Public Accounts Committee on April 29th, 2008

[The Chair, Liberal, Shawn Murphy]

I'd like to call the meeting to order.

Welcome. Bienvenu à tous.

Today, colleagues, we have before us the Auditor General. She is accompanied by Lyn Sachs, the Assistant Auditor General. Welcome, Ms. Fraser. Welcome, Ms. Sachs.

We are reviewing the estimates, the departmental performance report, and the office's report on plans and priorities.

If I may, just before we hear from the Auditor General, as we all know, the public accounts committee is that committee of the House of Commons that provides oversight of all government spending. In other words, we ensure for Parliament, and through Parliament the Canadian people, that all government spending has been done with regard to economy and efficiency and is in compliance with all laws, regulations, and policy directives. In fulfilling our mandate we rely very heavily on the work of the Office of the Auditor General and the staff who work there. There wouldn't be a week that goes by that the Auditor General is not before this committee.

In addition, colleagues, the public accounts committee also provides oversight of the Office of the Auditor General itself. In other words, it's our job to ensure that the budget and the moneys allocated to the Office of the Auditor General are spent economically, efficiently, and again in compliance with all governmental laws, regulations, and policy directives. Each year we meet with the Auditor General at around this point in time to review and examine her office's departmental performance report--in other words, that report to Parliament on how the office has spent its allocations, how it functions, and how it has met its objectives. In addition, we review the office's report on plans and priorities and how it looks to fulfill its mandate in the upcoming year, or sometimes three years. Also, we approve its estimates, the moneys allocated by Parliament to operate the Office of the Auditor General.

Having said those opening remarks, I want to again welcome Ms. Sachs and Ms. Fraser.

Ms. Fraser, I understand you have some opening remarks. I will turn the floor over to you.

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

Thank you, Mr. Chair.

We are pleased to be here today. We would like to thank you for giving us the opportunity to discuss our 2006-07 performance report and our 2008-09 report on plans and priorities.

As you mentioned, I'm accompanied today by Lyn Sachs, Assistant Auditor General, who is responsible for our corporate services.

Each year we are privileged to contribute to Parliament's oversight of government spending and performance with the objective information, advice, and assurance that result from the audits we conduct. As you know, we conduct three types of audit: financial audits, special examinations of crown corporations, and performance audits. All our audit work is conducted in accordance with the standards set by the Canadian Institute of Chartered Accountants. Our work is guided by a rigorous methodology and quality management framework and is subject to internal practice reviews and external reviews by peers. All of this provides assurance that you can rely on the quality of our work.

During the 2006-2007 fiscal year, the period covered by our most recent performance report, we used $77.8 million of the $78.6 million in appropriations available to us and employed the equivalent of 610 full-time employees. Our net cost of operations—taking into account services provided without charge by other departments and other smaller adjustments—was $88.1 million.

Using these resources, the Office provided Parliament with 30 performance audits of federal departments and agencies; provided territorial legislatures with two performance audits on territorial matters; provided more than 120 financial audit reports to financial oversight bodies—including those of the Government of Canada, crown corporations, the three territorial governments, and to international organizations; provided four special examinations of crown corporations to their boards of directors; assessed the performance reports of three federal government agencies; assessed the actions of 21 federal organizations in implementing selected commitments from their 2001 and 2004 sustainable development strategies; and monitored 37 environmental petitions.

Our 2006-2007 performance report contains a number of indicators of what the impact of our work is and what our performance measures are. The tables containing our targets and actual performance for these measures are attached to the statement.

In the 2006-2007 fiscal year, performance highlights included the following:

Parliamentary committees reviewed 63% of our performance audit reports—a significant increase from the previous two years. We participated in 64 committee hearings and briefings over the course of the 130 parliamentary sitting days, a record number for our office.

Departments reported they had fully implemented 46% and had substantially implemented 26% of the performance audit recommendations made in the reports we tabled four years ago.

When we surveyed users of our reports, 94% indicated that our findings were reported in a fair and objective manner and that our reports were clear and concise.

This was the first year that we surveyed members of select parliamentary committees on their assessment of our work. We would like to thank you for your responses and are pleased that so many of you found our reports to be valuable.

The indicators however reveal that we need to improve our performance in terms of budget versus actual cost of audits. We are taking a number of steps to improve the way in which we establish budgets and the management of individual audits.

Our 2008-09 report on plans and priorities has just been tabled in the House of Commons. Appendix II to this statement provides you with an updated list of our planned performance audits and special examinations for the coming years. Let me take a moment and draw your attention to our priorities for this year.

For a number of years to come, we will face challenges related to the core of our auditing and accounting practices. Recent decisions by standards-setting boards of the Canadian Institute of Chartered Accountants to adopt international standards on auditing in 2010 and international financial reporting standards in 2011 represent changes on a scale that is unprecedented in our profession in Canada.

We will need to determine how the changes in auditing standards will affect the way we conduct audits and what impact the changes in financial reporting standards will have on the financial statements of the entities we audit. We will need to adjust our methodology to take these changes into account, to train our staff, and to ensure that our audit tools continue to help us do our work efficiently.

To respond to these challenges, the office is developing a multi-year plan that will prepare us to carry out our work in this new environment.

In that regard, I am pleased to inform the committee that I have been designated as the official representative of the International Organization of Supreme Audit Institutions, known as INTOSAI, to the International Public Sector Accounting Standards Board of the International Federation of Accountants. I have also been named as the chair of INTOSAI's professional standards subcommittee on accounting and reporting.

While I am very pleased to accept these positions, I do regret that they will cause me to be absent more often than usual.

We will continue to work to sustain our most precious asset—our staff. I am pleased that our office has been selected as one of Canada's top 100 employers and one of Canada's top 10 family-friendly employers for 2008. We hope to build on this success to retain and attract qualified employees. We are dedicating resources to ensure that effective recruitment and retention plans are in place. We are also focusing on compensation issues and on providing our staff with greater access to a variety of challenging opportunities.

The ongoing retirement of a significant percentage of our staff means that, like other organizations throughout the public sector, we face the loss of corporate memory.

In our 2008-2009 report on plans and priorities, in addition to these priorities, we also noted a concern that we want to address this year. Presently, management and other policies that government central agencies issue apply to officers of Parliament in the same way they apply to government departments and agencies. This is a concern to us and other officers of Parliament. It does not recognize the independence of officers of Parliament and the management autonomy needed to protect our independence.

For example, these government policies often provide a role for ministers or central agencies in the management and oversight of departments and agencies that are inappropriate for officers of Parliament. We are working with government officials to resolve the matter.

As most of you are probably already aware, we have recently announced the appointment of Mr. Scott Vaughan as the new Commissioner of the Environment and Sustainable Development. Mr. Vaughan is an environmental economist who has more than 20 years of experience working on environmental and sustainable development issues for international organizations, such as the Organization of the American States, the North American Commission for Environmental Cooperation, and the United Nations Environment Programme. He will be joining the office on May 5, and I look forward to presenting him to the committee at a future hearing.

Finally, Mr. Chair, today you're being asked to approve our estimates for the 2008-09 fiscal year.

We are seeking an additional $1.2 million to become the sole auditor for VIA Rail—for both its financial audits and special examinations, as the result of a recent order in council—and to undertake the audit of the International Labour Organization. It should be noted that we will recover the costs of the latter audit. This amount of $1.2 million also includes the technical adjustment of $700,000 required to cover the cost of the employee benefit plan for increases to our staff over a number of years. A table summarizing the request is provided in appendix III to this statement.

We appeared before the panel on the oversight and funding of officers of Parliament in November 2007. The panel unanimously recommended the approval of this additional funding to the Treasury Board.

In conclusion, Mr. Chair, my staff and I appreciate your ongoing interest in and support for our work, and we look forward to continuing to assist you in holding the government to account for its use of public funds.

That completes my opening statement. We would be most pleased to answer any questions that committee members might have.

Thank you, Mr. Chair.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Ms. Fraser. Merci beaucoup.

We're now going to start the first round of seven minutes each with Mr. Wrzesnewskyj.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Thank you, Mr. Chair, and thank you, Madam Fraser, for appearing before the committee.

I thought I'd use this opportunity to thank you for the work your office does. Without your reports and your office, we certainly could not hold the government to account. It is especially encouraging in paragraph 17 of your statement that notwithstanding the challenges all government offices seem to be facing with regard to staff retirement and replacing that staff, you've been noted to be one of Canada's top 100 employers and a family friendly employer.

But our role is not to laud here. Our role is to hold offices to account, and I would like to zero in on a couple of problematic areas. The first is crown corporations and the special investigations of crown corporations that were done. I understand that only one out of four of the special investigations were delivered on time. That's problem number one.

I also note that in the last six years, the cost has gone from $3.8 million to $7.7 million. So the cost of doing these special investigations has more than doubled, and zero percent, or none of them, actually met their budgeted number of hours.

Can you explain what problems your office is having with these special investigations of crown corporations? I think it would also be helpful to use specific examples.

[Sheila Fraser]

Let me start by explaining that special examinations of crown corporations are required under the Financial Administration Act. A crown corporation has to undergo this review every five years, and we have to give an opinion as to whether the systems and practices of the crown corporation ensure that its operations are managed efficiently and effectively and that assets are safeguarded.

Until very recently, reports of these special examinations were provided to the boards of directors and there was no requirement that they be tabled in Parliament or made public. In Budget 2004, the government indicated its intention to require that they be made public. That is still not a requirement, but the crowns are complying voluntarily.

I am sure that members will be interested to know that in the report we will be tabling next week, we will be giving a summary of special examinations over the last five years, but also publishing these summaries of specific special examinations that we have done during the last two years. That, we expect to do every year, to provide parliamentarians with this information on the crowns.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

So what you're telling us is that in two weeks' time, besides the actual reports, we'll receive the information on the budgeting for these special investigations, because your costs have more than doubled in doing these investigations.

[Sheila Fraser]

If I could just continue, we will be providing the summaries of the results of those special examinations.

Our costs have increased for a number of reasons. First, the number of crowns has increased. The number of special examinations that we are doing has increased. There are several new crowns—for example, CATSA is a relatively new one that we have just completed about a year ago. As well, in the legislation in 2005, there were a number of crown corporations that had been exempt from having special examinations that now have to have them done—I believe there were another seven. As well, we are joint auditors of Canada Post, so we are now undertaking a special examination of Canada Post. As well, the complexity of some of these crowns has increased quite significantly.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Thank you.

Especially in mind of what you just said, that the number of audits is increasing, these are crown corporations, and we should be recovering those costs of audits from them. That's just a quick suggestion, because I'd like to move on to another problematic area.

I'll just note quickly that in paragraph 22 you're saying you're seeking an additional $1.2 million. You gave two examples. One of the two examples was VIA Rail, and the second was an audit of the ILO, the International Labour Organization, but you note that you will recover those costs. So I'm not quite sure why you're seeking additional moneys to audit when you in fact will be recovering those audit costs.

But let me move on, because I've been told—

[The Chair, Liberal, Shawn Murphy]

You should allow an answer to your question.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

I was hoping I could just put a couple of questions in a row.

[Sheila Fraser]

Well, I already have a couple of questions that I haven't answered.

The member brought up earlier the fact that we had not respected deadlines for special examinations. That is very troubling to us, and I can assure you that the results will be much improved this year. We are actually planning, in all of the special examinations, to finish six months before the statutory deadline.

On budgets, I think we were actually far too aggressive in setting some of those. We need to go back and be more realistic about budgets, though there are some special examinations and some audits that get into issues that we had not foreseen and become much more difficult and require more time.

On the recovery, we do charge for all the audits we do for United Nations agencies, but all those revenues go into the consolidated revenue fund. We do not have re-spending authority. So because it goes into the consolidated revenue fund, we need to have an appropriation to have that money come to the office.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

I'm being told I can ask a brief question.

Last fall, there was a very problematic headline in the Ottawa Citizen. It said, “Audit catches auditor general shirking rules; Internal review finds Treasury Board guidelines on expense claims not followed”.

In the text of the article, it said:

...meal-allowance limits were not always being respected, social events were possibly being paid for by taxpayers outside of government policy and documented pre-approval of expenses of more than $5,000 was not being obtained, as specified in Treasury Board policy.

I understand that this particular internal audit was not posted. Could you tell us what has been done to rectify this situation and whether this particular internal audit on hospitality could be tabled with our committee?

[Sheila Fraser]

Mr. Chair, I will check, but I believe it is posted. It should be posted. All of our internal audits are posted on our website. If it's not, I can assure you it will be immediately, and I would be more than pleased to provide a copy to the committee.

One of the issues raised in that internal audit refers to the point I was making about the application to agents of Parliament of certain Treasury Board policies, which we believe is inappropriate. One of the examples is that in government, a minister has to approve all hospitality expenditures over $5,000. The office, as the auditor of government, has always taken the position that a minister should not be approving expenditures within our office. The largest expenditures we have are, for example, lock-ups around the tabling of our reports, staff training, and those types of issues. We believe it would be totally inappropriate for a minister to have the authority to influence whether or not that expenditure occurred.

That's one of the issues being raised.

To my mind, there is no expenditure on social events that is not appropriate. Obviously, when we have conferences or people are out of town, we have to pay for meals. But beyond that, there is none of that.

All that has been reviewed and dealt with. The rules have been, I would say, reinforced by our internal finance people. But to us, having a minister approve hospitality expenses in our office is inappropriate.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Wrzesnewskyj. Thank you, Ms. Fraser.

Monsieur Laforest, seven minutes.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you, Mr. Chairman.

Good morning, Ms. Fraser and Ms. Sachs.

First, Ms. Fraser, I congratulate you on your nomination. This is basically a tribute to the quality of your work and, in some way, it is an international tribute. I think that we can count ourselves lucky, at the very least, for having a competent person like yourself.

During the past year, we spoke of accrual accounting and of the implementation of a harmonization process among the departments and the government in order to adopt accrual accounting, which is something you have been asking for for several years. Meetings were held with Treasury Board. You attended one of those meetings and you expressed the desire that the Office of the Auditor General of Canada be an active partner in this process, at the very least.

Regarding budget priorities for the coming year, have you anticipated anything or do you think that this will not necessarily lead to any additional costs? How will you integrate this?

[Sheila Fraser]

This issue has to do with parliamentary appropriations. The government's accounting and financial statements are formulated according to the principles of accrual accounting. The same applies to the supplementary estimates. However, parliamentary appropriations are always calculated following the cash accounting method rather than the accrual accounting method.

We worked together with a subcommittee consisting of representatives from this committee along with representatives from another committee. We shared our concerns regarding the government's approach. The government recently gave an answer that indicates that it does not seem to want to adopt the accrual accounting method for parliamentary appropriations.

Of course, we will be monitoring this issue very closely. We will continue voicing our opinion and perhaps we will even include it in our observations on public accounts and other matters. However, we do not feel that this is a very exhaustive task or that it requires extra funds. It is part of our daily work.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

This is a part of our job, this concept is already included.

When you audit various departments, you can see what works and what does not work. You often raise the issue of strategic planning; you say that it needs more work. Strategic planning has not been integrated with the other data in certain departments.

Does your office use a form of strategic planning that takes into account the various constraints that you have to face? You spoke of human resources, as I noted. Do your findings with regard to other resources help you to improve or to develop better plans?

[Sheila Fraser]

Yes, we have a strategic plan that we update every year. Of course, as I said, the world is constantly changing. Accounting and auditing standards are changing and will change substantially over the coming years, and this will affect us quite strongly. Human resources also present challenges. We set our yearly priorities on an annual basis. Of course, such priorities can often span several years. In addition, we have a specific plan for human resource recruitment, and for retaining personnel. This plan extends about five years into the future, to keep track of the turnover, because we know that at this time many people are about to go into retirement.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Another topic that often comes up, when we hear you speaking or when some of your assistants come to see us, is the whole issue of implementation. I am referring to the fact that you often carry out an audit in a department that has already been audited during the previous years, perhaps four or five years in the past, and often we notice that recommendations were made but absolutely nothing was done to follow them. The departments give the answer that they agree with the recommendations, but ultimately, nothing gets done.

Do you think that, very generally, the government should take some steps to remedy this? Do you think that it should have more stringent measures? If so, from whom could they originate? Would they be the outcome of a legislative process, or would it involve giving more power to the Auditor General? I think that these problems arise again and again.

[Sheila Fraser]

The entire issue has to do with priorities and with the resources allocated to them. Often, the issue is with resources. I can also say that priorities change. With a turnover of personnel at the upper levels which has been quite high during the past years, it often seems that there is no thread of continuity for the ongoing activities. Some things remains unfinished while new things are undertaken.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Do you find this situation frustrating? I am convinced that since you have been in your position, you have already made recommendations and audits only to note subsequently that nothing was done. Does not this make you feel helpless and frustrated? You say things that everyone agrees with, but ultimately, nothing ever changes. No, I would be exaggerating if I said that nothing ever changes.

[Sheila Fraser]

Perhaps I am more optimistic because I see that things are changing. As I look at the way in which the recommendations are implemented either fully or substantially, I consider that nearly 75% of them are being followed. Of course there are certain elements that I would like to see completed, but we do see that the departments are responding to us. This may sometimes take a bit longer than we would like, but there are certain departments—I will not hide the fact—that are not moving ahead very quickly. Often this has to do with the attention paid to these matters by upper management. It would also be due to a lack of resources.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Laforest.

Thank you very much, Ms. Fraser.

Mr. Sweet, you have seven minutes.