Public Accounts Committee on May 11th, 2006

[John Williams, Conservative, Edmonton—St. Albert, AB]

I'm sure this chair will find the same way.

[Sheila Fraser]

Our report on plans and priorities is done; it is complete. It is the government's decision that they will table them all together in the fall. I would suspect that maybe there are some departments that have to change their plans and priorities, but ours is done and has been for some time now. It's a question of government, and we would be glad to come back whenever it is appropriate, Chair, to discuss that.

Mr. Williams is correct that all carry-forwards are in the supplementary estimates. It's a question of timing to close off the year and then get the precise numbers. It has to go into a supplementary estimate. If it was a separate vote or, as a minimum, disclosed separately, I think it would give more clarity to parliamentarians to be able to understand what are in the supplementary estimates.

Many times there are also contract salary adjustments because of contract negotiations that have been finalized, which also appear in the supplementary estimates. If those were perhaps disclosed separately by departments, I think it would give more clarity to what members are actually voting on.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Thank you.

It provides more information for us, but remember that we vote money on an annual basis. We don't vote money on an annual basis where if you have some left over you can carry it around and spent it another time. We've talked about that in the foundations, and the same applies to a lesser degree in the carry-forwards.

Therefore, I think that if we're going to maintain a parliamentary overview of the estimates, as we should, they should at least be identified and I think they should perhaps even be subject to their own special vote.

In paragraph 14 you talk about your expanded mandate. Do you have the resources that you're going to need to handle this? Do you think that'll be properly managed?

[Sheila Fraser]

As you know, our mandate was expanded last summer to include additional crown corporations. In that bill, there was also a requirement that all crown corporations have special examinations, which means there are a number of special examinations that we will have to do. That addition to our mandate might require us to come back with a request for additional funding.

We have indicated to government that we have sufficient funding for this year. As I mentioned, we will be auditing, for example, Canada Post, and the Public Sector Pension Investment Board. We'll be starting a couple of special examinations and will be better able to assess what funds we will require going forward. For that, I would expect we will probably come back with a request for funding.

As for the proposed expansion of the mandate under the Accountability Act, as I mentioned, we would expect that it would be very unusual and rare that we would actually be auditing recipients of grants, contributions, and loans. We do not at the present time foresee asking for additional money. If we were to do work like that, it would probably just displace work that we have under way.

[John Williams, Conservative, Edmonton—St. Albert, AB]

You mentioned in paragraph 14: “Furthermore, the proposed audits of departmental financial statements could...affect our resource requirements.” Are you going to be talking about that next week in accrual accounting? When did you start doing departmental financial audits?

[Sheila Fraser]

We have not as yet begun auditing departmental financial statements. This is a statement of intention by the government.

Some departments have started to do assessments. We have encouraged them to do what we call readiness assessments to see if they would actually be able to produce auditable financial statements, because this has never been done before. Some departments have started on that process.

We would expect it will be two to three years--some will say longer--before we actually start to audit departmental financial statements. It's still very imprecise at this time, and we are monitoring this with great interest. When we think we are at the point of beginning audits of departments, we will obviously advise the committee.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Thank you.

In paragraph 16, you talk about the audit following the money. You're talking about the department's establishing “systems and procedures needed to ensure that these funds are used appropriately”. I don't think the Federal Accountability Act gives departments the capacity to follow the money. What kind of criteria are you looking at for departments so they can ensure that as we spend these billions of dollars in grants that it is actually being used by the recipients in a manner they said?

[Sheila Fraser]

Currently, I would say almost all funding agreements do have provisions whereby the department or agency can conduct an audit. It is part of current practice in most of the organizations that give grants and contributions to audit recipients to ensure they are respecting the terms and conditions of the agreements. That is a regular practice that is ongoing in many departments now.

One thing we would encourage is better evaluations of programs. I know there is a requirement being proposed in the Accountability Act that programs be evaluated every five years. That would obviously strengthen the evaluation and the assessment of these programs.

[The Chair, Liberal, Shawn Murphy]

That concludes round one.

We're now starting round two. This is a five-minute round.

Mr. Bains, you're on first.

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

Thank you very much, Auditor General.

As a new member to this committee, my first question is really to take the big picture view.

If I recall, I believe you have a 10-year term and it's your fifth year in the term. Halfway into the mandate of your 10-year term, what are some of the challenges you see?

I know that Mr. Williams alluded to it in terms of the additional responsibilities of crown corporations. You talked about those additional responsibilities being taken into account with Bill C-43, and then there are additional responsibilities that were allocated in the Accountability Act, if it passes. I know you haven't costed it out, but are those going to put major strains on your mandate going forward? How do you plan to cope with that?

There's the big picture question and, more specifically, the costing of additional funding required for the examination of crown corporations.

[Sheila Fraser]

I believe we have done a preliminary estimate of the costs--which I think Mr. Wiersema is trying to find right now--for the additional crown corporations and the special exams.

We estimate that over the whole cycle, it could be $1.7 million. This is obviously not enormous in the scale of our whole budget, and that's why we said we would be able to conduct the work during the current year. We will come back at some point in the future when we have better estimates.

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

You feel you can absorb it in the current--

[Sheila Fraser]

We can absorb it in the current year. That was the agreement we had with government, that we could absorb it in the current year, and once we'd gone through the first year we would have a better understanding of how much effort it actually involves, and then we might come back with a request for funding.

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

Would that compromise your audit? You say you can absorb it, but my understanding is that it says an increase in crown corporations. Would that compromise any of the auditing that you would be able to conduct?

[Sheila Fraser]

No, we are able to do that. As I mentioned, we have--presuming, of course, that it will be approved--a carry-forward amount of $3 million. We are in a sense using that carry forward for that additional work.

We want to test our estimates this year, and if we see it is going to cost significantly more, then obviously we'll have to adjust our estimates. We will probably be coming back next year with a request for additional funding for that.

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

My question is on the two types of audits that take place--one is a financial audit; the other is a performance audit. I know Mr. Fitzpatrick alluded to this earlier as well, that there seem to be some critics saying you should avoid the performance audit and really focus on the financial side of it.

Is there a reason for it in terms of the costing of that? For instance, does it cost more to do performance as opposed to financial audits? If it does, then I guess my second question, to follow up on that, is do we have any best practices that have been developed to find efficiencies in conducting performance audits?

[Sheila Fraser]

It's hard to make an overall estimate of financial audits because it depends very much on the organization being audited. For example, the cost of auditing the financial statements of a museum is going to be very different from auditing the financial statements of Canada Post, for example, or the Government of Canada, which is a cost of $4 million to $5 million. I think we put around 50,000 hours of work into auditing the financial statements of the government. So it's very specific.

Because it is an annual exercise, we are able to have efficiencies by the knowledge of the entity, by relying on systems, by documenting. We don't always re-audit everything every year. There's a sort of built-in efficiency in the financial audit, because we're there almost continuously.

However, on performance audits, we will pick areas that we may not have audited for many years. For example, in Tuesday's report we have one on the collection of accounts receivable. The last time we looked at that was over 10 years ago. Just because of the breadth of the federal government, we are unable to do a lot of performance audits and cover all the areas.

We've also tried to determine the number of performance audits that we think parliamentary committees can actually handle. In fact, this committee recommended that we perhaps look again at the number of reports we were tabling in a year. We have in fact, over the past five years, reduced the number of performance audits that we are doing. There was a point in time when we were doing 40 or more; we are now doing between 25 and 30 performance audits. We have brought the numbers down.

Performance audits are costly. I would say they would cost on average $1 million or $1.5 million.

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

More than the financial ones?

[Sheila Fraser]

No, those are absolute numbers.

They are expensive, because in many cases we need to bring in experts to assist us, depending on the area we're looking at. They are very extensive reviews of the program or the activity concerned. There is also a lot of time spent in the whole reporting phase on discussions of findings with departments, going back and forth. We don't have that kind of effort when we do financial audits. It's a very different kind of practice.

We would obviously be very interested if the committee has suggestions on areas they would like us to look at or areas we're looking at that they don't think would be of interest. Through the surveys we've done, I think most of our reports are in areas parliamentarians say merited attention. We try to provide recommendations where we think appropriate to improve the management of those programs.

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

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Bains.

Mr. Sweet, five minutes.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Mr. Chairman, thank you very much.

I'd like to echo the words of some of the other parliamentarians here on the great job you've done. Not only that, but considering your ballooning mandate, I congratulate you on the frugality with which you lead your department, as I see the projections are still quite tight.

In paragraph 8, you mentioned that your special examination reports are addressed to the board of directors of corporations. Are these made public? You mentioned that only a few are put on the website, so I'm just wondering.

[Sheila Fraser]

The previous government indicated they were going to require all special examination reports to be made public. That would have been about a year and a half ago. Before that, they were not required to be made public. Many did voluntarily, and I think the practice now is that most, if not all, are posting them on their websites.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

I have deep concerns, as well as my colleagues have, about the headlines today, and I don't like the implication of any partisan reason why that happened. I am concerned, though, to find out what the root of that would be.

How many outside stakeholders would there be involved, outside of the government--printers or anyone involved in the development of these reports?

[Sheila Fraser]

Obviously there are printers. The report went to print probably a month or more ago--three to four weeks ago--but again, I would be very surprised, given the comments that were in the report; I do not believe a printer or a contractor would have leaked that.