Public Accounts Committee on Oct. 28th, 2009

[Cassie Doyle]

Thank you for that question.

The management mechanism we have available to us is primarily our internal audit. The very first request was to a consulting company within the Government of Canada, Consulting and Audit Canada, to do a review of the compliance audit on this contribution agreement, but internal audit is the management mechanism by which a deputy minister would ask for a review when any kind of risk situation is being presented.

This audit was an extraordinary audit. It was not part of the overall audit plan, but it was actually requested by the ADM at the time to immediately review the management controls around these particular contribution agreements and, in fact, the program itself.

[Pascal-Pierre Paillé, Bloc, Louis-Hébert, QC]

I will defer to my colleague for a final question.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Deputy Minister, are these contracts managed by Mrs. Buckley's Branch? Is it the present investigation carried out by her Branch?

[Cassie Doyle]

The contribution agreement.... Perhaps I could ask for clarification. Are you speaking of the contribution agreements that are the subject to the Auditor General's report?

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

I am referring to the situation of a potential conflict of interest. You have identified a new situation relating to contributions paid by the Department. Is that why the director is here today? Is that related to her Branch?

[Cassie Doyle]

Thank you for the question.

No, it does not. The director general is here because she has responsibility at the current time for the office of energy efficiency, which, back in 2003 to 2005, was responsible for the contributions--

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

So, is not in her Branch but in another Branch.

[The Chair, Liberal, Shawn Murphy]

Merci.

Just to follow up on that issue, I want to direct a question to the Auditor General.

When I look at this situation, it seems to me that the problem was discovered and an internal audit was asked for. It was a pretty blatant situation of conflict of interest and it has been described in this committee. The same individual, Mr. Middleton, was doing the terms of reference and then getting the contract.

The internal audit didn't make any mention of that, and it would appear to me that the internal auditor was negligent in the preparation of this audit. Do you agree with my assessment?

[Sheila Fraser]

Well, Mr. Chair, a lot would depend on the scope of the internal audit at the time. It is my impression that the internal audit was very much focused on the management of those contribution agreements and perhaps didn't step back to say who had been.... It didn't identify the conflict of interest but, as the deputy mentioned, was much more focused on the management framework and how these programs were being managed. I think the scope was quite narrow and quite specific, and that's what their recommendations dealt with.

[The Chair, Liberal, Shawn Murphy]

But Madam Auditor, it seems to me that this is a pretty blatant situation; that actually the department knew about the conflict of interest, and the auditor didn't even pick it up. It just seems to me such a blatant situation, which the internal auditor ought to have picked up and ought to have reported on.

[Sheila Fraser]

I would just add that while the department was aware of the facts, it did not itself identify this as a conflict of interest.

[The Chair, Liberal, Shawn Murphy]

I have Mr. Kramp and Mr. Weston. I only see Mr. Weston.

Mr. Weston, you have five minutes.

[John Weston, Conservative, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you, and thank you, guests, for being here today.

To summarize, we have two fairly egregious breaches of protocol. One is payment to someone in conflict, and the second is payment when subcontractors could ultimately not be paid, both of which bring the government into disrepute and are far apart from any acceptable standards that most of us in this committee would deem applicable.

My question is initially for you, Madam Fraser. What was the line of inquiry that caused you to discover these things? I've read your report, and what you did is fairly boilerplate. Can you be a little more specific about how you found these?

Then my question will come back to you, Ms. Doyle, concerning whether this type of inquiry is being incorporated into the kind of training that is being done.

[Sheila Fraser]

I would start by saying, Chair, that we were aware of the internal audit that was being conducted in the department. The department informed us of its concerns around the management of these contribution agreements, and as is our usual practice, we were kept abreast and discussed with the department what actions it was taking to address the recommendations in the internal audit. And we were generally satisfied with the actions the department was taking, as we note in our report.

So we really, at that point, thought it was being handled. Then we received an anonymous complaint that there was an issue around a conflict of interest and laying out some of the issues around this contractor and the role he played. That's when we went back in to see whether it had been identified and addressed; first of all, whether the department recognized that there was a conflict of interest, which it hadn't, and whether any additional steps had been taken subsequent to it. That's why it resulted in this report.

[John Weston, Conservative, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

My colleague Mr. Saxton made a point of establishing that these breaches occurred before 2006; it's important on our side to know that it didn't occur on our watch. But we would also like to know that the type of inquiry that you were performing is now basic in the ministry.

Would you like to elaborate on that, Ms. Doyle?

[Cassie Doyle]

Yes, thank you very much. I'd be happy to.

I want to clarify one thing. At the time this situation was under review with the internal audit, there was a recognition that there was a potential for conflict of interest, so one thing that was driving us in the department was to assess whether there had been wrongdoing, first of all from a criminal perspective. That's why the matter was referred to the RCMP on two separate occasions: to formally ask the RCMP to investigate. I've mentioned their response. We also followed up the aspect of mismanagement from a labour relations perspective, and so there was a specific focus on the individual who had responsibility for generating the conflict of interest situation.

I want to assure the committee that it wasn't as though we were not aware. It was just not specified as a specific reference. There was certainly cause for seeing a failure of management, and there was a complete review in terms of any kind of criminal negligence on the part of either of the parties to the contribution agreement.

Speaking specifically from a conflict of interest perspective, as I mentioned earlier, we now have a specific policy on conflict of interest. We have included language in our contribution agreements, and as well, we have added specific reference—which we had, from a risk management profile, since 2006—and have been looking at every potential proponent as a recipient of a contribution agreement to assess for risk. Part of that would be to ensure that there was no conflict of interest. It's the specific focus of conflict of interest for which we have now added as language to our contribution agreements three very specific clauses.

[John Weston, Conservative, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Ms. Doyle, you've mentioned the hundreds of contracts that are let under your department. How many officials, do you think, are involved in letting those contracts or implementing them?

[Cassie Doyle]

Can I get back to you with a specific number?

[John Weston, Conservative, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

You don't need to. Your indecision suggests to me that if you can't identify the people who are actually letting the contracts and implementing them, then it's hard to know that they are actually being trained and all being given the same standard level of, let's say, inoculations—it's a currently popular word—that they should be getting.

[Cassie Doyle]

Mr. Chair, I didn't in any way intend to give you the impression that we are not aware. As a deputy minister with a department of over 5,000 people, I just was not able to specify the number. I would say that there are dozens of individual officials who are responsible for administering contribution agreements.

What we have done is ensure that there would never be again a situation in which there would be as much control, as was the case in 2003 to 2005, residing in one individual program director we have created to do oversight. Every contribution agreement over $100,000 is subject to a review by financial management branch, from our legal services, and from outside independent representatives of the department.

[John Weston, Conservative, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

That sounds like good progress.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Weston. Thank you, Ms. Doyle.

Mr. Christopherson, you have five minutes.

[David Christopherson, NDP, Hamilton Centre, ON]

Thanks, Chair.

Just before Mr. Weston gets too relieved, keep in mind that the repair job that didn't work was under your watch.

I'm a little confused here.

[The Chair, Liberal, Shawn Murphy]

That's politics, Mr. Christopherson. You know that.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you, Chair. I was actually going to defend you, Chair, because I thought the chair made a good point. Or up until about thirty seconds ago I thought he did.

He asked the question: did the internal auditor miss this? And you, Madam Fraser, said that the internal audit didn't catch the conflict of interest. The deputy then said, “Well, we did, but we didn't”—I don't want to put words into your mouth--“see it as the focus of...”. I won't even attempt to say what she said, but she responded.

I'm left confused.

In fact, when I was reading your comments and you said “In this audit, we found that NRCan failed to identify” the conflict of interest, that really confused me, because I thought maybe you didn't find the incident, though it was the incident that caused it all. But what they didn't find was the conflict of interest. At this stage, I am far more concerned about what didn't happen after 2006 and why; I think the stuff before then has been dealt with.

So help me understand this conflict of interest. What aspect of the internal audit in 2006, Madam Fraser, was not complete, wasn't total?