The major issue, in the Auditor General’s Spring Report, which captured media and public attention, was the revelation that only $9.8 billion of the $12.9 billion earmarked for the Public Security and Anti-Terrorism Initiative (PSAT) could be accounted for, leaving an unexplained shortfall of $3.1 billion.

The President of the Treasury Board, along with a number of his colleagues, attempted to explain this difference but their explanations were far from convincing. Shortly after the release of the report, Treasury Board officials tried to explain how this difference could have occurred. The Government’s handling of this issue appeared to come right out of the Keystone Cops. 
Given the sensitivity of this issue and the size of the amount missing, it is surprising that Treasury Board did not undertake a detailed analysis of what happened to this $3.1 billion, prior to the release of the Auditor General’s report.  There was certainly sufficient time to do so. This would have saved the Government considerable embarrassment. Instead, it is viewed as a major blow to their credibility as sound managers of the public purse.  

The Auditor General identified three possible explanations for the missing $3.1 billion.  These were (1) :

• The funding may have lapsed without being spent;
• It may have been spent on PSAT initiatives but reported as part of ongoing program spending; and/or,
• It may have been carried forward and spent on programs related to the initiative.

To these, we add a fourth explanation, sampling error in explaining the $3.1 billion.  Each will be discussed in turn.

Some PSAT Funding May Have Lapsed

Usually with a large program, such as PSAT, and the long time period it was in place, there is a high probability that some of the funds will not be needed and as such they “lapse”.  Estimates were made in 2001 to cover initiatives advanced by departments covering the period 2003 to 2009.  It could be that the cost for some of the proposed initiatives was overstated and/or the proposed initiative was never implemented.  The Public Accounts presents information on what was authorized to be spent and what was actually spent.  An analysis of the Public Accounts data for the period under review would have revealed how much of the $3.1 billion lapsed.  There was plenty of time during the course of the audit to undertake such an analysis.  It is surprising that Treasury Board did not undertake such an analysis, given the sensitivity around “missing” cash. 

Some PSAT Funding was reported as Part of Ongoing Program Spending

Misclassification of certain components of the PSAT to other programs is possible.  This is human error.  Departments would need to re-examine if their classification of PSAT was correct.  For this exercise, a number of the departments receiving the bulk of the funding could be reviewed.  Again, this begs the question as to why this was not done.

Carry Forward of Funds

Departments can request that certain funds appropriated to be spent in the current fiscal year be carried forward to a future fiscal year.  However, this would require the approval of the Treasury Board and Parliament.  Records of such transactions are maintained by the Treasury Board and the applicable department.  This information, as with the lapse, should be relatively easy to obtain.  Again, this begs the question as to why this was not done.

Sampling Error

Part of the “missing” $3.1 billion could be the result of statistical sampling.  It is not a “hard” number based on an analysis of what the departments/agencies received and what they actually spent. As such, it is subject to sampling error.  No ranges were given by the Auditor General.  The number could be somewhat higher or lower, but probability not by any significant amount.  The bottom line is that the Government does not know the exact amount.

The Auditor General states that there was no misappropriation of monies.  However, unless there is a full explanation for the “missing” $3.1 billion, this claim will continue to come under attack. It also puts into question the commitment to sound management of the public purse.

Once again the ability of Parliament to oversee government spending has been eroded. Parliament should ask the Parliamentary Budget Officer (PBO) to undertake a review of the missing $3.1 billion. It simply cannot be shrugged off as “lacking clarity” and “bureaucratic error” and a claim that better controls will be put in place so that it won’t happen again.

In this report, the Auditor General followed up on recommendations made in earlier reports on the management of PSAT funds, to which Treasury Board had agreed.  It found that Treasury Board did not fully comply with all of the recommendations. In the Spring Report, the Government agreed with nearly all of the recommendations the Auditor General put forward in the eleven chapters. But past experience has demonstrated that not all of the agreed upon recommendations are actually implemented.  This raises the issue as to how serious the Government is in accepting the Auditor General’s recommendations.  Only time will tell and then only if the Auditor General does a follow up audit.

Finally, with all of the restraint measures introduced starting with the 2012 Budget, how capable are departments/agencies in responding to the Auditor General’s recommendation?  If trade-offs are required, what priority is allocated to such implementing the recommendations?

1. Chapter 8: "Spending on the Public Security and Anti-Terrorism Initiative" Report of the Auditor General Spring 2013.

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