Public Accounts Committee on Sept. 21st, 2010

[Ian McPhee]

Thank you very much.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Christopherson.

Mr. Young, for five minutes.

[Terence Young, Conservative, Oakville, ON]

Thank you, Chair.

I reiterate that thanks as well, Mr. McPhee.

I want to ask you about your second recommendation to the Auditor General of Canada, which is referring to reinforcing in the staff the need for documentation on electronic working papers. It sounds pretty serious, and I'm trying to get a handle on how serious it is.

There is reference to examples where the electronic working papers didn't contain sufficient documentation. There is reference to documentation gaps. On occasion the report clearance summary was subject to revision, and unadjusted errors found were not adequately collated, documented, or reported. I'm still trying to get up to speed on Auditor General jargon, Auditor General speak.

I've been on this committee for a year, and what we ultimately get is a parade of ministry staff who come before us with a giant mea culpa and they say “We agree with the Auditor General, and we thank the Auditor General, and we've already begun to fix these problems.” It's like no one will ever challenge the Auditor General and say “You've reached an incorrect conclusion”, or “We think you are wrong on this”, at least not publicly. We don't get that in front of this committee.

I'm trying to get an understanding. There is no evidence that there are any errors or omissions or that there were missed conclusions or missed opportunities. Was your report saying that it's possible because of these problems, or that you think it was likely that it happened?

[Ian McPhee]

No, we were just suggesting that the documentation could have been better put together to address the audit risks and, as Sheila Fraser mentioned earlier, the alignment between the risks and then the audit procedures put in place to assess whether those risks were significant and whether there could be any misreporting as a result of some of those matters.

I'll ask Brandon Jarrett, my colleague, to just go into some of the details so you perhaps have a bit more hands-on experience here to help you understand the particular point.

[Brandon Jarrett]

Thank you.

I suppose, simply put, the audit file needs to be able to show what you intended to do, what you did, and support all the judgments on the way through. As we've talked about before, that's a challenge across the profession internationally.

In some cases, in looking at the files we couldn't see a clear path between things that were planned to be done or were done. But that doesn't mean that the judgments, at the end of the day, were incorrect. What that means is that in terms of reviewing the file I couldn't see a clear process or clear documentation to be able to support everything that needed to be done in accordance with the auditing standards.

[Terence Young, Conservative, Oakville, ON]

Thank you very much. That's very helpful.

I have another question for Mr. McPhee, please. You had reported that one of the best practices of our Auditor General was with regard to special examinations, which are very important, and you talked about sharing information and that you may have adopted some of the methods that are used here in Australia. I want to ask about the other side of the coin. Is there anything you wanted to suggest here, or have suggested, that your department does that we should be doing more with regard to special examinations? In other words, is there an international best practice that you have achieved or are working toward?

[Ian McPhee]

Certainly I wouldn't claim that we've got to the international best practice, but we do work hard, as I said earlier, at improving the audit quality.

I'll ask Deb Jackson whether there are any specific matters in relation to special examinations that we may be able to draw on.

[Deborah Jackson]

Thank you.

I suppose one point we probably need to make first is the ANAO or most of the audit offices don't really do.... The special examination is a slightly different product from what most of the audit offices actually do. We do performance audits of equivalent types of bodies, as the special examinations are, but we don't actually do special examinations per se.

The recognition of the good practices that we did here was that had actually developed criteria and subcriteria that could be used across several of the practices. That is why we recognized that was actually good practice, and we feel that is also adaptable to performance audits. There is something of the further good practices that we felt we could include in the report. We were trying to focus on some higher-level things. There are probably some minor things about some of the practices in both performance audits and special examinations that we can adopt, which Mr. McPhee actually mentioned before. Certainly one that we mentioned here was that development of criteria and subcriteria for examining systems and practices is a good practice.

[Ian McPhee]

To add to what Deb said, we've recently been implementing some software that allows our audit teams to interrogate our past audit reports and to draw out criteria, for instance, that may have been used in the past. As well, where we've articulated something around a subject matter like risk management or governance, they can quickly search the material to access it in order to improve the efficiency of their current audit.

In a similar vein—we touched earlier on tables and the presentation of statistical information—we have some other software that helps us enormously. We're working with our bureau of statistics to present information in a much better way. We are trying in our audit analysis to use more software to help us analyze the population data that we're looking at. As a result of that, we're able to draw information out. There's a real art form in how to best present information in a statistical sense.

Again, we're working on a software solution to allow our teams to put into our reports some diagrams, graphs, pie charts, and that sort of thing to try to assist in the communication of the messages in our reports. It's very much a journey, this focus on audit quality and communication.

I was talking to the U.S. GAO, and I was asking them, particularly recently, about communication, because I'm conscious of the way in which we auditors present reports. Sometimes it lacks the clarity that some members of Parliament would like to see. It was interesting; they said that they're introducing communications specialists into their audit teams--from the very early planning stages right through to the end of the process--to make sure that the audit team continues to focus on the clarity of the findings, and the conclusions, and the messaging as a result of their work.

I find it here sometimes, with my own staff. Not surprisingly, they get very close to the detail of their work, and often I'll say, “Well, you just need to stand back. What's the key message here? What's the primary message you want to get across?”

So we're working hard, like the OAG, just to improve the quality of our work and to pick up best practice from anywhere in the world we can get it. The reality is that we tend to pick it up from the leading countries, of which OAG is one, but we're all ears when it comes to improving our own performance.

[Terence Young, Conservative, Oakville, ON]

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Young.

I believe Ms. Fraser has a comment to make on that point.

[Sheila Fraser]

Mr. Chair, I just wanted to make the point that special examinations are unique to the federal crown corporations. To my knowledge, no other legislative audit office does special examinations, per se, of crown corporations; they will do performance audits.

So there is a lot of similarity, but special exams are very unique, as I said, to the federal government.

[The Chair, Liberal, Shawn Murphy]

Perhaps to clarify, Mr. McPhee, could you describe the differences between the way in which the Australian National Audit Office and the Canadian Office of the Auditor General operate?

Basically, we all know how the Canadian system operates. We have probably between 25 to 30 performance audits tabled in Parliament every year. We do have the departmental and the consolidated financial audits, and of course we have the special examinations of selected crown corporations and agencies.

Is that significantly different from the Australian experience?

[Ian McPhee]

I don't think it's significantly different. Let me just give you an outline of our mandate and what it entails. We do all of the financial statement audits of Commonwealth- or Australian government-controlled entities. All together there are about 243 entities. We in Australia do departments of state. Departments are required to produce financial statements. They in turn are consolidated into the government's own accounts, along with all of the transactions of all the other government-controlled entities. I think that may be different from the situation in Canada, where your departments are required to have individual reports in the first place and you're required to audit them. So that's on the financial statement side.

Regarding the performance audits, we do about 50 a year. One perhaps important difference is that I can table reports whether Parliament is sitting or not. I can table reports all through the year. So we produce individual performance audit reports on a program or topic, and I can table those. We produce 50-odd a year. They're about 100 pages long, and each one costs us about $500,000.

We have a very broad performance audit mandate. The only thing is that at the moment I am not able to undertake a performance audit of a government business enterprise. I've raised with my own public accounts committee whether that should be changed and whether that constraint should continue to be in our legislation. We have fewer and fewer government business enterprises as the years go by, because Australian governments have tended to sell off many of the commercial entities that formerly were GBEs, so it's not such a significant issue as it used to be.

We have a wide performance audit mandate. I think we pretty much go through similar sorts of processes. Some are more sensitive than others. I get heavily involved in the sensitive ones, including in discussions with the chief executives about the matters being raised. Of course, then, we table the reports in very much the same way. Our public accounts committee here in Australia has a statutory obligation to review each of the performance audit reports we produce. In some cases they will have an inquiry into the matters.

To that extent, I think there are far more similarities than differences, Chair.

[The Chair, Liberal, Shawn Murphy]

Just for clarification, Mr. McPhee, do I take it from what you said that all of your departments produce audited financial statements on a departmental basis?

[Ian McPhee]

That's correct.

[The Chair, Liberal, Shawn Murphy]

Thank you very much.

Mr. Dreeshen, you have five minutes.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you very much.

Thank you to our guests from Australia, Mr. McPhee and your officials. I certainly appreciate this opportunity to hear some of your views as we have been going through the peer review of our Office of the Auditor General.

Thank you to our auditor and Mr. Wiersema. I certainly appreciate your being here as well.

In response to one of Mr. Nadeau's earlier questions, you spoke of how specific changes in accounting practices and standards would require extra training time for the audit teams. I was just wondering if you have any estimates of how time-consuming these training sessions might be. Perhaps expanding upon that, there was also the discussion of electronic audit file management. I'm just wondering whether the software that is coming for that and the training process associated with it will actually speed up the audit process, and what evidence there might be that you'll be getting value for money.

[Sheila Fraser]

I'll perhaps ask Mr. Wiersema....

Oh, sorry, Mr. Chair.

[Ian McPhee]

Sorry, Sheila. Go ahead.

[Earl Dreeshen, Conservative, Red Deer, AB]

I would appreciate a comment as well, Mr. McPhee. I know you had addressed this also.

[Sheila Fraser]

I'll start, and then Mr. McPhee can add. I'll begin, and I'll ask Mr. Wiersema to help me as well.

On the question of electronic working papers, there actually has been quite extensive training already given to staff, and we have what we call a network of superusers, people in each one of the groups who are more expert and understand the capabilities. They're there to help people as they're doing their audits.

Obviously, for the people who aren't very familiar with it, the first time they go through it is going to require more time, but we actually just had a staff session today and one of the people was saying that now he's quite comfortable with it after doing it two or three times. Also, there are advantages to having the electronic files, in that you can update some of the permanent information quite easily from year to year. So there can be some efficiencies to gain from that.

On the question of training, we've done two major programs. One is on international financial reporting standards, which are the new accounting standards coming in, and the other is on the new Canadian auditing standards. I can perhaps ask Mr. Wiersema to explain that.

[John Wiersema, Deputy Auditor General, Office of the Auditor General of Canada]

Very briefly, Mr. Chairman, on the adoption of new accounting standards, the biggest change there is the adoption of international financial reporting standards, something called IFRS. Many of the larger crown corporations will be transitioning to those international financial reporting standards. I believe that around 29 entities will be adopting those international standards. In the office, we have set aside a little reserve, if I can call it that, of about 10,000 audit hours to help the teams, to allow the teams to be able to audit their financial statements against those financial reporting standards.

Sheila has already talked about the training, both with IFRS and with the Canadian auditing standards. I think in total over the course of this year we're probably going to be offering a week or more of training to all staff, including the members of the executive committee. We are going to have a two-day session. We've already had some training on accounting standards. We'll have a two-day session on the adoption of the Canadian auditing standards.

On the adoption and use of electronic file management, the tool we use there is a tool we call TeamMate. I think Sheila earlier alluded to the fact that we've been using this in our financial audit practice for over a decade now, so it's fairly well ingrained in our financial audit practice. Only more recently has it been introduced to the other two practice lines. The training is offered. We have user sessions, TeamMate training sessions, for one to two days to help them make the transition from hard-copy paper files to electronic files.

All of that is to say that it's all part of our renewal of our audit methodology project. It is a big project. It's going on for over two years. We're confident that we'll be successful and will complete the project by the end of next calendar year.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you very much.

Mr. McPhee, you have been through this process already, then? Or do you use this management tool? I think I heard you suggest earlier that you use this to go back over previous audits to do some checks. Could you perhaps explain how that is working?

[Ian McPhee]

Thank you.

Yes, certainly we have similar audit technology. We use TeamMate in Australia as well for our financial statement work, and we have electronic record management systems, particularly for our performance auditors. They seem to be able to accumulate reams of information as they go about their work. We're now heavily into using technology to improve the efficiency and I think the effectiveness of our audit approach.

We in Australia adopted international financial reporting standards some years ago, and significant changes are coming through in accounting standards. Certainly in Australia we've seen a significant move from “historical cost” accounting to “present value” accounting. Assets and liabilities are measured at current values, not historical costs, which introduces more volatility into the presentation of information.

In some cases where balances are significant, just going back to the risk approach, where you have a significant liability--call it a superannuation liability, say, or employee benefits liability--and where you may need specialists' assistance, we now from time to time use actuaries on these significant numbers to make sure we cover off the risk that they're in fact not appropriately accounted for in terms of the standards.

We're using more specialists than ever before because of this move to more current-value presentation of information. In the public sector, we have a range of specialist assets. The reporting agencies use valuers in their work. From time to time, we may want a valuer of our own to assess the approach adopted by the entity's valuer. So there is some work involved there.

All that is just to say that the accounting standards are driving a fair volume of work for my office. On top of that are the auditing standards, which are changing all the time. With the underlying audit methodologies and systems that we have in place to support everyone, it means that there is a heavy training impost, probably up to two or three days a year, certainly, on average, plus regular--quite regular--technical updates to make sure our teams are across the issues as they arise and are fully informed about the various approaches.

So it's a very significant cost, but it's not always obvious, to outsiders looking in, the investment we make in training to make sure that we can produce quality audits.