Appearance of the Comptroller General of Canada Before the Standing Committee on Public Accounts

Table of Contents

Meeting agenda and membership of the Standing Committee on Public Accounts (PACP)

• A. Summary on Public Accounts 2020
• B. Opening remarks
• C. PAC overview note

Volume I

Variances

• D.1 Revenues
• D.2 Personal income tax revenues versus corporate tax revenues and impact of COVID-19
• D.3 Transfer payment expenses
• D.4 Provision for contingent liabilities
• D.5 Environmental liabilities
• D.6 Other employee and veteran future benefits
• D.7 Enterprise Crown corporations and other government business enterprises
• D.8 Investments in tangible capital assets

Phoenix

• E.1 Office of the Auditor General observation on pay administration
• E.2 Agreement for damages caused by the Phoenix pay system
• F. Office of the Auditor General observation: Department of National Defence Inventory
• G.1 Office of the Auditor General observation on Hibernia
• G.2 Canada Development Investment Corporation (CDEV): Trans Mountain Pipeline
• H. Fuel charge proceeds returned
• I. Prior year reclassification

COVID-19

• J.1 Impact of COVID 19 on 2020 Public Accounts
• J.2 Subsequent events disclosure
• J.3 Cost of furniture for public servants
• K. COVID 19 impact on Public Accounts year-end deadlines

Volume II

• L. Budget Implementation Vote

Lapse Analysis

• M.1 Background on lapse
• M.2 Top lapses
• M.3 Operating and capital budget carry-forward
• M.4 Frozen allotments
• M.5 Impacts of overspending on appropriation
• M.6 CORCAN exceeded drawdown limit

Volume III

• N. Debt write-off
• O. Payments of claims against the Crown, ex gratia payments and court awards

Other material

• P. Office of the Auditor General commentary on the 2019-20 Financial Audits
• Q.1 Public Accounts modernization in 2019
• Q.2 Upcoming Public Accounts modernization 2021
• Q.3 Next steps for Public Accounts modernization
• Q.4 Web-based interactive format
• R. Significant items in Public Accounts 2019
• S. Discount rate
• T. Pay equity

Meeting agenda and membership of the Standing Committee on Public Accounts (PACP)

A. Summary on Public Accounts 2020

In this section

• Issue/question
• Suggested response
• Background

Issue/question

The Public Accounts of Canada were tabled in Parliament by the President of the Treasury Board on November 30, 2020.

Suggested response

• The Government of Canada is committed to responsible financial management and oversight.
• The Public Accounts include the audited consolidated financial statements of the government.
• For the 22nd year in a row, the Government of Canada has received a clean audit opinion on its consolidated financial statements.
• This demonstrates the high quality of Canada’s financial reporting.

Background

• Production and finalization of the Public Accounts of Canada is a joint responsibility between the Receiver General, the Office of the Comptroller General and the Department of Finance.
• The Public Accounts reflect the government’s audited consolidated financial statements and other detailed financial information for the fiscal year 2019–20 that ended March 31, 2020.
  • Volume I: includes the audited consolidated financial statements of the government; the unmodified audit report from the Auditor General; a financial statements discussion and analysis, which presents 10-year comparative financial information; as well as details on certain financial statement components.
  • Volume II: includes financial operations of the departments.
  • Volume III: includes other supplementary information such as losses, ex gratia payments and Ministers’ office expenditures.
• The Auditor General also simultaneously tabled in Parliament, through the Speaker of the House, its observations on key financial audits. This year’s focus was on pay administration, National Defence’s inventory and asset pooled items, and Department of Finance Canada payments.
• The Public Accounts are tabled in the House of Commons and undergo a review by the Public Accounts Committee.
• The Public Accounts show a deficit of $39.4 billion for the fiscal year 2019–20, from a budgetary deficit of $16.8 billion projected in the 2019 Budget and a $34.3-billion revised figure reposted in the Economic and Fiscal Snapshot 2020.

B. Opening remarks

Notes for remarks by Roch Huppé, Comptroller General of Canada, to the Standing Committee on Public Accounts

Ottawa

Check against delivery.

Thank you, Madame Chair, and my thanks for the opportunity to discuss the Public Accounts of Canada with the members of the Committee.

I am joined today by my colleagues from the Treasury Board of Canada Secretariat:

• Roger Ermuth, Assistant Comptroller General of the Financial Management Sector
• Diane Peressini, Executive Director of Government Accounting Policy and Reporting

Madame Chair, the Public Accounts include the audited consolidated financial statements for the 2019–20 fiscal year, which ended on March 31, 2020, in addition to other unaudited financial information.

They are part of a series of reports to Parliament and Canadians that outline how the Government of Canada spent the money that it requested from Parliament and how it generated revenues.

The consolidated financial statements are audited by the Office of the Auditor General, and I am pleased to note that, for the 22nd year in a row, the Auditor General has issued an unmodified or “clean” audit opinion of these financial statements.

As the former Auditor General pointed out to the committee, not many national governments receive a clean audit opinion on their financial statements – let alone do so every year for two decades.^{Footnote 1}

I am very proud that the work of the Financial Management community is so strong that we can sustain this accomplishment year after year. In particular, in this unusual year, I must thank all the departments, for the extra effort they put in to undertake the year-end work while working from home, with all the additional challenges that entailed.

It is a clear indication that the members of the Committee – and all Canadians – can be confident the financial statements presented here provide a thorough and accurate accounting of Government of Canada revenues and expenditures.

I must recognize my colleagues at the Department of Finance and the Receiver General for their continuing support and cooperation in producing the Public Accounts.

As well as the Office of the Auditor General for its continued cooperation and assistance.

Turning to the financial statements, as the Committee will have noted, overall, the government ended the year showing a deficit of $39.4 billion – up $25.4 billion from the previous year, and $22.6 billion more than projected in Budget 2019.

The accumulated deficit rose $35.9 billion to $721.4 billion in 2020.

At the same time, the ratio of accumulated deficit-to-GDP is 31.3%, up from 30.8% in the previous year.

Revenues increased by $1.9 billion, from 2019, primarily reflecting increases in income tax revenues and the introduction of fuel charge.

Program expenses excluding net actuarial losses increased by $23.9 billion, from 2019, reflecting increases in all major categories of expenses, including fuel charge proceeds returned.

It is important to note that the March 31, 2020, results included the start of the COVID-19 pandemic, when costs such as two weeks of Canada Emergency Response Benefit (CERB) and transfer payments were incurred, as well as impacts on estimates for loan loss provisions and tax revenues. These increased the total program expenses compared to the prior year, and thus the annual deficit.

Madame Chair, those are among what I would call the highlights, and my colleagues and I look forward to discussing the results of this year’s Public Accounts with the Committee in more detail.

I would also like to engage the committee on how to improve the Public Accounts. There have been no significant changes to the form and content of the Public Accounts since the government moved to accrual accounting in 2003.

With more and timelier online reporting of information, I feel there would be merit in examining the current practice of presenting information annually in three volumes totalling over 1,200 pages.

As well, I believe that some of the thresholds of reporting have not been increased in 40 years and could be changed, such as in the sections on “Payments of claims against the Crown” as well as in “Losses of public money and property.”

I would appreciate your feedback on this.

Thank you for your attention.

C. PAC overview note

In this section

• Standing Committee on Public Accounts (PACP)
• Treasury Board of Canada Secretariat (TBS)–related committee activity from the end of the 42nd Parliament
• TBS-related committee activity: 43rd Parliament, 2nd session
• TBS-related committee activity: 43rd Parliament, 1st session
• Kelly Block (Saskatchewan: Carlton Trail–Eagle Creek): Conservative (Chair)
• Lloyd Longfield (Ontario: Guelph), Liberal (First Vice-Chair)
• Maxime Blanchette-Joncas (Quebec: Rimouski-Neigette–Témiscouata–Les Basques), Bloc Québécois (Second vice-chair)
• Luc Berthold (Québec: Mégantic–L’Érable), Conservative member
• Philip Lawrence (Ontario: Northumberland–Peterborough South), Conservative member
• Len Webber (Alberta: Calgary Confederation), Conservative member
• Matthew Green (Ontario: Hamilton Centre), NDP member
• Kody Blois (Nova Scotia: Kings–Hants), Liberal Member
• Greg Fergus (Quebec: Hull–Alymer), Liberal Member: Parliamentary Secretary to the President of the Treasury Board and Minister of Digital Government
• Francesco Sorbara (Ontario: Vaughan–Woodbridge), Liberal Member
• Jean Yip (Ontario: Scarborough–Agincourt), Liberal Member

Standing Committee on Public Accounts (PACP)

Mandate of the Committee

When the Speaker tables a report by the Auditor General in the House of Commons, it is automatically referred to the Public Accounts Committee. The Committee selects the chapters of the report it wants to study and calls the Auditor General and senior public servants from the audited organizations to appear before it to respond to the Office of the Auditor General’s findings. The Committee also reviews the federal government’s consolidated financial statements – the Public Accounts of Canada – and examines financial and/or accounting shortcomings raised by the Auditor General. At the conclusion of a study, the Committee may present a report to the House of Commons that includes recommendations to the government for improvements in administrative and financial practices and controls of federal departments and agencies.

Government policy, and the extent to which policy objectives are achieved, are generally not examined by the Public Accounts Committee. Instead, the Committee focuses on government administration – the economy and efficiency of program delivery as well as the adherence to government policies, directives and standards. The Committee seeks to hold the government to account for effective public administration and due regard for public funds.

Pursuant to Standing Order 108(3) of the House of Commons, the mandate of the Standing Committee on Public Accounts is to review and report on:

• the Public Accounts of Canada
• all reports of the Auditor General of Canada
• the Office of the Auditor General’s Departmental Plan and Departmental Results Report
• any other matter that the House of Commons shall, from time to time, refer to the Committee

The Committee also reviews:

• the federal government’s consolidated financial statements
• the Public Accounts of Canada
• makes recommendations to the government for improvements in spending practices
• considers the Estimates of the Office of the Auditor General

Other responsibilities:

• the economy, efficiency and effectiveness of government administration
• the quality of administrative practices in the delivery of federal programs
• government’s accountability to Parliament with regard to federal spending

Treasury Board of Canada Secretariat (TBS)–related committee activity from the end of the 42nd Parliament

Report

• Call Centres, of the 2019 Spring Reports of the Auditor General of Canada (tabled: June 19, 2019)
  • GR requested, but cancelled by parliamentary dissolution
    Recommendations made to the Treasury Board of Canada Secretariat (TBS):
    • (No. 4) Provide the Committee a report on progress made in clarifying direction so that service standards follow Treasury Board policy, that standards are published, and that performance results and transparent and verified.
    • (No. 5) Provide the Committee a report on progress in integrating call centres as part of the government-wide approach to client services.
  • Recommendations made to Shared Services Canada:
    • (No. 6) Provide the Committee a report outlining progress made in modernizing call centres. (Shared Services Canada sent an update to the Committee in July and could be called to provide a response.)
• Public Accounts of Canada 2018
  • Report 57
    • Presented to the House: Wednesday, February 6, 2019
  • Government Response
    • Presented to the House: Thursday, June 6, 2019

Committee members

Chair
Kelly Block	Conservative	Carlton Trail–Eagle Creek	New member
Vice-Chair
Lloyd Longfield	Liberal	Guelph	Returning member
Maxime Blanchette-Joncas	Bloc Québécois	Rimouski-Neigette–Témiscouata–Les Basques	Returning member Public Accounts Critic
Members
Luc Berthold	Conservative	Mégantic–L’Érable	New member TBS Critic
Phillip Lawrence	Conservative	Northumberland–Peterborough South	New member National Revenue Critic
Len Webber	Conservative	Calgary Confederation	New member
Matthew Green	New Democratic Party	Hamilton Centre	Returning member TBS Critic
Kody Blois	Liberal	Kings–Hants	New member
Greg Fergus	Liberal	Hull–Alymer	Returning member (non-voting: 42nd Parliament) Parliamentary Secretary TBS and Digital Government
Francesco Sorbara	Liberal	Vaughan–Woodbridge	Returning member (43rd-1 Parliament)
Jean Yip	Liberal	Scarborough–Agincourt	Returning member (42nd Parliament)

TBS-related committee activity: 43rd Parliament, 2nd session

Anticipated business

• Public Accounts of Canada 2020
• Spring 2020 reports of the Auditor General of Canada

Meeting summaries

Thursday, October 29, 2020: briefing with the Auditor General and Main Estimates 2020–21: Vote 1 under Office of the Auditor General

The Auditor General of Canada, Karen Hogan, appeared before the committee to outline her department’s progress, as well as her request for an additional $25 million to hire new staff and modernize the Office of the Auditor General’s IT infrastructure. She explained that because of parliamentary-mandated audits of the Investing in Canada Plan and the COVID-19 pandemic response, previously planned performance audits had to be delayed. She indicated she had been encouraged by her discussions with TBS officials and that the Office of the Auditor General had already begun plans to hire additional staff in anticipation of receiving additional funds in the next Estimates.

The tone of the committee was customarily cordial and collaborative. Questioning focused primarily on the additional funding requested, including what the funds would be used for and the nature of the delays to the Office of the Auditor General’s planned performance audits.

After questions, the committee agreed to pass Vote 1 unanimously, and to report that result to the House.

Thursday, October 22, 2020: orientation briefing (Canadian Audit and Accountability Foundation (CAAF) and past Chairs)

The CAAF appeared for the first hour. The CAAF explained the role of the PACP Committee and made suggestions on how the Committee conduct its business in order to be most effective.

The four former PACP chairs appeared in the second hour. The witnesses emphasized the role of PACP in holding departmental officials accountable and encouraged the members adopt a non-partisan, collaborative approach to their work.

Thursday, October 15, 2020: election of Chair

The Committee held the first meeting of the second session of the 43rd Parliament. Ms. Kelly Bloc (Conservative Party of Canada (CPC)) was named the Chair of the Committee, and Mr. Lloyd Longfield (Liberal Party of Canada (LPC)) and M. Maxime Blanchette Joncas (Bloc Québécois (BQ)) were reinstated as first and second Vice-Chairs.

The Committee passed several routine motions, including a motion that was adopted at several other committees to have the witnesses provide opening remarks 72 hours in advance whenever possible, opening remarks from witnesses will also be limited to five minutes. Additionally, a series of motions requiring the organizations under performance audits by the Office of the Auditor General to provide action plans to the Committee were also adopted.

The Committee moved into regular business to consider motions proposed by all parties for the future studies of the Committee.

The New Democratic Party (NDP) moved a motion to invite the past Chairs to do an orientation session for the current Committee. The LPC suggested an amendment, which was accepted by the NDP, to include the Canadian Audit and Accountability Foundation in the orientation session. The motion was adopted with the amendment. The Committee agreed this meeting should be a priority.

The CPC moved a motion to invite the Auditor General for the next meeting of the Committee for one hour in camera and one hour in public. The motion was amended to allow for scheduling flexibility for the Auditor General to appear for the next or subsequent meeting. The motion was adopted with the amendment.

The first meeting between members was cordial, productive and was adjourned an hour earlier than scheduled.

TBS-related committee activity: 43rd Parliament, 1st session

Anticipated business

• Public Accounts of Canada 2019
• Fall 2019 and spring 2020 reports of the Auditor General of Canada

Meeting summaries

Thursday, February 27, 2020: briefing with the Office of the Auditor General

The Committee met to receive a 90-minute introductory briefing from the Office of the Auditor General of Canada and to discuss future Committee business in camera. The issue of adequate funding for the Office of the Auditor General figured most prominently in exchanges between Committee members and witnesses. The interim Auditor General echoed comments made during the previous Parliament suggesting his Office’s current funding has not allowed it to effectively deliver on its mandate or to keep pace with increases in government spending. There was also discussion on the potential establishment of a separate independent funding process or mechanism through which the Office of the Auditor General could make funding requests, instead of having to make the request through the Department of Finance’s budget exercise.

Tuesday, February 25, 2020: election of Chair

Dean Allison (CPC) was elected Chair of the Committee. Mr. Allison was a member of PACP in the first session of the 38th Parliament. Lloyd Longfield (LPC) was elected first vice-chair; Maxime Blanchette-Joncas (BQ) was elected second vice-chair by secret ballot. The Committee adopted a number of standard routine motions. Of note, the Committee adopted a motion requiring that organizations invited to appear on the topic of an Office of the Auditor General report submit their action plans to the Committee no later than 48 hours before their appearance (in the 42nd Parliament, this submission was required prior to an appearance, “when feasible”). During discussion on future Committee business, Pat Kelly (CPC) raised the issue of perceived inadequate government funding of the Office of the Auditor General. The matter received some attention during the 42nd Parliament and has been raised in the 43rd Parliament in the context of the CPC Opposition Motion calling on the Auditor General to conduct an audit of the government’s Investing in Canada Plan, adopted by the House on January 29, 2020.

Kelly Block (Saskatchewan: Carlton Trail–Eagle Creek): Conservative (Chair)

Interest in TBS Portfolio

• 43rd Parliament
  • Written questions:
    • Topics included: the acquisition of government buildings for departments or agencies and rented space in government buildings
  • Committees (OGGO): 
    • Questioned officials about how the government will prioritize the signed personal protective equipment manufacturer contracts. Showed concern that Finance, and the Government of Canada isn’t preparing and releasing a budget for Canadians.
    • Questioned TBS officials on providing guidelines for sole-source government contracts
  • Committees (COVI):
    • Requested that PSPC give the names of companies in sole-sourced personal protective equipment contracts (and how many of those companies were Canadians).
  • Question Period:
    • Asked about PSPC missing its office modernization goal by 50% and if the minister and her Cabinet colleagues would be cut off from further renovations.
• 42nd Parliament
  • Written questions:
    • Topics included: the sale of federally owned airports and budgets for Ministers’ offices

Lloyd Longfield (Ontario: Guelph), Liberal (First Vice-Chair)

Interest in TBS Portfolio

• 43rd Parliament
  • Nothing to note

Maxime Blanchette-Joncas (Quebec: Rimouski-Neigette–Témiscouata–Les Basques), Bloc Québécois (Second vice-chair)

Interest in TBS Portfolio

• 43rd Parliament
  • Written questions: 
    • Topic included: Asked questions regarding government services in the Lower St. Lawrence
  • Committees (PACP): 
    • Questioned officials about the reluctance to enforce recommendations made by the Auditor General. Showed concern for the lack of oversight of all processes involving the Phoenix pay system, including procurement, tendering and development.
  • Question Period:
    • Topics included: Expressed concern regarding the share of contracts the government gave to Davie shipyard under the national shipbuilding strategy and emphasized that the Bloc Québécois plans on promoting the Davie shipyard to ensure that it gets its fair share

Luc Berthold (Québec: Mégantic–L’Érable), Conservative member

Interest in TBS Portfolio

• 43rd Parliament
  • Written questions: 
    • Topics included: Asked questions regarding infrastructure projects, and about the Building Canada Fund
  • Committees (TRAN): 
    • Questioned how many projects have been announced and funded under the Investing in Canada infrastructure plan and showed concern that members of the Liberal Party voted against additional funding to the Auditor General.
  • Committees (AGRI):
    • Requested information regarding what repercussions opening up the Canadian market to the U.S. would have on supply-managed producers?
  • Question Period:
    • Expressed concern that the Liberal government failed to spend 40% of the promised funding for infrastructure and asked the President of the Treasury Board to account for why
    • Asked the President of the Treasury Board to explain why the federal government did not provide any compensation for egg and poultry producers?
    • Asked that with the additional funding in these Supplementary Estimates (2019–20), how many aviation technicians and pilots would be hired to expand the defence team?
• 42nd Parliament
  • Written questions:
    • Asked question about Atlantic Canada Opportunities Agency contracts
    • Asked about infrastructure funding
    • Proposed tax increases on small businesses

Philip Lawrence (Ontario: Northumberland–Peterborough South), Conservative member

Interest in TBS Portfolio

• 43rd Parliament
  • Written questions: 
    • Topics included: Contract given to Security Council Report
  • Committees (AGRI): 
    • Questioned officials about what the total cost of the carbon tax is to agriculture
  • Committees (COVI):
    • Asked why the Prime Minister sole-sourced a contract for over $100 million to buy two brand new private jets to add to the government’s fleet. Questioned why the military was given 40-year-old F-18 planes while the Prime Minister sole-sourced $100-million private jets?

Len Webber (Alberta: Calgary Confederation), Conservative member

Interest in TBS Portfolio

• 43rd Parliament
  • Written questions: 
    • Topics included: questions regarding Canada First Defence Strategy projects, and government-issued credit cards
  • Committees (HESA): 
    • Questioned officials about the Supplementary Estimates (B) 2019–20 in regard to an approximate $5 million of funding for the advisory committee on the charitable sector, the Canada workers benefit, and the organ and tissue donor registry. The member continued to ask whether the federal government had reached an agreement with the provinces and territories to create a national organ donor registry, and if that is what the money was for?

Matthew Green (Ontario: Hamilton Centre), NDP member

Interest in TBS Portfolio

• 43rd Parliament
  • Written questions: 
    • Topics included: questions regarding tax fairness motion, and a Large Employer Emergency Financing Facility
  • Committees (ETHI): 
    • Questioned how often Prime Minister Justin Trudeau asked the Office of the Conflict of Interest and Ethics Commissioner for advice
  • Committees (OGGO):
    • Asked if Deloitte was a procurement expert
    • Asked the Procurement Ombudsman what mechanisms are in place to ensure that the businesses that have received funds and government contracts have actually used them for their intended purpose? Does this office play a role in mediating the results of the contracts that have been put in place, or is that left up to individual departments?
    • Expressed concern regarding whether compensation has been settled for all employees affected by Phoenix
  • Question Period:
    • Topics included: questions concerning outsourcing of government contracts and dismissal of a public servant for comments made about the Prime Minister. Expressed concern for government accountability.

Kody Blois (Nova Scotia: Kings–Hants), Liberal Member

Interest in TBS Portfolio

• 43rd Parliament
  • Committee (AGRI):
    • Made reference to his predecessor, Scott Brison, having been a part of an initiative under the Treasury Board to study how the government can lower greenhouse gas emissions for farmers. Asked what the government was doing to ensure green agriculture.

Greg Fergus (Quebec: Hull–Alymer), Liberal Member: Parliamentary Secretary to the President of the Treasury Board and Minister of Digital Government

Interest in TBS Portfolio

• In the 43rd Parliament:
  • signs Order Paper Question responses on behalf of the President of the Treasury Board and the Minister of Digital Government
  • Question Period: Answered a question on the security and protection of Canadians’ personal information

Francesco Sorbara (Ontario: Vaughan–Woodbridge), Liberal Member

Interest in TBS Portfolio

• In the 43rd Parliament:
  • Committee (FINA):
    • Asked whether Ms. Bahen believed it was appropriate for the government, for political parties, to mandate audits of charities

Jean Yip (Ontario: Scarborough–Agincourt), Liberal Member

Interest in TBS Portfolio

• 43rd Parliament
  • Nothing to note

Volume I

Variances

D.1 Revenues

In this section

• Issue/question
• Suggested response
• Background

Issue/question

Considering that the government provided a deferral to Canadians for submitting their income tax, why have the Government of Canada revenues increased by $1.9 billion?

Suggested response

• Revenues increased due to higher personal income tax revenues as a result of the strong labour market prior to COVID-19 and the new fuel charge under the Greenhouse Gas Pollution Pricing Act that became effective April 1, 2019.
• This was offset by the removal of the retaliatory steel and aluminum tariffs and lower GST revenues reflecting a decline in retail sales and lower GST on imports, particularly in March.

Background

• Tax revenues:
  • Personal income tax revenues increased by $3.7 billion reflect the growth in wages and employment during the 2019 taxation year.
  • Corporate tax revenues were fairly consistent with prior year, being down $0.3 billion only. The slight drop in corporate profits results from the COVID-19 economic weakness expected for the balance of the taxation year and the effects of the payment deferral measures.
  • Non-resident tax revenues were consistent with last year, increasing by $0.1 billion.
• The fuel charge proceeds is a new revenue source for fiscal year 2020 with the charge on fossil fuels for regulated fuel distributors being applicable as of April 1, 2019, in Ontario, New Brunswick, Manitoba and Saskatchewan, on July 1, 2019, in Nunavut and in the Yukon, and on January 1, 2020, in Alberta under the Greenhouse Gas Pollution Pricing Act.
• Other taxes and duties have decreased by $3.3 billion, mainly as a result of the reduced customs import duties of $2.0 billion largely due to the removal of retaliatory steel and aluminum tariffs and GST revenues declined by $0.8 billion in 2020, or 2.2%, reflecting weakness in retail sales and lower GST on imports, particularly in March as many retailers shut down operations due to the COVID-19 pandemic.

D.2 Personal income tax revenues versus corporate tax revenues and impact of COVID-19

In this section

• Issue/question
• Suggested response
• Issue/question
• Suggested response
• Background

Issue/question

Why did personal income taxes increase yet corporate taxes remain stable?

Suggested response

• The increase in personal income tax revenues is largely based on the economic results of tax year 2019 where the labour market had growth in wages and employment.
• Corporate income taxes were impacted by the economic shutdown due to the pandemic and the decline in instalment payments given the expected drop in corporate profits for the 2020 calendar year.

Issue/question

How did the deferral of filing dates for taxes impact the financial results?

Suggested response

• There was an impact as the tax methodology is based on assessed tax returns and cash received in the weeks following year-end.
• The deferrals of tax filing and payment deadlines announced by the federal government in its COVID-19 relief measures yielded fewer assessments. This, in turn, resulted in a decrease in taxes receivable by $5.4 billion and a decrease in taxes payable by $5 billion.

Background

• Tax accrual methodology relies on cash (instalments and payments on filing) received and assessments as at May 31. Tax payments had been deferred to September 30. Individual tax returns, due on April 30, were deferred to June 1, while corporation tax returns normally due after March 17 were deferred to June 1. These deferral of tax payments and filings for COVID-19 had an impact on the revenues accrued and taxes receivables and payables.
• The $5,364-million tax receivable decrease is mainly attributable to the decrease in tax accruals as a result of a significant year-over-year drop in April–May receipts and assessments due to the deferral in payments and filing for COVID-19. These deferrals resulted in the following reductions to taxes receivables:
  • $2,647-million decrease in personal income tax receivable
  • $1,145-million decrease in employers’ income tax receivable (these relate to source deductions owed by employers to the Canada Revenue Agency)
  • $700-million decrease in corporate income tax receivables
  • the remaining decrease in taxes receivables of $872 million is mainly attributable timing differences resulting in a $447-million decrease attributed to GST/HST receivables, a $372-million decrease in other excise taxes and duties receivables, and a $162-million decrease in customs import duties receivables, offset by an increase in $109 million associated to non-resident receivables
• The decrease of taxes payable by $5,014 million can be explained as follows:
  • personal income taxes payables declined by $2,659 million, which reflects the reduction in the number of returns with refunds assessed by May 31, 2020, due to filing extension measures for COVID-19
  • corporate income taxes payable decrease by $2,056 million, in part due to the reduction in the number of returns with refunds assessed by May 31, 2020, due to filing extension measures for COVID-19 and the timing of refunds at the end of last fiscal year that resulted in higher than normal taxes payable at year-end, such as [redacted] corporate tax payables due to an unfavourable court decision rendered late last year
  • GST dropped $412 million mainly as a result of changes in year-over-year timing of filings. Last year’s GST payables were higher by $680 million due to a number of larger refunds assessed in April and May 2019 which are offset by decreases in GST refunds at year-end in the current year
  • the remaining difference relates to a due to immaterial variances in other taxes payable accounts

D.3 Transfer payment expenses

In this section

• Issue/question
• Suggested response
• Background

Issue/question

Why have the Government of Canada’s transfer payment expenses increased by $18.8 billion?

Suggested response

• By their nature, many transfer payments increase annually for inflation, including major transfers to provinces for the Canada Health and Social Transfers and transfers to persons for old age security benefits and children’s benefits.
• This year, the COVID-19 pandemic also resulted in increases to transfers near year-end. These include:
  • $6.5 billion for the Canada Emergency Response Benefit and the Employment Insurance Response Benefit
  • $0.5 billion to support provincial and territorial public health preparedness and critical health care systems
  • $0.2 billion for national public health pandemic operations
• Fiscal year 2020 was also the first full year of Climate Action Incentive payments, which resulted in $2.0 billion in additional expenses.
• The final major contributor to the increase was $2.4 billion to the Hibernia Dividend Backed Annuity Agreement, which was reached on April 1, 2019, between Canada and Newfoundland and Labrador.

Background

• Canada Emergency Response Benefit (CERB) payments to individuals eligible for EI Emergency Response Relief (EI ERB) are recorded as part of EI expenses on the Consolidated Statement of Operations and Accumulated Deficit and have been charged to the EI Operating Account. Payments to those individuals not eligible for EI are recorded under the Canada Emergency Response Benefit on the Consolidated Statement of Operations and Accumulated Deficit and have not been charged to the EI Operating Account. Total CERB payments accrued for the benefit period between March 15 to March 31, 2020, totalled $4,739 million and total EI ERB payments accrued for the same period was $1,761 million. Combined, CERB expenses totalled $6,500 million in 2020.
• The fuel charge proceeds returned of $2,636 million includes $2,630 million Climate Action Incentive (CAI) payments and $6 million in transfers to territories. In addition, $7 million of total other transfers to small and medium-sized enterprises, municipalities, universities, schools and hospitals and Indigenous communities was recorded for a total $2,643-million fuel charge proceeds distributed in fiscal year 2020 and $664 million in fiscal year 2019, whereas, total fuel charge proceeds collected in fiscal year 2020 was $2,655.
  
  This mismatch of fuel charge collected versus distributed reflects the accounting treatment of Climate Action Incentive payments, which requires some of the costs to be borne in the fiscal year prior to the fuel charge being collected because they are delivered through the personal income tax system through returns for the previous tax year. A portion of personal income tax returns are filed and assessed before the end of the fiscal year. As a result, fuel charge proceeds returned in fiscal year 2020 reflect a portion of the Climate Action Incentive payments that were made in respect of fuel charge proceeds generated in fiscal year 2020 and returned through 2018 tax returns, and a portion of the payments made in respect of proceeds to be generated in fiscal year 2021 and returned through 2019 tax returns.
• Transfer payment expenses increased due to a combination of the following:
  • The introduction of the CERB due to COVID-19 resulted in $4.7 billion new transfer payment expenses.
  • An increase in major transfer payments to other levels of governments of $3.3 billion legislated growth in the Canada Health Transfer, the Canada Social Transfer, Equalization transfers and transfers to the territories.
  • An increase of $2.4 billion in other major transfer payments under the new Hibernia Dividend Backed Annuity Agreement reached on April 1, 2019, between Canada and Newfoundland and Labrador offset by a decrease in Gas Tax Fund transfers, reflecting a one-time, $2.2-billion increase in Gas Tax Fund transfers in the prior year.
  • An additional $2.9 billion in Old Age Security and Guaranteed Income Supplement payments which reflects the aging population and inflation of benefit payments for Consumer Price Index and standard of living rates.
  • An additional $2.9 billion in Employment Insurance benefits payments, largely due to the $1.7 billion accrual for the EI eligible CERB payments and an increase in benefit payments reflecting weaker labour market conditions.
  • The fuel charge proceeds returned mainly consisting of the Climate Action Incentive payments issued through the 2018 and 2019 personal tax returns resulted in $2.0 billion in additional expenses.
  • Finally, other transfer payments increased by $2.7 billion for a variety of reasons including growth in transfers paid through the tax system such as the Canada Workers Benefit (the enhanced Working Income Tax Benefit) of $0.5 billion, enhancements announced in Budget 2018; compensation of $0.3 billion for supply-managed dairy producers as a result of market access commitments made under recent international trade agreements; $0.3 billion in transfers under the new Interim Housing Assistance Program to address extraordinary interim housing pressures resulting from increased volumes of asylum claimants entering Canada; and increased provisions for loan guarantees of $0.5 billion reflecting the economic outlook at March 31, 2020.

D.4 Provision for contingent liabilities

In this section

• Issue/question
• Suggested response
• Issue/question
• Suggested response
• Background

Issue/question

Why has the Government of Canada’s provision for contingent liabilities decreased by $1.5 billion?

Suggested response

• The contingent liabilities amount changes annually as estimates are revised for existing liabilities, new claims are filed against the Crown, and settlements are reached.
• This year’s decrease is mainly due to the settlement of various claims such as:
  • Federal Indian day schools (Crown-Indigenous Relations and Northern Affairs Canada (CIRNA))
  • National Defence’s workplace discrimination and harassment claims

Issue/question

Why has the Government of Canada’s provision for guarantees increased by $484 million?

Suggested response

• The provision for guarantees increased due to a larger than expected number of loan defaults on the guarantees provided to small businesses through the Canadian Small Business Financing Act.
• The increase in loan defaults can be attributed to the COVID-19 pandemic.

Background

• Recent large class-action settlements:
  • CIRNA: Childhood claim (Federal Indian Day Schools – McLean)
  • National Defence (DND): Workplace harassment and discrimination (Heyder-Beattie)
  • Royal Canadian Mounted Police (RCMP): Workplace harassment (Tiller and Merlo-Davidson)
• This was offset by increases in CIRNA’s specific claims and comprehensive land claims, as well an increase in the provision for guarantees.
• Also offsetting the settlement of claims is the increase in Indigenous Service Canada’s claim for First Nations Child and Family Services (CHRT).

Factors that could increase the provision:

• Recent court and tribunal rulings and precedent-setting outcomes from settlements of past grievances and claims with the government can influence others to bring claims forward against the Government of Canada.
• Social activism such as the “Me too” movement against discrimination, sexual harassment and assault can influence individuals to bring forward claims against the Government of Canada for past injustices.
• A provision is also made when it is likely that a payment will be made to honour a guarantee and when the amount of the anticipated loss can be reasonably estimated. The way the government structures future funding arrangements with third parties, which include a government guarantee, also has the potential to increase the liability.

D.5 Environmental liabilities

In this section

• Issue/question
• Suggested response
• Background

Issue/question

Why does the environmental liability balance keep increasing?

Suggested response

• While funds are being invested to reduce this liability, the overall environmental liability balance increased in fiscal year 2019–20 due to:
  • changes in discount rates
  • increases in existing estimates
  • the addition of estimates for new sites

Background

• Environmental liabilities include unexploded explosive ordnance and some significant asset retirement obligations that have already been recognized on the financial statements.
• Both the environmental liabilities and asset retirement obligation liabilities increased in the current year given revisions in estimates and new liabilities being recognized. These increases were partially offset by expenditures incurred in the current year. The unexploded explosive ordnance obligation reduced in the current year as a result of sites being remediated.
• A liability for the remediation of contaminated sites is recognized when contamination exceeds the environmental standard and the government is directly responsible or accepts responsibility. Other factors such as the ability to make a reasonable estimate of the amount are also considered.

D.6 Other employee and veteran future benefits

In this section

• Issue/question
• Suggested response
• Background

Issue/question

Why are there significant increases in the liability for “other employee and veteran future benefits” on a year-over-year basis?

Suggested response

• The liability for other employee and veteran future benefits is adjusted each year to record:
  • an increase for the costs of benefits earned by employees during the year and the interest expense
  • a decrease for benefits paid to employees, retirees and veterans
• In the 2019–20 fiscal year, these adjustments resulted in a net increase of $5.9 billion in the liability.
• In addition, a portion of previously unrecognized net actuarial losses were expensed this fiscal year, increasing the liability by $6.6 billion.

Background

• Other employee and veteran future benefit liabilities include:
  • veterans and Royal Canadian Mounted Police disability and other future benefits
  • pensioners’ health care and dental benefits
  • severance and other benefits
  • accumulated sick leave entitlements
  • workers’ compensation
  • significant other future benefits sponsored by consolidated Crown corporations and other entities (CBC/Radio-Canada, Via Rail Canada Inc., St. Lawrence Seaway Management Corporation, Marine Atlantic Inc., Canada Air Transport Security Authority)
• The liability is adjusted to record:
  • Any plan amendments, curtailments or settlements: there were no changes to benefit plans in fiscal year 2020.
  • Recognition of actuarial gains and losses: Consistent with the accounting standards, gains and losses related to experience and changes in actuarial assumptions used to estimate the liability are not recorded immediately; rather, they are recognized over the average remaining service life of the employee group or the average remaining life expectancy of the benefit recipients under wartime veteran plans.
  • Recognition of interest expense: Consistent with the accounting for other long-term liabilities, the government uses a present value technique to estimate the current value of all future payments to be made under the benefit plans. The interest expense reflects the time value of money and the fact that we are one year closer to making these payments.
• The liability for other employee and veteran future benefits is subject to significant volatility. The payments for these benefit plans are made many years into the future and are dependent upon the evolution of factors such as wage increases, workforce composition, retirement rates and mortality rates. The government estimates this liability based upon its historical experience, current facts and circumstances, and expected future developments. Annual changes to the estimates, and changes to the discount rates used to present value of the liability result in unrealized gains and losses that are recorded as an expense over the average remaining service life of the employee group or the average remaining life expectancy of the benefit recipients under wartime veteran plans.

D.7 Enterprise Crown corporations and other government business enterprises

In this section

• Issue/question
• Suggested response
• Issue/question
• Suggested response
• Background

Issue/question

What is the cause of the increase in enterprise Crown corporations (ECCs) and other government business enterprises’ (GBEs’) assets?

Suggested response

• The increase in the value of ECCs and other GBEs represents both the government’s investment in self-sustaining Crown corporations such as Export Development Canada (EDC) and Canada Mortgage and Housing Corporation (CMHC), as well as loans receivable from the Crowns.
• The increase in the loans receivable is mostly a result of loans to Crown corporations under the consolidated borrowing framework as part of COVID-19 liquidity support measures. These include $6.2 billion for CMHC, $2.8 billion for Farm Credit Canada, and $1.2 billion to the Business Development Bank of Canada (BDC).

Issue/question

Why did revenues of ECCs and other GBEs decrease by $2 billion?

Suggested response

• EDC and the BDC both have decreases in net income of approximately $1 billion each.
• This is attributed to increases in their loan loss provisions due to the COVID-19 pandemic where, as of March 31, the corporations were required to revise their estimates for losses given the economic uncertainty of the current situation.

Background

• Total investment and accumulated profits/losses from ECCs and GBEs is $50.7 billion, loans and advances receivable represents $77.1 billion, less the loans expected to be repaid from future appropriations and unamortized discounts and premiums of $2.8 billion. This totals $125.1 billion.
• The Government of Canada’s share of ECC and GBE annual profit was $3.6 billion, and interest from other revenue generated from ECCs and GBEs represented $1.5 billion, for a total of $5.1 billion.

D.8 Investments in tangible capital assets

In this section

• Issue/question
• Suggested response
• Background

Issue/question

What makes up the $4.7 billion increase in the Government of Canada’s investment in tangible capital assets?

Suggested response

• Capital assets projects are being undertaken across the government.
• National Defence and Infrastructure and Communities make up approximately half of the increase.
• The National Shipbuilding Strategy was announced in 2010 and is currently in the design and construction phases. For example, the Arctic and offshore patrol ships are currently in the construction phase, for which $409 million was capitalized in 2019–20.
• Other projects at National Defence in the construction phase include the Medium Support Vehicle System, for which $451 million was capitalized in 2019–20.
• The Champlain Bridge Corridor project was completed, and the Gordie Howe International Bridge project continued to be under construction. These two projects contributed approximately $0.8 billion to the increase in tangible capital assets this year.
• Tangible capital assets are expected to increase in future years as these initiatives, and others such as the Parliamentary Precinct, proceed.

Background

• Tangible capital assets have increased since prior year due to the investment in works and infrastructure, vessels and vehicles. Examples include:
  • Gordie Howe International Bridge Project
  • Parks Canada infrastructure improvements
  • acquisition of science vessels
  • construction of offshore vessels
  • other military vehicles and equipment

Phoenix

E.1 Office of the Auditor General observation on pay administration

In this section

• Issue/question
• Suggested response
• Background

Issue/question

What controls or measures is the Office of the Comptroller General implementing to address the observations noted by the Office of the Auditor General?

Suggested response

• The Office of the Comptroller General has conducted quarterly government-wide reporting exercises since September 2016 to collect departmental overpayment / underpayment data to assess the scope of pay errors and promote departmental due diligence in reviewing and reconciling pay.
• In 2018–19, the Office of the Comptroller General established a Directors General (Finance) Working Group to respond to recommendations made by the Office of the Auditor General following its review of the 2018 audit of the Government of Canada’s consolidated financial statements. A self-assessment tool was developed by the Office of the Auditor General, in close consultation with the Working Group, to ensure that departmental management action plans addressed the specific elements required to close off the 2018 recommendations. The Directors General (Finance) Working Group continued its work with the Office of the Auditor General in 2019–20 to update the self-assessment tool and close off the 2019 recommendations to ensure the accuracy of pay.
• In addition, the Office of the Comptroller General updated the Guideline on Financial Management of Pay Administration in September 2020. These updates were made in response to the Auditor General’s Management Letters, following the 2018 and 2019 audits of pay transactions.

Background

• The Office of the Auditor General took a new approach for its testing in 2019–20 that resulted in similar issues being identified as pay errors continued for many employees.
• The Office of the Auditor General again concluded that, despite pay errors, pay expenses were presented fairly in the Government of Canada’s 2019–20 consolidated financial statements, as overpayments and underpayments made to employees partially offset each other.
• The backlog of outstanding pay action requests decreased but continued to affect employees’ pay.
• A significant amount of work remains to resolve current payroll data quality problems, including backlog, in order to accurately pay employees.

E.2 Agreement for damages caused by the Phoenix pay system

In this section

• Issue/question
• Suggested response
• Background

Issue/question

How has the agreement for damages caused by the Phoenix pay system been incorporated into the Public Accounts of Canada? What is the $157 million for “Damages Caused by the Phoenix Pay System”?

Suggested response

• In July 2020, a settlement was reached with the Public Service Alliance of Canada (PSAC) which provided for a lump-sum payment of up to $2,500 for general damages and late implementation of 2014 collective agreements, to both current and former employees.
• This is in addition to the June 2019 agreement reached with non-PSAC members to provide compensation to current employees of up to five days of leave and former employees the cash equivalent.
• The time frame for both agreements was fiscal years 2017 to 2020.
• A contingent liability was established in Public Accounts related to both the PSAC and non-PSAC agreements. Amounts were also included for late implementation of both 2014 and 2018 collective agreements.
• Volume 3 of Public Accounts 2020 discloses claims against the Crown. An estimate of $157 million is disclosed which represents the value of the four days of leave already provided to current employees for fiscal years 2017 to 2019. Any cash amounts paid to current or former employees by departments are also presented within the section.
• The PSAC cash payments will be disclosed as a “Payment of Claims against the Crown” in the year of payment as Volume 3 is not prepared on an accrual basis of accounting.

Background

• In June 2019, an agreement was reached between the Government of Canada and 15 public service unions (excluding the Public Service Alliance of Canada (PSAC)) to provide compensation to those who may have been impacted by the Phoenix pay system. The agreement provided current employees for up to five days of leave and former employees for the cash-equivalent amount, applicable to fiscal years 2017 to 2020.
• In addition, the agreement also provided for an expanded claims process for severe impacts and other demonstrable cases. The agreement included a “catch-up clause” under which the employer agreed to incorporate into the agreement any damage measures negotiated with other bargaining agents that are more generous.
• In July 2020, an agreement was reached with PSAC. The agreement provided for a lump-sum payment of up to $2,500 for general damages and late implementation of 2014 collective agreements to current and former employees, also applicable to years 2017 to 2020. The agreement also provided for specific financial losses and severe cases or hardship.
• Public Accounts 2020 largely includes a contingent liability estimate for the PSAC agreement and for late implementation of 2014 and 2018 collective agreements. Claims against the Crown are also presented in Volume 3 for those claims already paid to current and former employees, including the days of leave applicable to fiscal years 2017 to 2019.
• The TBS Claims Office has provided guidance to departments on end to end business processes for resolving claims associated with a payment equivalent to leave for damages caused by the Phoenix pay system.
• The Office of the Comptroller General provided financial coding instructions to departments for payments to former employees.

F. Office of the Auditor General observation: Department of National Defence Inventory

In this section

• Issue/question
• Suggested response
• Background

Issue/question

Can you comment on the status of the implementation for the Department of National Defence’s (DND) 2016 Action Plan to address the Office of the Auditor General’s commentary observations?

Suggested response

• As of 2020, all commitments have been identified as complete except for one. The remaining commitment is expected be completed in the 2020–21 fiscal year.
• This year, the Office of the Auditor General continued to find errors in quantity, pricing, obsolescence and classification.
• The Office of the Comptroller General continues to support DND to resolve these issues.

Background

• In its 28th report on the 2016 Public Accounts, the Public Accounts Committee directed that, beginning in 2017–18, DND is to provide an annual one-page report on progress in implementing its long-term 2016 six-point Action Plan to properly record and value its inventory. The annual progress report on the 2019–20 fiscal year was presented on September 30, 2020.
• The 2016 Action Plan is comprised of six initiatives: Governance; Automatic Identification Technology; Enhanced Materiel Accountability; Inventory Management Rationalization and Modernization; Pricing; and the Pricing Legacy Data Clean Up.
• As of March 31, 2020, the Pricing Legacy Data Clean Up commitment remains outstanding. This is expected to be completed by March 31, 2021, when a software update will be implemented to allow DND to capture weekly analysis of transactions on all inventory records.

G.1 Office of the Auditor General observation on Hibernia

In this section

• Issue/question
• Suggested response
• Background

Issue/question

What was the authority to make the payment to Newfoundland and Labrador under the Hibernia Dividend Backed Agreement?

Suggested response

• On April 1, 2019, the government entered into the Hibernia Dividend Backed Annuity agreement with the province of Newfoundland and Labrador.
• The Office of the Auditor General made an observation in its commentary on the 2019–20 Financial Audits. It was the Office of the Auditor General’s view that the payment made in 2019 from the Department of Finance (Finance) to Newfoundland and Labrador for $135 million took place without the introduction of proper legislative measures (that is, the department did not obtain the authority of Parliament).
• These payments were meant to represent dividends from the Hibernia Development Project received by the Canada Development Investment Corporation (CDEV). [redacted]
• The Deputy Minister of Finance can speak more to this transaction and the action plan to address the observation, as his department is responsible for its administration.

Background

• On April 1, 2019, the government entered into the Hibernia Dividend Backed Annuity (HDBA) agreement with the province of Newfoundland and Labrador.
• The agreement stated that the federal government would make payments to the province totalling $3.3 billion over 38 years. These payments are meant to represent the dividends from Hibernia received by CDEV and Net Profits Interest / Incidental Net Profits Interest royalty revenues (which have been assigned to CDEV from Natural Resources Canada at the time of the agreement). The first payment was due at the end of December 2019.
• [redacted]
• Canada Hibernia Holding Corporation is a wholly owned subsidiary of CDEV that owns and manages the federal government’s interests in the Hibernia Development Project (Hibernia) which is an oil development and production project located offshore Newfoundland and Labrador.

G.2 Canada Development Investment Corporation (CDEV): Trans Mountain Pipeline

In this section

• Issue/question
• Suggested response
• Background

Issue/question

Where do I see the Trans Mountain Expansion Project (TMX) in the Public Accounts? How much did TMX cost the government this year? What is the impact of COVID-19 and decreases in crude oil prices on TMX?

Suggested response

• The Trans Mountain Corporation is a subsidiary of Canada Development Investment Corporation (CDEV), which is a Crown corporation that is consolidated using the modified equity method. Therefore, the net of assets and liabilities of CDEV is reported on an equity basis as an investment in enterprise Crown corporations (ECCs) and other government business enterprises (GBEs).
• Results of the Trans Mountain Corporation from April 2019 to March 2020 showed revenues of $499 million, and operating expenses of $234 million. Financing costs included $137 million and depreciation totalled $110 million, net of tax recoveries of $47 million, for a total net income of approximately $65 million.
• At March 31, 2020, CDEV held $6.3 billion in outstanding loans to finance the acquisition and construction of the pipeline assets. This is reported as a financial asset under loans to ECCs and GBEs on the Consolidated Statement of Financial Position.
• At June 30, 2020, a quantitative goodwill impairment test was performed by CDEV. It showed that there was no requirement to reduce the carrying value of the goodwill.
• The decrease in crude oil prices and lower shipping volumes has negatively impacted CDEV’s financial performance. However, strategies are in place to mitigate these risks and as at June 30, 2020, neither existing pipeline operations nor TMX construction timelines had been materially impacted.

Background

• Loans used to finance the acquisition and ongoing construction of the TMX pipeline are through the government’s Canada Account, administered by Export Development Canada, at a 4.7% interest rate. Public Accounts 2020 notes an additional $1.5 billion in loans issued to CDEV during the year.
• The decrease in current and forecasted crude oil prices and lower shipping volumes is expected to negatively impact CDEV’s financial performance and position. However, CDEV continues to retain cash and short-term investments that provide financial flexibility to meet its obligations as they become due. To enhance their liquidity, CDEV may adjust dividends to shareholders and some planned capital expenditures in the future. However, given significant expenditures related to TMX, CDEV will require continued availability of future financing in order to complete the project.
• At June 30, 2020, an assessment of indicators of impairment was conducted for CDEV’s cash-generating units. Despite changes in the macroeconomic environment, neither existing pipeline operations nor TMX construction had been materially impacted. No indicators were noted for the oil transportation assets, including goodwill, and accordingly an impairment test was not required. However, if COVID-19 remains a worldwide health emergency, there could be an impact on the construction schedule of TMX and, in future periods, CDEV will consider if this represents an indicator of impairment.

H. Fuel charge proceeds returned

In this section

• Issue/question
• Suggested response
• Background

Issue/question

Why do government expenses for fuel charge proceeds returned not match the fuel charge proceeds collected?

Suggested response

• The fuel charge proceeds returned of $2,636 million includes $2,630 million Climate Action Incentive (CAI) payments and $6 million in transfers to territories. Whereas, total fuel charge proceeds collected in fiscal year 2020 was $2,655 million and nil for fiscal year 2019.
• There is a timing difference between when fuel charge proceeds are collected and when fuel charge proceeds are returned mainly via the CAI.
• The fuel charge levy came into effect on April 1, 2019, and was reported as revenues starting in the 2020 Public Accounts.
• The mismatch between fuel charge collected and the distribution of these proceeds reflects the accounting treatment of the CAI payments, which requires some of the costs to be borne in the fiscal year prior to the fuel charge being collected.
• This is because they are delivered through the personal income tax system, through returns for the previous tax year. A portion of personal income tax returns are filed and assessed before the end of the fiscal year. As a result, fuel charge proceeds returned in fiscal year 2020 reflect a portion of the CAI payments that were made in respect of fuel charge proceeds generated in fiscal year 2020 and returned through 2018 tax returns, and a portion of the payments made in respect of proceeds to be generated in fiscal year 2021 and returned through 2019 tax returns.

Background

• The federal carbon pollution pricing system is composed of a regulatory charge on fossil fuels (“fuel charge”) and an output-based pricing system (OBPS).
• The fuel charges are collected pursuant the Greenhouse Gas Pollution Pricing Act and are applicable for jurisdictions that voluntarily adopt the federal carbon pollution pricing system and for those that do not meet the federal benchmark requirements. The federal fuel charge began applying in Ontario, New Brunswick, Saskatchewan and Manitoba, effective April 1, 2019; in Nunavut and Yukon, effective July 1, 2019; and in Alberta, effective January 1, 2020. Of note, the federal fuel charge no longer applies in New Brunswick, effective April 1, 2020, as the province implemented a tax on carbon-emitting products that meets the federal benchmark stringency requirements.
• As part of the federal carbon pollution pricing system, the government will return all direct proceeds from the fuel charge to the jurisdiction of origin in the following manner:
  • for jurisdictions that voluntarily adopt the federal carbon pollution pricing system, directly to the governments of those jurisdictions beginning in 2020; as of March 31, 2020, $6 million was paid or payable
  • For other jurisdictions that do not meet the federal benchmark requirements:
    • Directly to individuals and families through CAI payments which started in the 2018 taxation year. These payments are provided for under the Income Tax Act and are delivered through the personal income tax system. In 2020, $2,630 million ($664 million in 2019) of CAI payments were made or were payable by the government.
    • To particularly affected sectors including schools, hospitals, small and medium-sized enterprises, colleges and universities, municipalities, non-profit organizations, and Indigenous communities beginning in 2020. As of March 31, 2020, $7 million was paid or payable. These proceeds returned were included in “Other transfer payments expenses” on the Consolidated Statement of Operations and Accumulated Deficit.
• No excess emissions charges under the OBPS were recognized in 2019–20. The Output-Based Pricing System Regulations took effect on January 1, 2019, except in Yukon and Nunavut where they took effect on July 1, 2019, prior to the final publication of the regulations on July 10, 2019. However, on May 31, 2020, amendments to the Output-Based Pricing System Regulations due to COVID-19 came into force that postpone the deadline to submit annual reports and associated verification reports for the 2019 compliance period from June 1, 2020, to October 1, 2020. Compensation deadlines for the same compliance period have also been postponed from December 15, 2020, to April 15, 2021. Given the deferral of the reporting and payment deadlines, any revenues earned in the fiscal year will not be reported due to the measurement uncertainty associated to the revenues earned. OBPS proceeds will be reported once the covered facilities confirm their intent to pay.

I. Prior year reclassification

In this section

• Issue/question
• Suggested response
• Background

Issue/question

What was the prior year reclassification to the Public Accounts of Canada related to?

Suggested response

• The government has changed the presentation of the Consolidated Statement of Operations and Accumulated Deficit to present separately the recognition of actuarial gains and losses related to public sector pensions and other employee and veteran future benefits.
• These amounts were previously presented within the “Other Expenses” financial statement line item but now are presented in a new financial statement line item titled “Net Actuarial Losses.”
• The purpose of the change is to enhance financial reporting and decision-making for users of the consolidated financial statements. The new financial statement line item “Net Actuarial Losses” is intended to provide a more transparent representation of the government’s financial performance.
• The presentation of the Consolidated Statement of Cash Flow changed to segregate cash from non-cash items related to the amortization of discounts and premiums on debt and for the provision for valuation on other loans, investments and advances. These were included in the “net change in other accounts” line item under operating activities and in “repayment of other loans, investments and advances” line item under investing activities in previous years.

Background

• The purpose of this revised presentation is to enhance financial reporting and decision-making for users of the consolidated financial statements by isolating the impacts of re-measurements of public sector pension and other employee and veteran future benefit obligations, which are often significant and could potentially mask underlying events and trends in current government spending. The related comparative figures have been reclassified to conform to the current year’s presentation.

COVID-19

J.1 Impact of COVID-19 on 2020 Public Accounts

In this section

• Issue/question
• Suggested response
• Background

Issue/question

How have the COVID-19 measures announced impacted the 2019–20 Public Accounts?

Suggested response

• The fiscal results for 2019–20 only partially reflect the impact of COVID-19 since most of the measures were implemented subsequent to year-end.
• Canada’s COVID-19 Economic Response Plan (the Plan) includes measures to protect the health and safety of Canadians and provide direct support to Canadian workers and businesses. It also includes tax and customs duty payment deferrals to meet liquidity needs of businesses and households and to help stabilize the Canadian economy.
• The impact of the measures for which accounting recognition criteria were met prior to March 31, 2020, are recognized in the government’s 2020 consolidated financial statements. The government’s 2021 consolidated financial statements will be more significantly impacted.
• A relatively small number of the government’s COVID-19 response measures are reflected in the 2020 results, including:
  • $6.5 billion for the Canada Emergency Response Benefit (CERB)
  • $0.5 billion in support for provincial and territorial public health preparedness and critical health care systems
  • $0.2 billion for national public health pandemic operations
• Enterprise Crown corporation revenues were also down $2 billion due to increased loan loss provisions at Export Development Bank and the Business Development Bank of Canada.
• The deferral of tax filing deadlines and estimations of calendar year taxable income resulted in a decrease in tax revenues as of March 31, 2020, compared to the budgeted tax revenues established prior to COVID-19.
• Finally, you will notice that we have some subsequent event disclosures since this will have a significant impact on next year’s financial statements.

Background

• The CERB provides Canadians who meet certain eligibility criteria with $2,000 per four-week period up to a maximum of 16 weeks starting March 15, 2020. Subsequent to March 31, 2020, it was announced that the benefit would be extended to a maximum of 28 weeks.
• CERB payments to individuals eligible for EI Emergency Response Relief (EI ERB) are recorded as part of EI expenses on the Consolidated Statement of Operations and Accumulated Deficit and have been charged to the EI Operating Account. Payments to those individuals not eligible for EI are recorded under the Canada Emergency Response Benefit on the Consolidated Statement of Operations and Accumulated Deficit and have not been charged to the EI Operating Account. Total CERB payments accrued for the benefit period between March 15 to March 31, 2020, totalled $4,739 million and total EI ERB payments accrued for the same period was $1,761 million. Combined, CERB expenses totalled $6,500 million in 2020.
• Tax revenues were impacted due to the tax accrual methodology where one input is the cash received through instalments and payment on filing. For example, corporations reduced instalments as their projected taxable income for the 2020 taxation year decreased.

J.2 Subsequent events disclosure

In this section

• Issue/question
• Suggested response
• Background

Issue/question

How have the government’s COVID-19 measures impacted the subsequent events note disclosure for 2019–20 Public Accounts?

Suggested response

• As most COVID-19 measures were implemented subsequent to year-end, these measures were disclosed in the subsequent events note.
• The subsequent events note includes the significant COVID-19 programs that will impact the fiscal results for 2020–21 as well as the dollar figure increase of the Government of Canada’s unmatured debt between April 1 and July 31, 2020 ($323 billion) to meet the Economic Response Plan up to that date.
• As this pandemic is ongoing and the government response continues to evolve, the government is unable to reliably estimate the full impact on the unmatured debt or financial results of future years.
• The government will continue to assess and monitor the effects of the pandemic on its financial condition. It will provide regular updates on financial results through established reporting processes and periodic economic and fiscal updates.

Background

• Not applicable

J.3 Cost of furniture for public servants

In this section

• Issue/question
• Suggested response
• Background

Issue/question

What are the costs of furniture for public servants working at home?

Suggested response

• On equipment to support working from home, departments are expected to conduct themselves in compliance with Treasury Board policy, directives and supporting guidance. Key policies that relate to the expenditures for furniture for telework include:
  • the Policy on Financial Management
  • the Policy on Materiel Management
  • the Policy on People Management
  • the Directive on Telework
• To add further clarity to the interpretation of these policies during the COVID-19 pandemic, TBS provided deputy heads, chief financial officers and heads of human resources with guidance on how to develop/refine their internal departmental policies and procedures on equipping employees working remotely. This guidance was renewed in August 2020 to take account of the ongoing situation of remote work in which many public servants continue to find themselves.
• As for reporting on teleworking costs to date, including furniture projected expenditures, federal organizations would be best placed to provide answers for their own organizations. Reallocated resources were used for any incremental costs of teleworking equipment, as no incremental funding for the government’s COVID-19 response was provided for the purposes of equipping employees for telework.
• During the period of March 1, 2020, to October 22, 2020, Treasury Board of Canada Secretariat spent a total of $68,836.83 as it pertains to the purchase of equipment, including information technology equipment, office supplies and chairs. TBS encouraged its employees to retrieve their chairs from the office whenever possible. TBS did not provide employees with a monetary allocation; we reimbursed employees for items purchased upon receipt of invoices. All assets purchased by employees are being tracked and recorded in TBS’s financial system.

Background

• Not applicable

K. COVID-19 impact on Public Accounts year-end deadlines

In this section

• Issue/question
• Suggested response
• Background

Issue/question

How has COVID-19 impacted the 2019–20 Public Accounts year-end deadlines?

Suggested response

• The COVID-19 pandemic significantly affected the operations of TBS and all other federal organizations.
• By mid-March 2020, most of our employees and other federal public servants were working from home and continue to do so.
• We collaborated with federal organizations and central agencies to understand the challenges they faced and make appropriate adjustments to the deadlines for Public Accounts of Canada 2020.
• A three-week extension was given to all federal organizations for the Public Accounts timelines and a further three-week extension was given to the Office of the Auditor General of Canada to complete the Public Accounts audit.
• These extensions changed the signing date of Public Accounts of Canada from September 4, 2020, to October 9, 2020.
• In spite of the challenging circumstances, TBS and all federal organizations successfully met the extended deadlines, and Public Accounts was completed and signed on October 9, 2020.

Background

• Not applicable

Volume II

L. Budget Implementation Vote

In this section

• Issue/question
• Suggested response
• Other sources of information

Issue/question

What is the Budget Implementation Vote and how was it treated? What is the difference in treatment between the prior year, and how is this information presented in Public Accounts 2020?

Suggested response

• The 2018–19 Main Estimates included a centrally managed Budget Implementation Vote (Treasury Board Vote 40) to capture new Budget 2018 measures. Funding in this vote was tied directly to the Budget Plan, which outlined exactly how much funding was allocated to each measure in each department.
• In the 2019–20 Main Estimates, this approach was further refined. Each voted budgetary measure included in Table A2.11 in the 2019 federal budget had a separate vote in the department identified. This approach provided parliamentary committees with greater opportunity to examine individual Budget 2019 measures, as well as greater control over the funding related to Budget announcements.
• Like other centrally managed votes, access to funds for these Budget measures was subject to approval by the Treasury Board.
• Once approved, amounts were transferred from the department’s Budget Implementation Vote and included in the department’s current voting structure (such as operating, capital, or grants and contributions). Expenditures were recorded against the departmental votes.
• Budget 2019 provides funding totalling up to $5.85 billion in 2019–20. This funding covered 127 budget measures managed through 194 Budget Implementation Votes.
• Of the $5.85 billion
  • $5.16 billion was allocated
  • $0.5 billion was centrally withheld
  • $0.1 billion remains and lapsed at year-end (3.1% of total funding)
• Most of the funds that were “withheld” were for expenditures to be made through other authorities, such as statutory expenditures for employee benefits plans, benefits and administration costs for Employment Insurance, or amounts later presented in estimates for Public Services and Procurement Canada and Shared Services Canada to cover the costs of office accommodation and information technology services.

Other sources of information

• Table A2.11, Annex 2: Details of Economic and Fiscal Projections
• Monthly update of the Budget Implementation Votes: GC InfoBase

Lapse Analysis

M.1 Background on lapse

In this section

• Issue/question
• Suggested response
• Background

Issue/question

What does it mean to lapse money? What is a lapse? What is a net lapse?

Suggested response

• For Public Accounts, the term “lapse” represents voted funds approved but unspent at the end of the fiscal year.
• Each year, we come forward with a plan to spend money at the beginning and the amounts that are unspent form the lapse.
• Lapsing funds is a normal and expected part of the government budgetary process.
• Voted authorities, with a few exceptions, lapse at the end of each fiscal year if not used, while statutory authorities, with a few exceptions, are carried forward to future years.
• Unlike the lapse amount, the “net” lapse is calculated by subtracting from the lapse amount those items not directly under the control of departments such as frozen and special purpose allotments.
• The “net” lapse provides a better indication of departmental day-to-day financial planning.

Background

For further details on frozen allotment, please refer to the related tab.

M.2 Top lapses

In this section

• Issue/question
• Suggested response
• Background

Issue/question

What are the top lapses for 2020?

Suggested response

• The total voted budgetary expenditures authorized by Parliament in fiscal 2020 for the government was $135.1 billion. Of that amount, $119.7 billion was used during the year and $0.8 billion was available for use in subsequent years, resulting in a lapse of $14.6 billion ($12.9 billion in 2019). This represents a total lapse percentage of 10.8% for 2020 compared to 10.5% for 2019.
• The following table identifies the significant voted budgetary authorities lapsed by Ministry as per 2020 Public Accounts:

  Voted budgetary authorities lapsed as at March 31, 2020, as per Public Accounts

  Government and departments and agencies	Lapse as per Public Accounts ($ millions)
  	2020	2019
  1. Infrastructure and Communities	2,626	1,391
  2. Crown-Indigenous Relations and Northern Affairs	1,681	699
  3. Treasury Board	1,345	4,040
  4. National Defence	951	507
  5. Environment and Climate Change	883	294
  6. Innovation, Science and Economic Development	850	1,183
  7. Transport	776	643
  8. Public Service and Procurement	727	425
  9. Families, Children and Social Development	687	578
  10. Fisheries, Oceans and the Canadian Coast Guard	567	486
  11. Public Safety and Emergency Preparedness	555	956
  12. Indigenous Services	523	258
  13. Other ministries	2,453	1,486
  Total government	14,624	12,946

Background

• These figures were reported in Public Accounts, Volume II, Section 1, Table 7.
• CORCAN overspent in Public Accounts 2020 (for more information, please see slide).

M.3 Operating and capital budget carry-forward

In this section

• Issue/question
• Suggested response

Issue/question

What is a carry-forward?

Suggested response

• Generally, departments can carry forward a maximum of 5% of their operating budget and 20% of their capital budget from one fiscal year to the following fiscal year.
• Operating and capital budget carry-forward amounts must be submitted to Treasury Board for approval prior to including an amount in the estimates of the subsequent year.

M.4 Frozen allotments

In this section

• Issue/question
• Suggested response
• Background

Issue/question

What are frozen allotments?

Suggested response

• Frozen allotments are used to prohibit the spending of funds previously appropriated by Parliament. There are two types of frozen allotments:
  • permanent: where Treasury Board has directed that funds lapse at the end of the fiscal year
  • temporary: where an appropriation is frozen until such time as a condition (conditions) has (have) been met

Background

• During the fiscal year, the government can take decisions to adjust priorities or the implementation of individual initiatives. These decisions are implemented by using frozen allotments to constrain appropriated authorities where necessary. At the end of the fiscal year, these frozen allotments are included in the lapse shown in Public Accounts.
• Categories of frozen allotments:
  • Reprofiled: Reprofiling provides for unused authorities from one fiscal year to be made available in subsequent fiscal years, to reflect changes in the expected timing of program implementation. Unused funds in the current fiscal year are put into a frozen allotment. New parliamentary authority is required for each future year of planned spending.
  • Transferred or reallocated: Throughout a fiscal year, organizations may transfer or reallocate funds between votes within their organization and to other organizations. Such adjustments may be affected through frozen allotments.
  • Reduction: An organization’s authorities are reduced when the funds are no longer available for the original purpose. This could happen because an initiative or program is cancelled, or savings are identified to be returned to the fiscal framework.
  • Other: Other forecasted lapses are largely related to uncommitted authorities in the Treasury Board central votes.
  • You may find details on frozen allotments at Frozen Allotments in Voted Authorities for Supplementary Estimates (B), 2019–20.

M.5 Impacts of overspending on appropriation

In this section

• Issue/question
• Suggested response
• Background

Issue/question

What are the impacts of overspended authorities?

Suggested response

• Overspending on your authorities means that you have spent more than you were authorized. It is the opposite of lapsing authorities.
• The Financial Administration Act requires departments not to spend in excess of authorities.
• When there is a chance of over-expenditures, the departmental chief financial officer must notify the Treasury Board of Canada Secretariat as soon as possible.
• For annual voted appropriations, the departmental chief financial officer and Treasury Board of Canada Secretariat work to ensure all possible action is taken to avoid over-expenditures. Should over-expenditures be unavoidable, the available spending authority of the next fiscal year is reduced by the excess to reimburse the fiscal framework.
• When revolving fund cash requirements are anticipated to exceed the annual drawdown authority, the responsible deputy head must work with the Treasury Board of Canada Secretariat to:
  • recover the shortfall from the departmental annual voted appropriations, or
  • obtain an increase in the drawdown authority limit
• Drawdown authority increases should be actioned within the appropriate fiscal year, prior to borrowing in excess of the authority. Only in extraordinary circumstances, such as for CORCAN in the COVID environment, should alternative measures be considered.

Background

• Not applicable

M.6 CORCAN exceeded drawdown limit

In this section

• Issue/question
• Suggested response
• Background

Issue/question

Why did CORCAN exceed its drawdown limit and what are the impacts?

Suggested response

• The CORCAN Revolving Fund, a special operating agency within the Correctional Service Canada (CSC), exceeded its drawdown authority limit by $6,120,686.
• Usually, CORCAN receives approximately half of its annual revenues in the final quarter of the fiscal year, with approximately 25% during the month of March.
• When the World Health Organization declared the COVID-19 outbreak as a pandemic on March 11, 2020, CSC immediately suspended non-essential entry and exit from federal institutions and adjusted its operations within the institutions to respect physical distancing requirements. In addition, most federal government locations were available only for critical business. Delivery of goods ordered and typical inventory purchases were delayed past fiscal year.
• These measures impacted CORCAN’s ability to deliver finished products and provide services to clients, and reduced inventory sales.
• There was no mechanism available to correct the situation and increase the drawdown authority limit before the end of the fiscal year. When the pandemic struck in March, CSC did everything in its power to rectify the situation.
• In Supplementary Estimates (A) 2020–21, CSC received parliamentary authority to increase the drawdown authority of the CORCAN revolving fund from $5 million to $20 million.
• The impact of the pandemic continues in fiscal year 2020–21, which means that CORCAN’s revenue streams also continue to be affected.

Background

CSC-approved media lines:

• As s revolving Fund, CORCAN has a continuing non-lapsing authority from Parliament to make payments from the Consolidated Revenue Fund.
• CORCAN has drawdown limit of $5 million and is required to balance financially over a business cycle.
• CORCAN was on track and achieved financial stability over the last five years.
• As a result of a variety of circumstances related to the COVID-19 pandemic, which resulted in measures during March 2020 being taken by CSC to respond to the COVID-19 pandemic, operational adjustments to ensure physical distancing, delayed production and deliveries, and clients’ needs changing, CORCAN experienced decreased revenues and increased inventories.
• CSC and CORCAN engaged with TBS in March 2020; however, there was no mechanism available to increase CORCAN’s drawdown limit in the short time frame, nor other measures to mitigate the situation by March 31, 2020, due to the sudden onset of this situation in March, resulting in the shortfall in statutory authority of $6.12 million.
• An increase to CORCAN’s statutory authority limit by $15 million was approved upon Royal Asset on June 26 to provide financial stability for the new fiscal year 2020–21.
• CSC, including CORCAN, are closely monitoring the situation and implementing contingencies and alternate plans to continue to stabilize the situation, although the financial impacts are anticipated to take up to three years to recover from.

Volume III

N. Debt write-off

In this section

• Issue/question
• Suggested response
• Background

Issue/question

What are the significant debt write-offs in the 2020 Public Accounts?

Suggested response

• Total write-offs this year were $3.9 billion ($4.2 billion in 2019). The main write-offs relate to amounts owed to the Canada Revenue Agency (CRA) ($3,158 million in 2020; $3,238 million in 2019). During the fiscal year, there were also write-offs for the Canada Revenue Agency under the Bankruptcy and Insolvency Act ($304 million in 2020).
• The government takes the stewardship of all public money and property entrusted to it very seriously.
• The Directive on Public Money and Receivables requires that departments ensure a risk-based system of internal controls is established, monitored and maintained to prevent losses of public money and property, and to detect issues in a timely manner.
• $1.7 billion was forgiven this year. The most significant portions were:
  • loans forgiven by Crown-Indigenous Relations and Northern Affairs for $914 million
  • amounts forgiven related to Canada Student Financial Assistance ($371 million in 2020, $391 million in 2019)
  • amounts forgiven as part of taxpayer relief provisions under the Income Tax Act ($449 million in 2020; $479 million in 2019)

Background

• In accordance with the Financial Administration Act and the Debt Write-Off Regulations, departments are responsible for ensuring that debts, obligations and claims written off or forgiven are accurately reported and that the appropriate approval process has been followed. Depending on the category, departments require different types and levels of approval or authority are needed.
• When a debt is written off, it is removed from the Accounts of Canada. However, the government still has the legal right to recoup the debt if it becomes possible to do so in the future. In the case of debt forgiveness and debt remissions, the government waives its right to recoup any amounts in the future and removes the legal obligation of the debtor to repay the amount.
• Debts, obligations and claims written off or forgiven during the fiscal year are listed in the Public Accounts of Canada, Volume III, Section 2.

O. Payments of claims against the Crown, ex gratia payments and court awards

In this section

• Issue/question
• Suggested response
• Background

Issue/question

Why is there an increase in claims against the Crown of $2.3 billion?

Suggested response

• Payments are now being administered for a few large class-action lawsuits settled within the last three years.
• Claims against the Crown represent compensation to cover losses, expenditures or damages sustained by the Crown or a claimant.

Due to the varying nature of payments, overall trends in payments are difficult to predict or analyze.

Background

• Claims against the Crown has increased since prior year largely due to the settlement of large class-action claims in recent years. For example:
  • Federal Indian Day Schools was settled in 2019
  • National Defence harassment and discrimination claim in 2019
  • Sixties Scoop in 2018

Other material

P. Office of the Auditor General commentary on the 2019-20 Financial Audits

In this section

• Issue/question
• Suggested response
• Background

Issue/question

Why are there management letter points that have been unresolved for two years or more?

Suggested response

• Most management letter points (MLPs) are resolved within the two-year period; however, some of these recommendations take time to implement.
• Of the 40% of unresolved management letter points which have been unresolved for more than two years, a significant portion relates to information technology general controls (ITGCs).
• We obtained the listing from the Office of the Auditor General on MLPs that have been unresolved for more than two years related to ITGCs. No single department had a significant number of unresolved MLPs related to ITGCs. As mentioned above, these recommendations take time to implement, and we have no concerns on Office of the Auditor General’s findings.

Background

• Unresolved management letter points from the 2019–20 financial audits; 32% new this year, 28% less than two years, and 40% two years and more.
• Common management letter points related to: IT general controls over systems supporting financial reporting (mainly related to access); internal controls related to financial reporting; compliance with government policies, legislations and regulations; and accounting and financial reporting practices.
• Most of the IT general controls unresolved points related to the need to improve controls over the access granted to organizations’ IT systems. Recurring points noted included access given to people who did not need it, access retained by people who no longer needed it, and weaknesses in the controls over access granted between organizations.

Q.1 Public Accounts Modernization in 2019

In this section

• Issue/question
• Suggested response
• Background

Issue/question

What changes have been made to the Public Accounts in recent years?

Suggested response

• We strive to continually improve the information in Public Accounts to ensure it is clear and easy to navigate.
• Due to our focus on the COVID response, no significant changes were made in the Public
  Accounts of Canada 2020.
• The changes made to the Public Accounts of Canada for 2019 include:
  • in Volume I of the government’s consolidated financial statements, we relocated significant accounting policies and measurement uncertainty disclosures from Note 1 to the related financial notes
  • in Volume II, “Table 2a: Recapitulation of external expenses by type,” we streamlined “Other expenses” disclosed, eliminating any duplication of disclosures in “Table 1: Consolidated statement of revenues and expenses,” and deleting “Table 2c: Details of other expenses of other ministries”
  • in Volume III, “Table: Payments of claims against the Crown,” we presented the publication exemptions by Ministry to prevent unintended disclosure of claims with non-disclosure clauses

Background

• Not applicable

Q.2 Upcoming Pulic Accounts modernization

In this section

• Issue/question
• Suggested response
• Background

Issue/question

What are some upcoming changes we can expect in the Public Accounts?

Suggested response

• The government’s vision of the Public Accounts modernization initiative is to streamline the Public Accounts to focus on the information pertinent to users, while balancing the need for transparency. This vision takes into account that information is available to the public elsewhere through Open Government and proactive disclosures.
• Some of the more significant changes we are proposing below were designed to address past observations from the previous Auditor General and the Office of the Auditor General as a whole.
• Short-term changes we would like to implement are:
  • in Volume III, “Table: Losses of public money and property,” we would like to establish a $1,000 reporting threshold and aggregate presentation of immaterial amounts
  • in Volume III, “Table: Payments of claims against the Crown,” we would like to increase the $1,000 threshold to $5,000, and aggregate presentation of immaterial amounts
  • in Volume I, we would like to request that departments publish the following statements on their respective website: EI Operating Account, the Canada Pension Plan, Government Annuities Account, Exchange Fund Account and the RCMP (Dependants) Pension Fund and ultimately remove these statements from Public Accounts
  • in Volume II, we would like to request that departments publish the Revolving Funds Financial Statements on their respective website
• A major goal we hope to achieve in the mid-term is to eliminate the need for printed copies of the Public Accounts to table in Parliament and make the online version the official version. However, this requires agreement of the House Leader. If concerns are raised, we will adjust our plans accordingly.
• Longer-term opportunities include engagement with the committee to understand what information is important in 2021. Many of the tables in Volume III stem from requests of the committee from over 20 years ago. This information takes a considerable effort to produce and we want to ensure that resources are being dedicated to provide information of current relevance to the committee.

Background

• Not applicable

Q.3 Next steps for Public Accounts modernization

In this section

• Issue/question
• Suggested response
• Background

Issue/question

What are the next steps to implement the modernization plan?

Suggested response

• As per the Financial Administration Act, we must first seek approval within TBS and Finance on Public Accounts implementation plans and areas of amendment as the respective Ministers must approve the changes.
• We will then engage with committee members to understand what information is important in 2021 and what information can be eliminated.
• We will also seek agreement from the House Leader to eliminate the need for printed copies of the Public Accounts to table in Parliament and make the online version the official version.

Background

• Not applicable

Q.4 Web-based interactive format

In this section

• Issue/question
• Suggested response
• Background

Issue/question

Increasingly, information is often provided using infographics or other summarized formats rather than lengthy volumes of text. Does the Public Account Modernization initiative envision a move away from volumes of text to a more web-based interactive format?

Suggested response

• Infographics are used in Section 1 of Public Accounts.
• The Public Accounts Modernization initiative includes:
  • streamlining information, thus eliminating any duplication
  • increasing thresholds to reduce disclosure of immaterial amounts
  • publishing departmental financials on a department’s respective website instead of in Volume 1
• These initiatives will reduce the number of pages in the volumes of Public Accounts.
• There are no plans in the near future to move away from volumes of text for Public Accounts, as our goal is to be transparent to the public and ensure information is accessible.
• However, GC Infobase is an interactive data visualization tool that presents information on financial results using infographics.

Background

• Not applicable

R. Significant items in Public Accounts 2019

In this section

• Issue/question
• Suggested response
• Background

Issue/question

Please highlight the significant items that occurred in Public Accounts 2019.

Suggested response

• The Trans Mountain Corporation, which is a subsidiary of Canada Development Investment Corporation (CDEV), was consolidated for the first year in Public Accounts 2019 using the modified equity method.
• The new fuel charge proceeds returned for the Climate Action Incentive (CAI) payments resulted in additional expenses of $664 million in Public Accounts 2019.
• The CAI payments were claimed through the 2018 income tax returns and any payments issued prior to April 1, 2019, were reported in the Public Accounts 2019.
• The fuel charge levy came into effect on April 1, 2019, and therefore revenue was not reported in Public Accounts 2019 .
• Introduction of a new accounting standard resulted in the government reviewing its accounting policy on how consolidated Crown corporations recognize revenue.
• This had a significant impact on the Canadian Commercial Corporation, which is now considered an agent with regards to its commercial contracting activities.
• Gross revenue from foreign buyers and related costs are no longer recognized in the Consolidated Statement of Operations and Accumulated Deficit.
• Related accounts payable, deferred revenue, accounts receivable and prepaid expenses are also no longer recognized in the Consolidated Statement of Financial Position.
• Net impact on Public Accounts 2019 was nil.
• Some items from our Public Accounts Modernization plan was implemented in Public Accounts 2019, which included:
• Volume I of the government’s consolidated financial statements, relocated significant accounting policies and measurement uncertainty disclosures from Note 1 to the related financial notes
• Volume II, Table 2a: Recapitulation of external expenses by type, streamlined “Other expenses” disclosed, eliminating any duplication of disclosures
• Volume III, Table: Payments of claims against the Crown, presented the publication exemptions by Ministry to prevent unintended disclosure of claims with non-disclosure clauses

Background

• Not applicable

S. Discount rate

In this section

• Issue/question
• Suggested response
• Background

Issue/question

Is the expected rate of return on pension assets an appropriate discount rate basis for funded pension obligations?

Suggested response

• There are persuasive arguments both for and against the use of the expected rate of return on pension assets to discount the accrued benefit obligations.
• Arguments for:
  • the obligation net of the pension assets represents the economic burden. It recognizes the integrated nature of the promise to pay benefits and the assets set aside to pay those benefits
• it is allowed by the Public Service Accounting Board
• it is common practice in the Canadian public sector
• Arguments against:
  • the obligation and the plan assets should be measured separately according to their individual economic characteristics. This is consistent with the measurement requirements for two offsetting financial instruments that may be presented net.
• not recommended by international private and public sector standards (the International Public Sector Accounting Standards Board and the International Accounting Standards Board)
• criticized by C.D. Howe Institute as they believe the pension obligation is like any other government debt and the appropriate discount rate to use is the yield on similar federal government deb; using a higher discount rate undervalues the reported obligations.

Background

• The Public Service Accounting Board is currently reviewing its discount rate guidance.

T. Pay equity

In this section

• Issue/question
• Suggested response
• Background

Issue/question

What will be the impact of the new pay equity legislation on the public service wages, pension and other employee future benefit obligations, and when will the impact be reflected in Public Accounts?

Suggested response

• The expected impact of the new pay equity legislation on public service wages, pension and benefit costs remains highly uncertain; that is, both the amounts and timing of the expected impact are uncertain.
• The reasons for the uncertainty are as follows:
  • employers will have three years to develop plans with employee groups
  • employers will have up to a maximum of five years to phase in the payments
  • the ongoing maintenance of pay equity plans will impose additional ongoing costs after that
  • plans in the public service will be subject to negotiations with the unions:
    • the development of the plans must be negotiated with bargaining agents and requires step-by-step, joint decision-making on a number of integral parameters (for example, gender predominance of job classes)
    • in the core public service, reaching an agreement on each legislated plan development step with 17 bargaining agents will be highly complex

Background

• The current status of the pay equity legislation is as follows:
  • the act received Royal Assent in December 2018
  • the enabling regulations were gazetted in the fall of 2020
  • the public consultations (CGI) closed on January 13, 2021:
    • review of input is being led by Labour with support from TBS’s Office of the Chief Human Resources Officer
  • the act is expected to come into force the summer of 2021