Standing Committee on Public Accounts (PACP) Department of Finance Appearance on the Public Accounts of Canada 2024

FES 2024 Q&A – Prudent Accounting/Contingent Liabilities

Q: Why are the Public Accounts so late this year?

• The 2024 Public Accounts are expected to be tabled in Parliament shortly.
• Under the Financial Administration Act, the Public Accounts must be tabled in Parliament by the President of the Treasury Board on or before December 31, or if the House of Commons is not then sitting, within the first fifteen sitting days thereafter.
• The production and finalization of the Public Accounts follows a complex process that is dependent on many inputs, including the completion of the Office of the Auditor General's audit of the consolidated financial statements of the Government of Canada.
• This year extra time was taken to ensure the reasonableness of significant estimates affecting the 2023-24 results, namely provisions for Indigenous contingent liabilities and provisions for accounts receivable and loans, including COVID-19 benefit overpayments receivable, Canada Emergency Account Loans, and Canada Student Loans.

Q: Why was the deficit higher than expected?

• The budgetary shortfall in 2023-24 prior to exceptional factors, such as Indigenous contingent liabilities and legacy COVID costs, is expected to be $40.8 billion.
• In 2023-24, the government is expected to record expenses totaling $16.4 billion related to Indigenous contingent liabilities. This relates to the government's commitment to resolve past injustices and renew its relationship with Indigenous Peoples.
• In addition, the government is expected to record expenses totaling $4.7 billion related to the COVID-19 pandemic.
• The government is expected to post an annual operating deficit of $61.9 billion for the fiscal year ended March 31, 2024, compared to a deficit of $35.3 billion in the previous fiscal year. The year-over-year increase in the deficit largely reflects increases in transfer payments, other expenses, including the categories noted above, and public debt charges. These were offset in part by growth in revenues.

Q: Why were so many Indigenous contingent liabilities determined following the end of the fiscal year?

• The contingent liability balance increases when the government recognizes new liabilities, or when new information leads to revised estimates of the potential liability.
• The government records a provision for contingent liabilities when the probability of a future payment is considered likely and the amount can be estimated.
• Although many of the files involved were considered in the budget projection, there were a number of legal and negotiating developments since March 31 of this year that prompted additions and revisions as part of preparing the government's financial statements. Examples of developments that can prompt an assessment or re-assessment include:
  • Filing of a new claim, certification of a class action claim by the court, or other key legal milestone
  • The completion of a Legal Risk Analysis by Justice Canada
  • New information regarding class size or other factors that influence the potential value of a claim
  • A decision by the government to enter into negotiations to settle out of court.

Q: What do you mean by "exceptional"? Is this really exceptional?

• Indigenous contingent liabilities are considered exceptional as they relate to the government's efforts to address historical wrongs, rather than to ongoing operations.
• Since 2015, the government has taken a new approach to advancing reconciliation and has overhauled the Crown's approach to litigation by prioritizing negotiated settlements whenever possible.
• Increases to the contingent liability balance in 2021, 2022 and 2023 have been significantly higher than the norm, owing to a number of multi-billion dollar claims, notably the $23.3 billion First Nations Child and Family Services and Jordan's Principle compensation settlement.
• Developments in law—including court-endorsed approaches for assessing how much is owed to resolve historical claims—have also significantly altered how hundreds of pre-existing claims are now assessed from a contingent liability perspective (i.e., equitable compensation).

Q: What more can you share about the working group on Indigenous contingent liabilities?

• The 2023-24-year end results is expected to include $16.4 billion for Indigenous contingent liabilities for fiscal year 2023-24.
• Ministers will consider options to improve financial predictability and sustainability as part of the federal government's reconciliation efforts. This will include a review of government's accounting of contingent liabilities related to reconciliation.
• The working group's advice will inform the presentation of contingent liabilities in Budget 2025. We do not have further details to share at this time.

Q: Does the current expense forecast include Indigenous CLs?

• Message for the media: The forecast for contingent liabilities for claims and litigation is not disclosed, as a matter of negotiations confidence.
• Message for PBO: Information available at this time can be found in Annex 1. Any specific disclosure will have to wait for the usual post FES/Budget Information Request process.

Q: FES 2024 projects an increase in Direct Program Expenses on average relative to Budget 2024, partially offset by a few factors, including revised provisions for contingent liabilities (Annex 1: Table A1.4). Given high expenses from contingent liabilities in recent years, is this a reasonable assumption?

• Direct Program Expenses are a catchall of miscellaneous and shifting expenses, from departmental overhead costs to revaluations of assets and liabilities, of which contingent liabilities are one of many categories.
• Contingent liabilities have been a source of elevated volatility. While the stock of contingent liabilities fell on net in 2023-24 largely due to settlement agreements being reached, there were accrual expenses from new or revised claims being recorded of $16.4 billion.
• This has been a challenging forecast area as information is continually evolving. We take seriously the importance of understanding these expenses, as shown by the extra time taken to ensure the reasonableness of provisions for Indigenous contingent liabilities affecting the 2023-24 results.
• Within the public service steps are being taken to improve the flowing of information and timeliness of estimations (e.g. CFO performance commitment).

Q: Budget 2024 implies some Indigenous contingent liability expenses were anticipated for 2023-24; how much?

• Expenses for Indigenous contingent liabilities in 2023-24 were considerably larger than anticipated at the time of Budget 2024.
• The specific amount is not disclosed.

Budgeted vs. Actual Indigenous Claims Expenses

The following table provides an overview of budgeted and actual expenses for total expenses *sentences redacted*.

*Table redacted*

*Indigenous claims expenses for 2023-24 include $16.4 billion for contingent liabilities, with the remaining $1.4 billion representing settlement payments not previously charged to expenses.

COVID-19 Benefit and Loan Recoveries

Issue

The Public Accounts of Canada 2024 reported a net provision expense of $3.5 billion related to COVID-19 benefit redeterminations receivable and Canada Emergency Business Account (CEBA) loans.

Key points

• During the pandemic, the government delivered unprecedented programs to support the hardest-hit Canadians and businesses to weather the COVID-19 recession.
• The Canada Recovery Benefit provided financial support to employed and self-employed Canadians who were directly affected by COVID-19 during public health restrictions.
• The Canada Emergency Business Account provided interest-free, partially forgivable loans to nearly 900,000 small business and not-for-profit organizations. The federal government supported Canadians when they needed it the most.
• A combined $3.5-billion provision was recorded in 2024 for loans and receivables related to the emergency support which kept Canadian workers and businesses afloat through the pandemic recession.
• Further details regarding the outstanding balances of COVID-19 benefits receivable, CEBA loans, and associated allowances are reported in the notes to the government's consolidated financial statements presented in Section 2 of Volume I of the Public Accounts.
• The government is using a firm but fair approach to recover pandemic-era public funds where repayment is expected.
• This provision will be adjusted as appropriate as more repayment information becomes available.

Background