My reply to the Office of the Auditor General

Joanne Lécuyer
Director, Corporate Communications
Office of the Auditor General of Canada

Joanne:

Thank you for your prompt reply to my letter of October 29, 2009 and confirming that the Government of Canada operates on the basis of Accrual Accounting and has done so since 2003.

This mandated use of Accrual Accounting by the Government of Canada is not insignificant in terms of the announcement by the Harper Government of its income trust tax in 2006, a policy whose principle goal was to eliminate alleged “tax leakage”.

Tax leakage is not some subjective concept, but rather is objective in nature and infinitely determinable. Determinable by those like the Auditor General with access to the Government’s books and charged with such responsibilities on behalf of all Canadians.

I remain totally perplexed by the Auditor General’s repeated refusal to investigate this matter concerning the veracity of the Harper government’s allegations of tax leakage, when called upon to do so by Members of Parliament as well as many Canadians and industry groups adversely affected by this policy. I remain perplexed, especially given the comment on your letter below that:

“Under the legislation that governs our work, we do not evaluate the merits of government policies. Our role is to tell Parliament how well its decisions are being implemented.”

Please be advised that no one, myself included, is asking the Auditor General to “evaluate the merits of government policies”. We ARE however asking the Auditor General to “tell Parliament how well [Government’s] decisions are being implemented.”

This was the very request that was contained in the letter that was sent to the Auditor General by four Liberal MPs dated February 28, 2008. Please see letter attached entitled: “Liberal Finance Committee Members call on Auditor General to
Examine Government’s Claims of Income Trust Tax Leakage”.

Meanwhile your letter below attempts to direct my inquiry to those in the Department of Finance. The persons in the Department of Finance are the VERY PEOPLE responsible for NOT applying the concepts of Accrual Accounting properly. Why would you expect that they would want to admit their error to me, afterall, senior Department of Finance official , Brian Ernewein, testified to this effect before the Finance Committee, when asked about the potentially faulty nature of their tax leakage analysis by saying:

“I guess if we were incompetent, we wouldn’t admit to it.”

This is why we have a system of Government with checks and balances. The Department of Finance is not the check and balance for itself. That is what the role of Office of the Auditor General was established to perform, namely an independent check and balance on Government itself. These are first principle concepts we are dealing with here.

Earlier attempts by Members of Parliament to get straight answers to these questions from officials in the Department of Finance have gone unanswered, and I specifically refer you the the question that was posed of Finance Official (at the time) Mark Carney by Thomas Mulcair, Finance Critic and Deputy Leader of the NDP on (see. http://caiti-online-media.blogspot.com/2007/12/opaque-and-unaccountable-mr-hide.html).

The question that Thomas Mulcair was posing to Mark Carney is exactly that question that you acknowledge IS the role of the Auditor General, namely “ tell Parliament how well its decisions are being implemented”.

Thomas Mulcair simply wanted a straight answer from Mark Carney on whether the income trust policy had achieved its intended goal of stemming alleged tax leakage in light of the subsequent wholesale foreign acquisition of many trusts. Thomas Mulcair asked specifically about the $5 billion takeover of Prime West Energy Trust by Abu Dhabi Energy and other foreign takeovers of other trusts that occurred in the aftermath of the Harper government’s income trust tax. If Thomas Mulcair were to ask that same question today, he might ask in terms of whether the intended goal of tax leakage had been achieved in the context of the recent $4 billion takeover of Harvest Energy Trust by state owned Korean National Oil Company and the litany of other trusts by non-taxable entities and/or using non-taxable means.

Surely , as a Parliamentarian, Thomas Mulcair has a right to an answer to his very straightforward question, rather than being stiff-armed by those like Mark Carney in the Department of Finance? This is essential to the role of the Auditor General. Why is it so difficult for the Auditor General to answer this most basic of questions about whether this policy achieved its intended goals, when global accounting firms in the private sector have come to the very conclusion that this policy HAS NOT achieved its intended goals? I refer you to the findings of Deloitte and their study entitled.”Income trust buyouts: Lots of activity, little tax revenue” available on line here: http://www.deloitte.com/view/en_CA/ca/services/tax/article/ac0cf16bc31fb110VgnVCM100000ba42f00aRCRD.htm

I am almost left with the impression that the Auditor General is deliberately sweeping this matter under the carpet and doing so by narrowly defining her role on terms that are completely contradictory to why her office exists in the first place and in a manner that is oblivious to the stated wishes of the Parliamentarians she ostensibly represents, and a repudiation of the AG’s motto that “Parliamentarians need objective fact based information on how well the government raises its funds”. Evidently not, insofar as the income trust tax is concerned. A tax that was intended to stem allege tax leakage, only to cause tax leakage. Clearly this is an outcome that the Auditor General, Sheila Fraser, judging from her total inaction considers should be hidden from public view and scrutiny?

And to think, Canadians are cynical about government and the institutions that govern them?

It is incumbent on the Auditor General to investigate this matter and to determine, to quote you, “how well [Government’s] decisions are being implemented.”, The study by Deloitte would indicate that the income trusts’ main policy objective of stemming alleged tax leakage is being very poorly implemented and the opposite of its intended goals are being achieved, rather than the intended goal itself.

Meanwhile I would like to very clear in delineating what we are asking the Auditor General to do. We ARE NOT asking her to “evaluate the merits of government policies”, but rather WE ARE asking her to “tell Parliament how well its decisions are being implemented”.

Yours truly,


Brent Fullard
President and CEO
Canadian Association of Income Trust Investors/Taxpayers
www.caiti.info

647 505-2224 (cell)




On 11/9/09 7:07 PM, "Lecuyer, Joanne" wrote:

Dear Mr. Fullard,

Thank you for your email of 26 October 2009 regarding Income Trusts. Ms. Booth is no longer with our Office.

As was stated in our responses to Mr. Lewicki, the issue being raised about taxing income trusts relates to a policy decision made by the Government of Canada. Under the legislation that governs our work, we do not evaluate the merits of government policies. Our role is to tell Parliament how well its decisions are being implemented.

In answer to your first question, the Office of the Auditor General does not set the accounting standards applicable to the Government of Canada, the Public Sector Accounting Board does. Further it is the decision of the Government as to whether or not it selects accounting policies based on these accounting standards. The Auditor General will give an opinion on whether the Government’s choice of accounting policies conforms to these accounting standards. We follow the standards and rules as set out in the Public Sector Accounting Board handbook, in the conduct of our financial audit work. Since 2002-03, the Auditor General has issued an audit opinion that says the Government’s accounting policies conform to the accounting standards. We refer you to our observations on the 2002-03 Financial Statements of the Government of Canada for the year ended March 31, 2003, where we discussed the adoption of full accrual accounting by the Government and in our observations on the Financial Statements for subsequent years. We also commented on the impact of that approach to the government’s financial reporting. If you wish to refer to these observations, you can access them as a part of previous years’ Public Accounts of Canada (Volume I) through the Library and Archives of Canada website at http://epe.lac-bac.gc.ca/100/201/301/public_accounts_can/index.html.

The notes to the financial statements for the current year discuss the government’s accounting standards in relation to tax revenues, as do the observations on the financial statements. These materials respond to your second line of questions. The 2008 Public Accounts (current year) can be accessed on the Public Works and Government Services Canada website at http://www.tpsgc-pwgsc.gc.ca/recgen/txt/72-eng.html. Please refer to the accounting policy Note 1 – which indicates that all revenues are reported on an accrual basis, and also a discussion on the various aspects of the accounting for tax revenues.

With respect to any analysis work done related to new tax measures conducted on an accrual basis, taking into account the factors set out in your email, this would be done by the Department of Finance and not by our Office.

Sincerely,

Joanne Lécuyer
Director, Corporate Communications | Directrice des communications
Communications | Communications
Office of the Auditor General of Canada | Bureau du vérificateur général du Canada
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joanne.lecuyer@oag-bvg.gc.ca
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