Government Operations Committee on May 30th, 2006

[The Chair, Liberal, Diane Marleau]

Welcome. There are a lot of witnesses here today, so we're going to move quickly into presentations. We're asking you to limit your time to five minutes.

We'll start with Madam Fraser.

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

Thank you, Madam Chair.

We thank you for inviting us to discuss the audit of the Canada Firearms Centre. I am accompanied today by Peter Kasurak, senior principal of the public safety team, who was responsible for this audit.

Let me take this opportunity to provide members with an overview of our findings. This audit was a follow-up to our 2002 audit of the cost of the Canadian firearms program. We were unable to complete our 2002 audit because the financial information available was unreliable and did not fairly represent the net costs of the program. This year we are able to report that the centre has made good progress in addressing our findings with one exception that I will discuss later.

The Canada Firearms Centre has adequate financial reports, and it has developed a reasonable method of apportioning costs between licensing and registration activities.

The Firearms Program has been substantially reorganized since our 2002 audit. When the new management team took over in May 2003, not only did they have to establish all of the functions of a separate agency, they also had to deal with existing problems. The new team has handled a large volume of licence applications, firearm registrations and transfers. It has dealt with operational issues such as spreading out the timing of licence renewals, consolidating the application processing site, and establishing the infrastructure necessary for a stand-alone department. The team has also improved contracting practices, and the number of contracts that have "red flags" indicating non-compliance with regulations has dropped significantly since 2001-02.

However, we have also found some problems that have yet to be addressed. The most important of these are as follows.

First, the program still lacks performance targets or a definition of how program activities will result in the desired outcomes for public safety. Errors have been made in reports to Parliament overstating the degree to which service standards have been met.

Second, the quality of the information in the Registry still has significant inaccuracies in part due to information carried over from the Restricted Weapon Registration System as well as the 2002 decision to allow applicants to describe their own weapons without verification. We also found the system of volunteer verifiers to be generally weak.

Lastly, there are continuing concerns with the new Canadian Firearms Information System, CFIS II. These concerns start with the basis for the initial decision to build the system, the lack of a detailed requirement, and the subsequent delays and cost overruns. We report that the system has tripled in cost to about $90 million to date, including about $30 million in avoidable delay costs. At the time of the audit, the system had not been tested or declared operational.

I would encourage the Committee to press for correction of these problems, no matter what form the Firearms Program may take in the future.

However, the most important finding from my perspective and the object of our additional report is how the costs of CFIS II were accounted for and how they were then reported to Parliament. In fiscal 2002-03 the Department of Justice did not record liabilities of $39 million incurred in the development of CFIS II, as they should have.

This error had two effects. The first was that Parliament was not told that the program had actually exceeded the limit stated by the then Minister of Justice in the House. Secondly, it also meant that the new Firearms Centre management team had to deal with an unexpected $39 million expense in 2003-04. During 2003-04 the centre, which was now a separate department, realized that it was likely to exceed the amounts appropriated by Parliament because of the prior year's accounting error and because of additional unexpected increases in the cost of CFIS II.

Although the centre initially recommended additional funds be requested from Parliament through supplementary estimates, senior officials of the Treasury Board Secretariat and Public Safety and Emergency Preparedness Canada sought an accounting presentation that would avoid reporting certain costs against that year's appropriation. Acting on their advice and a legal opinion obtained by Public Safety, the centre incorrectly decided that the CFIS II liabilities at March 31, 2004, of $21.8 million did not need to be recorded against the centre's voted appropriation. Again, the result was that Parliament was not informed that the centre had in fact exceeded its appropriation and, as we more commonly say, blown its vote.

Our report analyzes each argument made by officials to justify their decision not to report these costs against the centre's vote and concludes that officials erred and the government accounting policy was not followed. In particular, the argument that the Treasury Board had not approved the contract and that therefore the liability did not have to be recorded in the year in which it occurred is troubling. I am very concerned about any possible adoption of an accounting policy that would allow the government to move the recording of expenditures from one year to the next based only on the timing of their approval by the Treasury Board. This is not in accordance with recognized accounting principles, nor with current policy.

These accounting errors meant that Parliament was not properly informed of the true costs of CFIS II on a timely basis. We also note that not seeking proper authority for supplementary funds where there was a reasonable likelihood that an appropriation will be exceeded could be interpreted as a breach of the Standing Orders of the House of Commons. Failure to fully account to Parliament for expenditures against a vote could also be viewed as an infringement on the privileges of the House of Commons.

Obviously, only the House itself can determine whether such a breach has occurred.

Madam Chair, that concludes my opening statement. We'd be pleased to take committee questions.

[The Chair, Liberal, Diane Marleau]

Thank you.

We'll go now to Mr. Baker. I believe you are the former commissioner for the Canada Firearms Centre.

You have five minutes, please.

[William Baker, Former Commissioner , Canada Firearms Centre, As an Individual]

Thank you, Madam Chair. First of all, I would like to introduce three of my colleagues who are not at the table: Mr. Denis Bilodeau, Senior Advisor;

Beverley Holloway, chief operating officer; John Brunet, chief financial officer.

The Auditor General, in her recent report, has raised a number of recommendations and observations. We are, by and large, in agreement with the points that are raised, as indicated in the report.

I simply want to point out that I am personally extremely comfortable with the progress the Canada Firearms Centre has achieved in the last few years. If we look at the issues that were presented to the government in 2002 with the last report and look at the issues that are presented today, I can say with total confidence that we're providing parliamentarians with good information and accurate financial records. We have also managed to bring the budget down considerably for the Canada Firearms Centre over the last number of years.

I simply look forward to taking the questions of committee members.

Merci.

[The Chair, Liberal, Diane Marleau]

Thank you.

Now I'll ask Monsieur Charles-Antoine St-Jean, Comptroller General of Canada.

[Charles-Antoine St-Jean, Comptroller General of Canada, Treasury Board of Canada Secretariat]

Thank you, Madam Chair.

I do not have any statement to make at this point in time. I'd just like to introduce a colleague of mine who will be at the table with me. John Morgan is the assistant comptroller general for financial management, and we are here to answer your questions.

[The Chair, Liberal, Diane Marleau]

Thank you.

Mr. John Sims.

[John Sims, Deputy Minister and Deputy Attorney General, Department of Justice]

Thank you, Madam Chair.

I have no opening statement either. I too would like to introduce Mr. Wayne Ganim who was the chief financial officer of the Department of Justice at the relevant time.

Thank you.

[The Chair, Liberal, Diane Marleau]

Thank you.

And from Public Works, we have Mr. Ian Bennett.

[Ian Bennett, Acting Assistant Deputy Minister, Acquisitions Branch, Department of Public Works and Government Services]

Thank you, Madam Chair.

May I introduce two of my colleagues who are with me: George Butts, director general, and Scott Leslie, a senior director who has been actively involved with this file in working with the Canada Firearms Centre.

I do have a short opening address, Madam Chair, and I want to thank you for this opportunity to discuss federal contracting services in relation to chapter 4 of the Auditor General's report.

To deliver the best value procurement services, Public Works and Government Services Canada works as a strategy partner with our customer departments. We help them throughout the procurement process from defining requirements and procurement approaches; managing the bidding process; and supporting them in ensuring accountability throughout the contract.

Public Works and Government Services Canada has supported the Canada Firearms Centre since its inception, through the provision of contracting services, including those related to information technology. The department has awarded two principal contracts, both awarded competitively, to support the Canadian Firearms Information System, referred to as CFIS I and CFIS II. These contracts are highlighted in the Auditor General's chapter 4 report.

Managing the two CFIS contracts in an uncertain operating and legislative environment has proven to be a significant challenge. Numerous changes to both contracts have been required over the years to accommodate these realities. We do acknowledge, however, that lessons learned from CFIS I experiences could have been better applied to CFIS II procurement, which has proven to be a particular challenge. Many of the assumptions upon which it was to be based have had to be adjusted as the environment, particularly the firearms legislation, has evolved.

With the assistance of third party analysis, Public Works and Government Services Canada, the Canada Firearms Centre, and the CFIS II contractor have recently agreed to halt work to ensure that no further expenses are incurred while we are assessing the situation. The Auditor General cited cases that dated from 1997 to 2004, where the Firearms Centre retained a number of contractors for years, using the Public Works and Government Services database, referred to as Informatics Professional Services, a tool that allows federal departments to search for consultants based on skills and experience. The Auditor General reports that in many cases, searches of the IPS data base would yield only the name of the incumbent contract. Public Works and Government Services concurs that these contacts should not have been justified as competitive, and we note that we ceased this practice in 2004.

The Auditor General recommends that Public Works and Government Services reviews how client departments use our contracting tools, and that it be able to provide assurance that these are not being used to circumvent contracting policies and procedures. We take this recommendation very seriously and are taking appropriate corrective measures to address the issues highlighted in the chapter. Such measures include training of users on accountabilities, policies, and processes; increased monitoring and reporting of usage; and where appropriate, Madam Chair, restricting the use of these tools. As of December last year, Public Works and Government Services Canada has improved, rebranded, and expanded the professional services online database to allow better monitoring of usage.

In conclusion, we recognize that we must continue to find ways to improve our services to organizations, while continuing to exercise a vigorous check and balance in the role of protecting the interests of Canadians. Public Works and Government Services Canada is in the midst of transforming the way we do business, seeking innovative ways to deliver services smarter, faster, and at reduced costs, all the while ensuring that the Government of Canada improves how it does business. We are committed to fair, open, transparent, competitive procurement strategies that meet the government's needs, while ensuring equal access to business that will pass the test of public scrutiny.

Thank you, Madam Chair. I look forward to the questions.

[The Chair, Liberal, Diane Marleau]

Thank you very much.

We'll move to our first questioner, Ms. Yasmin Ratansi.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Thank you, Madam Chair. Thank you all.

I think I saw the Auditor General and the Comptroller General just yesterday. I have some questions for you that will help me understand the system itself.

The auditor says that there was satisfactory progress made on the 2002 recommendation, on the financial reporting, and you need really an adequate management system to meet these operating challenges of the registry. Number one, with respect to CFIS II, was an RFP done? Was the procurement process within the parameters of government guidelines? Number two, was it a simple or a complex system? Did you do any benchmarks to see what others were doing? I've been through the public service in Ontario and I'm familiar with the CFIS system. We do silos reporting. Was it an all-encompassing system or really a one-way system? Was it able to pick up data from somewhere else? And number three, why is there still incorrect information in the system?

[Sheila Fraser]

I can perhaps start, Madam Chair, by clarify the satisfactory rating. When we did the audit in 2002, it was strictly on the financial reporting system and the costs of the firearm program, which were inadequate for us to be able to opine upon. When we came back this year, with the exception of the two accounting disagreements, which we note in the additional report, we are reporting that the financial accounting system is working well. We note as well a lot of improvement in other parts of the operation, which we audited for the first time in this audit.

CFIS II is the firearms registration system; it is not the accounting system. It's a different system, and in that there are, as we note, difficulties with the second system. It is behind schedule, over cost, and at the time of our audit, it had not been tested and was still not working.

Perhaps the government would like to respond to that.

[The Chair, Liberal, Diane Marleau]

Perhaps Mr. Baker would like to respond to this.

[William Baker]

Thank you, Madam Chair.

There is one system that is central to the operation of the entire Canadian firearms program, and it's the database. It is not just for the registration of all of the firearms that are in the system and is not just the means by which police access the data; it is also the database that captures information on all two million plus licence-holders in the country. So it is all that together.

You referred to some issues with respect to the quality of the data in the system. I know that the matter to which the Auditor General is referring is with respect to the data on firearms themselves, the registration of firearms. The deadline for firearms to be registered under the Firearms Act was December 31, 2002. For a lot of reasons, including resistance on the part of some people and some concerns or doubts as to whether the requirement would actually continue to be there, many of these firearms were registered in the months preceding and after the deadline, and in fact, we received over a million firearms in the year following the deadline, in terms of registration.

The government's approach to the data in order to manage the volume was to take the information submitted by the firearms owner at face value and just do a very cursory review of the data to ensure that there was nothing obviously faulty. Clearly, there are some errors in the data. One thing we can report, and it is acknowledged in the Auditor General's report, based on verification of the data that we did in the last year or so, the criterion that is most critical is whether a firearm is restricted, prohibited, or non-restricted, because that dictates the use of the firearm and the type of licence the person must hold. As indicated in the report, the incidence of errors at that level is very, very small--less than 0.01%--but there still are clearly some errors in the database that are being fixed up as we go along.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Are you going to be responding, or can I ask another question?

[The Chair, Liberal, Diane Marleau]

You can ask another question, unless somebody else wants to say something.

[Ian Bennett]

Madam Chair, I can respond to the questions in terms of the procurement.

I want to assure the committee, Madam Chair, that the process was entirely competitive. It went through an RFP process. In fact, we had five responses to the bid. We had five compliant bids. It was a very competitive and open process.

[The Chair, Liberal, Diane Marleau]

Ms. Ratansi.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

When I look at the system—and you were talking about the legislation, the resistance to it, etc.—was the contractor building in any contingency allowing for some permutation or combination in a complex system like this, where there has to be some leeway given?

That leads to my next question about when the system was in its delay and development mode, when that $21.8 million was incurred. Was there any arrangement with the contractor when you started doing the RFP bid? You've probably worked with the government systems so often that you know what goes on. Was it there?

I'm just trying to get a handle on it, so that when we go forward, our job as parliamentarians of ensuring there is efficiency is met and we look after taxpayers' dollars well. So give us an idea of what happened.

[The Chair, Liberal, Diane Marleau]

Mr. Baker, and then Mr. Bennett, for just a minute each, because we're going to run over time.

[William Baker]

Very briefly, there are two systems. First of all, members should understand that there's one that's been in place since the outset of the program. We refer to that as CFIS I, the Canadian Firearms Information System I. It remains the operating system for the Canada Firearms Centre. The second system in question is referred to as CFIS II. It has been a system under development now for a number of years and, as indicated by Mr. Bennett, is currently under review.

The normal practice—though I won't get into details—is that when a major contact is let, there is certainly some provision for changes in volumes, or whatever, which is usually built right into the costing formula. The critical issue around the delays in implementation of the new system is that when that contract was let, it was based on a certain set of assumptions around the act that amended the Criminal Code and Firearms Act, Bill C-10A, which took a lot longer, as members will recall, to put in place. In fact the regulations were only made about a year and a half ago. So those delays prevented the contractor from delivering a system.

Now, of course, we're going through further changes in the program. That is one of the reasons, as well as contract-related issues, that the program is under review.

[The Chair, Liberal, Diane Marleau]

Mr. Bennett, for a very short time, because we're already over time.

[Ian Bennett]

Madam Chair, we work very closely with program departments. Building on the comments of the Canada Firearms Centre, they were responding to changing requirements in terms of implementation and timeframes and the system. We work closely with them in terms of identifying what are the operational realities and how they affect the contract, and then try to structure the contract accordingly. So in this particular case, yes, we have structured the contract in terms of responding to evolving needs.

[The Chair, Liberal, Diane Marleau]

Ms. Thibault, you have seven minutes.