11024.1 Reporting “other matters” in the Public Accounts of Canada

Oct-2012

OAG Guidance

The issue in connection with “other matters” in the Public Accounts is not whether we can report such matters, but rather the vehicle for doing so.

The simplest and most effective manner of presenting these issues to Parliament is to include them in the Auditor’s Report. In that way, Parliament receives the views of the Auditor General at the same time as it receives the government’s accounts. However, this way to report “Other matters” is rarely used. Since 1987, “Other matters for Parliament’s Attention” have only been reported in the Public Accounts of Canada twice, in the year ended March 31, 2001 and March 31, 2010.

In the year ended March 31, 2001, we reported two “other matters”—one relating to Transfers to Foundations, and the second relating to Compliance with the Employment Insurance Act. These other matters were included in four consecutive yearsin the Report on the Financial Statements of the Government of Canada. In 2005, the Auditor General removed these two “other matters” from the Auditor’s Report and provided an update of the status of these issues in the Observations of the Auditor General on the Financial Statements of the Government of Canada, and the reasons for the removal.

In the year ended March 31, 2010, the other matter related tosignificant changes to the accounts for the Employment Insurance program.

In order to report an “other matter” in the Public Accounts of Canada, it should be clearly significant to the government’s summary level financial statements. If not, some other reporting vehicle is more appropriate. For example, they may be included in a Performance Audit chapter or in the Observations of the Auditor General on the Financial Statements of the Government of Canada on the Public Accounts).

OAG Guidance

31 March 2001

Other Matters for Parliament’s Attetion

In forming my opinion as to the fair presentation of these financial statements in accordance with the Government’s stated accounting policies, I decided to draw Parliament’s attention to two matters.

Compliance with the Employment Insurance Act. I continue to be concerned about the size and rate of growth of the balance in the Employment Insurance Account. Employment Insurance premiums and benefits are included in the revenues and expenditures, respectively, reported in the Government’s statement of revenues, expenditures and accumulated deficit. Under the Employment Insurance Act, a separate accounting of these revenues and expenditures must also be made. This is presented in the financial statements of the Account included in Section 4 of this Volume. The balance in the Account increased by about $8 billion during the year to $36 billion at March 31, 2001 which is well in excess of $15 billion, the maximum amount considered necessary by the Chief Actuary of Human Resources Development Canada. The Act requires that in setting premiums, the Employment Insurance Commission ensure, to the extent possible, that the rate levels provide enough funding to cover program costs and remain relatively stable throughout a business cycle. Although recent amendments to the Act have suspended these requirements for 2002 and 2003, they remain in effect for the year ended March 31, 2001. The Commission did not provide an adequate justification for the size and rate of growth of the Account balance. Accordingly, I am unable to conclude that the intent of the Employment Insurance Act has been observed in setting the 2001 premium rates.

Transfers to Foundations. I am becoming increasingly concerned about the Government’s practice of creating various foundations to achieve its public policy objectives and transferring significant amounts of public money to them long before—in some cases more than10 years before—the money is actually used for the ultimate intended purposes. During the past five years, the Government has transferred some $7 billion to such foundations. It has recorded these amounts as expenditures (almost $2 billion in the year ended March 31, 2001), even though most of the $7 billion, including interest, is still in the bank accounts and investments of the foundations. Under the Government’s stated accounting policies, an expenditure is recorded when funds are transferred to these foundations or, in certain circumstances, is accrued if they are transferred shortly after the year end. In my view, these accounting policies did not contemplate situations in which the funds would not be used for the ultimate intended purposes within the year of transfer or shortly thereafter. In our November 1999 Report, we noted other concerns we have about the accountability and governance arrangements for these foundations. I will provide a follow-up on the status of these concerns in my April 2002 Report. In my view, when the Government creates foundations to achieve its public policy objectives and they are, or should be, accountable to it, the Government should record transfers to them as expenditures only when the money has been actually used for the ultimate intended purpose. This would result in a better reflection of the economic substance of the Government’s activities in its financial statements. I have this year given an opinion on the Government’s financial statements without reservation. However, as the Government introduces full accrual accounting as the basis of preparing next year’s financial statements, I urge the Government— in accordance with recommendations of the Canadian Institute of Chartered Accountants’ Public Sector Accounting Board—to also change its stated accounting policies as they relate to these foundations. I also urge the Government to address my concerns about the accountability and governance arrangements for the foundations.

31 March 2002, 2003 and 2004

The Auditor General decided to continue to draw Parliament’s attention to these two matters in the Auditor’s Report.

31 March 2005

Additional information and comments on the financial statements and this Report are included in my Observations at the end of Section 2, Volume I of the Public Accounts of Canada 2005.

In previous years I have reported two other matters in my Report on the Financial Statements of the Government of Canada. In these Observations, I provide an update on the status of these issues.

Transfers to Foundtations

Due to improvements instituted and proposed by the Government, developments in accounting standards, and the relative insignificance of transfers to foundations in the current year, I have removed the other matter about transfers to foundations that I have reported in previous years in my Report on the Financial Statements of the Government of Canada.

Employment Insurance Account

As a result of the amendment to the Employment Insurance Act, which received Royal Assent on June 29, 2005, I have removed the other matter related to Employment Insurance that was reported last year in my Report on the Financial Statements of the Government of Canada. The amendment established a new rate-setting mechanism that is effective for the 2006 premium rate. Further explanation will be provided in my Annual Report to the House of Commons later this year.

31 March 2010

Other Matter for Parliament’s Attention

I wish to draw your attention to significant changes to the accounts for the Employment Insurance program. As described in Note 4 to the financial statements, the legislation that Parliament approved in July 2010 to implement the March 2010 Budget included amendments to the Employment Insurance Act. One such amendment was the closure of the Employment Insurance Account, with a surplus of about $57 billion.