Bill C-2 (39th Parliament, 1st Session) Committee on May 9th, 2006

[The Chair, Conservative, David Tilson]

We'll call the meeting to order.

This is meeting number 4 of the legislative committee on Bill C-2. The orders of the day are, pursuant to the order of reference of Thursday, April 27, 2006, Bill C-2, an act providing for conflict of interest rules, restrictions on election financing, and measures respecting administrative transparency, oversight, and accountability.

Our guest today is the Auditor General of Canada. Good afternoon, Ms. Sheila Fraser. With her is--I hope I do this right--John Wiersema, Deputy Auditor General, and Jean Ste-Marie, Assistant Auditor General and legal adviser.

Good afternoon to all three of you. Ms. Fraser, you may have some opening comments to make.

[Sheila Fraser, Auditor General, Office of the Auditor General of Canada]

I do. Thank you, Mr. Chair. Good afternoon to you and to the members of the committee.

Let me begin first by congratulating all of you on your election or re-election as members of Parliament. We very much look forward to working with you in the future. We are also very pleased to be here today and would like to thank you for this opportunity to discuss aspects of Bill C-2 that affect the Office of the Auditor General.

As you mentioned, I am accompanied by John Wiersema, who is the Deputy Auditor General, and Jean Ste-Marie, our legal adviser and Assistant Auditor General.

As legislative auditors we provide objective information, advice, and assurance that parliamentarians can use to scrutinize government spending and performance. We appreciate the confidence in our work that is demonstrated in many of the provisions of Bill C-2.

Today I would like to comment on four areas of the bill that specifically affect our office: the expansion of our mandate, access to information, the process for appointing the Auditor General, and immunity for agents of Parliament.

Last year changes to the Auditor General Act addressed our concerns about audit access to foundations. We are now able to conduct performance audits in non-profit organizations that have received $100 million or more in a five-year period. The legislative amendments also made us the auditors of three additional crown corporations. So we are now the auditors or joint auditors of all crown corporations, except for the Bank of Canada and the Canada Pension Plan Investment Board.

The current bill would expand our mandate further to what has been called “following the dollar” to any recipients of public funds who have received a million dollars or more over five years in the form of grants, contributions or loans.

First of all, let me say that I appreciate this confidence. Now I would like to explain to the members of the committee how we would intend to carry out this mandate:

It is management's job, in departments and Crown corporations, to ensure that grants, contributions and loans provided to individuals or institutions outside the federal government achieve their intended purposes. They do this by establishing the systems and procedures needed to ensure that these funds are used appropriately.

Our role as government's external auditors is to determine whether those systems and procedures are in place and how well they are working. We then report to Parliament on the adequacy of the systems, and we provide recommendations where improvement is needed. We do not believe it is our role to routinely audit recipients of grants and contributions. As previously noted, this is the responsibility of the managers of those programs. Therefore, I expect that we would rarely exercise this option.

The proposed amendment would also give us the right to audit funding to most first nations. It has been the policy of governments to encourage first nations to move toward greater autonomy and self-government. The need to build institutional capacity in first nations is an important part of this process. We have been engaged for some time in discussions with first nations and government officials on the creation of a first nations auditor general.

Furthermore, previous work of the office has shown that first nations programs are already the subject of extensive reporting and audit. For these reasons we believe we would exercise this option rarely, if at all.

Since I expect to follow the dollar only in very rare and unusual circumstances, we are not seeking additional funding to carry out this expanded mandate.

We support the extended application of the Access to Information Act to our office, as set out in the bill. In the past, we have voluntarily provided access to non-audit information, and we post our hospitality and travel expenses and contract disclosures on our office website.

We are pleased that the bill excludes our audit papers from access to information requests and view this exclusion as essential. Without it, our ability to audit would be compromised.

We also support the exemption of internal audit working papers from disclosure under the Access to Information Act. We reported in November 2004 that we found the current Access to Information Act to be negatively affecting the effectiveness of internal audit in departments and agencies.

We welcome a greater involvement of parliamentarians in the process for appointing the Auditor General. A secret ballot procedure, similar to the one used to elect the Speaker of the House of Commons, would prevent the process from being politicized. Divulging the specific number of votes cast for a nominee could it make it difficult for that person to carry out the functions of an agent of Parliament, if it were known that a significant number of members opposed the appointment.

Other agents of Parliament and many provincial Auditors General benefit from civil and criminal immunity in relation to matters arising in the performance of their statutory powers, duties or functions. We are pleased to see similar indemnity provisions extended to my office by the bill.

This concludes our comments on the aspects of Bill C-2 that directly concern our office. As committee members are aware, there are many other parts of the bill that involve policy issues, on which we do not comment.

We would be pleased to answer any questions committee members may have. Thank you.

[The Chair, Conservative, David Tilson]

Thank you, Ms. Fraser.

Mr. Owen.

[Stephen Owen, Liberal, Vancouver Quadra, BC]

Welcome, Auditor General, and thank you for giving us the opportunity to hear your view of this important bill.

As I said in my opening remarks for the official opposition in Parliament, the opposition supports this bill. While we have some concern with some sections that may be improved by amendment, we are wholly in support of the continuing incremental improvement of our accountability mechanisms in Parliament and in government.

One of the difficulties, which you have pointed out in the past, about the discussions that we have, which sometimes need to be very critical about particular operations that have failed the standards that we all expect, is that it can give the impression to the public that this is a generalized problem in government. In dealing with this, I've heard you say in the past that while harsh words are sometimes necessary, and strong conclusions have to be raised, we have to be careful not to generalize it in a way that would have the public lose the requisite respect that it needs for democratic government, either through public servants or politicians, for democracy really to work.

I refer as well to the words of Justice Gomery, in his first report, almost his introductory statement, that Canadians must understand that the overwhelming majority of public servants and politicians are honest, diligent, and effective in their work, and escape from his inquiry without blame. I appreciate your previous remarks on that.

One of my questions would be on the atmosphere of this very important work that we're doing in public, the steps that we should be taking to reinforce the idea that government is overwhelmingly honest and effective and diligent in Canada at all levels and across all parties that find themselves in government, and that this accountability bill is really targeted at the exceptions rather than the common practice.

I'd also be very interested in knowing your views of the proposed parliamentary budget officer--in particular, given that the Auditor General is an officer of Parliament as well, and you and your officials assist us as parliamentarians to do our job better in holding the executive accountable, whether there may be some efficiencies or whether there is a role of that parliamentary budget officer that would make it inconsistent with the mandate of your office. I recognize that there is one example where the Commissioner of the Environment and Sustainable Development is contained within the Auditor General's mandate. One of the issues that comes up in this very massive undertaking that we're involved in is the proliferation of parliamentary officers, which may lead to some confusion or overburdening of the administration.

We're trying to get that proper balance. I wonder if you could comment on that particular officer.

[Sheila Fraser]

Thank you, Chair.

I would agree with the member's comments that it is unfortunate at times that there is a generalization of unfortunate events to the vast majority of public servants who come to work every day with great ethics and who are actually doing a wonderful job for this country. We have said in many of our reports that we are in fact very fortunate in this country to have the quality of public servants that we do. I would agree with Mr. Owen that they're probably not getting the public recognition and credit they deserve. I think that is an issue, that there has long been a tradition of the sort of faceless, nameless bureaucrat. I think maybe people should start to question if that needs to change. I think they have been given a bit of a raw deal because of the actions of a very few.

I think it was just in our last report actually, or perhaps the report before that, where we indicated how complex and how large the federal government is. In an organization that spends $200 billion a year, things are bound to go wrong, but a lot of things do go right. Hopefully our reports will show, and they do show in fact, that many programs are managed well, that progress is being made on addressing recommendations that we have made in the past. I guess one of the conclusions of that is that doesn't get quite as much attention as certain other reports do.

As for the budget office, we haven't really reviewed all that, though my initial reaction would be that the role of the budget office would be very different from the role of the Auditor General, in that they would be working much more closely with parliamentarians. I noticed in the act, for example, that they could do analysis that any parliamentarian would request. I see just there that there's a fundamental difference in what we do. We really do audit the systems and management practices of government and then report to Parliament for their oversight role. I think there is a fundamental difference in the mandates that would be given to the two offices.

Now, obviously in the interests of economies and efficiencies, if there are ways that the offices can share common services or do things like that, we would be glad to do that. In fact, agents of Parliament have already gotten together to discuss sharing certain common administrative systems and other ways that we can work together more effectively.

You mentioned the Commissioner of the Environment. Again, the Commissioner of the Environment really is an audit function; it is not quite so directly attached to Parliament. I think we would be open to looking at the administrative efficiencies, but I would think there are going to be fundamental differences in the mandate of that office as compared to ours.

[The Chair, Conservative, David Tilson]

Is there a point of order?

[James Moore, Conservative, Port Moody—Westwood—Port Coquitlam, BC]

No. Just for clarification, Mr. Chairman, as per the rules of this committee that were set up, I ask for unanimous consent of the committee to extend the time of the committee beyond the 40 minutes that have been prescribed for the Auditor General to give her testimony.

[The Chair, Conservative, David Tilson]

You ask consent? That's great, but do you have any...forever?

[James Moore, Conservative, Port Moody—Westwood—Port Coquitlam, BC]

For an extra full round of questioning.

[The Chair, Conservative, David Tilson]

Thank you.

Mr. Sauvageau.

[Benoît Sauvageau, Bloc, Repentigny, QC]

Ms. Fraser, gentlemen, thank you and welcome. We are always pleased to receive you at committees, and more particularly at this committee. Let me ask you a few questions.

I said it when the President of Treasury Board came. I will not quote you, I will paraphrase your words and you can correct me if you wish.

You said that all the rules had been broken in the sponsorship scandal. Thus we can deduce that there were rules, but that there was no political will to enforce those rules. With Bill C-2, do you think that this kind of scandal could happen again?

[Sheila Fraser]

Mr. Chairman, it is true that there are rules. I would even say that there are many rules. One may even think that there are too many of them. Perhaps we should come back to principles of sound management instead of creating more rules.

Long ago, we did an audit, before the legislation on human resource management was changed. At the time, we discovered that there were 70,000 rules for managing human resources in the federal government. When there are too many rules, they become irrelevant, and people can no longer tell essentials apart from non-essentials.

The sponsorship file is a concrete example of a profound lack of respect for sound principles of management and for existing rules. Several things indicate that there were problems. Internal audits had been carried out, but there was not enough follow-up to ensure that the problems that had been identified were dealt with and solved.

Certain measures in the bill, for instance the obligation of setting up an audit committee, could make the system a bit more stringent.

As far as we are concerned, our extended mandate only deals with subsidies, contributions and loans. The sponsorship file had to do with contracts. Consequently, the extended mandate we now have would not apply to contracts or sponsorship.

[Benoît Sauvageau, Bloc, Repentigny, QC]

Thank you very much for your accurate answer.

You know that I have been reading your reports with interest for quite a while. You have repeatedly recommended that you should be mandated to audit the books of certain foundations. The last piece of legislation on the budget gives you that mandate. The figures involved were rather high. I think that your initial request dealt with foundations that were receiving $500 million. The bill gives you the mandate to audit the books of foundations that receive $100 million or $200 million.

If I understand the sixth point of your presentation, you seem to be hesitant about extending this mandate to apply it to subsidies, contributions and loans of about one million dollars paid to individuals or institutions. Am I right in presuming that, in your opinion, departments should carry out this follow-up and that the executive must not shirk its responsibilities to audit management?

With regard to sums of $500 million and $100 million, this involved certain foundations at a certain level. I think that the departments need to have the right management tools in order to carry out their responsibilities. Did I understand your sixth point correctly? In your opinion is it up to the departments to exercise this oversight?

[Sheila Fraser]

In fact, over the years, we have voiced our concerns regarding the accountability of foundations that had been set up and that had received substantial funds, billions of dollars. One of these concerns was due to the fact that the external auditor, the Parliament's auditor, had no access to these foundations' books to see how these substantial sums of public money were spent. Bill C-43, which was passed last summer, answered this concern. It was a bit different, because the foundations had been set up in such a way that departments had very little influence or control over them. Departments found it very difficult to ensure any kind of accountability.

Now, we can audit the management of foundations that have received $100 million and more, which covers most of them. Currently, we are carrying out two audits of two of these foundations.

What the bill proposes is different. It will cover the vast majority of programs that involve subsidies, contributions and loans. Let us emphasize the fact that it is really up to program managers to ensure that the agreements concerning subsidies, contributions and loans are respected and that the program attains its intended goal. They must create a system, because this no longer involves single, isolated transactions, as is the case for foundations. Transactions come in series and require the appropriate monitoring systems. The external auditor's role consists in auditing these monitoring systems and in noting whether improvements should be made, and of course in reporting this to Parliament. We expect that this will be the normal procedure.

In very rare cases we might have to intervene, but in our opinion, this would not be done on a regular basis. We believe that it would be rather unusual for us to be called upon to audit the books of a recipient.

[The Chair, Conservative, David Tilson]

Mr. Martin.

[Pat Martin, NDP, Winnipeg Centre, MB]

Thank you, Chair.

Madam Fraser, thank you. It's nice to see you, as always.

I notice that under the new tasks and duties that Bill C-2 has in mind for you, you will now be the auditor for all crowns except for the Bank of Canada and the Canada Pension Plan Investment Board. I note that the auditor of record for the Bank of Canada up until recently was Arthur Andersen of Enron fame. I would much rather have you as the auditor of the Bank of Canada than Arthur Andersen. I don't know why those would be beyond your scope. I'll ask you to comment on that.

Also, Ms. Fraser, we're very concerned, on a number of levels, about this notion that you should be auditing first nations. I'm pleased to see in your comments that in your view, I think you say, you believe you would exercise that option rarely, if at all. I do remember your observations about the accounting reporting of first nations, that you actually felt that they were perhaps over-audited, or the burden of reports that they filed was excessive as it is.

I share that with you, but I go further. I don't believe the Government of Canada has any business following the money beyond when that money is transferred to first nations because of the unique relationship they have with first nations generally.

I'd ask you to expand a bit on both of those things--first, why in your view the Bank of Canada and the Canada Pension Plan Investment Board are excluded, and second, your reasoning behind first nations.

[Sheila Fraser]

Thank you, Chair.

On your question about the Bank of Canada, the discussion should probably be held with the bank or with the Department of Finance. I think a case has been made about the independence of the bank. In many countries, the legislative auditor does not actually audit the central bank. Then there was a decision made in that regard that it would be private sector auditors.

As for the Canada Pension Plan Investment Board, I should mention as well that this is not Bill C-2. This was actually Bill C-43, which was passed last summer, so we now do have that mandate. We are actually conducting the audits of the three new crowns that are new to our mandate.

[Pat Martin, NDP, Winnipeg Centre, MB]

Yes, but that's access to information. There are new crowns listed under the access to information provisions of Bill C-2.

[Sheila Fraser]

But in terms of the Canada Pension Plan Investment Board, the reason that the federal government couldn't name us as auditors was that it required the consent of the provinces.

[Pat Martin, NDP, Winnipeg Centre, MB]

Oh, right.

[Sheila Fraser]

Government had agreed with us and committed to us that they would work with us to have us named. So it's a question of time and getting the consent of the various provinces. We would expect to eventually become joint auditors of the investment board as well.

On first nations, we make reference to a reporting study that we did back in December of 2002. When we looked at a number of first nations to see how many reports they actually had to produce for only four government departments, we found that they had to produce 200 and more reports in a year.

[Pat Martin, NDP, Winnipeg Centre, MB]

That's four per week.

[Sheila Fraser]

Four of the reports were audited financial statements, and another 52 reports were dealing with financial matters. There is often a financial report for each individual program as well as an overall financial report. Then they have to produce a whole series of other non-financial reports. And that was only for four departments. Many more departments have programs in first nations communities.

At the time, we said that there really needed to be a streamlining of the reporting, that there had to be a consolidation of reports. We asked if it wouldn't be better, quite frankly, to have people delivering front-line services rather than filling out reports. Government agreed, except that....

At any rate, we will be coming next week with a status report. I'll be glad to tell you what progress has been made or not on that. But a lot of reporting and audit already goes on in first nations communities.

[Pat Martin, NDP, Winnipeg Centre, MB]

Just for the record, I believe the figures show that 96% of all first nations file their large annual report on time and without incident.

[Sheila Fraser]

That is correct, and the consequence of not filing the reports is that the funding is cut.