Public Accounts Committee on May 11th, 2006

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Madam Auditor, and thank you for the excellent report.

We will now proceed to the first round. The first round is the Liberal, Mrs. Ratansi, for eight minutes.

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

Thank you, Chair, and thank you, Madam Auditor and the team.

I'm new to this committee and we have a lot of catching up to do, so I won't match Mr. Williams' knowledge or Mr. Murphy's knowledge.

I was looking at the Gomery recommendation because it was restoring accountability. In that Justice Gomery says: “Canadians are fortunate in that the great majority of the people who serve in Parliament and in the public service hold very high ethical standards. We must not forget that only a handful of government officials failed to live up to those standards...”. He then goes on to recommend things to redress the balance between resources available to government and those available to Parliament.

Having been an auditor myself, I see that in the accountability platform some suggestions were made that require you to follow the dollar. With 350 million transactions and $186 billion in revenue, etc., how do you propose to follow the dollar? What is the material value you put in, and how do you determine the parameters of your audit so we are assured that there are ethical standards and the money is not being misspent?

[Sheila Fraser]

In the act it is very clear that any audit work undertaken would be at the discretion of the Auditor General. So there is no direction from government as to the audits that would be conducted. That is absolutely essential, because one of the key tenets of an Auditor General to be able to do the work is the independence of the Auditor General. So the Auditor General has to be able to determine what work would be done.

In the case of the expanded mandate--it is proposed in the Accountability Act, as we mention in my opening statement--we really believe it is the responsibility of government departments to ensure that they have the systems and practices in place to be able to show that funds that are given by grants and contributions, or through loans, are used for the purposes intended and meet the terms and conditions of those funding agreements. Our job, essentially, fundamentally, is to ensure that those systems and practices are in place and that they are working appropriately. This is the kind of work we do on a regular basis.

There could be very unusual circumstances--and we will have to try to determine what they would be--in which an Auditor General would feel it appropriate to actually audit a recipient. But as we indicate, we believe that would be very rare and unusual. We do not believe we will ever systematically audit grant contribution recipients.

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

I have been a risk management auditor for the provincial government, where we gave grants, and the basis for giving grants was that they should have their own external audit done. Does the federal government follow a similar process?

How often do you audit crown corporations, and what are the crown corporations that you audit?

With the Comptroller General being established and internal audit departments being in the majority of departments, how does that enhance your work?

[Sheila Fraser]

First of all, regarding the management of grants and contributions, perhaps we could defer the question, because in our report that is coming next week we have done a follow-up audit on the management of grants and contributions programs, and you will see the conclusion we have as to whether there are sufficient management procedures in place.

Essentially, many of the departments have specific procedures for a particular type of granting program. One example that comes to mind is first nations funding. There are requirements for annual financial audits to be produced, and in fact if those audits aren't produced, the first nation loses its funding. There are many requirements like that, and we can perhaps discuss that a little more next week.

Regarding the audits of crown corporations, there was an amendment to our mandate last summer in the budget implementation bill, Bill C-43, that named us as auditor or co-auditor of all crown corporations except two. Before that, we were doing almost all of the crown corporations, but that added three crown corporations to the audits we do, the most important being Canada Post. We will be undertaking those new mandates in this coming year, and we will be co-auditors of Canada Post, for example. There are only two that we don't audit.

The Comptroller General has been doing a lot of work to try to reinforce the internal audit capacity within government. There is a requirement that all departments and agencies have an internal audit function of some sort. They are working to establish audit committees in departments.

To the extent that we can, we try to rely on internal audit work, but there is still much improvement that needs to be done in that function throughout government. We did an audit on internal audit in 2004. Our basic conclusion was that the function needed to be professionalized; they needed to bring in more people with the required expertise and give them more resources, more training.

So there are a number of issues that needed to be addressed. But it is going in the right direction, and certainly the intention is there.

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

My last question—and this shows that I am new to the committee—concerns crown corporations. Are they subject to external audit? Do they have an external auditor doing their audit? Are you the external auditor?

[Sheila Fraser]

Either their external auditor is the Auditor General of Canada or, in about six or seven cases, we are co-auditors with a firm from the private sector.

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

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you very much.

You have eight minutes, Mr. Nadeau.

[Richard Nadeau, Bloc, Gatineau, QC]

Good day, Madam. It's a pleasure to meet with you.

Good day to you as well, Mr. Chairman.

Can you tell me how you arrive at your budget figures? We know that everything must go through the House of Commons, which is somewhat political in nature. In your opinion, should this process be changed? For instance, could we look at the way things are done elsewhere in the world for inspiration so as to improve the way in which the government audits its books and those of Crown agencies?

[Sheila Fraser]

Thank you, Mr. Chairman.

We have long been critical of the way in which the budget of the Auditor General's office is determined. Like all other federal government departments and agencies, the Office of the Auditor General was required to negotiate its budget with the Treasury Board Secretariat. We found it rather inappropriate to have to discuss our Office's funding requirements with the very same people who were the subject of our audits. We wanted parliamentarians to be more involved in the process.

We worked with the government to develop a pilot project proposal last year. The proposal called for the creation of a committee of parliamentarians to give advice to the Speaker of the House of Commons. All agents of Parliament would discuss their funding requirements with this advisory committee. Treasury Board Secretariat officials would also come before the committee to discuss their analysis of the situation and their funding recommendations. The whole process would in some respects be more transparent. The committee would then make a recommendation to the Speaker of the House who in turn would make a recommendation to the President of the Treasury Board.

Parliamentarians will now participate in the process. We have not had an opportunity as yet to meet with the committee because it only got down to work in November, just before the session ended. Be that as it may, the current government has indicated that it intends to reconstitute the committee. So, we look forward to meeting with committee members.

[Richard Nadeau, Bloc, Gatineau, QC]

Therefore, you're intrigued by this new approach. However, how does it compare with the systems in place in other countries?

[Sheila Fraser]

We researched at length the approach taken by countries with the Westminster model of governance, such as as Britain, Australia and New Zealand. As I recall, we did make a presentation on this very subject to the committee. However, we would be pleased to make another one.

We looked to systems in place in other countries for some inspiration. Obviously, the committee is not patterned exactly on any given model. We felt it would be best to carry out a pilot project for a year or two to see if this approach required any fine tuning, in terms of House rules and procedures, legislation and so forth. In some respects, it's one way of achieving the same objectives. We'd be happy to provide you with information about this pilot project.

[Richard Nadeau, Bloc, Gatineau, QC]

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Monsieur Nadeau.

Mr. Fitzpatrick, eight minutes.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Good day, Madam Fraser.

I want to ask you about an area that I know you have a real interest in and that I know you hope your audits will make a difference in, and that's the area of improving the lives of aboriginal Canadians. I'd like to ask you, what area do you think you may have had a really positive impact on in terms of improving their lives, and what area most disappoints you at this stage of the game?

[Sheila Fraser]

Mr. Chair, could I ask that this question be deferred for one week? We'll be tabling a status report on Tuesday. In the report we've done a follow-up on all of the recommendations we made between 2000 and 2003, so 37 recommendations. I'll be able to answer with much more detail after Tuesday's tabling.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Fair enough. Yes, I can wait that long.

In other area, if we assume that the government of the day is quite ambitious about going through some of the doors that maybe were closed to the previous government in terms of audits and reviews, whether they're crown corporations, foundations, or grants and contributions, if the government really wanted to get into an ambitious program of using your office to track money into these areas, would you need more resources in your department to do that?

[Sheila Fraser]

I think I have to address the premise of the question. It is absolutely critical that the Auditor General be able to decide the work of his or her office. We cannot be directed by government.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Let's say the public accounts committee wanted you to do this sort of work.

[Sheila Fraser]

If committees of parliamentarians signal concerns to us, we will certainly try to do our best to accommodate that issue. In fact, we recently wrote a letter to the committee indicating that there had been a resolution asking us to audit a relocation program, and we have undertaken that audit and will be reporting it in the fall. So if there are specific issues that the committees have concerns about, we will generally try to accommodate that.

Also, as I mentioned earlier, Bill C-43, which was passed last summer, expanded our mandate quite considerably. It gave us the mandate to audit all crown corporations save two. It also gave us access to the foundations and gave us access to any non-profit organization that received over $100 million in a five-year period. That was really an issue of concern that we had raised for many years, that there wasn't sufficient accountability. We currently have two audits going on that include foundations. So that issue for us was resolved very much with the bill that was passed last summer.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

There's another area that I want your comments on. I'm not suggesting that all departments do this sort of thing, but when they get to year-end and they have surplus moneys in their account, I think there's a tendency for people to want to use up their budgets and spend the money, even if there's no crying need for the expenditure.

As Auditor General, have you any suggestions on what government could do to curtail that kind of practice?

[Sheila Fraser]

The problem was to some extent more acute in the past, I think, when departments didn't have a carry-forward provision. Now if a department doesn't spend all of its budget, it is allowed to carry forward 5% to the next year. I think that has helped to some degree.

Some of the major issues we raised in the past involved very large sums of money that had been transferred, for example, to foundations very close to year-end. I can understand the rationale for wanting to do that in some departments. I guess all I can say is that it really requires a rigorous financial management system to ensure that those expenses are warranted, not simply there to try to use up a budget.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

It's always concerned me that when you have a well-run, well-managed department, where waste and mismanagement are minimal and they have budget surpluses, the way this system of government operates is that it kind of discourages that. Departments that overspend, and that have a lot of waste and mismanagement, can go back and say, “Look, we're running out of money. We need more.”

My own view is that some realism has to come into this picture. But I thank you for your comments on that point.

You're doing more and more of what we call “performance audits”, which I think really determine whether government programs are effective in meeting their mandates. The other type of audit, which a lot of us might be familiar with, would be the financial audits. They get into tracking money and the nuts and bolts of the flow of money. It's generally financial audits that bring out waste, mismanagement, and corruption, if it exists.

There are some critics out there--I'm not one of them, but they are out there--who say that the Auditor General's office should use more of its resources on financial audits rather than performance audits. What would be your response to those critics?

[Sheila Fraser]

I'm well aware of those critics. The line item that we have here, the financial audit, is the audit of the financial statements. It's to give an opinion on the financial statements, be it a crown corporation or a government. In performance audits there are many audits that one could sort of call financial audits, such as audits of contracting. The sponsorship audit was a performance audit.

Those are the audits where we are actually able to go and do more in-depth work within a program or a department or an area. The financial audit is really geared to giving an opinion on the financial statements. It doesn't often go into as much depth as you would in a performance audit.

I know that some people are saying we should be spending more time doing financial audits, but that tends to mean that you will spend more time looking at a lot of things rather than focusing in and then going into more depth in a program. Given the size of the programs, I worry that we would not be as effective, actually, if we spent a lot more time on the financial audits.