I also have a letter, filed by my lawyers with the chairman of the committee, dealing with procedural matters before this committee, and I also have a copy of my opening statement.
I want to thank you for inviting me to the public accounts committee.
In order to put matters in context from a financial perspective, I wish to give the members of the committee some information. I will briefly review my role as the CFO of the RCMP. Then I wish to discuss the effects of the Public Sector Pension Investment Board, the initial RCMP audit in 2003, and the audit of the Auditor General in 2006. Then I will provide some comments on the RCMP's response to the findings of these audits.
As my area of responsibility as CFO centres on the financial and controllership side of the operation, I will limit my remarks to financial matters only. I will refrain from commenting on the human resources management or the criminal investigation. In any event, those have already been addressed by my colleagues, and if you wish to pursue those further, I am sure you will have more meetings on them.
Since my appearance before this committee on February 21, there have been certain statements made by witnesses appearing before this committee that are irresponsible and calculated to mislead. As they have been made without merit or any substance, I will only address the fairness of those statements in this written opening statement, but again will not comment any further unless members of committee have questions.
I am conscious that I have limited time for my opening statement. Accordingly, I will be leaving a full copy of my opening statement with the clerk of the committee for distribution in both French and English.
As the RCMP CFO and deputy commissioner for corporate management and controllership, I had functional and line accountability for financial management governance within the force. The RCMP's annual budget is $4 billion. There are 1.5 million transactions per year and $1.4 billion in revenue. It is an organization of 26,000 regular and civilian members and public servants. We have 2,732 responsibility centres in headquarters, 4 regions, 15 divisions, and 750 detachments across Canada.
Pension and insurance within the RCMP is the responsibility of the deputy commissioner of human resources and delegated officials within human resources.
On April 1, 2000, Bill C-78, the Public Sector Pension Investment Board Act, came into effect. It established a new fund, administered by the Public Sector Pension Investment Board, into which pension contributions are invested in financial markets, not only for the RCMP's pension plan, but also for those of the Canadian Forces and the public service.
The Public Sector Pension Investment Board Act also required the preparation of audited financial statements each year, with the audit performed by the Office of the Auditor General. Therefore, the RCMP is responsible under this legislation to ensure that the financial data is accurate so that we can produce unqualified financial statements.
The pension fund asset value on March 31, 2006, was $2.1 billion. The RCMP superannuation account contained an additional $11.3 billion as of March 31, 2006, and yields interest at long-term government bond rates.
All administration costs charged to the pension plan must be approved by the Treasury Board. Each year the RCMP provides Treasury Board Secretariat officials with a submission outlining the cost estimates for pension administration. Treasury Board grants approval to charge specific expenditures based on the broad description provided in the submission. The RCMP has never exceeded the limit authorized by Treasury Board for annual administration expenses.
The RCMP has created charging principles for pension plan administration of expenses. While these are based on Treasury Board's fairly broad charging principles, the RCMP has also prepared more detailed charging principles in a greater level of detail.
In terms of process, all active members have a source deduction for the pension plan from their salary cheques. This deduction is collected by PWGSC, which issues the RCMP salary cheques. PWGSC then transfers the total of these deductions to the RCMP; the RCMP issues the cheques to the Public Sector Pension Investment Board banking agents for investment. The investment fund is completely separate from the pension administrative process.
As the Auditor General noted in her report, after the legislation was passed, the RCMP decided to modernize its pension administration in order to correct the many inaccuracies in the database and to move from a paper to an electronic format. Human resources and, more specifically, its National Compensation Policy Centre were tasked to do the necessary work to accomplish these goals. As part of the work, a decision needed to be made on whether the administration of the plan should be contracted out.
As the Auditor General's report states in the introductory points, “In 2003, allegations of fraud and abuse in the management of the Royal Canadian Mounted Police's pension and insurance plans triggered an internal audit”. These allegations were not directed at the CFO, but rather at officials at the National Compensation Policy Centre within the human resource sector. However, it was the practice that the internal audit reported to the CFO, and as such I was tasked by the former commissioner to conduct an internal audit, and we have done so.
I should also add that the internal audit, as of April 1, 2006--with the new government policy, as a result of Gomery and others--now reports directly to the commissioner.
Following the internal audit, an investigation was undertaken by the OPS, the Ottawa Police Service, and as stated in the Auditor General's report in June 2005, the OPS announced that it had found abuses of the pension and insurance plans, nepotism, wasteful spending, and an override of controls by management.
After the OPS investigation, the Auditor General carried out an audit to examine whether the RCMP had responded adequately to the findings of the internal audit and the OPS investigation, and whether there were additional issues that needed to be addressed. These audits and the OPS investigation identified several problems, which have been detailed in this committee.
With respect to what can be characterized as the financial issues, the Auditor General's report states: “We agree with the Finance Branch's conclusions that the RCMP used a reasonable method to identify, estimate, and reverse inappropriate charges to the pension plan.” As well, the Auditor General confirmed that the $3.4 million identified by the RCMP as incorrectly charged to the pension plan had been fully reversed and reimbursed.
The Auditor General's report further states: “The RCMP made it a priority to identify expenses that had been incorrectly charged to the pension plan. To address improper charges made in fiscal years 2000-01 to 2003-04, the RCMP reimbursed or credited the pension plan by about $1.9 million in 2003-04, and about $1.5 million in 2004-05.”
I submit to this committee that all the financial issues have now been dealt with. The position is supported by the Auditor General's report, which states: “The Royal Canadian Mounted Police (RCMP) has acted to respond to internal audits and the Ottawa Police Service (OPS) investigation.” Finally, the Auditor General's report states: “The following improvements made by the RCMP will help prevent inappropriate charges to the pension plan in the future...”.
In relation to contracting issues, in order to avoid problems that surfaced in this case, namely using Consulting and Audit Canada to circumvent RCMP contracting controls, new controls have been added to which managers in the RCMP must adhere in order to access the services of Consulting and Audit Canada. Managers must first discuss these requirements with an RCMP contract specialist, so we now have checkers checking the checkers.
As noted by the Auditor General's report, “The RCMP has taken measures to strengthen its contracting controls...It is our opinion that these measures are an adequate response to control problems. However, the problems we found were not due to an absence of controls but were due to management overriding controls.”
Our efforts to further strengthen the contracting and procurement process have been recognized by the Treasury Board Secretariat in the 2006 management accountability framework.
With regard to insurance, it has been suggested that the RCMP has wrongly charged the costs of administering the various insurance plans. As the Auditor General's report noted, the cost of administering the plans is about $2 million a year. However, it is erroneous to suggest that these costs should be charged to the RCMP appropriations.
Therefore, this committee should take note that the RCMP is not directly involved in insurance administration. Its role is to collect premiums to transfer to Great West Life. There is also an insurance committee chaired by the deputy commissioner for federal services and central region.
Further, with respect to the question regarding whether the RCMP should pay for insurance administration costs out of its appropriations rather than having such costs funded by plan members as part of their premiums, which is currently the case, I want to clarify that a Department of Justice legal opinion has stated that the RCMP cannot pay for insurance administration out of its appropriations without Treasury Board authority, and we do not have such authority. Treasury Board Secretariat officials agree with this opinion. This is a matter that I have been advised by both the former and current acting deputy commissioner of human resources they are actively pursuing with Treasury Board Secretariat officials.
Although some witnesses who appeared before this committee suggested that the RCMP should pay for the insurance administration costs out of its appropriation, they are wrong. Any change on how insurance administration costs are currently handled would mean the RCMP would be breaking the law and would be in contravention of the Financial Administration Act. I want to be very clear: I would never knowingly contravene the Financial Administration Act.
Now, I want to address a number of statements made about me at the public accounts committee on March 28, 2007. On March 28, 2007, former Staff Sergeant Ron Lewis stated the following:
...the OAG report, in paragraph 9.51, recommended that the RCMP develop charging principles for its insurance plans and review the amounts charged for outsourcing insurance plan administration according to these principles. This is very important: as long as Deputy Commissioner Gauvin is in charge of finance for the RCMP, there will be a conflict of interest, since he was accountable for the violations in the first place. An independent evaluation is required.
At no time did I exercise my line authority in respect of matters that are of concern to this committee. Given these circumstances, the comments of Mr. Lewis can only be termed as erroneous, at best. The CFO does not have responsibility for developing insurance principles. This is a responsibility of human resources, in consultation with the insurance committee, which is chaired by the deputy commissioner of federal services and central region. However, the CFO does contribute to the development of these principles for the pension fund based on Treasury Board pension charging principles.
Further, on March 28, 2007, Ron Lewis stated the following in reference to an Ottawa police investigation, and I quote: “It was turned over to the OPP. They came in and investigated. Nineteen people were either charged criminally or internally; some resigned before they were charged. Included were our chief financial officer, Mr. Gauvin, and our chief human resource officer, Mr. Ewanovich.”
With reference to the OPP investigation, the 19 people Mr. Lewis referred to were regular members of the RCMP, in addition to civilians. I was not the subject of the OPP investigation. I was one of nearly 200 individuals who were interviewed, which is to be expected given that I am the chief financial officer. As I have already confirmed, I received an informal disciplinary letter requiring me to take a day of ethics training. And I did.
Mr. Lewis also intimated that I was the subject of the OPS investigation relating to the events at hand. That is not correct. It is irresponsible for Mr. Lewis to make an assertion without the facts to support it. The fact is that although I was interviewed as CFO, I was one of 238 individuals who were interviewed. To my knowledge, I was never the subject of the investigation.
To conclude, it is a privilege for me to serve in the RCMP and to work every day alongside many highly qualified and dedicated managers and employees--that is, regular members, civilian members, and public servants alike--across Canada, in the best interest of Canadians, and 99.9% of these individuals are committed to doing a good job and supporting each other in terms of efforts, regardless of their category.
Finally, a small and vocal minority are openly opposed to civilians playing any role in the management of the RCMP, and they will go to extremes to discredit civilians' valuable contributions. This week I have discussed this with the commissioner, who stated that any unfair bias against civilians will not be tolerated. It is not only detrimental to the working environment of this great organization, but it undermines the traditional trusting relationships that should normally exist between and among managers and employees within the RCMP.