Comptroller General of Canada appearance before the Standing Committee on Public Accounts (PACP) 2024

Introduction

Mr. Chair, thank you for the opportunity to appear before the committee today.

I’m pleased to be joined by officials from my department:

• Blair Kennedy, Executive Director
• John Daley, Senior Director

Roles and responsibilities

As committee members are aware, the production of the Public Accounts of Canada is set out in the Financial Administration Act.

Deputy heads and chief financial officers of organizations are responsible for the accuracy of the information provided and are required to follow the Government of Canada accounting policies, which are based upon the Public Sector Accounting Standards (PSAS).

The production and finalization of the Public Accounts is a joint responsibility between the Receiver General for Canada, the Department of Finance Canada and the Treasury Board of Canada Secretariat, which includes the Office of the Comptroller General.

As Comptroller General, one of my responsibilities is providing leadership for financial management within the Government of Canada.

My office provides government-wide leadership on accounting standards and preparation of departmental financial statements, including the preparation of the Public Accounts of Canada.

The Department of Finance Canada is responsible for the financial statement discussion and analysis section, which provides an understanding of the variance from the budget.

The Receiver General compiles the data received from departments, agencies and Crown corporations and publishes the Public Accounts.

Lastly, the Office of the Auditor General audits the consolidated financial statements found in the Public Accounts.

Mr. Chair, I’m pleased to say that for the 26th consecutive year, the Auditor General has provided a “clean” or unmodified audit opinion on this year’s financial statements.

And, Mr. Speaker, I want to emphasize that this is a testament to the high quality of Canada’s financial reporting and the work of my colleagues in the public service.

I would like to thank the financial management community of the Government of Canada, the Department of Finance Canada and the Receiver General, and the Office of the Auditor General for helping prepare the Public Accounts.

Timing of the public accounts

I would now like to touch on the timing of this year’s Public Accounts, which I know has been of interest to this committee.

The government is legally required to table the Public Accounts no later than December 31 following the end of the fiscal year – or within the first 15 days once the House reconvenes if it is not sitting during that period.

And I want to assure the committee that the government always endeavours to table the Public Accounts at the earliest opportunity.

There were several significant and new transactions that were accounted for as part of the preparation of the 2023–24 Consolidated Financial Statements.

My team and I needed to take adequate time to ensure that the results presented were fair and credible and were in accordance with the PSAS.

Some of these transactions included Indigenous contingent liabilities and provisions for accounts receivable and loans, particularly COVID-19 programs and Canada Student Loans.

The government also had to assess whether any important events happened between the financial statement date and the finalization of the Public Accounts.

Specifically, it had to determine if any needed to be accounted for or required further disclosure in notes to the financial statements.

One example that resulted in additional disclosures was the recent confirmation of the $1.9 billion non-permitted surplus in the Public Service Pension Fund.

As a result, additional analysis and work were required to complete the Public Accounts this year, which contributed to a later tabling date.

Mr. Chair, with regard to our reply to the committee’s recommendation for earlier tabling, we remain committed to have the next iteration of public accounts tabled by October 15, 2025, notwithstanding any extraordinary events.

Conclusion

With that said, Mr. Chair, I want to thank the committee for its interest and time.

As the recently appointed Comptroller General of Canada, it is my honour and privilege to be here today to discuss the 2024 Public Accounts of Canada.

My officials and I would now be happy to take your questions.

Thank you.

Policy on Financial Management

As Comptroller General of Canada, I am responsible for providing strategic financial advice to the President of the Treasury Board, the Secretary of the Treasury Board, the Clerk of the Privy Council, deputy heads and chief financial officers (CFOs).

I am also responsible for providing leadership for financial management within the Government of Canada, including the following:

• governance and oversight
• efficient financial management practices
• financial management workforce
• financial information, which includes providing government-wide functional leadership regarding accounting standards and the preparation of departmental financial statements, quarterly financial reports and the Public Accounts of Canada

For information, the Policy on Financial Management also states:

Departmental CFOs are responsible for the following:

• 4.2.6 Advising the deputy head and the Comptroller General of Canada on a timely basis if:
  • 4.2.6.1 There is a critical financial risk to the department, including where there is a possibility that the department may exceed its appropriations.
  • 4.2.6.2 There are significant departmental financial transactions that involve uncertain or unusual circumstances; or
  • 4.2.6.3 There are difficulties complying with this policy, its supporting instruments or other direction from the Comptroller General of Canada;
• 4.2.7 Advising the Comptroller General of Canada on a timely basis if the deputy head does not accept the CFO’s advice on a significant financial matter.

a) Contingent liabilities

Recognition and measurement principles under IFRS and IPSAS appear to be more prescriptive and stricter than PSAS for contingent liabilities. Examples include:

• A contingent liability under IFRS/IPSAS (referred to as a provision) is recognized when an outflow of resources is probable. IFRS has a lower threshold in terms of recognizing a contingent liability as an expense. This means more likely than not (that is, 50%). Under PSAS, recognition is only considered when it is likely. The Government of Canada Accounting Handbook has defined likely as 70%. This could mean recognizing liabilities sooner under IFRS.
• Although all three frameworks include the ability to make a reliable estimate a recognition criterion, IFRS/IPSAS provides additional guidance stating that in only very rare circumstances can an estimate not be reliably made. Therefore, IFRS/IPSAS is stricter in terms of recognition criteria.
• Measurement guidance for determining the estimate of a liability is more prescriptive under IFRS. This may lead to less ability to apply professional judgment in the estimate process.

b) Allowance on loan receivables

Valuation allowance for loan receivables under PSAS is recognized when the loans receivable cost is higher than the net recoverable value. Valuation allowances reflect collectability and risk of loss. IFRS and IPSAS have similar guidance but add that a loss allowance should be recognized when contractual cash flows are less than expected. Without analyzing a specific scenario, it is unclear what the difference is between PSAS and IFRS/IPSAS in application of valuation allowances on loans.

Types of claims

There are three key types of claims reported in the Public Accounts of Canada:

What are contingent liabilities? How are they measured?

Contingent liabilities are possible obligations that may result in the future sacrifice of economic benefits arising from existing conditions or situations involving uncertainty.

That uncertainty will ultimately be resolved when one or more future events not wholly within the government’s control occurs or fails to occur.

Contingent liabilities are distinct from liabilities as there is a degree of uncertainty as to whether a present obligation to sacrifice economic benefits exists at the financial statement date.

There are two basic characteristics of contingent liabilities:

1. there must be an existing condition or situation
2. there must be an expected future event that will resolve the uncertainty as to whether a present obligation exists

For a contingent liability to be present, there must be an existing condition or situation (event) at the financial statement date that indicates that a government may have a liability. The existing condition or situation could be, for example, a legal case.

There must also be an expected confirming future event that will resolve the uncertainty. The expected confirming future event provides additional information as to whether a government has a liability at the financial statement date. The future confirming event cannot be wholly within the control of the reporting government.

For accounting purposes, we are required to record a contingent liability when:

1. it is likely that a future event will confirm that a liability has been incurred at the date of the financial statements
2. the amount can be reasonably estimated

Using the court case example, if a court case is filed before the end of the fiscal year, there may be a need to record a contingent liability for that court case when a payment is likely. The assessment of likelihood is complex and may include items such as:

• filing of a new claim, certification of a class action claim by the court, or other key legal milestones
• the completion of a legal risk analysis by the Department of 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

Lastly, we are required to estimate this amount. This is based on management’s best estimate. This is a complicated process involving many experts, including lawyers, accountants and actuaries as required.

Canada Emergency Business Account

In 2024, $21,339 million of loans was repaid, $10,223 million was forgiven and $83 million written off ($3,159 million of loans repaid in 2023, with $1,349 million forgiven and $5 million written off). $15,041 million of loans eligible for forgiveness in prior years was included in the transfer payment expenses in the Consolidated Statement of Operations and Accumulated Operating Deficit in the period the loans were issued. A reversal of $2,574 million of transfer payment expense is included in the consolidated statement of operations and accumulated operating deficit in 2024 for loans that did not meet the forgiveness deadline. The valuation allowance of $4,942 million relates to estimated credit losses ($2,702 million for estimated credit losses and $12,870 million for forgiveness in 2023).

$31,562 million of the decrease in CEBA loans is attributable to repayments of loans and corresponding forgiveness under the program.

Other accounts receivable COVID-19 benefit overpayments

Gross other accounts receivable related to COVID-19 benefit overpayments have increased $4,394 million as a result of the continued post-verification efforts by CRA and Employment and Social Development Canada. However, this increase was offset by an increase in allowance for doubtful accounts of $4,030 million, for a net increase of $364 million within other receivables. The allowance reflects management’s best estimate on the expected collections of COVID-19 benefit overpayments and is subject to professional judgment and significant measurement uncertainty.

Revenue

PS 3400 Revenue addresses the recognition, measurement, presentation and disclosure of revenue, and introduces a distinction between exchange and non-exchange transactions.

The Office of the Comptroller General provided guidance to over 100 departments and agencies and 30 consolidating Crown corporations on the appropriate application of this standard. Although there was no material impact on the consolidated financial statements, significant work was required, with all impacted parties, to ensure that approximately $70 billion worth of revenue was accounted for appropriately.

Public-private partnerships

PS 3160 Public Private Partnerships addresses the accounting for transactions associated with certain public-private partnerships, where the government procures infrastructure using private sector partners. PS 3160 provides guidance on the recognition, measurement and disclosure of the tangible capital assets, financial liabilities, revenues and expenses within its scope.

The Office of the Comptroller General collaborated with five impacted departments and one Crown corporation to ensure that the $2.5 billion worth of liabilities were properly accounted for.

Purchased intangibles

Public Sector Guideline – 8 Purchased Intangibles provides guidance on when purchased intangibles can be recognized as assets in the Consolidated Statement of Financial Position.

The Office of the Comptroller General developed guidance and, with departments, agencies and Crown corporations, assessed the impact and accounted for this guideline correctly.

Throughout the preparation of the 2023–24 Consolidated Financial Statements, the Office of the Comptroller General worked closely with the Office of the Auditor General to review the implementation of these standards and guidelines.

Background notes

Examples

One example is contingent liabilities. New information related to claims was received during the preparation of the Public Accounts related to conditions that existed at March 31, 2024. Examples of developments that can prompt an assessment or reassessment 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 the Department of 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

As a result of this new information, adjustments were made to the consolidated financial statements for contingent liabilities, which required the Office of the Auditor General to audit this work.

Another example of a significant subsequent event this year was the non-permitted surplus. On November 25, 2024, it was announced that the Public Service Pension Fund was in a non-permitted surplus position of $1,943 million, as the fund’s funding ratio exceeded the maximum allowable amount of 125% as per the Public Service Superannuation Act. In line with the Public Service Superannuation Act, the government intends to transfer this non-permitted surplus into the Consolidated Revenue Fund. The transfer will not have a significant impact on the reported assets and liabilities in the subsequent period.

The government needed time to consider the implications of this event and updated the notes to the consolidated financial statements accordingly.

Technical briefing on the non-permitted surplus

December 6, 2024

Speaking points

Supporting documentation

For example, under accrual accounting, the government records in its books a liability in the current year related to the pension benefit earned by public servants in the year they provide their services. This reflects the obligation of the government to pay public servants a retirement benefit after they retire. Under cash accounting, the expenditure for this commitment would not be recorded in the accounts until such time the public servant retires and starts to receive pension payments. This could be more than 30 years after the public servant has provided their services.

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 15 sitting days thereafter.

The production and finalization of the Public Accounts follow 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-19 costs, is expected to be $40.8 billion.

In 2023–24, the government is expected to record expenses totalling $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 totalling $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 reassessment 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 the Department of 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 settlements.

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 (that is, equitable compensation).

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

The 2023–24 year-end results are 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 contingent liabilities?

Message for the media: The forecast for contingent liabilities for claims and litigation is not disclosed, as a matter of negotiations confidence.

Message for the Office of the Parliamentary Budget Officer: Information available at this time can be found in Annex 1. Any specific disclosure will have to wait for the usual post Fal Economic Statement / Budget Information Request process.

Q: Fall Economic Statement 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 catch-all 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 continuously 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 (for example, chief financial officer 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.

Tabling of the Public Accounts of Canada 2024

Preparation of the consolidated financial statements

The preparation of the consolidated financial statements over the last couple of years has been challenging for the government (and many provincial governments) with the implementation of four new accounting standards and one accounting guideline as prescribed by the Public Sector Accounting Board.

Asset retirement obligations

We agree with the Office of the Auditor General’s observation that the implementation of Public Sector Accounting Standard 3280, Asset Retirement Obligations, was significant. The Government of Canada has a very diverse asset portfolio, and the timing and future retirement costs associated with these assets is inherently complex.

The Government of Canada was not alone in experiencing challenges in implementing this standard. A number of provinces and territories had difficulties meeting recognition, measurement and disclosure requirements for asset retirement obligations. In fact, there was one province that received a modified audit opinion resulting from the difficulties in implementing this standard last year.

With tangible capital assets from coast to coast to coast, which range from buildings with asbestos to decommissioning of nuclear facilities to demilitarization, the Government of Canada had a significant amount of work to successfully implement this standard. We are very pleased with the work of our departments, agencies and consolidating Crown corporations in the implementation. We also acknowledge the diligent work of the Office of the Auditor General in its capability to audit this work.

The Office of the Comptroller General, in the second year of the implementation of this standard, worked with impacted parties and provided guidance to allow entities to appropriately account for changes in their original estimates. Given the complexity of the standard and the number of potential scenarios that existed, this was a significant undertaking by our office.

In 2024–25, we will continue to work with departments, providing oversight to improve consistency in the estimation processes and application methodologies for these estimates. In particular, we will work with impacted departments to seek opportunities to further refine estimates related to asbestos and other hazardous materials.

We agree with the Office of the Auditor General’s conclusion that although improvements can be made, the improvements cited do not have a significant impact on the consolidated financial statements of the Government of Canada. We look forward to continuing to work with the Auditor General and her colleagues to address the concerns they have raised in this observation.

If pushed: The Office of the Comptroller General notes that most of the issues around the implementation of the asset retirement obligation standard are related to estimating the timing and retirement costs associated with the abatement of asbestos. Asbestos represents a liability of approximately $2.5 billion, which is a smaller portion of the overall total asset retirement obligation liability of $12.5 billion.

If pushed further: Decommissioning of nuclear facilities represents approximately $8.7 billion (or 70%) of the $12.5 billion of asset retirement obligations. Decommissioning of nuclear facilities is led by the Atomic Energy of Canada Limited, a Crown corporation. This Crown corporation has reported liabilities for the decommissioning of nuclear facilities for many years before the implementation of the asset retirement obligation standard. This liability, which has evolved over the past decade, has been reported in the Public Accounts and audited by the Office of the Auditor General for at least a decade without significant issues raised.