Report and Observations of the Auditor General on the 2015–16 Consolidated Financial Statements of the Government of Canada

Opening Statement to the Standing Committee on Public Accounts

Report and Observations of the Auditor General on the 2015–16 Consolidated Financial Statements of the Government of Canada

3 November 2016

Michael Ferguson, CPA, CA
FCA (New Brunswick)
Auditor General of Canada

Mr. Chair, thank you for the opportunity to discuss our audit of the consolidated financial statements of the Government of Canada for the 2015–16 fiscal year. I am accompanied today by Karen Hogan, the Principal responsible for the audit of the Government of Canada’s consolidated financial statements.

The consolidated financial statements are a key government accountability document. They provide a great deal of information that can help parliamentarians understand the results of the government’s financial transactions for the past year. Specifically, they report the financial position, results of operations, and changes in financial position of the government for the year ended 31 March 2016. We audit these financial statements and provide an opinion on them.

The Comptroller General will answer questions about the preparation of the consolidated financial statements and the Public Accounts of Canada. We will focus our comments on our audit opinion and our Observations.

Our Independent Auditor’s Report is on page 2.4 in Volume 1 of the Public Accounts. Once again, we have given an unmodified audit opinion on the consolidated financial statements, something we have done for the last 18 years. We assessed the consolidated financial statements against generally accepted accounting principles. We found that the statements conform in all material respects, which means that you can rely on the information they contain.

I would also like to draw your attention to our Observations, which can be found after the consolidated financial statements, in section 2 of Volume 1 of the Public Accounts. Volume 1 also contains other audited financial statements, such as those of the Employment Insurance Operating Account in section 4 and of the Canada Pension Plan in section 6.

In our Observations, we provided information about four matters that warrant further attention: the Government’s transformation of pay administration, discount rates used in estimating the value of long-term liabilities, National Defence’s inventory management, and liabilities for contaminated sites. I will now briefly address each of these matters.

First, I will address the transformation of the government’s pay administration. Note 4(e) to the consolidated financial statements indicates that the government spent approximately $50 billion on personnel costs during the year. Each year, we devote many staff hours to auditing these costs. This year, we found a higher rate of error involving overpayments and underpayments to employees in the last month of the fiscal year, when employee pay was processed under the new pay system. Because the new system was only in place for one month, these errors were, taken together, not material to the consolidated financial statements. As a result, we were able to provide an unmodified opinion. However, we consider the nature and extent of these errors to be significant, given the direct impact on government employees. We have started the planning phase of a performance audit on the Transformation of Pay Administration Initiative.

In our Observations, we noted that some discount rates that the Government uses to estimate the value of its long term liabilities are at the high end of the acceptable range. Higher discount rates result in lower estimated values for those liabilities, which is an example of measurement uncertainty referred to in note 1 to the consolidated financial statements. The government has started a project to update its approach to selecting discount rates, and we agree that this is important. We recommended that the government consider industry practices, emerging changes in accounting standards, and trends in the Canadian financial market as part of this project.

We once again noted National Defence’s challenges in properly recording and valuing its over $6 billion inventory. We have brought this to the attention of Parliament in each of the past 13 years. The Department has made progress with its inventory management; however, it continues to have errors in the areas of inventory pricing, the identification of obsolete inventory, the misclassification of items and some quantity errors.

Last year, we had an Observation about improvements that the government needed to make in its approach to estimating the value of remediating its contaminated sites. This year, we were satisfied that the government made the necessary adjustments to its model and has achieved a better approach to estimating these liabilities.

Our annual audit of the Government of Canada’s consolidated financial statements takes about 50,000 hours of our staff’s time, which is more than it takes to complete six performance audits. We have to work with several government departments, agencies, and Crown corporations to complete this work. We add value through our financial audit, which helps to support parliamentary oversight of the government and promotes transparency.

I would like to thank the Comptroller General, his staff, and the staff of the departments, agencies, and Crown corporations who were involved in preparing the government’s consolidated financial statements. We appreciate the effort, cooperation, and help of all involved.

Mr. Chair, I would like to conclude by saying that I am pleased that the Public Accounts Committee is holding this hearing so soon after the release of the government’s consolidated financial statements, because there is more value in examining financial information when it is current.

This concludes my opening remarks. We would be pleased to answer the Committee’s questions.