THE STANDING COMMITTEE ON AUDIT AND OVERSIGHT
EVIDENCE
OTTAWA, Wednesday, November 23, 2022
The Standing Senate Committee on Audit and Oversight met with videoconference this day at 1:29 p.m. [ET] to supervise and report on the Senate’s internal and external audits and related matters; and, in camera, for consideration of a draft agenda (future business).
Senator Marty Klyne (Chair) in the chair.
[English]
The Chair: Honourable senators, I am Marty Klyne, senator from Saskatchewan and Chair of the Standing Senate Committee on Audit and Oversight. Participating in today’s meeting are Senator Renée Dupuis, deputy chair from Quebec; Senator Percy Downe from Prince Edward Island; Ms. Hélène Fortin, joining us virtually; and Mr. Bob Plamondon, who is also virtually attending.
I will ask everyone on Zoom to please use the “raise hand” function if you wish to speak, and for those in the room, signal it to the clerk.
I would also like to remind meeting participants in the room to refrain from leaning in too close to the microphone when speaking or to please remove your earpiece when doing so. This will avoid any sound feedback that could negatively impact the staff in the room.
Our first item of business is a presentation from the independent external auditors on the audit results for the fiscal year ended on March 31, 2022. We are welcoming, from Ernst & Young, Suzanne Gignac, Partner, Assurance Services and Niguel Givogue, Senior Manager, Assurance Services. On behalf of the committee, I thank you both for being here with us today.
We also welcome, from the Senate Finance and Procurement Directorate, Pierre Lanctôt, Chief Financial Officer, and Nathalie Charpentier, Comptroller and Deputy Chief Financial Officer.
The committee has reviewed the audit results from Ernst & Young, or EY, which summarizes their audit work and conclusions. The committee has also received the Senate’s audited financial statements for the year ended March 31, 2022, as well as management’s internal financial highlights on the financial statements.
Ernst & Young has indicated that they expect to issue an unmodified or unqualified auditor’s report — thank you very much — indicating that the financial statements present fairly, in all material respects, the financial position of the Senate as of March 31, 2022, and the results of its operations, the change in net financial position, the change in net debt and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.
The financial statements were audited by Ernst & Young in accordance with the Canadian generally accepted auditing standards.
In its review of the audit results, the committee did not note any matters of significance or concern. However, as is usual practice, the committee will meet in camera with the external auditors during the second portion of this meeting.
I will first invite Mr. Lanctôt to briefly present the financial results for 2021-22 before listening to Ms. Gignac and opening the floor for questions from committee members.
Pierre Lanctôt, Chief Financial Officer, Finance and Procurement Directorate, Senate of Canada: Thank you, Mr. Chair. Honourable senators, I will take a few minutes to discuss the highlights of the financial statements, mainly explaining the variances between the results this year and last year. I will begin by discussing the new or particular information that is included in the financial statements this year.
First, the cash on hand at year end has been eliminated in 2021-22. Since 2013, the Senate had been holding in the Senate bank account an amount of $416,000 following the Senate’s decision to suspend three senators for their conduct related to the use of Senate resources. In light of a recent Supreme Court of Canada decision, the Senate no longer faces any potential liability in relation to these matters, and, therefore, the funds have been returned to the Receiver General.
Second, the methodology used by the Translation Bureau to calculate the value of translation and interpretation services provided to the Senate without charge has been modified in 2021-22 to better reflect the actual value of these services. As a result, the comparative figures for 2020-21 have been adjusted to reflect the new methodology. This adjustment has no impact on the net financial position of the Senate and on the net cost of operations after funding.
I will discuss the Senate expenses as presented on page 2 of the financial statements. Overall, the Senate’s total expenses subject to budgetary spending authorities reached $93.5 million for 2021-22. These results indicate a decrease in expenses of $21.2 million compared to the previous fiscal year. However, when adjusted for non-recurring items of 2020-21, such as the pension plan adjustment of $19.8 million and the retroactive economic salary payments of $5.5 million, the regular expenses increased by about $4.1 million, representing an increase of 5% compared to the previous year.
Two main reasons explain the expenses increase of $4.1 million in 2021-22: the increase in salary and benefits representing $2.6 million; $1.2 million resulting from salary economic increases for senators’ staff and administration; retroactive payments of $0.8 million that was approved by CIBA in 2021-22, covering four fiscal years for members of the Public Service Alliance of Canada; an increase of $0.6 million in senators’ remuneration and pension following an increase in sessional indemnity and pension rates; and, an increase of $0.7 million in transportation and communications costs as well as an increase of $0.5 million in professional services, hospitality and meals, mainly due to an easing of pandemic measures and lockdown requirements.
[Translation]
I will now elaborate on some of the highlights on the Statement of Financial Position found on page 1. The due from the Consolidated Revenue Fund of $2 million is primarily the result of timing differences, namely the moment when transactions are recorded against parliamentary appropriations and when payments are made.
The accounts receivable and advances in note 4(a) of $2.5 million mainly consists of amounts receivable from federal government departments and agencies of $2.4 million and from other parties, of $61,000. These receivables include $1.2 million receivable from the Treasury Board for the annual adjustment of the Employee Benefit Plan, or EBP, and $0.8 million due from Public Services and Procurement Canada for expense recoveries for the Long-Term Vision and Plan project.
The accounts payable and accrued liabilities in note 4(b) of $4.5 million consist of $3.2 million in accrued liabilities related to wages and salaries, and $1.3 million in payables to external parties for the purchase of goods and services and other government departments and agencies.
The decrease of $6.3 million compared to the previous year is mainly due to the retroactive economic salary increase of $5.5 million payable as of March 31, 2021, and a decrease in the payables to external parties of $0.8 million due to the timing of payments and invoicing.
Tangible capital assets in note 5 of $6.6 million decreased by $0.2 million compared to the previous year due to the capital asset acquisitions of $1.8 million being lower than the amortization expense of $2 million.
This concludes my presentation. Thank you.
[English]
The Chair: Thank you for that. We’ll now hear from Ms. Gignac.
Suzanne Gignac, Partner, Assurance Services, Ernst & Young LLP: Thank you very much. I’ll just give a high-level talk about our audit results, which have been provided to you. I think a very good summary has already been provided as to how the audit has progressed.
We are engaged to express an opinion on the financial statements in accordance with public sector accounting standards. We will also issue a written communication if we identify any significant deficiencies in internal controls. We have not identified anything, and as such we do not anticipate issuing a report of that nature.
From the results perspective, on page 4 of our document on the top left, you can see the significant considerations. This is the area where we would have put focus from an audit perspective. As you go through the details of the report, we speak to what actual procedures we perform from that perspective.
Underneath that, you have open items. These have now been cleared, and there are no open items with respect to the audit.
At the top right, we have put key audit results. So we’ve completed the audit. Our opinion is an unmodified or clean opinion, as noted. Based on our review, we concur with the presentation and disclosures in the financial statements.
The scope of our audit was in line with what we presented to Senate members earlier in the year. There was one change in our materiality. Materiality was based on 2.5% of expenditures. As a result of an increase in expenditures, our materiality increased as well, but it is the same percentage as 2.5% of expenditures.
We believe that the financial statements are appropriate in all material respects. The judgments are reasonable in the financial statements. We had no material corrected or uncorrected differences, and we had excellent cooperation from Senate staff. The audit went very smoothly. It was done virtually, and we were able to leverage Microsoft Teams for meetings as well as our EY Canvas portal, which allows us to share documentation.
Moving forward to page 8 of our document, I won’t go through the details of the procedures we perform on each area, but fraud is one thing we do have to consider as part of an audit. There is always a presumed risk of management override as a fraud risk, and so we do procedures specifically around journal entries and leverage our data analytic tools, and no issues were identified from that work.
On that same page, we have our corrected and uncorrected misstatements. As noted, there was nothing that is material. From two years ago, there was one difference that was identified related to capital assets, which is slowly working its way through the financial statements, resulting in an understatement of tangible capital assets of $211,000 and a related understatement of amortization of $71,000, neither of which is considered material to the financial statements.
I think that is all I was going to speak to from a presentation perspective, but I’m happy to answer any questions you may have.
The Chair: Thank you both for your presentations.
Before I open the floor to questions, I would like to remind committee members that we are in public. We will have an opportunity to meet with the auditors in camera and without any staff present after this first portion of the meeting.
With that, do we have any questions from the committee?
[Translation]
Senator Dupuis: My question is for Ms. Gignac. If we compare the situation that the Senate was in at the start of the pandemic, so in 2020, did you make any specific observations in your analysis of the 2021-22 fiscal year that you would like to share with us? Indeed, there have been fluctuations in the way the Senate operates; rather than holding all meetings in person, we have operated a lot virtually. Since this fall, we have returned to meeting in person. Are there any specific things you want to share with us?
[English]
Ms. Gignac: There is nothing specific, I don’t think, to raise. We certainly did do everything virtually, but the firms, as a result of the pandemic, have had to shift the way they do their work, and we have the tools available to appropriately respond to those issues and manage the audit.
From a Senate perspective, we didn’t identify anything specific that raised any concerns for us as a result of the management team and the teams we are working with virtually. There seemed to be an appropriate level of review, and the information we received was still very high quality with no concerns, and we received it on a timely basis. So we did not identify anything specific that raised concerns for us as a result of the shift to a more virtual environment and impacts of the pandemic.
[Translation]
Senator Dupuis: As a supplementary question, have you seen anything notable in any way in the operating costs?
[English]
Ms. Gignac: From a financial perspective? I think at a high level there is less travel as a result, so we do see some changes in expenses as a result of the pandemic but nothing significant or that would be out of the ordinary or what we wouldn’t otherwise expect or haven’t seen at other organizations as well.
[Translation]
Senator Dupuis: Thank you.
[English]
Robert Plamondon, external committee member: Thank you.
Through you, Mr. Chair, my question is for Ms. Gignac. I appreciate your comment that the audit went smoothly and you had great cooperation from Senate staff.
Was the level of effort of the audit staff at the level expected or that you had estimated in advance of the audit?
Ms. Gignac: Our internal audit staff?
Mr. Plamondon: No, your staff. At some point, when you submitted a proposal to do the work for the Senate, you would have put forward an estimate of the level of effort of audit powers, and in conducting this particular audit, did you meet that level of expectation and level of effort?
Ms. Gignac: I believe we did, although, it has been a few years since we submitted the actual proposal, so I don’t recall the numbers. Certainly, based on what we expected to incur, when we are doing our own budgeting and scheduling, we were in line with that, and there were no anomalies or additional hours incurred that we weren’t expecting.
Mr. Plamondon: Okay. Thank you very much.
Senator Downe: I just have a couple of questions, and I expect that Senate staff can answer them.
I’m intrigued by these additional costs the House of Commons is charging that they didn’t charge in the past. Could we have a breakdown of those? Obviously, you don’t have them on you, but perhaps you can forward them to us.
I noted here there was an increase in expenses related to the service level agreement with the House of Commons for increasing usage in ongoing operating costs and annual costs not charged by the House in the past.
I’m just wondering what those additional costs are to the Senate. You can just send that to the committee members, unless you know off the top?
Mr. Lanctôt: Thank you, chair.
Essentially, what happened is that over time, if you look at the last three or four years, especially pre-pandemic, the level of resources at the Senate increased a bit, so there were additional licences for some of the software or maintenance equipment that we needed. The House of Commons at that point did not charge the first year or years, and when there was a review of the detailed expenses, they uncovered some of those additional expenses that had not been charged for a few years.
When we updated the service level agreement, or SLA, the new cost was put in place.
Senator Downe: Great. Thank you.
The second question — and I think you may have referenced this in your comments — is about the variance in the senators’ pension plan in 2020 and 2021. Can you elaborate on that a bit? It was a $19.8-million decrease?
Mr. Lanctôt: Yes, senator.
Every two years there is an actuarial assessment of the pension plan for parliamentarians that is conducted by the Chief Actuary of Canada. Two years ago, in 2020, there was the adjustment for the actuarial assessment done at the end of March, and there was an actuarial deficit in the plan. The charge for the Senate was, at that time, exactly 19.5, if my memory is good.
This year, for 2021-22, there were no adjustments, because there was no actuarial valuation done. This year there will be one for 2022-23, and next year we should expect an actuarial variance of some kind. It’s hard to say at this point if it is going to be positive or negative because of changes in the economic environment, but that’s what explains the 2021 one-time adjustment.
Hélène Fortin, external committee member: My question is for Ms. Gignac.
First of all, thank you for your documents. They were well presented and very clear.
My question pertains to internal control. I appreciate the fact that you have not relied on the internal controls, and most of your procedures were substantive. But in the process of your audit, did you notice or identify any internal controls — albeit you will not be reporting thereon, but just verbally — that would be worth mentioning that we could perhaps focus more on from our perspective?
Ms. Gignac: Thank you. You are correct; we do a substantive audit. In doing that, we do walk-throughs of processes, of finished and closed processes — the payables procurement process, salaries process. In doing that, we do see controls that exist as we go through, although, as noted, we don’t test them. We did not identify anything that raised concern with respect to internal controls. The processes we walked through seemed to have reasonable controls throughout them, recognizing again that we did not actually test them.
Ms. H. Fortin: Thank you.
Senator Downe: I’m looking under the expenses, and I see a special payment of $149,000 is listed. Do you know off the top of your head what those are?
The second one is right below that, the miscellaneous. I assume you will give us a breakdown of the miscellaneous costs as well. I’m looking at the table, expenses subject to budgetary spending authorities for the 2021-22 fiscal year.
Mr. Lanctôt: Thank you, senator, for the question. The details are provided in note 9, the special payments. It is compensation to former employees who experienced harassment.
Senator Downe: Right. Is there a breakdown of the miscellaneous somewhere in the document?
Mr. Lanctôt: I don’t have details, but we can provide them.
Senator Downe: Thank you.
The Chair: Last call again for any questions. Seeing none, thank you for your presentations and for answering our questions. I would like to underline the high quality of the documents submitted to us and the cooperation of the auditors, the CFO, the deputy CFO, comptroller and their team. Thank you for your work and for helping our committee fulfill its mandate.
We’ll now move in camera.
(The committee continued in camera.)