General to be auditing within a provincial sector. Every province has its own legislative auditor.
What is important is the kind of information federal parliamentarians should be receiving on the broad success of these programs. It is clear that there has been a move away from the strict program-by-program procedure and ``we will pay 50 per cent of the bill.'' There has been a desire to give provinces more flexibility so that they can move funds as they are required. We have to come up with a new model. That is something with which we are now struggling.
Senator Stratton: Welcome, Ms. Fraser. As you are aware, Minister Alcock was here last week. At that time, he talked about the programs that he is revising and moving through. They are very complex and they take a great deal of time to revise and redo. I am sure he has met with you and talked to you about this.
Ms. Fraser: Yes.
Senator Stratton: Could you share anything with us as to how he has come to you and sought advice? What were the results?
Ms. Fraser: We have been made aware of the various reviews underway. I believe there are 12 of them. We have indicated a particular interest in some of them. For example, one is on governance and questions involving Crown corporations. We submitted a paper to the government.
You will not be surprised to hear that we have underway an audit on governance in Crown corporations, the results of which will be coming out in February. It was timely that we were able to do that and to give some of our recommendations and thoughts to him in that regard.
For example, we have given some general information as well on governance regarding the foundations question. I know some of my staff have been consulted on others. There is one on procurement on which we have had a few meetings.
We have not been actively involved in all of them. We are waiting to see what recommendations and results will come out of these various reviews.
Senator Stratton: The concerns that arose out of the two meetings we have had with Minister Alcock have to do with just how complex this reorganization is. One becomes a little concerned about whether it is getting too complex. One is led to ask: Where are we going here? We do that because there seem to be ongoing problems. For example, there is the $48 billion in the EI account with which they have still not dealt. They use it to develop surpluses or to make their books look good, in essence, at the expense of the taxpayer.
You have alluded to the $9.1 billion in foundations that are not accountable. The government has no way of accounting for that. I will speak about that for a moment so that we clearly understand.
As I understand it, the reason for that $9.1 billion being given to the foundations is their audits occur within the foundations themselves. They are at arm's length from government. This is so that future governments cannot lay their hands on that money. Is that the reason given to you? I am not absolutely certain of that. That is all I can conclude for the moment.
Ms. Fraser: There have been pronouncements from government that they believe this is an appropriate mechanism, that these initiatives need the stability of funding, which is why there has been pre-funding, in some cases, for five to ten years of program activity. They believe having it set up and run by an independent group makes sense and is more efficient or effective.
Our position is not to necessarily question the foundation per se, and obviously not the objective for which it has been set up, nor the people, who are all, or most of them, outstanding Canadians. It is that this is a very large sum of taxpayers' dollars and there should be appropriate accountability back to Parliament on what the results are, how the funds are being used and whether they are following the due process one would expect in spending taxpayers' money. There should be some evaluation of the mechanism, of this structure. They have been in place now for six or seven years. Someone should be looking to find out if this model is working or not and what are the advantages and disadvantages. It is not clear. There could be disadvantages and advantages. Someone needs to take a look at this and that has yet to be done.
Senator Stratton: Do you see government moving in that direction at all? Do you sense that will happen or is likely to happen?
Ms. Fraser: To do an evaluation?
Senator Stratton: Yes.
Ms. Fraser: I have not heard of any work starting.
Senator Stratton: I did not think so. It is rather like the $48-billion EI account. I would just like them to stop doing that. Close the books on it. Just stop doing it and that would be fine with me.
The last issue, and I am linking this back to the complexity of things, is just how complex this is getting. It becomes a real concern, because things keep going off the rails, like gun control and other issues that cost the taxpayers large sums of money. For example, the $9.1-billion surplus that appeared, like a rabbit out of a hat. The forecasts that we read from various economic think tanks are for some big surpluses over the next five years. The government, I am sure, is aware of those potential forecasts, and my concern is whether there will be better accounting, according to the finance minister, as to where this money or how this money will be dealt with and how we can do that in a better fashion. Have you been asked by the finance minister for advice in that regard at all?
Ms. Fraser: No.
Senator Stratton: None.
Ms. Fraser: No. Spending is really an estimate. I know they have hired an economist to look at the forecasting system and that would be more appropriately done by someone other than us.
The Chairman: One of the reasons that structural changes are occurring is Bill C-25 and the modernization. One of the things flowing from that is the Expenditure Review Committee. The review used to be done by the Treasury Board and has now been spun into the Privy Council Office. Following the questions, have you been involved in some of that change? Are you involved, as the Auditor General, on whether this is functioning? Have you been able to have input to determine whether good accountability principles are being built in to this review mechanism?
Ms. Fraser: We have simply met with the deputy responsible for the process of expenditure review. We have raised certain concerns about it. It is very ambitious. We have also raised certain concerns about the various other reviews underway, because there are 12 major reviews, all worthwhile, but it is putting a lot of pressure on the system. We are wondering how well coordinated they all are, because procurement will, of course, go right across government. Therefore, we were concerned about who is coordinating all this. These are concerns we have raised in a theoretical way. We have not actually gone in to look at it. We have also raised the concern that many services, like internal audit evaluation, which are not direct services to the public, are the ones that tend to get cut during across-the-board reductions. Many of those services are already fairly limited in government and care needs to be taken not to further weaken them.
The Chairman: When you say expenditure review is quite ambitious, it is because some internal audits may be sacrificed?
Ms. Fraser: That is a possibility. It is not just the objective, which was $12 billion over five years, and the discretionary spending, which is $45 billion per year. We are talking about a significant reallocation of funds within government, and it will require programs to be eliminated in order to achieve that. It is up to government to decide what they want to do and it would be inappropriate for us to say, do this or do that. It is to make sure that they recognize the impact. We are concerned about the capacity within the public service to respond adequately to all of this at the same time that they are trying to do business as usual.
The Chairman: Thank you for that.
Senator Cools: Thank you, Ms. Fraser, for joining us and also for the good, hard work that you put in. Mr. Chairman, the Auditor General is raising some very important questions philosophically. They are coming out as musings — thinking aloud — but they are deep and profound questions. I wonder, Mr. Chairman, if this committee could not have a private meeting to try to decide how we can get at some of the large issues that are being talked about here in this meeting. The Auditor General said a few minutes ago something to the effect there is confusion, PCO is creating confusion with definitions of ``accountability,'' and quite often, we say ``accountability'' — and people use all the words interchangeably — but there is accountability and then there is ministerial responsibility. It is a different concept. There is great confusion in the language and we now have a situation in this country where I do not believe the Prime Minister or the ministers even speak in the Canadian language of governance and that even two of them could give you a definition of ``ministerial responsibility.'' It is a huge problem. I see this when I open documents coming out of different departments. I wonder if we really are living in a system of ministerial responsibility and if we are talking about Parliament. It is as though Parliament has been transformed into some other system. I commend Ms. Fraser for thinking about some of these big questions. That was by way of a comment. However, coming to this important matter of Parliament reviewing estimates and trying to regain some semblance of control of the public purse, I am reminded that this committee started asking questions many years ago about runaway expenditures on the firearms program. This committee was ahead of the Auditor General.
Senator Harb: No.
Senator Cools: Maybe you were asking questions. I know how you question the government, Senator Harb. I know how diligent you are. Anyway, almost immediately, this committee was raising questions. The interesting thing, Chairman, is that this committee, in report after report, raised a question of the runaway expenditures. Chairman, not a single minister has ever answered any of the questions on the floor of the Senate, and not a single minister, particularly the responsible ministers, ever made a single statement or appeared before this committee to answer those concerns. I find that remarkable. This is why I say we have been transformed into another kind of creature.
We could go back through the literature. Mr. Rock sat before committee after committee and told us that anyone who suggested that the costs would run away like that was literally off the wall and should be ignored; $1 billion — I am now told it is nearly $2 billion — went into this. Is it not interesting, in the system of ministerial responsibility, not a single minister has resigned? I was always under the impression that ministerial responsibility means that when a department misfires or a program is mismanaged or there is mis-administration in a ministry, that minister is supposed to resign. I do not know when we last had a resignation from a minister on the question of mis-administration or mismanagement in a department.
The Chairman: I do not know if this is something on which we would want the Auditor General to comment.
Senator Cools: I am not asking her to comment. I am suggesting that we should take the lead and go after some of these questions. Otherwise, we find ourselves in a situation where we are just having a conversation, like a group of mice.
The Chairman: The committee can do that in an in camera meeting.
Senator Cools: I have to make the suggestion out of camera; otherwise, no one knows. That is another thing that we must look at, namely, these in camera meetings. However, that is beside the point.
To come to my real question, when you look at these estimates — and, God knows, I have looked at a lot of them — the following comes to mind: the sheer magnitude of dollars, the sheer volume of programs and the huge difficulty in getting information, combined with the strategy of government to keep members starved of resources. It is quite common. You raise questions with one of these ministers and they have the treasury at their disposal. We have in our office two staff at $100,000 a year — a secretary and a researcher.
Has the Auditor General given any thought as to whether or not, in the current atmosphere of how government is running, we can really attain accountability for government expenditure? That may be a hard question. If you think it is hard, that is all right. He says ``these fictions,'' but I have been here long enough not to be fooled so easily. I suppose you come into this process naive. Someone said that you enter out of naivety and you stay out of shame or something like that. At what point will we have to face the fact that we are dealing with runaway government and a dismissal of and a disbelief in the system of ministerial responsibility and accountability for public expenditure?
Ms. Fraser: The only comments that we have made in that regard, first, is on the whole question of ministerial responsibility or accountability. That is to say, what is the meaning of the generalized term ``responsibility of senior public servants'' and is it not time to review some of that, given recent events? Perhaps there should be more discussion, but also more practical application of some of that. How does that actually work in practice?
On the question of review of estimates, I agree that it is very complex. There is a lot of information. We have certainly encouraged government to try to make the information more understandable, to give more contexts and more description. I think government is starting to move in that direction. In the past, we have suggested to parliamentarians that we must be realistic because it is probably really difficult to try to review a whole department. Perhaps it is better to take one program and go into more depth on it. It is easier to grasp that and to go into more precise and rigorous review of it. With Senate committees, obviously you do not have the kind of turnover you have in the other place. After a while, you can get a better understanding of workings within a department. Those would be our suggestions.
Senator Cools: I would like to bring out an old piece of antiquity. The Auditor General is a servant of the Commons and works with and assists the Public Accounts Committee in the House of Commons. However, the Senate has no such facility. In ancient times, the Estimates Committee used to be assisted by the treasury officials, as the Auditor General assisted the House of Commons. I am always thinking, Chairman, that this committee should examine the possibility of obtaining someone who can give us assistance.
The Chairman: What kind of assistance are you referring to specifically?
Senator Cools: We are talking about the fact that the Auditor General is a numerate woman. We could say, numerate assistance. In other words, a person can be an accountant as well. I do not know. If we look back into the origins of these committees, tradition dictates that the opposition holds the chairmanship of this committee. That was born of the fact that the Chairman of the Public Accounts Committee used to be expected to be a former minister a long time ago. I am saying to you that we have the Treasury Board fellow coming to us, but the role they have now adopted is the role of government, whereas there was a time when the treasury gave us individuals to work with the committee to do the examinations in detail, just as the Auditor General works with the Public Accounts Committee in some detail. Some may think it is a piece of historical quaintness, but maybe we should examine how the House of Commons have a person with the resources of the Auditor General to assist them.
The Chairman: Could I ask the Auditor General to explain her function as adviser to the Commons committee?
Ms. Fraser: The role has evolved over time because we appear as witnesses to the committee, no longer as advisers. In the U.K. the Auditor General is more of an adviser than a witness. We determine the audits that we will do. If committees ask us to look at certain issues, we will generally agree to do that. Our reports are referred automatically in the House to the Public Accounts Committee, which then holds hearings on a certain number of the audits that we do.
In the past two years, we have had certain House committees ask us to appear before them when they were studying the estimates. We have never got into an advisory role on estimates. There is a view that it is more of a political policy choice, and unless we have done audit work in relation to that, it would be inappropriate. We have discussed the kinds of questions they could ask. If it is a committee studying a department in which we have recently audited a program, we may suggest to them that they review the estimates or the report on plans and priorities for that program and that we can bring forward our audit findings. That could help them in their review. We have done work as well on audits or reviews on the departmental performance reports, where we have rated them. Certain committees have also used those in trying to get information and have a better understanding. It is sort of indirect, but it is always based on our audit work that the committees make use of us.
The Chairman: I know that this committee has the power to look into government spending and also to receive the report of the Auditor General. Those are the two specific mandates of this committee. The receiving of the report means that you can appear as a witness, as you are and as you do, and that we can pose questions, as we do, but it says nothing about an advisory function.
Ms. Fraser: We would be very pleased if the committee would wish us to appear more regularly at the time of tabling our reports. I can certainly discuss with the chair how we could do that, if that is the wish of the committee. We would be glad to appear before you.
The Chairman: Thank you for that.
Senator Cools: How often do you appear before the House of Commons committees? I see you there quite often.
Ms. Fraser: It varies very much. Last year is probably not a typical year, given that the Public Accounts Committee was so tied up with its review of the sponsorship issue. They had many hearings on that matter, which we attended. The previous year we were before House committees probably 40-some times. We were at the Public Accounts Committee 29 times.
We were there regularly, two times a week, almost, on audits. We would have weeks when we would have four hearings.
Senator Cools: Chairman, I did not use the word ``advisory,'' but the old language used to refer to ``assistance.''
Ms. Fraser: I am sure that Senator Harb can attest to the number of times that we would appear before the committee. We were frequent witnesses.
Senator Cools: Senator Harb did not like it from time to time, at least at the last committee meeting I attended.
The whole phenomenon is something that we should look at. What is the historical way in which these committees used to get assistance on these large issues? Is there any way we could resuscitate such a thread to get the work? I am glad that the Auditor General gave the actual number of times. I do not know how often the committee meets, but it would seem to me she appeared at least every other committee meeting, if not every committee meeting, for a long period.
Ms. Fraser: In the normal process, we would be there at all the meetings except for when they would be working on reports.
Senator Cools: Precisely. The Auditor General is there often. Perhaps we should take a look at the Auditor General Act and the history of its development, to see how it got there and why, and to figure out why, as always, the Senate got left behind.
Senator Harb: I do not want to spend time responding to my colleague, Senator Cools.
If we look at the mandate of the committee, there are two things that it is responsible for, among others: first, the national accounts and the report of the Auditor General — and we have the Auditor General appearing before the committee — and, second, government finance. If it is the wish of the Senate to strike a separate committee to act as a public accounts committee at the Senate, let us discuss it. However, for what we are doing now, in terms of the advisory needs of the committee, that is why we have capable people from the Library of Parliament. We have our clerk. From time to time, if we need experts to come and give us advice, it is fair game.
It is not fair for us to put the Auditor General, who is supposed to be an independent officer of Parliament, in a position where she has to act as an adviser to us.
Senator Cools: I did not suggest that.
Senator Harb: Indirectly, Senator Cools talked about the historical element, and I would say that Parliament has evolved, as has the Senate and democracy as well.
Senator Cools: I did not say any of that. I said that, historically, there were two committees that developed over time. One was the public accounts and one was the estimates, and they both had individuals giving assistance. The Auditor General knows that I have studied the role and history of her office with some care and consideration. I understand, Senator Harb, very well what the Auditor General's proper role is. I am not suggesting at all that we try to approach her or steal her from that place, so do not put words in my mouth.
The Chairman: We have the Auditor General here. Please put a question to her.
Senator Harb: Yes. I have several questions for the Auditor General. The first is from her latest report, page 230, the ongoing accounting challenges. You refer here to the summary financial statement of the Government of Canada and you talk about the financial management. You will be making a report in February 2005.
I know that you were instrumental in getting the Government of Canada to introduce the financial information system, FIS. Can you inform the committee, as well as Canadians who might be watching this program, why you thought at the time that FIS was such a good idea? Talk about it a little in the context of accountabilities and transparencies, and also give us an update on the availability of that system throughout government, as to which departments have and have not yet introduced the system.
Ms. Fraser: This FIS — financial information strategy — had several components to it. I will not go into all of them. One was new systems. That has generally been put in place throughout government and we will be talking about it a little in the February chapter.
The major initiative that we referred to in the observations was the adoption of what we call accrual accounting, which is a method of accounting that is common in the private sector but not in the public sector. The Government of Canada adopted it two years ago. Essentially, the big changes from before were largely what we call a modified accrual. It was essentially on a cash basis. Tax revenues were recorded when they were received. With regard to capital assets, if buildings were bought they were recorded as an expense, so when the cash outlay was made not all of the liabilities were recorded. Government moved to this accrual basis of accounting whereby now, all of the capital assets are recorded as assets. It involved a considerable amount of work just to inventory them all and then to arrive at a value for them. Many of the assets of government have a special purpose; they are special assets such as military assets. They are not something on which you can easily get information. That was one of the major changes. Another was in the tax revenues, where they went to an accrual basis. They said, ``What are the revenues that will be owed?'' These are the revenues that are generated in a year, not the revenues collected in a year. Take personal income taxes as an example. An estimate is made of the personal income taxes that everybody will be filing in April, after the year-end.
It is a complex system. There was the recording as well of environmental liabilities, additional liabilities for Aboriginal claims, some of the inventories in National Defence. There were many changes made within the government's financial statements. In fact, we really do congratulate the government for what it has accomplished. It took a lot of work. Canada is one of the very few countries in the world that has adopted accrual accounting and been able to have a clean audit opinion. Many countries that have gone to accrual accounting have a qualified opinion because of the quality of certain of the information. Canada really is a world leader in this area.
We believe it is a much preferable basis of accounting because it actually gives you a more complete picture of government's assets and liabilities. It should help in developing better cost information. It should lead to better management. An example is inventories. If it never shows up on the books, are people actually going to manage it well? That is true for fixed assets as well.
There has been much movement. It is still at the summary financial statement level. In our last report, we were saying it was not being used as much as it should be in departments and it has not filtered down into the day-to-day management. We will be looking at that issue again in February.
Another issue that we should bring up is that the whole budgeting appropriations process is still based on cash. We have been encouraging government and making recommendations for six or seven years that they bring the budgeting appropriations process in line with the reporting, because now they are essentially on two different bases. We do not have a lot of commitment to looking at that. Government says it is studying it. I would hope that that would be something we can get resolved as well in the future.
Senator Harb: My final question deals with the estimates 2004-05. You were a big proponent of parliamentary oversight of the estimates, even line by line, if needed.
Page 17-3 of the estimates deals with the Department of International Trade. It talks about the four pillars of the department in terms of its objectives — international business development, trade policy, investment promotion and corporate services. Then in the breakdown you find out that, under investment promotion, of a budget of $168 million, the department is spending $5.7 million.
I chaired the subcommittee on trade and know that there is a tremendous amount of frustration there. The people there feel that they cannot possibly meet the objective of investment promotion with the amount of money that is being allocated to them. Year after year, they go to the Department of Finance and somehow the department muzzles them, ensures that they do not get the money and sends them back home with their tails between their legs.
From a Parliamentary perspective, if I look at the objectives of that department and the value for money, I would say that I do not think they are meeting the objectives because they do not have the necessary funds for the investment promotion that they need to do.
My question is sort of in a gray area. Where would the Auditor General's office stand when a department does not have the financial resources to fulfil its objective? At what point would the Auditor General say, ``Stop it?''
I ask this because I know that we are having discussions on free trade with Singapore that cannot be completed because of lack of staffing. There are approximately 15 to 20 foreign investment protection agreements that cannot be completed because there is not enough staffing. We are discussing free trade agreements with the Americas that cannot be completed due to lack of staffing. It has reached the point that the administration is saying, ``Please do not make any more commitments that we cannot fulfil. We do not have the necessary staffing to do that.''
At what point will your office step in and say that there is a problem here, that the objectives cannot be met because the finances are not there?
Ms. Fraser: I obviously cannot respond on international trade because we have not done any work in that area. An example of where we have done a lot of work, where we have raised that issue a lot, is in National Defence. We have had numerous audits consistently over many years, and we have said on many occasions that there is a gap between the funding and the expectations of the department.
Some people have interpreted that as us saying that they need more funding. We are saying that there are two ways to close a gap. One is, of course, more funding. The other is to redefine the expectations. However, it is unfair to the people working there to continue to expect them to do things if you have not given them the proper resources. The gap must be closed, and we have stated that publicly and in many committee hearings.
When we see those kinds of issues, we will flag them. We are not proponents of more funding, although obviously in some cases it may be the only realistic solution, but we would certainly raise the issue of the gap between expectations and resources available.
Senator Comeau: There was a discussion earlier about the help that you can provide to the committee. I also might note that you can provide help to other committees, because you made reference to it regarding the studies that you did on agriculture. Correct me if I am wrong, but I believe that is a direct response to a request from the Senate Fisheries Committee.
Ms. Fraser: That is correct.
Senator Comeau: I think we should pat ourselves on the back every once in a while, as well as patting the Auditor General on the back, because it was an excellent report.
Ms. Fraser: We are always pleased to receive comments and suggestions from Senate committees and we are always pleased to appear before Senate committees. We are at your service.
Senator Comeau: I would like to get back to the foundations and the question of accountability and Parliamentary scrutiny that you brought up. I have been trying to reconcile how we can do our job, to look at the public finances, if in fact foundations are created that move the money away from your scrutiny. Is this a trend to make it easier for the executive to put these things away?
With that in mind, would the same thing be happening to other officers of Parliament, such as the Privacy Commissioner and the Commissioner of Official Languages? Is this the kind of future we will see from the executive, the Auditor General and other officers of Parliament who give us a hand with the job that we are trying to accomplish?
Ms. Fraser: Unfortunately, I cannot speak to the specifics of those officers of Parliament vis-à-vis foundations, although I do believe that many of them are not subject to access to information legislation, for example. I do not think they are necessarily subject to official languages legislation. They would probably be subject to privacy legislation to the same extent that the private sector would be. They are not subject to the same kinds of oversight and review that a department would be, for example, or even the granting councils. It is a completely new model and that is why I come back to the recommendations that we made. The government should be evaluating the advantages and disadvantages of this and doing a proper review of this mechanism.
I would note for the committee that there have been, to my knowledge, no new foundations created in the last couple of years, though funding does continue to be given to existing foundations.
Senator Cools: I do not think we will see another one.
The Chairman: This is top-up funding.
Ms. Fraser: Well, in the last year end on March 31, 2004, $400 million was transferred to foundations.
Senator Comeau: At this point, there is nothing stopping the government or the executive from pumping more and more money into the foundations that have been created, and they themselves, since they are not accountable to anyone, can spawn their own little sub-foundations.
Ms. Fraser: They are subject to funding agreements, which actually do contain a lot of direction as to what they can do with the funds. There are directions on the kinds of projects they can do, the kinds of activities they can carry out, what sorts of instruments they have to invest in and what they must do with any surplus funds. There is a lot of direction given to them.
Senator Comeau: From the executive?
Ms. Fraser: Yes, which is interesting because there is a new accounting standard out about entities under control of government, and we are going to be in a pretty vigorous discussion, I would suspect, with government on some of these foundations, as to whether they truly are at arm's length. If they were initially established in such a tight framework, are they really independent from government?
That will be the kind of discussion we will be having over the next year, and we may come to a different conclusion from the government on some of them.
Senator Comeau: Most of these foundations, I believe, were in fact created by legislation.
Ms. Fraser: No, in fact the majority were created under the Canada Business Corporations Act as non-profit organizations. Only three were created by legislation.
Senator Comeau: Ultimately, all of these foundations do owe their existence to some piece of legislation somewhere.
Ms. Fraser: Well, three were created directly by legislation. That is one of the recommendations we made, that if these entities are to be created, they should all be created by legislation. The rest were created as non-profit organizations under the Canadian Business Corporations Act.
Senator Comeau: As they were created under that instrument, you are not able to go in as the auditor?
Ms. Fraser: That is right. It is a private sector mechanism.
The Chairman: Could you clarify the numbers on foundations? It seems that in April of 2002 the report indicated that the total transferred to foundations was around $7 billion, and you said today that at March 31, 2004, it was around $9.1 billion.
Ms. Fraser: That is correct. In the 2004 public accounts, the total funding to the foundations was $9.087 billion. They themselves had given out grants of close to $3 billion, and the balance in the accounts of these foundations at the end of March 2004 was $7.7 billion. They had outstanding commitments of another $2 billion. There was still $7.7 billion of the $9 billion in the foundations' bank accounts and investments.
Senator Murray: The Minister of Public Works has indicated that he and the government are seriously considering selling off government buildings and leasing them back. First, would you like to make a general comment on the principle of this, whether it is a worthwhile thing to do from an economic and financial point of view?
Second, and more seriously, I think, one does not need to be jaded or cynical, as I hope I am not, to be able to imagine an infinite amount of mischief, abuse, politics and patronage that could take place in the administration and implementation of such a policy.
If they are serious, and it appears to you they are going down this road, can you not say, ``Show me the model contracts for sale and lease-back that you propose to enter into with private sector individuals and companies, and show me also the safeguards that you intend to put in place to make sure that this process is squeaky clean,'' so that people do not end up, in your memorable phrase, ``breaking every rule in the book?''
Ms. Fraser: I have a couple of comments. First, from an accounting point of view, if it is what we call a capital lease, if there is a lease-back, if the lease is essentially a financing option and you have the total use of the building over its economic life, we would record that as an asset and a debt.
In fact, many of the buildings that the government presently occupies are leased. I believe the one that we are in, 240 Sparks, is a capital lease. The accounting for this could become quite complex and whether there will actually be gains will all have to be looked at.
Senator Murray: They are talking about selling buildings they now own and leasing them back from the people to whom they sell them.
Ms. Fraser: We will have to do, obviously, two transactions, but it would not necessarily be the case that there will be any gain on this. We would have to look at the whole transaction and we would have to see what is the value of the building over its economic life and what is the debt. The accounting for this could be quite complicated.
Senator Murray: There is nothing to prevent you from giving some advice on that before the fact.
Ms. Fraser: No, and I would expect us to be asked for our comments.
The Chairman: You have not been asked yet.
Ms. Fraser: No, we have not been asked yet. In fact, what I have seen, at least in newspapers reports, would indicate that there are maybe not as many as might have been earlier thought.
The department has had discussions. We have seen it in the press, as other people have. We have not gone into any discussion about the accounting of it, what sort of mechanism would have to be put in place to do these transfers, but certainly in something that major, that would be a transaction we would look at closely.
Senator Murray: You would look at the economics and finance of it.
Ms. Fraser: Yes, but we would also look at the process.
The Chairman: Madam Auditor General, I would like to thank you very much for taking the time to spend almost two hours with this committee tonight. We deeply appreciate it. We hope that when we get the new estimates, you will be back to help us. You have made suggestions about a number of things that this committee might want to look at. Perhaps we can have our staff talk to your staff about that a little more before our next meeting. Thank you very much for coming.
The committee adjourned.