Government Operations Committee on Oct. 29th, 2024

Conservative

The Chair Conservative Kelly McCauley

Thank you for your patience, everyone. We are back with interpretation working, I understand.

Is that correct, Mrs. Vignola? It is. That's wonderful.

Welcome, again, to meeting number 149 of the House of Commons Standing Committee on Government Operations and Estimates.

Colleagues, right now we have our witness with us for about an hour, and then I have some scheduling I need to go over with everyone and get feedback on.

We'll start with Mr. MacDonald.

You have the floor for five minutes, sir. Please go ahead.

Christopher MacDonald Director General, Chief Audit and Evaluation Executive, Department of the Environment

Good morning, everyone.

Mr. Chair, before we begin, I would like to acknowledge that we are gathered on the unceded territory of the Anishinabe Algonquin nations, people whom we acknowledge as custodians of the land and the waters of the region since time immemorial.

Thank you for the opportunity today to appear before the committee and answer questions about the internal audit of grants and contributions at Environment and Climate Change Canada.

In my role as chief audit executive at ECCC, I'm responsible for the conduct of internal audits within the department.

I would emphasize that the scope of our internal audit work focuses on program administration and operation within the department, not on the broader environment and climate change portfolio.

The internal audit team's mandate is to provide independent and objective assessments of governance, risk management and internal control processes. This work provides assurance that administrative programs and administrative processes are working effectively and identifies opportunities for continuous improvement.

Mr. Chair, the deputy minister has made grants and contributions administration a priority, and this has also been a priority of our departmental audit committee for the past several years.

The conduct of this internal audit was identified as part of our departmental risk-based audit planning process. As part of this process, the internal audit function reviews departmental risks in relation to our priorities, and we plan internal audit projects to support the provision of assurance on these subjects. The significant growth in grants and contributions funding across many programs was one of those risk areas.

The overall audit objective was to assess the operational effectiveness of the governance, risk management and internal controls in place to administer the grants and contributions programs at Environment and Climate Change Canada and to assess progress made in implementing the recommendations of the director general committee's review of grants and contributions carried out in 2020 to 2021.

In fiscal year 2022‑23, we studied 100 grants and contributions projects worth $79 million. The internal audit team met with over 80 departmental officials working on grants and contributions, including every assistant deputy minister responsible for a grants and contributions program.

We observed a number of areas that required improvement and identified some best practices that had been implemented. These observations were captured in the two reports we published, which included five key recommendations for the department.

I believe the internal audit team's work was professional, objective and comprehensive, and I believe it effectively identified key issues and potential solutions to address them.

The audit work was undertaken in compliance with relevant policies and directives, including international auditing standards.

In addition to the internal quality assurance practices, our function also underwent its required five-year external quality review at the same time that the audit was under way. Our function passed the review and was found to operate in accordance with standards.

I believe that the department has put a robust management action plan together to address the audit findings and recommendations. Our internal audit function will be following up on progress, as we do with each recommendation that we make in our reports.

Thank you very much for your time and the opportunity today to answer questions. I look forward to responding to your questions.

Thank you, Mr. Chair.

Conservative

The Chair Conservative Kelly McCauley

Thank you, Mr. MacDonald.

Colleagues, before we start, I'll remind you to keep your headsets away from your microphones at all times.

We'll start our six-minute round with Mrs. Block.

Conservative

Kelly Block Conservative Carlton Trail—Eagle Creek, SK

Thank you, Chair.

Welcome here, Mr. MacDonald. We've been waiting in anticipation for the opportunity to ask you some questions with regard to the audit.

I want to go back and clarify something that I think I heard you say during your opening remarks, which was that the deputy minister has made the grants and contributions program a priority. Did I also hear you say this has been the case for a number of years?

Director General, Chief Audit and Evaluation Executive, Department of the Environment

Yes.

Conservative

Kelly Block Conservative Carlton Trail—Eagle Creek, SK

I think that's a little concerning when you consider what was reported by the media with regard to your audit and the fact that what you found was “poor oversight of millions [of dollars] spent on green subsidies” and that the management of taxpayer funds was so sloppy that it represented “potential legal and reputational damage”. That was in your report, I believe.

If that's the case, and if it is the case that the Treasury Board has had concerns about the grants and contributions at Environment Canada since 2019, why did it take so long for this audit to be undertaken?

Director General, Chief Audit and Evaluation Executive, Department of the Environment

Mr. Chair, the department took this very seriously and it put together the DG committee—the director general committee—to review grants and contributions administration between 2020 and 2021. During that time, it identified 17 recommendations that they would implement to address some of the key areas of concern.

When we are doing our risk-based audit planning process, we identified this as a risk, but we wanted to give enough time to the department to address these 17 important areas, so we put this in our 2022-27 risk-based audit plan to make sure that we would have this project there to ensure that they were making good progress implementing those recommendations.

Conservative

Kelly Block Conservative Carlton Trail—Eagle Creek, SK

I also believe I heard you say that you reviewed 100 agreements as part of this audit. Can you state again what the total value was of the grants and contributions you reviewed?

Director General, Chief Audit and Evaluation Executive, Department of the Environment

We reviewed 100 agreements. There were 79.5 million dollars' worth of spending in the 2022-23 fiscal year.

Conservative

Kelly Block Conservative Carlton Trail—Eagle Creek, SK

What was the failure rate of those grants and contributions?

Director General, Chief Audit and Evaluation Executive, Department of the Environment

What we found in the audit was that section 33 and 34 approvals of the financial expenditures were good in all cases except for two, for which there were some missing invoices.

The main issue we had was that we looked horizontally across the department at the administration, and it was mainly related to the systems—there are seven systems in place where the information is stored—and the information management practices that support the documentation that the program managers use to manage recipients.

Conservative

Kelly Block Conservative Carlton Trail—Eagle Creek, SK

I'm going to ask this next question thinking you might have just provided an answer, but what threshold must be met for these agreements to pass or fail an audit?

Director General, Chief Audit and Evaluation Executive, Department of the Environment

The most important things you would look for in the audit are whether or not there were breaches or financial issues with respect to sections 33 and 34 in the payment process. In the case of this audit, we didn't find any issues with respect to the payments.

That, to me, would have been the most serious issue.

Conservative

Kelly Block Conservative Carlton Trail—Eagle Creek, SK

There were no issues with the payments. However, we also heard about a lack of oversight and an inability to show value for money, or at least show that what was paid for was actually received.

Would any of this mean a failure on the part of any of these agreements?

Director General, Chief Audit and Evaluation Executive, Department of the Environment

The internal audit looked at the governance risk and controls in place to manage the agreements from a horizontal, departmental perspective. We didn't look at one particular program. We chose files from eight different programs to make sure that we could satisfy ourselves that they were doing the right things.

It just ended up that there were some systemic issues with respect to the information systems and information management and that those aspects could be improved.

Conservative

Kelly Block Conservative Carlton Trail—Eagle Creek, SK

Thank you.

We've heard many times over the last couple of years that information management, a lack of documentation and the mismanagement of certain files across the board are issues, and this appears to fall into that same category. I mentioned that the Treasury Board raised concerns about the grants and contributions at Environment Canada in 2019.

I believe you said you made 17 recommendations. You wanted to give the department an opportunity to address those recommendations. What changes have been made since that time?

Director General, Chief Audit and Evaluation Executive, Department of the Environment

In Report II of the two reports that we produced, we did a follow-up on the 17 recommendations that were made by senior management at the DG level. Those recommendations were approved and endorsed by the deputy minister to address G and C issues, and we found that about half of them were in progress and making good progress.

One of the key things they have done are to get a community of practice together, which hadn't existed before. About 80 people every month are meeting to talk about issues that they're experiencing within grants and contributions. They've also strengthened the recipient audit framework. It was a finding in our 2019 audit that this needed to be put in place so that the department could satisfy itself that the recipients were actually spending money in accordance with the terms and conditions and in accordance with their contribution agreements.

In addition to the strengthening of the recipient audit framework and implementing this community of practice, they've also put in place an investment oversight committee so that every grant over $100,000 that is deemed medium risk or high risk is also reviewed by a horizontal committee of directors general before these programs are approved.

Conservative

Kelly Block Conservative Carlton Trail—Eagle Creek, SK

How do you square the circle that they're making good progress with what you identified as the management of taxpayer funds that is so sloppy that it represented “potential legal and reputational damage”?

Director General, Chief Audit and Evaluation Executive, Department of the Environment

That's on page 18 of the audit report, where we talk about potential—

Conservative

The Chair Conservative Kelly McCauley

I'm sorry to interrupt. Just make sure it's a brief response, please.

Director General, Chief Audit and Evaluation Executive, Department of the Environment

That reference to potential legal and reputational damage was a potential impact if the issues with respect to information management and the information systems were not addressed.