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 1989.

MR. CHAIRMAN: You have to be sworn before this Committee of the House, I guess, this sitting of the Legislature.

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'être, and it's the raison d'être 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 payments from the Government of Canada is one area where we do do a slight 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 payments received from the Government of Canada during April. If it relates to 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.