October 27, 1992

PUBLIC ACCOUNTS COMMITTEE

The Committee met at 10:00 a.m. in the Colonial

Building.

MR. CHAIRMAN (Windsor): Order, please!

We will proceed. Mr. Murphy will be here in due

course, I'm sure, we do have a quorum present so I'll call the meeting to order.

The first thing we should do is introduce the

Committee members. The Vice-Chair, Mr. Tom Murphy, Member for St. John's South,

is not here yet but I understand he will be here shortly. To my immediate right

is Mr Danny Dumaresque, the Member for Eagle River; Mr. Alvin Hewlett, the

Member for Green Bay. To my immediate left is Mr. Bill Ramsay, the Member for

LaPoile; seated next to him, Mr. Art Reid. I would like to welcome Mr. Reid, the

MHA for Carbonear, who has recently been appointed to the Public Accounts

Committee. This is his first meeting. We welcome you, sir, and look forward to

your participation in the debates. Mr. Garfield Warren, the Member for Torngat

Mountains, is not present and cannot be with us today.

These are the members of the Committee. We have

various witnesses available to us. Perhaps I'd first ask the Auditor General if

she would like to introduce the staff that she has with her.

MS. ELIZABETH MARSHALL: Mr. Chairman, the

person on my immediate right is Mr. Bill Drover, an Audit Principal with the

office. To my left is Mr. David Hill, an Audit Manager with our office.

MR. CHAIRMAN: Thank you very much. On the other

side of the room we have Mr. David Oake, the Secretary of Treasury Board.

Welcome, sir. Would you like to introduce the people you have with you?

MR. DAVID OAKE: Thank you, Mr. Chairman. On my

left is Mr. Ray Gruchy, who is the Assistant Comptroller General. On my right is

Mr. Ron Williams who is the Director of Government Accounting, both with the

Department of Finance.

MR. CHAIRMAN: And you have other people with

you?

MR. OAKE: Some other resource people if we need

them.

MR. CHAIRMAN: Thank you very much. The first

thing I want to do, because I normally tend to forget this, is to adopt the

minutes of the last meetings of October 1 and October 2.

On motion, minutes adopted as circulated.

MR. CHAIRMAN: I've outlined some of the

preliminaries of the procedures of the Committee for the benefit of new

witnesses, and how we operate, again, it's relatively informal. But we must

first of all swear in those witnesses who have not been here previously. Other

witnesses, such as the Auditor General and Mr. Drover at least - I don't know

about Mr. Hill - have been - have you been sworn in before?

MR. DAVID HILL: Mr. Chairman, yes I have.

MR. CHAIRMAN: These people have all been sworn

in or deemed to be still under oath. So I'll ask the Clerk now if she will....

MS. ELIZABETH MURPHY: (Inaudible).

MR. CHAIRMAN: Mr. Oake has been sworn in?

MS. MURPHY: Apparently not.

MR. CHAIRMAN: Apparently not.

MR. OAKE: It's not my first visit to the Public

Accounts Committee but it will be six or seven years.

MS. MURPHY: (Inaudible) 1989.

MR. OAKE: Yes, I haven't been sworn in since

MR. CHAIRMAN: You have to be sworn before this

Committee of the House, I guess, this sitting of the Legislature.

SWEARING OF WITNESSES

David Oake

MR. CHAIRMAN: The rest have all been sworn in?

Thank you very much.

The purpose this morning is to particularly look at

a report of the Auditor General relating to financial statements of the Province

and in this particular case these are accounting methods and procedures largely

that are used by the Province. The Auditor General has used the report of the

Public Sector Accounting and Auditing Committee, which seems to be accepted as

somewhat of a standard across Canada. The report has tied in quite largely with

that as it relates to procedures used within the Province of Newfoundland and

Labrador. It should be interesting this morning to find out how the Department

of Finance and the Department of Treasury Board view these particular issues and

what actions have been taken.

So that's the main purpose of our meetings here

this morning. First of all I'd like to ask the Auditor General if she has an

opening comment she would wish to make by way of introduction of this particular

topic.

MS. MARSHALL: Thank you, Mr. Chairman.

Each year, in accordance with the Financial

Administration Act, the Office of the Comptroller General prepares the public

accounts of the Province, which includes financial statements and other

financial information. Treasury Board has the authority under the Act to

prescribe the manner and form in which the public accounts of the Province are

prepared. In accordance with

Section 11 of the Auditor General Act, I must

examine the financial statements included in the public accounts. In the attest

"Auditor's Report" on these financial statements I then express my opinion as to

whether the statements present fairly the financial position, results of

operations and changes in financial position of the Province in accordance with

the accounting policies as disclosed in the public accounts. These noted

accounting policies describe the reporting entity as the Consolidated Revenue

Fund. While the Auditor General Act requires me to express an opinion as to

whether the financial statements present fairly the financial position of the

Province, in accordance with the disclosed basis of accounting, I must also

consider the appropriateness of the stated accounting policies. In reviewing the

accounting polices I must take into account the accounting recommendations of

the Public Sector Accounting and Auditing Committee of the Canadian Institute of

Chartered Accountants and the policies used by other jurisdictions in Canada.

The Public Sector Accounting and Auditing Committee

of the Canadian Institute of Chartered Accountants was established in 1981, with

an overall objective to improve and harmonize financial reporting, accounting

and auditing in the public sector in Canada. To meet this objective, PSAAC

issues Statements that recommend standards for good practice in financial

reporting, accounting and auditing in the public sector, and also initiates

research studies on public sector accounting and auditing matters. The Public

Sector Accounting Statements and Recommendations apply to all governments unless

their application is specifically limited in individual PSAAC statements.

A review of the 1990-91 Public Accounts of the

Province disclosed that there are still a number of areas in the PSAAC

recommendations which have not been fully implemented by the provincial

government.

I note in particular that a number of specific

recommendations relating generally to the adoption of the accrual basis of

accounting have not been implemented. The majority of the other provinces and

also the federal government now comply to a great extent with these

recommendations.

The Public Sector Accounting and Auditing Committee

has also issued recommendations on defining the Government reporting entity and

accounting for and presenting the transactions of Crown corporations, boards and

authorities in government's financial statements. The assets, liabilities and

operating results of these entities are not presently included in the financial

statements, except to the extent that their transactions impact on the

Consolidated Revenue Fund.

The activities of Crown corporations and similar

entities are ultimately the responsibility of government. By reflecting all of

the activities relating to government operations in the financial statements of

the Province, the users of such financial information would be able to make a

more informed assessment of the activities of government as a whole.

The Public Sector Accounting and Auditing Committee

has also issued recommendations on accounting for employee pension obligations

in government financial statements.

Unfunded employee pension liabilities, based on the

most recent valuation, are now recorded in the Statement of Assets and

Liabilities. In prior years, the liabilities were disclosed by way of a note to

the financial statements. However, in the 1991 Public Accounts, no provision is

made for the increase in liability since the last actuarial valuation. Also, the

Statement of Revenue and Expenditure does not reflect the actual value of

pension benefits earned by employees during the year.

For several years, the previous Auditor General

reported his concerns regarding the Province's failure to adopt PSAAC guidelines

in preparing its financial statements and made recommendations for improvements.

However, I note that there has still been very

little progress in implementing recommendations relating to the adoption of the

accrual basis of accounting or to recommendations relating to the definition of

the reporting entity. In July 1992, based on an examination of the 1991 Public

Accounts, I issued a "Special Report on the Financial Statements of the

Province" to the Treasury Board Secretariat. This report provided a detailed

analysis of the specific issues involved and emphasized my concerns relating to

the accounting policies presently followed by the Province in preparing its

Public Accounts. The recommendations of the Public Sector Accounting and

Auditing Committee of the Canadian Institute of Chartered Accountants, are

designed to improve financial reporting by all governments in Canada. The

adoption of these recommendations would not only significantly improve financial

reporting by governments, but would also make the financial reports of all

governments more comparable from year to year and from jurisdiction to

jurisdiction.

Thank you, Mr. Chairman.

MR. CHAIRMAN: Thank you very much. Before I

move to Mr. Oake, let me welcome Mr. Garfield Warren, MHA for Torngat Mountains.

I had previously apologized for your absence because I was advised you could not

make it but I am delighted you are here. I am still waiting for the Vice-Chair,

we will give him a few more moments and then perhaps I will ask somebody else to

assume that position, if he does not soon arrive.

Mr. Oake, would you care to make an opening

statement on behalf of Treasury Board.

Mr. OAKE: Thank you, Mr. Chairman. I am not

going to make a very long statement. Perhaps it might be helpful just before we

get into the meat of this to talk a little bit about some changes that we are

currently making organizationally, which may have some implications for all of

this.

With the recent retirement of the Controller

General, we have made some changes in the structure of all of this; they are not

formalized yet and the legislation, obviously has not been done and I think it

would be fair to say government has not finally made up their mind on all of

this, but for the moment at least, that portion of the former Controller

General's office which was involved with government accounting which was

represented by Mr. Gruchy's branch if you will, is now reporting to Treasury

Board and the portion that dealt with tax collection is part of the deputy

minister side of the Department of Finance; being a former Minister of Finance,

you will appreciate the distinction I am making, and so we now have a situation,

at least from an administrative standpoint, while not yet from a legislative

standpoint where all of this is sort of part of Treasury Board. I think that

will give us the ability over the next months, year or two years to be able to

take a bit more of a coordinated approach to this whole subject than has been

possible in the past given the sort of split jurisdiction within the bureaucracy

for all of this.

So I am hopeful that with these changes, which if

all goes well, will be reflected in a series of legislative amendments next year

some time, that we can perhaps be somewhat more responsive to these issues than

we have been in the past. I would leave it at that for the time being. I would

be happy to deal with any specific questions.

I guess I should add one other thing. There has not

been a commitment or decision by government to move to accrual accounting at

this stage. There are very significant implications to government from a

financial reporting standpoint of doing this. There are also very significant

implications for what I guess I would call the traditional approach to our whole

financial picture.

We have all become very used to certain concepts

like the current account, deficit, surplus, the capital account position, the

budgetary borrowing requirement, certain non-budgetary transactions, the total

borrowing requirement picture, all of which have been predicated on a cash basis

of accounting. I think it is pretty safe to say that the Legislature is fairly

comfortable with all this. They understand what those numbers mean and where

they come from. I guess the capital markets are reasonably comfortable with all

of that and they understand how our system works.

There is no lack of disclosure in the sense that

all of the information that we are dealing with here is in one way or another

available to users of our financial statements albeit not in as concise and

clear a form as the Auditor General and PSAAC would like. But there is no

question of us hiding any numbers from our rating agencies as you know too well.

All of this stuff is a very open book, and

questions of pension liabilities and this other stuff, I mean there are no

secrets. So while I think it would be a laudable objective if we can move

towards these things, there are a lot of implications to all of this in terms of

the way we have traditionally handled all of our reporting, and just the

concepts that the Legislature and the public service have grown used to over the

years, so I can elaborate on all that at the Chair's or the Committee's pleasure

but this is just by way of an opening position.

MR. CHAIRMAN: Before we move into questioning

would you clarify just a little bit more exactly what has happened at the

Comptroller General's office. I understand that Mr. Carew has retired so there

is no Comptroller General now. Mr. Gruchy is his assistant, I understand.

MR. OAKE: Yes. Well under the act right now the

act is clear on the matter in the absence of the Comptroller General the duties

and functions are performed by an Assistant Comptroller General unless the

Lieutenant-Governor in Council designates another individual. The

Lieutenant-Governor in Council has not designated another individual so the

duties are being performed by Mr. Gruchy. If you have noticed your paycheques

lately it is his name that is on them, which perhaps is the obvious form of all

this.

MR. CHAIRMAN: Do I understand there is a change

in the department then? The Comptroller General's office is not now separated?

MR. OAKE: The Comptroller General's office at

the current time for reporting purposes has been split into two pieces; that

portion which was under Mr. Clarke, the tax collection group, retail sales tax

and all of that are now reporting to Mr. Gill as Deputy Minister of Finance. And

the government accounting section, the internal audit which was under Mr.

Gruchy's authority now reports to me in Treasury Board. We have not formalized

that obviously yet in terms of the legislative changes that would be necessary

to give effect to that. I would also add that is not necessarily the final way

it is going to be, but for the time being that is how we are operating. We are

studying all of the ramifications of that, and there are some implications of

doing that, that government has to give some more thought to I believe and it

probably will result in some legislative changes in the coming year to give

final effect. But for the moment, at least, we are still under the current

provisions of the FAA and Mr. Gruchy is, if you will, Acting Comptroller

General.

MR. CHAIRMAN: Thank you, Mr. Oake. We will get

into the questioning. Normally we start with the newest member of the committee.

So, Mr. Reid, are you ready to begin some questioning here this morning?

MR. REID: Yes. You mentioned implications to

accrual accounting. Can you elaborate somewhat on that?

MR. OAKE: Well I can elaborate on some aspects.

As you can appreciate if you have been reading the material, this is a fairly

complex subject and I must start by saying I am not an accountant so I don't

come with -

MR. REID: Neither are we, so -

MR. OAKE: So I don't come necessarily with the

intuitive knowledge of this as some of the others, but let me give you some

examples. Right now our books and our whole estimates presentation are on a

totally cash basis with some modifications. Basically what that means is that we

recognize an expenditure when we actually spend the money, and we recognize

revenue when we actually receive the money. We do not try deliberately to match

revenues with expenditures in the business concept where, if you are familiar

with business accounting, you try to match expenditures to the period; you put

an asset on the books; you take depreciation each year and match it against your

revenues in calculating your net income. We do not do any of that. All of our

assets for the most part, our physical assets, are recorded at a dollar on the

balance sheet. We do not do depreciation or any of that kind of thing. We do not

recognize any non-cash transactions in our statement of income and expenditure.

So when we say the deficit this year in the budget was expected to be $29.3

million on current account, what we mean is we will actually spend $29.3 million

less than we will actually take in - in dollars. There are no non-cash

transactions.

As an example, the Auditor General has suggested to

you that we should recognize the increase in the unfunded liability in the

pension plan each year. Well the unfunded liability in the pension plan, in

fact, is growing each year - subject to certain other factors which I can get

into if you want. That, however, is not a cash expense. It is a liability which

the government has to the pension funds, but we are not spending any money. The

liability is growing, so we do not recognize that as an expense because it is

not a cash outlay that we are making. All we recognize as an expense are the

actual payments that we do make into the fund, which we pay annually in a

matching form with our employees. They may be subject to some debate, more or

less than what we actually should be paying in, but we only recognize the exact

portion that we actually spend.

Similarly, to use the depreciation example, if we

build a building this year, we charge up - if it is a $20 million building - we

write off $20 million as an expense because that is the actual cash out the

door. In a business, you would set that up as an asset on your books, and take

depreciation against your income statement, say of 5 per cent a year, of the

value. We do not do that. We charge the $20 million office expense to capital

account in the year in which we actually make the expenditure.

So you think about all of this. There are a whole

variety of transactions which are occurring which we are not recording because

they do not have cash implications in the year for which we are accounting. This

could have significant impacts on the numbers that you are currently used to

hearing about. So that $29 million current account deficit that was in Dr.

Kitchen's Budget this year - if you adopt these recommendations - I cannot tell

you off the top of my head what that number would be, but I can certainly tell

you it would not be $29 million, because there is a question about where our

pension liabilities are going. You would add that on, and then we would have

assets on the books and start taking depreciation against them; but there might

be a variety of other transactions that might be positive.

In any given year foreign exchange movements which

affect certain transactions that we do might be positive to our account. That

would come in. If, in any given year, the liability under the pension fund in

fact declined, which may be the case this year because of the significant

changes that were made to the teachers' pension plan in the last negotiations -

in fact, our unfunded liability to the teachers' plan is probably down

significantly; so that would be a positive, and that would come in against the

current account deficit.

The problem I guess, from our perspective, is that

we have had a long-standing reporting system and a long legislative

understanding, in terms of the members of the House of Assembly, of what that

current account deficit is all about. All of this stuff will throw all of that

out the window and a whole bunch of other factors will start coming into it.

It is the implications of all that, I guess, that

the government has been struggling with for the past four or five years - and

continues to struggle with. There are a significant amount of resources needed

to be able to go at this, and we just have not had them.

That is a long-winded answer to your question.

MR. REID: The bottom line, basically, is that

we just cannot afford to put ourselves in that situation. In comparison to other

provinces, to what other provinces, Ms. Marshall, are we referring?

MS. MARSHALL: All of the other provinces have

taken the PSAAC recommendations and have commenced implementing them. I think it

is a matter of degree. I think if you compare us to other provincial governments

we are at the lower end of the scale. The majority of provinces have moved

towards accrual accounting. While they are not all fully accrual, they have

moved in that direction and they are starting to implement these

recommendations.

The initial recommendations came out in the

mid-1980's, so since then all the other provincial governments and the federal

government have been gradually implementing these recommendations and are much,

much, further along than us. At this point in time we seem to be sort of stuck

in neutral and I would like to see this Province start to move along the same

way as the others -

MR. REID: At least start, that's all you're

asking for, is a start. Is that what you're saying?

MS. MARSHALL: Yes. Some of the recommendations

have been implemented, I do have to acknowledge that. But there are what I see

as two major issues that really have not gotten under way at all. There have

been some preliminary studies. That's the issue of accrual accounting, and the

other one is the definition of the reporting entity of government in the

consolidated revenue fund with the financial statements of other government

entities and having a consolidated financial statement. So those are two really

major issues that are going to require a lot of work.

I think if you look back over the past you'll sort

of see the logic behind why all this is evolving. The Canadian Institute of

Chartered Accountants is acknowledged as the body that puts forth the accounting

and auditing guidelines for the private sector. Back in the early 'eighties they

realized that all the provincial governments and the federal government were out

there defining their own accounting policies. As you move from jurisdiction to

jurisdiction, and financial statement to financial statement, there was really

no comparability, because everybody was out doing their own thing.

So back in the early 'eighties they established a

committee to try to get some sort of standardization as you move from province

to province which they have made a good start at. They've put forward their

recommendations and now the majority of jurisdictions are beginning to implement

them. But again, as I said before, we seem to be sort of lagging behind the

progress of the other provinces and the federal government.

AN HON. MEMBER: Mr. Oake.

MR. OAKE: No, I can't argue with what the

Auditor General is saying. Other provinces have in fact progressed faster than

us on this front, although there are a couple which aren't doing anything.

Ontario, as an example, is doing exactly what we're doing and is not moving on

this either.

I guess the answer is that this has not been a big

priority. The kinds of things that we would require in terms of resources to

move towards this thing hasn't been a priority of government. I can say that in

the last few months we have been trying to do something at least to try to bring

the issue before government and say: there are problems here that the Auditor

General is highlighting, other provinces are moving, we do need to get on with

this.

We're not debating the merits or the validity of

the objective as laid out by PSAAC. The problem has been one of concern about

the impact on what has been the traditional understanding of what our numbers

mean. I guess we've been concerned about the fact that we essentially are going

to still have to almost keep - we are going to have to keep the cash records

anyway. Because none of this changes the bottom line of the Government of

Newfoundland. We go to accrual tomorrow morning, the amount of money that we

have to borrow next year, the bottom line cash requirement for Newfoundland,

doesn't change a bit. This is all about numbers on a set of financial statements

and where they get put. This doesn't affect anything in terms of how much money

we have to go off and search for in the world capital markets. Because we're

largely talking about non-cash transactions - well, we're talking only about

non-cash transactions and how to reflect them.

So in many ways it's a question of perceptions. I

would agree with the Auditor General that we could do more on this, and we are

going to try to do more. Treasury Board approved a month or so ago the creation

of a position - which I can tell you is about the hardest thing to get done in

the government these days - the creation of an accounting policy advisor to

Treasury Board and the Comptroller's office at a senior level in the Comptroller

General's office whose sole responsibility over the next couple of years is to

give us advice on how we can do this stuff, how quickly we can do it, and what

are the implications of doing it.

So I've at least said to the Auditor General: we're

prepared to say we're going to have a serious go at it. Once the implications of

this are more clearly reflected - as another example, we're going to take the

1991-1992 financial statements and for internal purposes we're going to convert

them to an accrual accounting basis and see what starts to happen to all these

numbers, and come to grips with some of the implications for the reporting to

the capital markets and the rating agencies. I've asked Gilbert Gill, as the

Deputy Minister of Finance, to get involved in that exercise. Because we just

want to tread carefully here. This is a serious area for the Province and we

don't want to go off on something which technically correct from an accounting

standpoint has radical implications for our financial statements and financial

reporting.

So we've given a commitment that we will try to

move ahead on this, but it's a slow process. I must add that accrual accounting

is one thing, and we can go ahead on some fronts with that. Some of the other

issues about consolidations and stuff, those are big considerations for us.

There are hundreds of entities out there that are getting just about all their

money from us, and to talk about consolidating all that into financial

statements is a... we've got trouble getting the stuff from our own departments

over which we can pretty well put a gun to their head.

To start talking about all these entities. We talk

about getting timely financial statements with the current set up. If we have to

consolidate a hundred organizations that we provide all of the funding for, I

mean.... we get them by August now. I'm scared to think of when you'll see

financial statements (Inaudible).

MR. CHAIRMAN: Mr. Reid, one final question.

MR. REID: Not a final question, Mr. Chairman. I

just want to make a statement.

I really do not think, Mr. Oake, that because PSAAC

and eight other provinces are following the recommendations of the Chartered

Accountants Association, that we necessarily, in Newfoundland, have to follow

their lead.

AN HON. MEMBER: That is true.

MR. REID: I understand what you are saying and

I think you are following the right route. I think it is a matter of priority;

it is a matter of economics, I guess. The bottom line here, I guess, is what it

is going to cost the Province to implement such procedures.

I do not blame the Auditor General's office for

getting after you, because I guess the Auditor General's office from here to

British Columbia would like to be uniform, and they are doing that work, I

guess, as auditors rather than as employees of the Province.

I congratulate you, and I think if you keep going

the way you are, I think maybe in a year or two the Auditor General will come

back and say that he or she is satisfied with what we have done.

Thank you.

MR. OAKE: If I could just make one little

comment to that, Mr. Chairman.

MR. CHAIRMAN: Mr. Oake.

MR. OAKE: We are as concerned as the Auditor

General is about the usability, if I can put it that way, of our financial

statements to the users of our statements. We have to live in the world capital

markets. We have to deal with rating agencies and banks, and all of these people

who lend us money. We have to maintain our credibility with those people. The

last thing that we need is the Auditor General qualifying our financial

statements because we are not conforming to PSAAC recommendations at a pace that

is acceptable to her.

Let us be clear. The objective of both groups here

is the same. We want to ensure that the government's financial statements and

accounts are maintained in a manner that is acceptable to the professional

auditing and accounting community, and acceptable to our users. We carry that

responsibility, and the implications of failing to live up to that

responsibility are very, very serious from where we sit.

MR. CHAIRMAN: Mr. Dumaresque, do you want to

carry on from there?

MR. DUMARESQUE: Thank you, Mr. Chairman.

I was particularly interested in the second aspect

of the recommendations that the Auditor General pointed out - the fact of the

reporting entities to government. I remember from some of my past reading and

studying that Whacky Bennett in B.C. used to always have balanced budgets

because whenever there seemed to be a looming problem he would create a Crown

corporation and put it off into the dark and yonder.

I am not suggesting by any means that is the case

here, but I wonder about a couple of things. Are the financial obligations

and/or responsibilities of the government taken into account by the lending

agencies when we go to seek funds? Are Standard and Poor's and those agencies

all completely aware of the obligations that we have, as a government, to the

other agencies and Crowns?

MR. OAKE: Totally. In fact one of the most

significant parts of our annual meetings with Standard and Poor's and Moody's

and the Canadian services as well, is a review of what is going on within our

Crown corporations; and what are the liabilities of those agencies; and all of

the debt calculations, for instance, that the rating agencies do when they

calculate debt to GDP or debt per capita or all of the debt service ratios. They

take into account the debts in our Crown corps and so on. That is all in there.

Even some of the non-guaranteed stuff is pulled into those calculations. So that

is very much an open book on that account. They know all of this stuff.

MR. DUMARESQUE: From a -

MR. OAKE: Mr. Gruchy makes a good point, if I

could add. In addition to the public accounts, with which you may be most

familiar, there is a second volume published every year which contains all the

accounts of all the Crown corporations. So while they are not actually

consolidated into one balance sheet, if you will, or one statement of revenue

and expenditure, the books of all of our Crown corporations, the financial

statements of all of our Crowns - I say 'all'; now the odd year somebody does

not send them in on time to get published, but for all intents and purposes all

of our Crown corps are published in a separate volume at the same time as the

public accounts; so they are all there.

MR. CHAIRMAN: Mr. Dumaresque.

MR. DUMARESQUE: Maybe I could ask the Auditor

General then, if this is the case, and there is no net impact on the government

and therefore on the people as far as any cost that could possibly accrue to the

people by way of having a higher debt charged on some of our loans, if in fact

all these statements are being issued every year, what essentially is the

problem? Obviously it is only an academic one if they are all published anyway,

even at the same time. Is it that obvious that it is an academic question and

one where you have to have complicity for the sake of it?

MS. MARSHALL: I think what you have to do is go

back and look at the ten provinces and the federal government. Ten years ago

they were all presenting this information in a variety of ways. While with

Newfoundland the information is there and it's available in two or three

different documents, the fact of the matter is that you have to go through these

documents and effectively do your own calculations and tabulations.

The purpose of PSAAC was to bring all this

information together and do it in a standard manner as you move from province to

province. So that was basically the gist of it. It's to try to get some

standardization as you move from province to province, and also to provide it in

a proper format so that it is readable and easily discernible to the reader. I

don't think that the reader should have to go through the financial statements

of fifty-odd organizations to determine what the debt of the Province is.

MR. DUMARESQUE: Okay. Maybe also to the Auditor

General. We, as the Public Accounts Committee, have had problems with some of

the agencies and Crowns in getting accountability. Do you feel that the

accountability factor and the responsiveness of these Crowns and agencies would

be greater if in fact they were a part of the overall financial statement?

MS. MARSHALL: Yes. I feel the accountability of

government overall would be enhanced if consolidated financial statements were

prepared by the Province.

MR. DUMARESQUE: Okay. I don't have anything

else right now, Mr. Chairman.

MR. CHAIRMAN: Thank you. Mr. Ramsay? You wanted

to ask some questions?

MR. RAMSAY: Yes, I did, Mr. Chairman, thank

you. I guess it comes back to - if you look at the private accounting - any good

accountant will tell their client: what do you want your books to say, within

the guidelines of accounting.

I'm looking at the information provided here and I

note what you've said about reporting on government's choice, I suppose, the

government itself has chosen not to proceed at this point in time. I wonder, and

of course this is probably getting into a delicate area, but is it a matter of a

resistance to that or a lack of recommendation by officials that this is the way

to proceed? Because again the Public Accounts Committee in 1990 - and I note

that the Committee recommended in 1990 - on page 8 of the Committee's report,

the last page of the document that we have prepared here - to the House of

Assembly that:

"(

a) legislation be drafted to permit the

Department of Finance to implement the recommendations of PSAAC respecting

public sector accounting particularly with reference to the introduction of the

accrual method of accounting for the Province and the consolidation of the

accounts of government boards, agencies and authorities;

"(

b) resources be allocated to enable the

Department to prepare for the change; and

"(

c) those improvements which can be made without

legislative change be initiated as soon as possible."

With respect to those three recommendations - and I

sat on the Committee through that report - and I note that the explanation that

we've gone through here is very similar to what we went through at that time as

to the problems associated with it, the difficulty that would be there. I'm

wrestling with the rationale for why we're here again. Although it's a little

different, it's still the same problem that's come up and reared its head as to

the accrual method versus the cash accounting method. The resistance.

Mr. Oake, I note that you maintain that we're

comfortable, I suppose, with knowing that there is $29.3 million worth of

borrowing requirement or whatever. But again you say yourself that we'd have to

maintain the cash accounting books anyway in orderto determine what we are going

to need, to borrow, so that would be available I suppose regardless, therefore

it is a bit difficult to understand whether it is a political issue as far as a

resistance to the change, or is it a resistance to change from a standpoint of

the recommendations that are carried forward to government, or is it just a

general issue of the difficulty associated with government in general, the

bureaucracy of government? I just put that forward to you.

MR. CHAIRMAN: Mr. Oake.

MR. OAKE: Well, that is a good question. I

guess I can tell you what the answer is not. There has not been a conscious

decision by government, the current government, not to implement accrual

accounting. I mean there was never a conscious decision by any government since

I have been involved in any of this stuff, not to implement accrual accounting.

I guess it comes down to one of priorities and

where we are putting the scarce resources that we have and this has not been a

priority. I guess it has not been a priority for the bureaucracy, those who are

responsible for looking after this within government in Treasury Board in the

Department of Finance. There have been so many other conflicting demands on

everybody that - I mean this does take a fair amount of work and a fair amount

of time at a senior level, and quite frankly it just has not been a priority so

it would be unfair to say that there has been decisions or a series of decisions

at the political level not to do this, that would not be accurate.

I guess this is the kind of complex issue that

until the bureaucracy has sorted it out in its own mind and says to its masters

look: there are some tough decisions that you have to make here, here are your

options, here are your choices, here are our views on it, it would be fair to

say that the bureaucracy has not put this in front of its masters at this stage.

MR. RAMSAY: So it has not made it up the line.

MR. OAKE: No, it has not. It has not, simply

because the bureaucracy has been I think, unable to cope with it over the last

few years since this has come into currency in government. We have done some

things on the pension liability question, we are now recording our pension

liabilities on the balance sheet as a liability, which we did not do in the

past.

AN HON. MEMBER: (Inaudible).

MR. OAKE: Pardon?

AN HON. MEMBER: We created a position.

MR. OAKE: We are trying to put somebody in

place to help us do some research and government has given us the resources -

you know there has been a political decision to give us the resources to move

forward, so we are trying to move forward on it, but I have to say it has not

been a big priority because there have just been so many other demands on

everybody in the last few years trying to keep everything else afloat. I mean

the volume of work that goes through the government accounting office just to

keep the bills all paid and to keep it all going, at the same time that we have

been cutting back, laying off people, reducing management, it is just hard to

deal with all of this.

I will give you an example. This consolidation

thing, while desirable from a financial reporting standpoint, the talk about

having another forty or fifty or more organizations, all of whose audited

financial statements have to end up in Finance, and all be consolidated into the

provincial accounts, is a big piece of business. I mean I am sure the Auditor

General will tell you it is a complicated piece of business. When they say

consolidation, this is not the kind of thing two clerks get over in a corner and

do; I mean, you are talking about the most complex sort of accounting

transactions when you get into doing this kind of stuff, so it is a question of

resources you know.

MR. RAMSAY: Every year I get the consolidated

report of Crown Corporations, Agencies and Boards and whatever. I go through

them and you know if that was all on a computer system, which maybe now it is

not, I do not know but I would think that each and every agency has at least the

access to a personal computer.

I know it would be difficult to make the plunge,

like it is hard to jump into the cold water, but I think that it is just that

part that is the difficulty, once it is there it would flow smoothly from that

point on I would think, depending of course on the time limits of these other

bodies, and I just wondered you know, in an hypothetical situation like that,

should everything be brought together and you start creating a consolidated

balance sheet, in my opinion, a non-accounting opinion, it would appear to be

somewhat easy to do, to take your figures on your liabilities and combine them,

take your figures on your assets and combine those, on your revenue and

expenditure and combine those.

It doesn't seem to be the monumental task of which

you speak. Now maybe it's just a matter of the time to get someone to bring all

this together. But I think with a concerted effort it's something that could

easily be done. Again, it's not a matter of not doing it, it's a matter of not

wrestling with the decision to do it, I think.

MR. OAKE: Well, I guess I wouldn't argue with

that. it's a question of having the people to do it and getting them at it and

getting the timely reporting from all of the agencies that you're talking about.

MR. RAMSAY: Most of which are directed by

legislation to report on a timely basis, right?

MR. OAKE: Yes they are. This is no defence - to

say that we can't get the information out of our own people. But you've had

reports about some of our agencies a year or two behind on financial statements

at this Committee before. That's not an excuse, we should deal with that anyway.

I'm not an accountant, I can't argue with you. I

suspect you're probably right. Once we get through it the first time, do it

once, it would flow fairly readily after that. We don't have a philosophical

objection to trying to get into the consolidated financial statements. That's

not an issue that we have big objections to at all. It becomes a question of

putting the resources to it and getting there.

I would say that we do however - I'm advised that

we need to move to the accrual accounting system before we can do this. Because

most of our Crowns are on accrual accounting because they are sort of

business-like operation, or a lot of them are. Liquor Corporation, Farm

Products, Hydro and all of those are already on accrual accounting and we're

not. So when you start bringing them in you have a whole mishmash of different

problems that you're trying to bring together. So it sort of seems to us that

step one would be to get the Province on the accrual, and then the consolidation

will flow reasonably easily - if I can be so bold - after that. But the accrual

accounting decision is the first one.

MR. RAMSAY: That's all I have right now, Mr.

Chairman.

MR. CHAIRMAN: Thank you, Mr. Ramsay. Mr.

Hewlett, would you like to continue from there?

MR. HEWLETT: I don't know if I have a question

or just a comment, Mr. Chairman. I sit here in a post-referendum daze and I

listen to the Auditor General's department talk of accrual accounting, and I

think I hear Mr. Oake talk of cruel accounting. We're somehow striving to obtain

a degree of consistency on an east-west axis in North America, an axis which as

of today may or may not in the next several years continue to exist. Because

obviously the accounting in this hemisphere is north-south. We are struggling to

maintain a degree of consistency in an artificial construct called Confederation

which has its axis, east-west.

I'm somewhat bemused this morning. I'm not an

accountant. I've heard the arguments a number of times, and I sometimes wonder

when we get into some of these exercises if we're not fiddling while Rome is

burning. I guess we all have our raison d'tre, and it's the raison d'tre of

this particular Committee to consider these matters. But no, Mr. Chairman, I

really don't have any penetrating questions. I just have an observation. Thank

you.

MR. CHAIRMAN: Mr. Warren, would you like to go

on?

MR. WARREN: Thank you very much, Mr. Chairman.

Mr. Oake, in

chapter 7, page 25, there are some concerns expressed with the

transfer payments, In particular, transfer payments from the Government of

Canada. This is the special report on the financial statement of the Province.

Government transfers should be recognized in government financial statements.

Could you probably bring us up to date in a capsulized way how it's working now?

Do you think there are improvements that could be carried forward, or are our

books really telling the true pictures? Explain those things.

MR. OAKE: Okay, I'll try. The area of transfer

modification from a true cash system. When I started today I told you that the

way we deal with our revenue is we record revenue when we receive it, and only

when we receive it. Revenue is recorded for the given fiscal year if it comes in

in that year.

We do make an exception however, and that is for

the previous fiscal year - say it's under a cost-shared program or something of

that sort - we do charge those back against the previous fiscal year. So we sort

of keep the books open for revenue transactions from Ottawa for thirty days, so

we are doing a little bit of accrual.

MR. WARREN: Before you go any further, what

does this do then to our balance -

MR. OAKE: Well it does not do anything because

it still does not go in - we do not record receivables of equalization or things

like that on the balance sheet because we can never accurately calculate what we

are owed at any given time from the federal government in areas like

equalization.

You see, equalization is - well, aside from the

most complex creature anybody ever invented - the equalization accounts stay

open for five years, and there is continuous re-entitlements being calculated; I

mean, this is the most horrible thing to try to deal with in budget management

in the government, is what you do from the federal government under

equalization.

Each year, the feds give us their best estimate of

what we are going to get from them under equalization and that is subject to our

own good judgement what we put in the budget as our revenue estimate on that

source. As the year progresses we get updates from the feds, but it is all being

driven off economic performance in other parts of the country as well as

population data, and at the end of each year the books on equalization remain

open and for five years thereafter there can be changes associated to the

entitlement for a given fiscal year. Now we do not charge that back to the years

to which it relates and these entitlements can be up, down, or all over the

place, we just take them as they happen. So if we get a cheque tomorrow for $ 20

million from the federal government in respect of 1989, that goes into the

current year's revenues, but the problem we have, is, it is almost impossible to

calculate at year end and record as a receivable what we may be owed in respect

to that fiscal year from the federal government in respect of a program like

equalization, simply because we just do not know; the facts are not all in.

It takes two years for Statistics Canada, sometimes

longer, to get the Gross Domestic Product data in, which is what all this stuff

is driven off, it is just horribly complicated and we just do not know the

answers to those questions. I suppose we could do some sort of estimate but I

would have to suggest to you that that number would be something simply that

somebody pulled out of the air at any given time and stuck on a balance sheet,

and I would suggest to you that that would be of very little value to anybody at

that stage.

It is hard for me to sit here and tell you about

the problems associated with forecasting our entitlements under equalization and

what may be owed to us at the end of any given year. I would suggest you should

ask some people from Mr. Gill's office in Finance to come and explain some of

that to you. It is just a big, big problem for us all and we are not the only

province who wrestles with this problem, all of them do who receive

equalization.

MR. CHAIRMAN: Mr. Warren.

MR. WARREN: Mr. Oake, with agreements such as

Forestry Agreements or Fishery Agreements, is it conceivable that some time you

can receive monies from the federal government for a particular department or a

particular project within a department and you can have that money for a period

of time before it is spent by the Province?

MR. OAKE: We normally do not receive funding in

advance under federal programs. It normally works that we spend the money and

claim, if you will, in that we submit a report to the federal government and

then they reimburse us for their share under a cost-shared agreement and as a

result of that there is some lag in the receipt of those kinds of payments, and

so it is possible that we make an expenditure in one fiscal year and do not

receive the offsetting federal revenue until another year, and that is one of

the problems.

If we were on accrual accounting that revenue, when

we would receive it, would be charged back; currently, we just keep that

thirty-day window open in April to do that, but if the revenue in respect of an

expense which was incurred in March is not received until May then the revenue

was out in the next year, so we do not get a matching of revenues and

expenditures, which is one of the tenets of accrual accounting. So here is

another example of where, if we were under accruals, some of this stuff would be

differently, clearly on what I would call the more straightforward cost-sharing

progams, like a Highways Agreement, where we spend ten dollars and we get seven

dollars back, it would be easy to do accrual accounting in respect because we

know when those revenue cheques come in. We know exactly what they are in

respect of and we could set up liabilities on the books because we would know at

the end of March that we spent money in March and we have sent the claim to the

feds but we do not have the money back yet, so we could set that up as a

receivable on the books of the Province without too much of -

AN HON. MEMBER: Do we do that?

MR. OAKE: We already do some of that, but for

some programs like equalization, it is very, very difficult to get into that

kind of thing and even PSAAC, as I understand it, have struggled with the

questions of accounting for receivables of equalization in terms of how you deal

with it. It's very difficult to do.

MR. WARREN: I have one more question, Mr.

Chairman, and maybe it might be a little bit off the topic. Earlier in your

comments you were saying there would be a lot of difficulty trying to get all

those Crown corporations, probably town councils and other groups that are out

there with government money. Mr. Oake, do you have any approximate figures on

how much guaranteed loans are out by the Province to individual companies?

Excluding town councils, of course. What is the liability to those, or are those

guaranteed loans...?

MR. OAKE: I think the level of our guarantees

under the Loan Guarantee Act is in a

schedule in the public accounts and we have

a variety of guarantees out. I'll just give you some examples. All of Hydro's

borrowings are guaranteed by the Province. Simply because Hydro is a Crown

corporation and can't borrow without the stamp of approval of the Minister of

Finance. That's true of all our Crown corporation debt, and we have a lot of

guarantees on municipal debt.

But in terms of guarantees out to private

companies, which is I suspect what you're alluding to - like fish companies and

a variety of other enterprises like that - we do have a list that's contained...

Mr. Williams can probably point it out. It's contained in

Schedule H to the

Public Accounts, and last year's Public Accounts was on page 310. In terms of

private companies... what do we have? About $69 million outstanding in loan

guarantees. Presently about $61 million, I'm sorry. That was at the end of

March, 1991.

MR. WARREN: Sixty-one million dollars. That's

out to private companies.

MR. OAKE: Private companies. Private companies

for the most part, is about $61 million. Yes.

MR. WARREN: What is our default rate?

MR. OAKE: I can't answer that. Clearly some of

the stuff we have guarantees out to in terms of small fish processors, given the

moratorium and some of that stuff, is more in question than it was a year or two

ago. I can't give you a number off the top of my head. I'd have to undertake to

get that information for the Committee if you want to know what our default rate

is or what has defaulted in the past year or two. I can get that but I don't

have it at my disposal right now.

MR. WARREN: Thank you, Mr. Chairman.

MR. CHAIRMAN: Let me just add a couple of

questions of my own and then maybe we'll take a short break for coffee.

I'm interested in your statement, Mr. Oake, that

the bureaucracy has not given a priority to the accrual accounting system. I can

appreciate where you're coming from and why you would be hesitant to get

involved in it. But we do have a report from a previous Public Accounts

Committee to the House of Assembly. Admittedly I guess government hasn't acted

on that and taken that it's simply a report to the House. I'm not aware that

government has taken the policy from that or that the Legislature in fact has

given any further direction.

Clearly, when the Public Accounts Committee reports

to the House of Assembly with certain recommendations that should increase the

priority of that matter within the bureaucracy. It certainly should make it

aware of the fact that government may well in the very near future say: what

have you done on this and why have you not acted? Could you comment on that?

MR. OAKE: I'm glad you brought that up again

because after I said that I sort of wished I hadn't, maybe.

AN HON. MEMBER: (Inaudible).

MR. OAKE: The fact that the Public Accounts

Committee has recommended that we take certain steps in its last report, is not

lost on us. We have done some things. The pension liability on the balance sheet

was one thing, and that was a big step for government. We're talking in excess

of a $1 billion liability that we were not disclosing on the financial

statements and we now are.

The other thing is that we've set up some internal

working groups - and I know this sounds horribly bureaucratic, but that's the

way we operate. We've got some of the chartered accountants that are in our

various departments and we've brought them together on a committee and we've

said to them: you've got to get on with some of this stuff. Since it's become

the mandate of Treasury Board since July, when I assumed this position and some

of the changes were made, I am trying to give this priority.

Since that time we have created the position of

accounting policy advisor to us which was, as I said earlier, difficult to get

done but we have it done. We've allocated the money to it. It's a senior

position; it's not a junior position in the department, so we are going to move

ahead. I have given the Auditor General a commitment on that in private meetings

that I have had with her in the last couple of months to talk about this. We are

going to move it along, but I cannot tell you that government is going to adopt

accrual accounting because that is a decision that we are not ready to put in

front of them yet; but we will be bringing it forward - not the least of which

is because the Public Accounts Committee has said: Get on with this - and we

will try.

MR. CHAIRMAN: I think that is the whole point.

The bureaucracy has to bring it before government - recognizing that the public

accounts did make a report to the House of Assembly. Nevertheless, in the normal

information flow, and the flow of work, it certainly is the responsibility of

bureaucracy, with that kind of direction, to at least put a position paper

before government for a decision.

I assume, from what you have said, that government

has not formally been asked to say 'aye' or 'nay' to some of these changes as

recommended by the Auditor General. Until the bureaucracy puts that in front of

ministers - if you are concerned about the problems related here, you can rest

assured that ministers are twice as concerned, and they are waiting for some

advice from their professional accounting people - obviously yourselves in

particular. Nothing will happen until a position is put forward. What are we

looking at now? The documentation we have here says, if resources were made

available tomorrow you are looking at probably two years to implement such a

thing. Are we looking at another year before a policy decision is taken, and

maybe three or four years before it is then implemented? Are we five years away

from a system that is more in line with what the Auditor General is

recommending?

MR. OAKE: I think the two year time frame is

probably a realistic one from the date that we get a green light. I would hope

that we can get a decision on this sooner rather than later. That is my

objective, to get a decision so that I can at least say: We have dealt with

this. Our decision is: we are proceeding. Then we can get on with doing that.

Unfortunately, one of the problems I am having at

the moment, being kind of new to this one, is that I am having trouble

conceptualizing myself exactly what is involved, and what the time frames will

be, and what the resource requirements will be.

I would also like to add that this is not the only

initiative going on in the whole area of government accounting and government

financial management. We are really trying to do a number of things in this

whole area. We want to increase the level of deputy minister accountability in

the system. We would like to decentralize a lot of the payment processing

functions and payroll processing functions in government, and get more things

out into the departments so that the departments can do their own thing, and

just speed up the whole process; make it more efficient and put, where I believe

it should be, the accountability at the deputy minister in the department, as

opposed to all of these central agencies with everybody with their fingers in

the pot.

We can move along on some of those fronts. At the

same time a lot of this will become easier because the resources within the

Department of Finance, which are currently consumed with trying to get all the

bills paid and get the payrolls out, will be freed up to do some of these other

things.

We are going down a whole bunch of roads that I

hope will be reflected in significant amendments to the FAA in the next year or

so, and I think some of this will become more obvious in that time frame. But it

is a new responsibility for Treasury Board, in one way, and we are trying to

move it along as best we can, given everything else we are trying to cope with

in Treasury Board all the time.

Things in Treasury Board have not gotten any easier

since you left, I can assure you.

MR. CHAIRMAN: A little quieter, perhaps.

I was interested in your comments on physical

assets and the method of accounting for roads, as you used for an example. You

build a $100 million worth of highway this year and you pay for it this year. Is

that not paid through from borrowing on capital account and therefore the actual

payment of it is spread over a period of time? I am not sure I can, in my mind,

how do we account for that. Are we paying $100 million this year, plus -

MR. OAKE: Yes.

MR. CHAIRMAN: Where does that balance itself

out somewhere? We obviously do not pay for it twice.

MR. OAKE: The expenditures on capital assets

are charged as an expense in the year in which we incur it. As the cash goes out

it goes through the Budget, and it goes through the financial statements as an

expense and shows in the statement of revenue and expenditure in the front of

the public accounts. Then what happens - well in most of our capital program, as

you know, those funds are borrowed, so as well that year we record a liability

equivalent to the amount of funds we borrowed.

Now, as you all know, we do not exactly match up

borrowings with capital assets. We have a capital expenditure program that

totals up to, say $200 million, and then we have a borrowing program. We just go

to the markets and borrow in blocks of $100 million, $150 million, $200 million,

or whatever it is. We use that to finance our capital account program. So those

debts go on the books of the Province as a liability, and each year thereafter

the interest payments on that debt go through the Budget. So again, same

concept, cash in, cash out.

MR. CHAIRMAN: So it's the annual cost of debt

servicing?

MR. OAKE: That's right. In consolidated fund

services. The principle repayments on that loan are treated as a non-budgetary

transaction. We usually pay it into the sinking fund so that there's a principle

balance there to retire the debt when it comes due.

MR. CHAIRMAN: So it's nonconvertible, it tends

to make the statement look worse than it really is. To that regard? If you were

considering on an accrual basis when it's actually paid out....

MR. OAKE: We would still put the asset on the

books. Right now we don't put the asset on the books, depending on the asset. If

it's a road we don't put it on the books, it goes on as a dollar. Then we don't

take depreciation or anything of that sort. I think what accrual accounting

would lead us into is trying to value those assets and put them on the books at

some value, and then have a stream of depreciation flows afterwards.

MR. CHAIRMAN: Ms. Marshall, would you like to

comment on this?

MS. MARSHALL: Yes, I'd like to clarify that.

PSAAC really hasn't issued any formal guidelines on accounting for fixed assets.

They have released a study document which looks at various options that would be

available. At present their only guideline is that information be provided on

the fixed assets of the government organization. They don't really say to set

them up and expense them. At this time that is not being contemplated for

government.

MR. OAKE: Mr. Chairman, we do have a

schedule

in the public accounts which shows our accumulated expenditures on fixed assets.

I think what the Auditor General is saying is in an inadequate amount of detail.

I wouldn't disagree with that.

MR. CHAIRMAN: It appears to me like taking a

mortgage out on a house but having no asset there.

MR. OAKE: Yes.

MR. CHAIRMAN: No credit for it. When you look

at your bottom line, no security.

MR. OAKE: There's a whole problem here of how

you value those assets and how you depreciate them, and that's why this is an

area where the accountants are having trouble giving good guidance to the

practitioners on the subject. Because it is a complex area. Buildings perhaps

are easier.

When you start thinking about this stuff, what

about all the other assets we own? When do we put those on the balance sheet?

What about all the Crown land in the Province? That's an asset. We own that. Do

we start trying to figure out how much that's worth and put it on the books? I

don't know where all this leads one. We have a variety of assets. We don't carry

them on the books. The government is not like a business. We're not as

well-defined.

AN HON. MEMBER: That's a good point, but how do

the other provinces handle this?

MR. OAKE: The same as we're doing. They're not

recording those assets.

AN HON. MEMBER: They're not recording.

MR. OAKE: No.

AN HON. MEMBER: So it's specific ones, I

suppose (Inaudible) -

MR. OAKE: We do carry our buildings, right? If

we build a building does that go on? We still leave all that as a dollar.

AN HON. MEMBER: (Inaudible).

MR. OAKE: Not on?

MR. CHAIRMAN: No. You could look at mineral

rights and all the rest of it, and offshore rights, and put all that in there. I

think what we're talking about here is accounting for purchases, expenditures

for goods and services that have real value, and having some record of what

we've bought and what we have left, and depreciating it over a period of time.

Having that to compare with liabilities that are outstanding from monies

over-borrowed to do that.

MR. OAKE: We don't record those assets on our

balance sheet currently but we do keep track of them. I think the Auditor

General would suggest that perhaps inadequately. I'm not sure I disagree with

that.

MR. CHAIRMAN: It's a question too of the Crown

corporations and agencies, and government funded bodies. I appreciate the

difficulties that we've had over the years sometimes in getting timely

information. We're having enough trouble, as was commented here, in getting

information from departments of government to us in time.

I suppose the Public Accounts Committee is a prime

example of that. Reports to the Province are about nine or ten months behind,

the Auditor General takes a couple of months to audit and report on it. The

Public Accounts Committee gets it hopefully in the fall of the year - sometimes

in February or March, whenever the House opens, it's tabled in the House. We

don't meet while the House is in session so we'll wait till next spring and fall

when the House is no longer in session. So we're probably two years behind. It's

more of a history lesson that we're having here than debates on current, timely

topics or problems that can be dealt with on a timely basis.

So we're painfully aware of that problem. Maybe

that's one of the most important aspects of this report that we need to get at,

ensuring that all Crown corporations and agencies and departments of government

do report on a timely basis. What can we do in your view, Mr. Oake, to try to

improve that situation so that information is available? It's very difficult to

manage a business. I would say to you when you talked about like managing a

business earlier, government is the biggest business in this Province. Very

difficult to manage a business on two-year old information.

MR. OAKE: Agreed. I believe one of the things

we can do is when we look at the amendments to the FAA that will arise as a

consequence of several of the things that we're doing, including should

government make a decision to go to accrual accounting, we are going to have to

put some things in the FAA that will force timely reporting by all those

agencies into the comptroller or into Treasury Board. We are going to have to do

some things to put them, if you will, more under the finger of the President of

Treasury Board or the Minister of Finance about reporting into the comptroller

for the time we put together financial statements. That is one of the things we

can do.

I don't think we have done enough in terms of

pressuring them anyway. I mean our Crown corporations are, in spite of what some

might think, I don't believe are an irresponsible group. And I think we just

haven't done enough in terms of pressuring them to get that stuff together and

get it in. I think we can do better on that quite frankly. I don't think

legislation can help, but I think there is lots we can do just in terms of

making demands on the heads of our Crown Corps to have this stuff down.

MR. CHAIRMAN: What level of detail do you think

we would need to be able to reflect in the statements of the Province a fair

understanding of the implications of the Crown Corporations? Do we need full

accounts of everything, all expenditures, revenues and everything else that they

are doing, or is it a one page balance sheet, really what we need here to get a

good picture of the provincial position when you combine all of that together. I

will ask Mr. Oake, and then I will ask the Auditor General.

MR. OAKE: Well there is a limit to what I can

say and I will ask Ray to comment perhaps, but we do need complete audited

financial statements from each of those corporations and agencies if we are

going to do a proper consolidation.

MR. CHAIRMAN: Mr. Gruchy.

MR. GRUCHY: Yes, that is right. In order to do

a meaningful statement, a consolidated statement then you need, as we mentioned

before, to be on the same basis of accounting. For example, the province would

need to be on accrual accounting the same as Hydro is on accrual accounting.

That is one thing. It also needs to have audited financial statements of these

Crown Corporations and boards and so on. The principle of consolidation is

simple but it is a very complex process to go through. You have to eliminate

inter-organizational balances and transactions between government and these

Crown Corporations and so on. So you need reliable data from the Crown

Corporations. There can't just be a one page

summary, you need good accurate

audited financial information.

MR. CHAIRMAN: Ms. Marshall, do you have a

comment to make on that regard?

MS. MARSHALL: No, I just want to say that I

agree with that. You know, you just can't take the balance sheet and combine all

the balance sheets. You need the full set of audited financial statements. They

all have to be on the same basis of accounting. There is also some variety of

transactions you would have to be aware of. For example, transactions between

the consolidated revenue fund and these Crown Corporations. So yes, I do

acknowledge that it is a very complex task, but I would like to say that the

federal government has been able to consolidate the financial statements of the

various Crown Corporations and also some provinces which are larger than ours.

So I think it is not a matter that we have to go back and sort of create the

wheel ourselves, we can sort of go back and learn from what other governments

have done.

MR. CHAIRMAN: They just want us to establish a

willingness too.

MS. MARSHALL: Yes, that is right.

MR. OAKE: Mr. Chairman, if I could add to that.

Again we don't have any kind of philosophical objections to the concept of

consolidation and ultimately trying to get there. We do have to get to accrual

accounting ourselves before we can do it. After that I don't think the

consolidation part of it is something that we can't do. It will simply require

putting the resources to it to do it. There is no philosophical objection to the

concept at all. I think we will have an interesting debate about who are the

organizations that get consolidated, and where do we start and where do we stop?

You know, there is a list in the Auditor General's report on the financial

statements on page 33. I would suggest with all respect that that is far from an

all inclusive list.

If you are going to take about who should be

consolidated to have a true picture, that is not all of them by any stretch of

the imagination, particularly given some of the changes we have recently made. I

mean I think you would have to put school boards in. I mean one time school

boards had their own ability to raise revenue through school taxation and that

is gone. So the only source of money that the school board has is us and they

are no different than a community college in theory, from a financial standpoint

from where I sit. So you have all the school boards, I think you would have to

look at all the hospitals. I mean this is a big, big task. So I would hope that

the Committee would appreciate that while we don't object to this and see this

as a desirable place to get to, don't underestimate the task that it involves.

MR. CHAIRMAN: No doubt it's a massive job. I'd

get some direction from the Committee. I was about to stop and take a break. Are

we going to be here for a while? Does the Committee have a lot more questions?

Would you rather continue on for a few minutes and finish up or shall we break

for ten minutes?

MR. DUMARESQUE: I have no further questions.

AN HON. MEMBER: I have no further questions.

MR. CHAIRMAN: Might as well carry on. Are there

any further questions? I'll start off where I began. Mr. Reid?

MR. REID: No, I don't have any further

questions. I can appreciate your position, even though I was a part of the

Committee that made recommendations back two years ago on trying to get you on

stream, I guess, as it relates to accrual accounting. I can understand now where

you're coming from. I think we have to do a balancing act here. I don't think

it's a serious enough question for this Committee to insist that you do it one

way or the other. I think it's something that you have to do from a bureaucratic

point of view. I guess from a bureaucratic point of view it'll trickle down into

government and finally there'll be a decision.

AN HON. MEMBER: Trickle up.

MR. REID: Or up. I'd like to believe that it's

the other way around. I don't have any problems with that. I think you have to

give the Auditor General's office a little bit of recognition, that they're

trying to not really force you into doing it, but trying to get some sort of a

reaction that's positive from you. That over a period of years you will at least

come on stream to a part of their partial reflection of what they're looking

for. Mr. Chairman, I have no problems with that and I don't think anyone around

the table has.

MR. CHAIRMAN: Mr. Reid. Mr. Dumaresque?

MR. DUMARESQUE: No, Mr. Chairman, I think the

whole questioning has certainly raised and clearly enunciated the issue. I guess

the Committee will have to make a final recommendation on it. I'm certainly

happy with the response that we've gotten and feel we know where the issue is at

the present time. It's one of economies, I suppose, and we can all recognize

that, with the understanding that everybody is dedicated to accountability and

hopefully we'll move along through the process as we can. I only have that

comment. I have no other questions on that issue.

MR. CHAIRMAN: Mr. Ramsay? Final comments or

questions from you?

MR. RAMSAY: No questions. Just that I think

we've pretty well exhausted it as we had dealt with it in the past. I think that

the less time we spend in questioning the more time these gentlemen can spend to

get back at the task in hand.

MR. CHAIRMAN: Mr. Hewlett?

MR. HEWLETT: I think the opinions expressed are

well put. We have a reality I guess in this Province financially, the government

has to deal with. Without goals in life, life would be somewhat empty. But the

attainment of those goals is obviously constrained by certain financial

realities. I think it's important that this Committee always keep its sights on

heaven and realize that as long as we look to heaven we have to deal with the

world as we find it. Thank you, Mr. Chairman.

MR. CHAIRMAN: Mr. Warren?

MR. WARREN: Thank you, Mr. Chairman. Mr. Oake,

you mentioned that in order to carry out the recommendations would be a massive

undertaking. In the number of staff that you think would be required - over and

above the present staff - have you any analysis done on what you would need to

undertake this?

MR. OAKE: No, but that's one of the objectives

of the work that we're currently doing within Treasury Board and Finance. I

think part of the answer to the question may come in what I alluded to earlier,

about our efforts to try to decentralize some of the accounting functions within

government from the Comptroller's office out to the line departments. So that we

can be successful doing some of that while still keeping the Auditor General

happy that we've maintained adequate internal controls and all that other stuff

that we all have to do.

If I can be somewhat successful on some of that

then I'm going to be able to free up some resources to devote to this task. So

I'd like to give you the pat Treasury Board answer, that we'll find a way to do

this without any additional resources. But I suspect in the long haul we will

need to add some people in the Department of Finance and the Comptroller's

office to do this. I would hope that they would not be large numbers, no.

MR. WARREN: And the forty-six Crown

corporations that we have identified, or we have here in our Province, are some

of them now doing the accrual accounting and some of them not?

MR. OAKE: Just about all - wait now, I had

better be careful. All of those which are engaged in quasi or business

activities, if I might put it that way - housing, hydro, farm products, liquor

corporation, Marystown Shipyard - those would all be operating on an accrual

accounting basis right now, and would have very sophisticated accounting

operations.

The problems that would come with consolidations

will not be with those organizations. It would be within our organization trying

to deal with the inflow of all that and merging it into one set of financial

statements.

I think the Crown corps themselves are probably, in

the case of the big ones, better able to cope with some of this stuff than we

are because they are better resourced in many cases.

MR. CHAIRMAN: It would appear the Crown

corporations are better financed and better staffed than we are.

MR. OAKE: The reality is, some of them probably

are.

MR. WARREN: It is still the taxpayer's money,

as such.

AN HON. MEMBER: True.

MR. CHAIRMAN: Thank you, Mr. Warren.

Mr. Oake, do you have any final statement you wish

to make?

MR. OAKE: No, Sir.

I would like to thank the committee for their

forbearance on this. This is a complex topic and not exactly the most exciting

one to have to sit through.

I just reiterate that we do not disagree with where

the Auditor General is coming from on this. We see these as desirable

objectives, from a financial reporting context. We are trying to exercise some

caution because of the way we have traditionally done things. We are constrained

by resources, but we are trying to move ahead as well, and trying to address

these things. I am hopeful that a year from now we will be able to demonstrate

progress.

MR. CHAIRMAN: Thank you, Mr. Oake.

Ms. Marshall, any final comments?

MS. MARSHALL: Just to reiterate, Mr. Chairman,

I would like to see the financial statements of the Province prepared on the

basis of the recommendations by PSAAC. My concern now is that we are lagging far

behind the rest of Canada, and other provinces seem to be moving forward; so

hopefully this Province will move very shortly in that direction also.

Thank you.

MR. CHAIRMAN: I am not sure this morning if any

of us know where Canada is heading, but your objectives and your comments are

well taken. I do not think there is any great disagreement here in principle. It

is a matter of timing; a matter of availability of resources; a matter of the

Province's ability to cope with this in light of everything else we are trying

to deal with, I guess.

The recommendations of the previous committee, I

think, are still valid and I think we all share the ultimate objectives.

We appreciate your coming here this morning and

your candidness in giving us the information that has been requested. I thank

the Auditor General and her staff, and we will be back this afternoon at 2:00

p.m. for a further hearing of the Committee.

On motion the Committee adjourned to 2:00 p.m.