Public Accounts Committee on Oct. 28th, 2009

[Sheila Fraser]

The internal audit of 2006 did not deal with the issue of conflict of interest.

[David Christopherson, NDP, Hamilton Centre, ON]

It didn't deal with it or didn't find it?

[Sheila Fraser]

It didn't find it and didn't mention it.

[David Christopherson, NDP, Hamilton Centre, ON]

Should the internal audit have found it?

[Sheila Fraser]

We can go back to the specifics of it; I don't have it here. But in my understanding, it was an audit very narrowly focused on the management of the program and did not deal with conflict of interest.

[David Christopherson, NDP, Hamilton Centre, ON]

So not only did everybody else miss it; even though it wasn't their specific point, an auditor was in there and missed something as blatant as this.

[Sheila Fraser]

It did not bring it up; that is correct.

[David Christopherson, NDP, Hamilton Centre, ON]

Okay.

Then afterwards, if I'm reading paragraph 6.27 correctly, the department still didn't adequately deal with the issue of potential conflicts of interest. Is that correct, or am I being too harsh?

[Sheila Fraser]

What we point out in the report is that the department responded to the recommendations that had been made in that internal audit, and because there were no recommendations around conflict of interest, the policies at that time did not mention it.

[David Christopherson, NDP, Hamilton Centre, ON]

They weren't adequate.

Does that apply to the other things too that were missed, in your opinion, that should have been strengthened?

[Sheila Fraser]

For me there are two major issues. One is the conflict of interest—the question of a contractor helping to design a program for which he becomes the beneficiary—and the second one is making payments to a company that is insolvent.

[David Christopherson, NDP, Hamilton Centre, ON]

You were asked the question whether there was any collusion. The RCMP weren't brought in. But either there was something crooked going on...and if the answer to that is “No, there isn't”, then you have an incompetent staff person. Is this the only file that they were incompetent on?

Deputy?

That's the question I would ask. If somebody screwed up that badly—didn't do anything illegal but was that incompetent that they were doing all this stuff—what about other files they were dealing with? Surely you would think that if they are that incompetent on A, they would be on B, C, D, E, and F, or on one of them.

[Cassie Doyle]

I will just say that all of the work in that particular area under the responsibility of that program director was certainly subject to increased scrutiny as a result of the situations that arose, starting back in 2005 with the recipient audit, but I want to clarify one thing. The internal audit was one action taken at the time this situation was brought to the attention of the deputy and the executive of the department. What was covered in the internal audit was very much concerned with the financial controls, our management control structure, and its application in the case of these contribution agreements. However, as I was mentioning, there were some other actions taken. There was a referral to the RCMP and there was also a follow-up. It was considered to be a significant failure of management, which included the conflict of interest situation.

I know that on my arrival in the department I was briefed on this situation, and the background on conflict of interest was brought to our attention. We dealt with it, first of all, through a review of any criminal activity--the very question the chair had mentioned--and then when that was completed, we followed through on the labour relations front to relieve the director.

[David Christopherson, NDP, Hamilton Centre, ON]

Help me understand how an auditor, even though they weren't sent there to do that, could miss such blatant conflict of interest. It doesn't get much more obvious. That's a concern. We're in the business of accountability. There are mistakes and there are deliberate actions that we catch; then we get into the repair of those things, and when those things don't work, that's really problematic, because it means our system is good at identifying, but our system isn't correcting. Where do we put that?

[Cassie Doyle]

If I may, Mr. Chair, if you look at the internal audit, it's only one piece. It was a very important piece, but there was also a labour relations side resulting in significant consequence to the conflict of interest in the termination of employment.

I don't want to leave you the impression that because it wasn't stated in the internal audit.... The internal audit is scoped very specifically to examining the management control framework and the specifics of whether the terms and conditions were adhered to, but I wouldn't want to leave the impression with the committee that there were not consequences for what was known as a conflict of interest situation.

[David Christopherson, NDP, Hamilton Centre, ON]

Should the scope have been bigger?

[Cassie Doyle]

Well, I'm not sure whether it's appropriate, but there are other actions available to a deputy minister. One is internal audit; another is through the labour relations front to resolve issues that we think involve a significant failure of management.

[David Christopherson, NDP, Hamilton Centre, ON]

Thanks, Chair.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Christopherson.

Go ahead, Mr. Young, for five minutes.

[Terence Young, Conservative, Oakville, ON]

Thank you, Chair.

My first question is for Madam Fraser.

I want to be clear here. This audit was completed in 2006, and it covered a time period from 2003 to 2005. Is that correct?

[Sheila Fraser]

The internal audit was completed in 2006; our audit was completed at the end of 2008.

[Terence Young, Conservative, Oakville, ON]

What period did it cover?

[Sheila Fraser]

Well, we would have gone back and actually looked at contribution agreements, so theoretically it could have been from 2003 up until the actions taken in 2008.

[Terence Young, Conservative, Oakville, ON]

Thank you.

Madam Doyle, when I hear words like “culture”, “training”, and “increased awareness”, it's all good stuff, but I think it takes a village to make mistakes such as these that happened in the past. So I worry about who is accountable and who is competent. I do see hope in this. You've taken quite a beating so far, so I just want to focus on the positive side.

What I'm impressed with is the centre of expertise on grants and contributions, which is composed of ADMs. You've created almost a fail-safe line of ADMs there. Is it safe to assume that from 2008 forward, they are responsible for ensuring that this doesn't happen again?

[Cassie Doyle]

Yes, that is in fact the case.