Government Operations Committee on Feb. 20th, 2007

[The Chair, Liberal, Diane Marleau]

Order.

Welcome, Auditor General Sheila Fraser, to our committee once again.

You know the drill. You can go ahead and introduce the people with you and go on and give us your opening remarks, and we'll start all over again.

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

Thank you, Madam Chair.

We are very pleased to be here today to present my fifth status report, which was tabled in the House of Commons on February 13. I'm also pleased that we are reporting satisfactory progress in five areas.

I'm accompanied today by Richard Flageole, who is responsible for the passport chapter; Ronnie Campbell, who is responsible for the chapter on advertising and public opinion research; John O'Brien, who is responsible for the audit on managing the coast guard; and Aline Vienneau, who is responsible for the audit on heritage properties.

I will just break for a second to express apologies to Mr. Wrzesnewskyj, who's going to hear this opening statement for the second time.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

You might get the same questions a second time as well.

[Voices]

Oh, oh!

[Sheila Fraser]

Status reports are particularly important because they show what departments and agencies have done to address recommendations from a selection of our past audits. In determining whether progress is satisfactory or unsatisfactory, we take into account the complexity of the issue and the amount of time that has passed since the original audit.

Madam Chair, I thought I would take a few minutes to present your committee with a brief overview of each chapter in the report. My colleagues and I would be glad to elaborate on any of the chapters that may be of particular interest to committee members.

Let me begin with the areas where progress has been satisfactory. I'll begin with the management of advertising and public opinion research.

Given the serious weaknesses that we identified in our 2003 audit of government advertising activities, this year's findings are good news. We found that Public Works and Government Services Canada has made satisfactory progress in ensuring that advertising and public opinion research contracts are awarded in a fair and transparent manner. It used a competitive process to establish a pool of qualified firms that can provide advertising and public opinion research services. The process for choosing the agency of record was fair and transparent. Departments have made satisfactory progress in ensuring that they plan for advertising activities and manage suppliers in accordance with the communications policy of the Government of Canada.

I am pleased that the government did not create new rules and controls in response to our previous report. Instead, it focused on following the rules that were already in place.

There was also progress in the area of international taxation. The globalization of the economy and growth in international investment have a significant impact on the taxes owed to Canada. This affects Canadian residents doing business abroad as well as non-residents earning income in Canada.

The use of tax havens by Canadians and abuse of tax treaties with other countries could divert tax away from Canada, and the amounts at risk could be significant. For example, the Canada Revenue Agency estimates that in 2005, Canadian corporations conducted $1.5 trillion in transactions with related parties in foreign countries. Non-residents paid over $4.9 billion in taxes last year of income earned in Canada.

We found that the agency is now better able to identify potential non-compliance with the tax rules on international transactions. It has taken steps to detect aggressive international tax planning schemes and has directed more resources to auditing international tax avoidance.

However, in some of the tax offices handling the highest risk files, the agency still lacks sufficient expertise in international tax auditing. Taking into account the difficulty of retaining sufficient expertise, the agency needs to develop a consistent national approach to auditing taxpayers with international transactions.

Another area in which globalization has a significant impact is passport services. In 2005 we reported that the passport office, now Passport Canada, was struggling to meet higher expectations for security and growing demands for service. Since then, it has dealt with an unprecedented demand, issuing over three million passports in 2005-06. High demand pressures will continue, given the more stringent U.S. requirements for passports. The agency has clearly directed a major effort toward resolving the problems that we had identified in 2005. For example, examiners now have appropriate tools and training to determine whether identity documents provided with passport applications are authentic. Passport Canada has also significantly enlarged its watch list and has used the information to refuse applications or to investigate them further.

Passport Canada still has some major issues to resolve, particularly in the areas of security and identity verification. It will need the full cooperation of other government organizations at the federal, provincial, and territorial levels.

We also examined the progress made by the National Research Council Canada (NRC) in its management of leading-edge research. The NRC is the federal government's largest research organization. I am pleased with the progress it has made toward implementing the recommendations from our audit in 2004.

The government appointed council that governs the NRC's operations has strengthened its role, and the NRC's research institutes have taken steps to improve the way they manage research projects. We also noted satisfactory progress in several human resources management initiatives.

But action on some of our recommendations was delayed while the NRC laid the foundation for its new corporate strategy. It is important now that the organization meet its own milestones so it can fully address our recommendations.

Moving on to the conservation of federal built heritage—that is, historic buildings, battlegrounds, forts, and so on—I am pleased that Parks Canada has made satisfactory progress in addressing the concerns we raised in 2003 on the need for better protection of our built heritage. The agency has proposed a policy to strengthen the legal protection of federal built heritage and has improved its management tools.

Nevertheless, not all the problems have been resolved. The fate of heritage sites and buildings in the custody of federal organizations other than Parks Canada remains uncertain. The loss of heritage buildings and sites means that future generations will no longer have access to significant aspects of our history. It is therefore important that the federal government strengthen its conservation regime for built heritage. It also needs to set priorities to decide which heritage buildings and sites should be preserved.

Now, let me turn to the two areas where we found unsatisfactory progress in implementing recommendations from previous reports. In those two areas, the problems are long standing.

Let's start with the management of the social insurance number, which is used to issue billions of dollars in federal benefits to Canadians. Please note that Ms. Fraser refers to billions not millions. It is also used widely outside the federal government. Even though Human Resources and Social Development Canada has improved several aspects of its management of the social insurance number, two important issues, first reported nine years ago, remain unresolved.

First, the department cannot be sure of the quality of the information it retains in social insurance register, the data base of personal information provided by everyone who has been issued a social insurance number. The department does not have goals for the quality of the information and does not measure it systematically.

Second, the policies on how federal departments may use the social insurance number are still unclear. This has led to inconsistent interpretations of the rules, which makes it difficult for the departments to be sure they use it appropriately.

This is the fourth time since 1998 that we've reported these two problems. The government should have resolved them by now. Good management of the social insurance number—including clear guidance on its use in the federal government—is more important than ever, in light of security concerns and the growing incidents of identity theft and fraud.

The other unsatisfactory area is the management of the coast guard fleet and marine navigational services. I am concerned that the coast guard has not solved long-standing management problems. It has not responded adequately to recommendations made a number of years ago, and many of the problems cited in our report are similar to those raised in a 1983 audit.

The coast guard still operates largely as five regional coast guards, each with its own way of doing things. It has not become the strong national institution the government expects it to be.

Also, Canadian mariners, like others around the world, rely more and more on electronic navigation. While the coast guard is introducing new marine navigation services, it has been unable to develop strategies for traditional aids, such as buoys and light stations, that are costly to maintain and operate, and that no longer serve their original purpose.

The coast guard has a history of failing to complete initiatives, partly because it takes on too much at once. It needs to decide on a few of the most urgent priorities and then get the job done.

In conclusion, audit by nature focuses on areas in need of improvement. I am very pleased to see that our work made a difference. This Status Report shows that the government has taken satisfactory action in the majority of the areas we revisited this year.

Success can be attributed mostly to the setting of priorities, strong commitment from senior management to achieving them, clear action plans, and support in the form of adequate resources to achieve the goals. Credit is due to the many public servants who have worked hard on resolving these matters.

Now, Madam Chair, my colleagues and I would be pleased to answer any questions the committee members may have. Thank you.

[The Chair, Liberal, Diane Marleau]

Thank you, Madam Fraser.

We'll start with Monsieur Simard.

[Raymond Simard, Liberal, Saint Boniface, MB]

Thank you very much, Madam Chair.

Welcome to Madam Fraser and the other witnesses.

When I was going through some of these notes, I noticed references to 2002 and 2003 in certain cases. So as my first question, do you do a yearly audit of these things—for instance, the Treasury Board or the Privy Council Office? And how do you decide whether you do it every second year or third year? Is it based on the problems you've faced in the past?

[Sheila Fraser]

Thank you, Chair.

Most of the timing would be dependent upon the action plans the departments themselves put in place at the time of the original audit. They would determine what actions were needed and what time they felt was needed to address them. We would generally schedule our follow-up at work on that basis.

The only exception to that in this report was the Passport Office, where the public accounts committee asked us to go back within a year to make sure that progress was being made.

[Raymond Simard, Liberal, Saint Boniface, MB]

Okay.

I'm particularly interested in the SIN number. I was part of a study a couple of years ago when, I believe, 5 million SINs were outstanding at the time. It's now down to 2.9 million.

[Sheila Fraser]

That's right.

[Raymond Simard, Liberal, Saint Boniface, MB]

Could you explain to me the process that the department is using to identify these SIN numbers? It has to be complicated.

Second, on that, wouldn't it just be easier to reissue new SIN numbers? I mean, you still have 3 million outstanding out there. It's got to be difficult to track these down.

[Sheila Fraser]

There are 2.9 million, and of that number the department has indicated that 2.1 million are what they call dormant accounts on which there has been no activity; I'm not exactly sure for how long, but for an extended period of time.

The difficulty with those dormant accounts is that they are still valid numbers. They have not been cancelled, if you will, in the system. A flag will go up in the various departments that may be using that number to indicate that it was a dormant account. But not all the departments are treating those flags consistently, so there is still a risk.

The department is focusing, then, on the 800,000 others. There are processes they can do when people apply for various benefits. They will try to check the SIN number that way. They're trying to establish links as well with the vital statistics of the provinces.

I'm not sure that reissuing would solve the problem.

[Raymond Simard, Liberal, Saint Boniface, MB]

It might be complicated?

[Sheila Fraser]

It would be very complicated, I would think.

[Raymond Simard, Liberal, Saint Boniface, MB]

So do we think that people have been issued two SIN numbers?

[Sheila Fraser]

What we have to remember is that you never have to renew your SIN number. Back many years ago—I know this is true for colleagues in the office, and probably many people around the table—you got your social insurance number when you got your first summer job, and it was actually your employer who got it for you. Some people say they got a number every year.

So it could be duplicate numbers, it could be people who have left the country, it could be people who are deceased. Again, the links with the vital statistics would give the registry the information on people who are deceased and whose cards can be cancelled.

[Raymond Simard, Liberal, Saint Boniface, MB]

It seems to me that it would be an interesting topic to cover here at our committee. It is a very complex issue.

I wonder if I could move on to passports, although I know that my colleagues will deal with that a little bit later on.

When you were analyzing the whole passport issue, I wonder if you took into account the workload that's been passed on to MPs. You've probably heard us complain about that. Every one of us here is doing a huge amount of work on passports.

It may not be your mandate, but I think it is important for you to note that a lot of us are doing what we think is the department's work. And we've been doing it for quite a while.

[Sheila Fraser]

I have certainly heard that from members of Parliament, yes.

[Raymond Simard, Liberal, Saint Boniface, MB]

Have you analyzed the cost of that, or have you tried to bring in some corrective measures?

[Sheila Fraser]

No. Our audit was finished in August. The only section of our report that actually alludes to the present situation is where we looked at the forecasting model that the office had to forecast the sudden peaks in demand. We noticed at the corporate level that they had a reasonable forecasting model that was taking into account the new western hemisphere travel initiative. But when we went into the individual offices, and we asked for contingency plans, there were no contingency plans to deal with it.

[Raymond Simard, Liberal, Saint Boniface, MB]

With regard to the heritage sites that we have to maintain, one of the suggestions was that we should set up some kind of a structure like they have in France, a minister of cultural.... Or is that something you would recommend?

[Sheila Fraser]

We very much hesitate to recommend organizational change. We think it's really up to government to decide how it wants to organize itself.

The main issue we're raising here is that the regime within Parks Canada would appear to be appropriate because there is a law and there's a policy. For all of the heritage sites, they're managed or owned by departments other than Parks Canada—for example, national defence, public works, even fisheries and oceans. They are only subject to a Treasury Board policy, which only covers buildings. It doesn't cover other sites, archaeological sites, for example, or canals. As well, there is a really serious disconnect between the activities of designating a historic site and then the funding and the activities for conservation.

So you have operating departments. We have an example in here, in the Minister of National Defence, who will have to put several million dollars into restoring the Halifax armoury. Well, that may not be the highest priority for them. The same thing at fisheries and oceans, to be maintaining and conserving lighthouses when they are facing budget crunches.

So there's a real dilemma, I think, for those operating departments, and yet these sites are continuing to be designated.

[Raymond Simard, Liberal, Saint Boniface, MB]

Is there a hesitancy on the part of the government to designate these sites as historical if the funds aren't there? It seems to me that it would be a lot more difficult if the funding doesn't come along with that designation.

[Sheila Fraser]

There is no consideration of the funding when they do the designation.

[Raymond Simard, Liberal, Saint Boniface, MB]

Not at all? So that doesn't impact it.