Opening Statement to the Standing Committee on Oversight of Government Operations and Public Accounts
Report of the Auditor General of Canada on the 2021–22 Consolidated Financial Statements of the Government of Nunavut
21 September 2023
Sophie Miller, Chartered Professional AccountantCPA, Chartered AccountantCA
Assistant Auditor General
Ullaakkut. Good morning. Mr. Chair, thank you for this first‑ever invitation to appear before the committee to discuss our audit of the Government of Nunavut’s consolidated financial statements for the 2021–22 fiscal year. Joining me today is Caroline Jean, the director responsible for the audit. We look forward to supporting the committee’s review of the results of the government’s financial transactions.
The 2021–22 Public Accounts of Nunavut, which include the government’s consolidated financial statements, were tabled in the legislative assembly on November 8th, 2022. Our independent auditor’s report is in Section II of the public accounts, on pages 19 to 22.
The government carries out its accounting and financial reporting responsibilities through its Office of the Comptroller General in the Department of Finance. The Deputy Minister of Finance and the Comptroller General will answer questions about the preparation of the financial statements. We will focus on our audit.
As the Government of Nunavut’s auditor, we examine the government’s consolidated financial statements and express an opinion on them. We also report on the government’s compliance with specified authorities. Our audit supports the legislative assembly’s oversight of the government, promotes transparency, and encourages good financial management.
Let me start by stating that we issued an unqualified, or “clean,” audit opinion on the government’s consolidated financial statements for the 2021–22 fiscal year. This is the 12th consecutive year that the government has received a clean audit opinion. A clean opinion means that in all material respects, the information in the financial statements was presented fairly and in accordance with Canadian public sector accounting standards, and the government's transactions that we examined complied with specified authorities. In other words, you can rely on the information contained in the 2021–22 financial statements.
The 2021–22 consolidated financial statements show that the government had net financial assets of $548 million as at 31 March 2022. In other words, its financial assets were enough to cover its liabilities with $548 million left over.
The government makes estimates and assumptions that affect the amounts reported in the financial statements. The areas in which measurement uncertainty is the greatest are disclosed in the notes to the financial statements. These areas are inherently imprecise. As a result, it is possible that an amount appearing in these financial statements could significantly change in the future.
We wish to draw the committee’s attention to 2 issues that we have identified through our 2021–22 governmental and territorial audits and that were part of our presentation deck provided to the committee in advance of today’s meeting. While these were not significant enough to affect our audit opinion on the government’s consolidated financial statements, we do believe that they merit the committee’s attention in conducting its oversight of governmental operations. These issues involve the spare parts and lubricants inventories at the Qulliq Energy Corporation and the write-offs of tangible capital assets.
For the spare parts and lubricants inventories, we once again issued a qualified opinion in our independent auditor’s report on the Qulliq Energy Corporation’s financial statements for the year ended 31 March 2022. This is a long-standing issue that stems from inadequate inventory management practices and significant control deficiencies within the corporation’s year‑end inventory count procedures. These issues increase the risk that these inventories are being mismanaged and are not accurately reflected within the financial statements.
For the write‑offs of tangible capital assets, we want to inform the committee that as a result of requirements set out in the Financial Administration Act of Nunavut, management could not write off $4.1 million of its tangible capital assets. The assets in question were deemed to have no future service potential to the government but they could not be written off until management was authorized to do so by new legislation passed by the legislative assembly. As management had not received the necessary authorization when the financial statements were tabled, the assets were not removed from the consolidated statement of financial position, and as a result, both the assets and the annual surplus were overstated.
In addition, we wish to inform the committee that the government is adopting a new accounting standard in 2022–23 that will require it to record a liability in relation to any legal obligation that will result in future costs when the assets are retired. The new standard is complex and involves the use of estimates and assumptions. We anticipate that the new standard will affect the consolidated financial statements because the government has tangible capital assets that are subject to this standard, such as buildings, equipment, and vehicles. For example, the government may have to remediate buildings with asbestos. The costs of such future legal obligations are known as asset retirement obligations.
We wish to make the committee aware of 2 issues relating to the adoption of the new accounting standard.
Firstly, our 2022–23 independent auditor’s report on the financial statements of the Nunavut Development Corporation includes a qualification relating to a scope limitation linked to asset retirement obligations. In other words, the corporation’s 2022–23 consolidated financial statements do not contain complete and accurate information about any potential future asset retirement obligations.
Secondly, the Qulliq Energy Corporation has not yet provided our office with the information we need to audit its asset retirement obligations. The corporation has informed us that it expects to provide the information we have requested at the end of September 2023. As a result, the corporation missed its statutory reporting deadline for the 2022–23 financial statements.
These circumstances are currently preventing us from assessing the impact on our 2022–23 audit opinion for the government’s liabilities. The delays in getting this information means that we will issue our audit opinion on the government’s consolidated financial statements later than usual, and this situation will affect our ability to support the government in meeting its December 31st statutory deadline. Therefore, the committee and other informed readers of the government’s financial statements might not be receiving timely information for their decision-making processes, such as determining the government’s budget and main estimates.
Finally, in recent years, our Office has noticed that certain government departments and territorial corporations have experienced high levels of employee turnover and vacancies in key positions, which further increased during the pandemic. As a result, the high level of vacancies inherently increases the risk of fraud or error as it can lead to deficiencies within the internal control environment and have an impact on the successful delivery of programs. We believe this is an important root cause underlying many observations we reported in our recent performance audits. Governmental representatives have indicated that challenges in securing staff housing can have a significant impact on the ability to attract potential candidates. We encourage the committee to study this situation and ask the government about its recruitment strategy to ensure that it effectively supports the recruitment of qualified candidates and is able to fill vacant positions in a timely manner.
I would like to thank the Deputy Minister of Finance, the Comptroller General, their staff, and the staff of the departments and territorial corporations who were involved in preparing the government’s financial statements. We appreciate their effort and collaboration.
Once again, thank you for this opportunity to help support the committee in its oversight of the government’s finances. We look forward to meeting with you again in the coming months to discuss our audit of the government’s consolidated financial statements for the 2022–23 fiscal year once it is released.
Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee may have. Nakurmiik. Thank you.