Government Operations Committee on Dec. 5th, 2006

[The Chair, Liberal, Diane Marleau]

We will welcome once again Madam Sheila Fraser, the Auditor General of Canada.

You know the drill, Madam Fraser. You have a few minutes. The floor is yours.

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

Thank you, Madam Chair.

I am very pleased to be here to present my November 2006 report, tabled last week.

I am accompanied by Doug Timmins, Hugh McRoberts, and Ronnie Campbell, Assistant Auditors General.

This report covers a broad array of government activities, from the government system for managing spending, to public service ethics, to contract management, to programs that contribute to the health and well-being of Canadians.

The report includes four audits we had planned to report last spring. Because of changes to the parliamentary calendar as a result of the federal election, we deferred reporting them until now, with an update of our audit findings.

Let me begin with how the federal government makes decisions about spending public funds. The expenditure management system is at the heart of government operations because every government activity involves spending. Over the last six years, federal spending has grown from $162 billion a year to $209 billion. An effective system to manage spending is essential to getting the results the government wants and to being accountable to Canadians for what is done on their behalf.

We found that the current system does not routinely challenge ongoing programs to determine whether they are still relevant, efficient, and effective. I am concerned that the system focuses on challenging new spending proposals and pays too little attention to ongoing spending. Also, in many cases the distribution of funding is not aligned with what is needed to deliver the program.

Finally, we found that departments rely more and more on supplementary estimates to get funding for some items, instead of including them in the main estimates. This means Parliament does not see the full range of proposed spending when it approves the annual spending plans.

The government is reviewing the expenditure management system, and I encourage it to resolve the weaknesses we have identified. Good systems in themselves are not enough—they must be applied correctly and ethically. Departments and agencies can take several formal or measures to ensure proper conduct.

In chapter 4, we examined key aspects of these measures in the RCMP, Correctional Service Canada, and the Canada Border Services Agency.

We found that these public safety agencies have ethics programs but that many employees are not aware of them. Also, only about half of the employees believe their organizations would act on reports of misconduct, and many do not think those who report misconduct in the workplace are generally respected.

It takes more than formal programs alone to encourage employees to report wrongdoing by colleagues. Employees have to be confident that management would take action on reports of wrongdoing.

Heads of agencies in particular should demonstrate the highest ethical standards of integrity. When they fail to do so, public trust and confidence in government suffer. In chapter 11, unfortunately, we do report one case of unethical behaviour by a senior official, the former correctional investigator.

The behaviour we observed on the part of the former correctional investigator and the fact that it persisted over a long period of time and was not reported are extremely disturbing.

This kind of conduct is certainly not typical of the public service, and I would caution all not to generalize from isolated examples to the public service as a whole. In my experience, the majority of public servants do adhere to the high standards expected of them.

In chapter 9, we looked at the problems related to the RCMP pension and insurance plans.

These problems came to light only after employees complained. We found that the RCMP responded adequately to an investigation of abuse and waste, but we also found that broader issues remain. The RCMP needs to find a way to ensure that investigations of its actions are—and they seem to be—independent and unbiased. It also needs to assess the impact of a recent court decision on cases that warrant disciplinary action.

In chapter 3, we note that the federal government still has problems managing large information technology projects. These projects involve a lot of money, and it is important that the rules and processes in place for managing them be rigorously followed.

In the last three years, the federal government has approved funding of $8.7 billion for new business projects with significant use of IT.

Although a framework of best practices for managing large IT projects has existed since 1998, we found several of the same problems that we have reported in the past. Only two of the seven large IT projects we examined met all the criteria for well-managed projects. The persistence of these longstanding problems is extremely troubling, not only because they involve large public investments but also because of lost opportunities to improve business practices and services to Canadians.

This report also includes two chapters on major contracts that had serious shortcomings in the way they were awarded and how they were managed.

In chapter 5, we looked at the handling of two contracts to relocate members of the Canadian Forces, the RCMP, and the federal public service. In 2005, the program handled the relocation of 15,000 employees, at a cost of about $272 million. Government contracts should be awarded through a process that is fair, equitable, and transparent. We found that these contracts were not, despite various warning signs. The requests for proposals contained incorrect information, which gave an unfair advantage to the bidder who had the previous contract. The management of these contracts also had serious shortcomings, and members of the Canadians Forces had been overcharged for services provided to them.

In chapter 10, we found that the government failed to respect basic requirements in awarding and managing a major health benefits contract. This contract, worth millions of dollars, was awarded even though Public Works and Government Services Canada did not ensure that all the mandatory requirements were met. And for the next seven years, Health Canada managed the contract without respecting basic financial controls.

I am encouraged to see that the contract management issues in Health Canada have since been corrected.

We also looked at how Health Canada allocates funding to its regulatory programs.

In chapter 8, we looked at three programs that regulate the safety and use of products commonly used by Canadians: consumer products such as cribs, medical devices such as pacemakers, and drug products such as prescription drugs.

In an area so critically important to Canadians, Health Canada needs to know what levels of monitoring and enforcement its regulatory programs must carry out to meet its responsibilities, and what resources are needed to do the work.

We found that Health Canada does not have this information and therefore cannot demonstrate that it is meeting its responsibilities as a regulator.

In chapter 7, we looked how Indian and Northern Affairs Canada manages the treaty process with first nations in British Columbia on behalf of the Government of Canada. The Auditor General of British Columbia also presented a report last week on the provincial government's role in the process. This treaty process is important to all Canadians. Among other things, it could help first nations people in B.C. improve their standard of living and it could result in significant gains to the economy.

Since negotiations began in 1993, one final agreement has been initialled and two more are seen as imminent. However, no treaty has been signed and costs continue to grow.

We found that the federal government needs to better manage its part in the B.C. treaty process. Negotiating treaties is complex, it takes time, and it can be very difficult. The government needs to take these challenges into account and rethink its strategies based on a realistic timeline.

In chapter 6, we report on the Old Age Security program.

Around 4 million people receive Old Age Security benefits, amounting to about $28 billion a year. The number of beneficiaries is expected to double in the next 25 years. Errors that affect even a small percentage of clients can still represent a very large number and be very costly.

We found payment errors in fewer than 1% of applications. We are pleased at this low rate of error. We are also pleased to see measures such as an outreach program and a simpler application process to make Old Age Security more accessible to seniors.

We also looked at a case where the government created an obstacle to the effective operation of a foundation it established to support its environmental goals. In chapter 12, we noted that a clause inserted by the Treasury Board Secretariat in the government's most recent funding agreement with Sustainable Development Technology Canada prevented the board from making decisions in any given meeting where the majority of members present were federal appointees.

Finally, two chapters of this report note that we were unable to audit certain aspects of government operations because we were denied access to information and analysis collected and prepared by the Treasury Board Secretariat. Public servants base their denial of access on a narrow interpretation of a 1985 order in council that spelled out our access to cabinet documents. After numerous discussions with government officials, the issue was finally resolved three weeks ago with the issuance of a new order in council that clearly acknowledges my need for access to the analyses performed by the Treasury Board Secretariat. I thank the government for responding to our concerns.

Madam Chair, this brings me to the end of our introductory comments.

I would be happy to answer any questions members of the committee may have.

[The Chair, Liberal, Diane Marleau]

Merci, Madame.

Mr. Bains.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Thank you very much, Madam Chair.

Thank you very much, Auditor General, for coming here today.

I want to initially focus on chapter 3, specifically with respect to large information technology projects. There's quite a bit we can talk about. You indicated that over the past few years there has been about $8.7 billion worth of IT expenditures. I have some concerns, which you raised. As you're fully aware, we've discussed very extensively in this committee accrual accounting and accrual budgeting on a going forward basis. One of the issues we raised during those discussions was with respect to IT systems and how they would merge and assist in the financial reporting.

There seems to be an issue, not so much system-related, but a human resource issue. Can you clarify or elaborate on that? Is it really an IT system, or is it a human resource issue? I get the impression from what you've told us that it seems to be a lack of proper training, a lack of proper experience, and a lack of proper recruiting. Is that correct, and what, if any, action has the government taken to address that issue?

[Sheila Fraser]

Thank you, Madam Chair.

In the particular audit it was really the management of IT systems. The government has a framework in place. It has been in place for almost ten years now, since 1998. We would have expected government departments, in introducing these large projects that involve a significant IT component, to have followed that framework of management practices.

We found two main problems in the projects we looked at. We looked at seven projects. Two were done well: the census and the project at the Canada Revenue Agency. The other five all had problems. Of the two recurring problems, the first was a lack of a good business plan and proper planning up front, in particular to show who would be using these systems and what the benefits would be. The second problem was with organizational capacities. Getting back to the HR issue, they did not have the capacity, either the numbers or the skill set, to be able to deliver on the project with success. So there is an HR issue in the projects we looked at.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Does there seem to be any indication that they have a plan in place to deal with that?

[Sheila Fraser]

Well, they certainly agreed with us that there should be more consideration given up front in planning these projects. I think it would have to be done on a project-per-project basis. I'm not aware of any particular plan government-wide. I know in the past there have been certain plans to deal with, for example, the Y2K issue. I think that was managed more centrally. These are specific projects in departments.

I think one of the things we point to in this chapter is that there needs to be better upfront planning for these projects. There needs to be a better assessment of the HR skills and capacity within the department before they go ahead and start the projects.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

So it's not even so much the management of projects that you raise as a concern; you also raised the notion of how they were awarded as well. In your opening remarks, you stated that. So with these IT projects, first, it's how they're awarded, and secondly, how they're managed.

When you said there were shortcomings in the way they were awarded, I'm assuming you're talking about procurement practices. Is that correct?

[Sheila Fraser]

We have two chapters that deal with problems in awarding contracts. They are not related to IT projects. One is related to relocation of public servants. Another one is related to a health benefits contract.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Going back to the closing remarks you made with respect to access to information, obviously when you were trying to understand--and I believe Treasury Board Secretariat is responsible for oversight for IT projects you alluded to. Is that correct?

[Sheila Fraser]

That's correct.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

They were responsible for oversight, but they denied you access to certain information because of the Access to Information Act. Then you indicated that in the last few weeks they were very forthcoming and made the appropriate changes to allow you to get the information you needed. Could you elaborate on that?

[Sheila Fraser]

Let me clarify. The Auditor General has right to access under the Auditor General Act. We are not limited by Access to Information, which is even more restrictive. The Auditor General Act says we have access to all the information we require to do our audits. In 1985, there was an agreement between the Office of the Auditor General and government on access to cabinet documents, spelling out which documents we were to receive, because obviously most cabinet documents are confidential.

That order in council served us well until this recent audit, where, in the case of the IT projects, we wanted to look at the analysis the Treasury Board Secretariat had done. They play a role in this management framework and they challenge these projects, and we wanted to see these documents. Those documents were denied to us by public servants on the basis that they were cabinet confidences of a nature we could not receive. It was their interpretation of the 1985 order in council. We disagree with them. We believe we should have received them, but we obviously cannot see the documents, so it's hard to argue that we should get them because they're being denied to us.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

How would they be deemed to be cabinet confidences? Is there an analysis in looking at the particular projects?

[Sheila Fraser]

I think the difficulty arises from the fact that Treasury Board Secretariat has two roles. One is as the secretariat to cabinet and the other one is a management role.

I think this definition of cabinet confidence was broadened by bureaucrats, and they said certain analyses were recommendations to cabinet, so we could not access them. We have worked with government, and a new order in council was issued about three weeks ago that clarifies the issue. But there's also a convention that one government cannot release cabinet confidences of a previous government, so because of the change in government, we will never have access to the documents we were denied. The problem is resolved, but we will never have those documents that have been denied to us.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

When you say an order in council was issued that clearly acknowledges your need, can you expand on that? What specific needs will be met or what additional access will you have? That seems to be a broad term, and I want to know the specifics.

[Sheila Fraser]

The order in council spells out that we have the right to receive analyses prepared by Treasury Board Secretariat, so it is more specific in outlining those documents.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

You clearly indicated you will not have access to the documents you requested.

[Sheila Fraser]

That's right. We will have access to Treasury Board analyses prepared from February 6, 2006, on, but as we mention in the report, very often our audits are retrospective, and it is possible that at some point we would ask for prior documents. Should we ever again be denied access, we would have to report it to Parliament.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Thank you very much.

[The Chair, Liberal, Diane Marleau]

Thank you.

Madame Thibault.

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Madam Chair.

Thank you, Ms. Fraser, for giving us your time once again. Thank you also to your team—it is a pleasure to have you here.

At the beginning of your presentation you said:

An effective system to manage spending is essential to getting the results the government wants and to being accountable to Canadians for what is done on their behalf.

The government has fiduciary responsibility not only to taxpayers, but to Canadians in general. What you told us today is that we do not really have the information we require to fulfil our responsibilities. As an elected representative, I find myself, once again, concerned.

You also spoke about the supplementary estimates. If memory serves, they were first introduced in 1997. Since that time, there seems to have been a certain level of abuse in the way in which they are used, an abuse that did not exist between 1990 and 1997. However, I do have to be honest and admit that I have not read your predecessor's reports.

Is there a correlation between the surpluses with which we are all familiar—as much as I would like to, I will refrain from passing comments on the matter—and the availability of supplementary estimates?

The government acts very differently when there are surpluses. I think that the government should manage the public's money in a more responsible manner.

[Sheila Fraser]

Although it is not specifically stated in the report, I would say that there is a correlation between surpluses and increased use of supplementary estimates.

When we did not have a surplus, approval of budgetary items was tightened. There were not many additional projects, and expenditure management was extremely rigorous. In fact, our expenditure management system is essentially designed for lean times and is perhaps inadequate for periods when we register a surplus.

For example, there is no provision for a comprehensive review of existing programs and we tend to focus primarily on new expenditures. I would say that there is a tendency for new expenditure to be included in the supplementary estimates rather than the main estimates.

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

New expenditure is for new programs; however, these new programs are not only going to be around for six months—they are long-term programs. Correct me if I am wrong, but I am somewhat surprised by the fact that such programs are funded through the supplementary estimates rather than the main estimates.

[Sheila Fraser]

I think that it has become fairly common practice over the past few years in an effort to keep spending in departments and agencies constant. Officials dipped into the supplementary estimates when they needed additional monies rather than properly evaluate expenditures at the beginning of the cycle.

Our office received the main estimates, but knew that the supplementary estimates could be used to cover certain expenditures. The failure to adjust spending levels in the main estimates has become a common practice.