Public Accounts Committee on Oct. 31st, 2006

[The Chair, Liberal, Shawn Murphy]

I would like to formally call the meeting to order. Bienvenue à tous. I welcome everyone here.

Colleagues, this meeting is a little disjointed; we're going to divide it in two. Originally we had scheduled the Auditor General and her staff and also the Secretary of the Treasury Board, Mr. Wayne Wouters. Mr. Wayne Wouters is unable to attend today so we had to break it in two. And this, as everyone is aware, is the first meeting of our study into the roles and responsibilities of the Treasury Board.

I'll give you a little background on this, if I may. This whole issue, over the last 24 months, I suppose, was subject to much comment when we had the sponsorship issue, Gomery, and it's been identified by a number of people as a concern. In the words of Justice Gomery, it was a grave “malaise”, if not a “breakdown” in the relationship of financial management and government. And of course the main actors are the Treasury Board, the Office of the Auditor General, and the public accounts committee. When you compare the Treasury Board and the public accounts committee, basically we have the same roles. We are responsible for accountability to Parliament, whereas the Treasury Board is responsible to the executive.

Again, as Justice Gomery said, we must engage in more dialogue and not confrontation. In the last number of months there have been a number of developments in this issue. Of course, we have the tabling of the Federal Accountability Act, which mandates that deputy ministers in the future will appear before this committee accountable for the management of their respective departments, which I think is a fundamental change in the way Ottawa operates. We have again the re-establishment of the Office of the Comptroller General. That was originally a position here in the public service. It was abolished some years ago, but it was reinstituted in 2004. Of course, Mr. St-Jean will be a major witness and a major player in this study.

In that regard, the analysts have prepared and circulated a binder for your help and assistance. I sense and I view this study to be very positive. I think it's going to have positive outcomes. We're not criticizing or complaining to anyone right now. We just want to make the system works better. That's why we're all here.

Without saying anything further, I'm just going to turn the floor over to Mrs. Fraser.

Welcome, Mr. Timmins and Mr. Smith, who have been here many times before. I want to thank you for coming. I want to thank you for assisting this committee in this particular study, and I invite your opening comments.

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

Thank you, Mr. Chair.

We are very pleased to be here today and would like to thank you for this opportunity to discuss our March 2004 report entitled “Managing Government: A Study of the Role of the Treasury Board and its Secretariat”.

Accompanying me today are Rick Smith, the Assistant Auditor General who was responsible for this study, and Doug Timmins, the Assistant Auditor General who leads our audit work at the Treasury Board Secretariat.

We conducted this study to provide Parliament with information on the key challenges the Treasury Board and its secretariat face in developing, refining, and implementing the federal government's management agenda. This study was a first step in the development of a longer-term audit plan for the office, covering key elements of the federal government's management agenda and the Treasury Board's role in them.

Please note that the study was completed early in 2004 and has not been updated to reflect subsequent events. For example, the following changes were made: the Treasury Board Secretariat established a separate Comptroller General's office to help ensure that departments comply with the Board's expenditure and stewardship policies, and to provide functional direction to department comptrollers. A new agency for public service human resources management will work to improve human resources management in the public service and to implement the government's modernization initiative; in addition, the Federal Accountability Act and action plan were introduced.

However, I believe that the study is still useful, particularly in terms of providing an overview of the major issues that the committee is currently addressing, particularly in the area of money management.

As committee members know, the Treasury Board is a Cabinet committee responsible for overall management of the federal government's finances, human resources and administrative activities. The Treasury Board is supported by its administrative arm, the Treasury Board Secretariat.

The Treasury Board establishes policies and standards for management practices in a wide range of areas and oversees their implementation across the federal government. Its original role was to assist ministers in the overall financial control of the federal government, and this remains one of its key roles today.

The Treasury Board is responsible for preparing the government's expenditure budget, also known as the estimates, and for monitoring program spending in departments. The secretariat supports the Treasury Board's role by establishing policies and standards to improve financial management practices in departments and agencies, by managing the government-wide implementation of them, by allocating and reallocating resources, by monitoring an analysis of the management of resources on a program, departmental, and sectoral basis, by ensuring that resource management is integrated with the government's decision-making and priority-setting processes, and, finally, by reporting on government expenditures.

These are not simple tasks. As the study notes, the federal government is the largest single enterprise in the country. The board's and the secretariat's responsibilities affect the activities of more than 20 federal departments and some 100 other organizations, including agencies, crown corporations, and tribunals. These organizations differ in terms of mandate, organizational structure, and relationship to the minister. This adds to the complexity of managing the government as a whole.

Based on the large body of work done by the office on management in government, we identified a number of significant challenges facing the board and the secretariat as they do their jobs. Most of these challenges are related to the following four identified roles, and some are more critical for one or more of the roles: being a general manager; managing money; managing people; managing information.

The first challenge is what we have characterized as setting the tone from the top. Traditionally, senior people paid more attention to policy than to management issues, delegating the latter to specialists, but clear, visible, and active support among ministers, senior officials, and parliamentarians is critical for translating a management agenda into concrete results.

The second involves the Treasury Board's mandate and capacity. The Treasury Board has a broad range of responsibilities, and its secretariat needs knowledgeable and experienced staff for the effective review and challenge of department submissions; it also needs enough staff to manage the overall agenda.

The issue of departmental capacity is third. Departments need the resources and tools to meet their management responsibilities. We have commented in several reports that resource issues can limit a department's ability to respond fully to certain aspects of the government's management agenda; these issues are particularly important in the area of financial management.

Building and maintaining effective working relationships with departments is the fourth challenge. Departments and agencies need to know where the government is going and how all the pieces fit together.

The fifth challenge is maintaining momentum. The broad picture that emerges from our historical analysis of the management agenda is one of an implementation gap, a failure to fully translate good ideas into the desired improvements in management. As a result, there is a degree of cynicism among some public servants about the agenda's chances for success.

Strong leadership is needed to maintain momentum. For each reform initiative, the government needs to pay attention to the full management cycle—strategic direction, planning, implementation, monitoring and improving—over an extended period for the management program is to realize its full potential.

The final challenge identified is making the best possible use of the tool kit. The Treasury Board relies on a wide range of policies to set out management expectations. We cited a study by the Secretariat that identified 340 policy instruments in effect. They ranged from instructions on completing financial reports to regulations related to various acts of Parliament. The challenge is to determine what works best under what circumstances.

Mr. Chairman, I do know that when we released our Report, the Secretariat had a number of initiatives underway in each of these areas. And the management agenda has continued to evolve with the introduction of the Federal Accountability Act and Action Plan. The committee may be interested in taking stock of the progress made in dealing with the challenges that we identified.

Finally Mr. Chairman, my next audit report will include audits of the expenditure management system, both in central government agencies and in a number of departments. I am convinced that our findings will be of interest to the committee and I look forward to discussing them with you.

Mr. Chairman, that concludes my opening statement. My colleagues and I would be pleased to answer any questions from committee members.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Ms. Fraser.

There are a couple of points I want to bring out. The study Ms. Fraser referred to, of course, is set out at tab 3 of the binder that has been circulated. I should point out, because it's a disjointed session, that we're going to adjourn at approximately 4:20 to go back and do the conclusion of some of the reports.

I'm going to start the first round. Of course, we're not going to get beyond one round, I don't think.

I should point out that the caucuses can deliberate among themselves. You may want to share your time.

Ms. Ratansi, for eight minutes.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Okay. I might not take my eight minutes, but you may use that for somebody else.

Madam Fraser, thank you for being here.

As an accountant and as someone who has worked in the risk management area in the provincial government, I have always been fascinated by the pendulum swing between the centralization and decentralization concept, especially on the establishment of the Comptroller General, then the decentralization, and so on. It has happened in provincial governments as well. I find that the internal audit department, if it is centralized, really contributes a lot, if there is the will in government to listen to internal audit, to avoid Enron-type problems.

What are your thoughts on centralization versus decentralization, and what are your thoughts on some of the challenges facing financial management in government?

[Sheila Fraser]

Thank you.

I think the member is correct that the pendulum seems to swing back and forth between decentralization and centralization. If we looked at this over time, we would probably have seen several swings in that area.

I don't think there's any one right response. It depends very much on the subject matter and on the particular circumstances. Given the complexity and the size of the federal government, I personally think it would be very difficult to centralize things. We're talking about enterprises that spend some $200 billion a year. Departments are very large and complex, in and of themselves, so departments have to have responsibility for financial management.

Where I think there needs to be more clarity, though, and we see it very often in our audits, is with regard to the responsibility of the departments and the responsibility of the Treasury Board Secretariat. Quite often when we see a situation where improvements are needed, you will see the departments indicating that Treasury Board Secretariat guidance isn't sufficient, or they haven't been told what to do, and the Treasury Board will say, well, it's the departments that should have been managing that, and there's a bit of finger pointing that goes on.

So I think there needs to be better clarity on what the deputy ministers' responsibilities are. The Treasury Board has given itself or defined its role as being a management board: setting policy. We would have an expectation that it would also know if that policy is working well, and if it is not working well, then what has to be done to correct it. So there should be some monitoring.

At one point, the Treasury Board had an activity or an agenda that they were calling “active monitoring” in departments of the various financial management policies and others. I'm not quite sure where that is at any more. That might be something to discuss with them. How do they ensure that the policies they are setting out are in fact being respected and followed by the departments? So I think there does need to be clarity, and that might be something the committee would wish to look at.

On the issue of internal audits specifically, I know we have had some disagreements with committee recommendations in the past, as the former chair will know, where we believe that the internal audit is really a management tool and that the internal audit should report to the deputy minister of departments. That said, we do support the initiative by the Comptroller General to set up a centre of excellence for internal audit, which would ensure that there be proper standards, that they have some say in the recruitment of the people, and that they would also carry out internal audit for the smaller organizations, where it is not economically viable for them to have their own internal audit function.

There is a bit of a mix between centralized and decentralized, but for the larger departments, we believe the deputy ministers of those departments should have an internal audit function and that should be part of their management of that department.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

If I look at the government, which is a huge body--I mean, it beats any Standard and Poor's company, it's so huge--and if I look at what departments can or can't do, having come from that area, departments don't generally hire the accounting types, the accredited accountants. Therefore, our external auditor, the provincial auditor, always used to have problems, because the provincial auditors used to say, well, in certain remote areas, there's nobody there. Therefore, the Comptroller General, as a body that looks after who gets hired...wouldn't you say that would really help the professional...? If you're looking at figures that come from the department, and you have rely on it, how would you balance that, especially with the lack of competencies there? It is the core competencies that are missing.

[Sheila Fraser]

That's an excellent point. We've raised that, actually, in several of the audits we've done over the years. In the federal government there are what is known as senior financial officers in the departments, and we were very concerned. I think our first audit was about four years ago when we raised the issue that there were very few senior financial officers who had what we would consider financial expertise. We looked for either some accounting designation, an MBA--there were very, very few. I think actually at the ADM level there were only two in all of the federal government. Even in any large private sector corporation, there would be more than two in an accounting shop.

The Comptroller General position has been created since that report, and we have noted an increase. This has been a focus, and the government has worked very hard to try to increase that, so there has been improvement in that area. There are 16 of 22 senior financial officers who have a professional accounting designation, so there has been, I would say, very good improvement in that area, and the Comptroller General does now play a role in the hiring of those people. So that is an area where there has been improvement, but there are still overall--and I think the Comptroller General would agree--not enough people with financial expertise, particularly when the government has announced that it wants to move to auditable financial statements in departments. It's going to require more expertise and more capacity.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Thank you.

I have one minute, if you want.

[The Chair, Liberal, Shawn Murphy]

Does anyone want to conclude? There's one minute left.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Continuing with the Comptroller General's office, the various departments where we now have his officials working...we have a spectrum of different types of departments. Are we trying to standardize the reporting methods throughout the departments so that there is a continuous flow of information on a regular basis? For instance, if there's reporting that the comptroller's officers do, is there a timeframe, i.e., every department would have thirteen four-week periods in the year, something of that nature, or is that sort of standardization still in process because it is a relatively new office?

[Sheila Fraser]

Let me clarify that. While the position of Comptroller General as a distinct position is relatively new, there has always been a Comptroller General function; it was the Secretary of the Treasury Board who was also the Comptroller General. What happened was they divided those two responsibilities. So there has always been a central function that prepared, if you will, the financial statements of the government and collected the data from the various government departments.

I believe they have an accounting manual, and I believe they are all on the same accounting periods, and they use the same standards of accounting within government, based on this Treasury Board....

Mr. Timmins might add a few more comments.

[Doug Timmins, Assistant Auditor General, Office of the Auditor General of Canada]

There are seven different financial systems that could be used in the government in various departments, so standardization, as Madam Fraser has mentioned, is there in terms of the chart of accounts that they use, the way they classify certain expenses, but that's when it's reported to the centre.

On your question about quarterly reports and information, that has not been established as mandatory in any way at this moment. There are some discussions of going there, but it is not there yet.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Wrzesnewskyj.

Before I go to Monsieur Laforest, I wish to clarify something that I thought I heard you say. Did you say that of all the departmental chief financial officers in Ottawa, there are only two who are accountants?

[Sheila Fraser]

No. At one point, when we did our first audit at the ADM level, there were only two. Now there are 16 of 22 who have a professional accounting designation.

[The Chair, Liberal, Shawn Murphy]

These are the CFOs?

[Sheila Fraser]

These are CFOs.

[The Chair, Liberal, Shawn Murphy]

There are still six who aren't accountants?

[Sheila Fraser]

That's correct.

These are of the 22 largest departments, but it's an improvement. I think when we initially did it there were only eight.

[The Chair, Liberal, Shawn Murphy]

Monsieur Nadeau.

[Richard Nadeau, Bloc, Gatineau, QC]

Good day, Madam and gentlemen.

We were told about the sponsorship scandal. We know that there was a break in the chain of responsibility. It became necessary to dig deeper to know what was involved precisely and to wait for a while for the newspapers to assimilate the news and open Pandora's box.

The direct question that I am going to ask you may relate more to politics than accounting, but I think that it is legitimate given what came before. Could we find ourselves in a similar situation because the chain of responsibility is not strong enough? Is that a possibility?

[Sheila Fraser]

That's not an easy question to answer. I don't think so.

What happened at the Department of Public Works and Government Services was rather special, because the group that was handling the sponsorships was not subject to the department's control systems. It was separate and had its own finance and supply system, whereas all the other activities of the department went through the regular systems. It was at this level that a major failing occurred. We feel that if the sponsorships had gone through the regular systems, we would have identified the problems much earlier.

The other problem was related to the internal audits. An audit had been carried out, but there was very little follow-up. Furthermore, at the time, the internal audit reports were not being sent to the Treasury Board Secretariat, and they were also not being posted on the website.

All the internal audit reports now have to be sent to the Secretariat and posted on the website. Likewise, the establishment of independent audit committees whose members are not part of the government makes things much more rigorous.

In this way, we hope to ensure that there is much better monitoring of the internal audit reports on management problems and that action is taken to correct these problems.

[Richard Nadeau, Bloc, Gatineau, QC]

All right. You have just given us an overview of this scandal, which, let us hope, was an isolated incident.

Bill C-2, which is before the Senate, increases the accountability of deputy ministers.

I am not sure whether this is the right place to talk about it, but I will raise the issue anyway. My understanding is that accountability is shared by both administrative and political officials, whether they are political appointees or government deputy ministers, who must also be accountable to a minister for their activities.

It is expected that Bill C-2 will be enacted. Will it be able to help prevent future breaks in the audit chain?

[Sheila Fraser]

In 2004, we prepared a report about the sponsorships audit and then carried out a study of general roles and responsibilities within the public service. On the one hand, this study indicated that the roles needed to be clarified, particularly the roles of the minister and the deputy minister, and that it was necessary to identify who was responsible for what; on the other hand, it showed that many documents could be confusing, because terms such as "accountable", rendre compte in French, and "answerable" were used, even though the latter has a different connotation. At the end of the line, no one was answerable or accountable.

I cannot comment on the policies set out in Bill C-2. Nevertheless, this bill clarifies everyone's roles. Needless to say, everything will depend on how the act is implemented. It is essential that all deputy ministers be aware of precisely what their role is and what they are accountable for.

[Richard Nadeau, Bloc, Gatineau, QC]

I will now give the floor to Mr. Laforest.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

In your presentation, you spoke about five challenges, all of which relate to government expenditures as a whole. You said that it was important to set the tone from the top and you spoke about the challenges faced by senior officials at Treasury Board. You said that this involved all of the departments in terms of staff relations and their ability to manage.

This is a very broad issue that affects all of the departments and the Treasury Board Secretariat, and accordingly the Treasury Board itself. You said that strong leadership is needed to maintain momentum. Where is this leadership to come from?