Public Accounts Committee on Nov. 2nd, 2006

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

You'll work with the Department of National Defence.

[David Moloney]

We are the ones who come to Parliament and go to the department. It is then the role of the deputy and the senior financial officer in National Defence to spend that money.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I know that the former Liberal government performed an expenditure review, but with this government, I know that some program cuts were announced. How did that come about? They were announced, I think, by Treasury Board and the Department of Finance as well. Was it done in conjunction, or was that basically a cabinet decision?

[Robert Fonberg]

It was a cabinet decision announced on September 25. It was indicated in the budget last May, budget 2006, that the government would undertake to reduce its expenditures by $1 billion this year and $1 billion next year. The results of that review, which was a cabinet-approved process, were announced on September 25.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

How was the procedure conducted differently than in the previous year? In the prior year it was done through a separate department, if I'm not mistaken. There was an expenditure review committee set up within government.

[Robert Fonberg]

There was an expenditure review cabinet committee. It was led by one of our colleagues at the officials level, who I guess was attached to the Privy Council Office.

[David Moloney]

You mean the one in 2005.

[Robert Fonberg]

Yes, it was the previous one. In this particular case, the exercise was led by the Treasury Board Secretariat, by the President of the Treasury Board, and there was also a cabinet committee that was established by the Prime Minister. They met three times through the course of the summer to examine a variety of proposals.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chairman.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Pacetti.

Monsieur Laforest, you have eight minutes.

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

Good morning and welcome to the whole team.

The documentation provided to us by our analysts says that the main mandates of the Office of the Comptroller General are "providing government-wide direction and assurance for financial management and internal audit". It also says that "It uses internal audit to provide a level of assurance that departments have sound management controls in place". When I read "a level of assurance", I interpret it to mean that it is not total assurance, but a degree of assurance. There is therefore some vagueness between the two. I would like to ask a question about this.

Is the Auditor General is intervening in regard to this vagueness? She intervenes in an external audit capacity and identifies problems. As we know, she tables a report every year and regularly submits reports on various aspects of governance, and raises problems that we analyze and attempt to correct. Consequently, internal auditing does not properly audit all areas of management.

Could this situation be corrected at a later time?

[Charles-Antoine St-Jean]

Thank you very much for your question, Mr. Laforest.

With respect to the interaction between internal auditing and external auditing, there are two audiences.

External auditing by Ms. Fraser's Office of the Auditor General provides assurance to Parliament about the reliability of the results.

Internal auditing is a management instrument, as Ms. Fraser herself has mentioned on a number of occasions. She provides assurance to the deputy minister and to the Treasury Board Secretariat that there is reasonable control under the circumstances over the management of public property and resources.

With respect to reasonable assurance or level of assurance, one can never do 100% audit. The fact is that there will never be enough money to do so. As Ms. Fraser explained the other day, when she conducts her external audit, there are always concepts involving relative importance, called materiality. Thus if problems arise, it needs to be determined whether they are significant. If minor problems are identified, then of course we deal with these as well.

However, what is important for senior management and for you too, is to know whether there are any major problems. What you want is for the internal audit instruments to bring out such problems.

When we have completed the updating of internal auditing, which will take another few years, we will then be able to provide the president of the Treasury Board with assurance within the government as to the quality of internal controls government-wide. These documents will also be made public. We have not yet got there, but we are headed in that direction.

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

That means that until we have got there, we do not have full assurance that management is being done properly everywhere.

[Charles-Antoine St-Jean]

I would be very happy to be able to tell you today that everything is perfect, and so on. Even when the internal audit system is fully operational—and the woman over there who has done some internal auditing knows it—there will always be the concept of materiality, and there can never be 100% assurance.

I am going to be very honest with you. I do not at this point want to try to convince you that I will be able to deliver 100% assurance. There is not enough money. Furthermore, I am certain that given your priorities, you are prepared to shoulder some risk. We are also going to try to educate our people in that regard. It is reasonable to take certain risks; other risks are not reasonable. What needs to be managed is the appropriateness of the risk.

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

I have a second question, if I have a little time remaining, Mr. Chairman.

The day before yesterday, the Auditor General told us in her presentation that to discharge their mandates, she and the Treasury Board Secretariat have a number of challenges to deal with. For example, she pointed out that strong leadership was needed. I asked her where this leadership had to come from: from the political or managerial side, senior managers? She said clearly that political leadership was needed.

Do you feel that the coming into force of Bill C-2 would make up for a lack of political leadership?

[Charles-Antoine St-Jean]

It is important to remember that leadership must come at several different levels, including the bureaucratic level, to be sure. My role therefore consists of ensuring that there is a community of internal auditors, which needs to be rebuilt and trained, and that there is a need to attract people, to certify them and to make sure that they are properly deployed and provided with sound tools, and so on. I am already spending several hours a day on that. It is going to take time, because people are involved.

There is also leadership at the political level. I would argue that the political leadership is excellent. In fact, the support of the president for what I am attempting to do has been excellent; he is encouraging me. Last year, we spent $40 million more per year on internal auditing. We had been spending approximately $55 million per year and we are going to increase this amount to $95 million within two years. Money is a problem, but the most important thing is to find good people. Nevertheless, the money is there, and the support.

You also need to be demanding towards us. We prepare internal audit reports and post them on the website every day. This year, I posted 200 or 250 such reports. People need to read them and ask us questions. That is part of the framework, the management framework. It therefore needs to come from three levels.

[The Chair, Liberal, Shawn Murphy]

Merci, Monsieur Laforest.

Before I go to Mr. Williams, I want to put on the record four questions, Monsieur St-Jean, and I'm not looking for an answer or comment right now. These questions will be given to you in writing by the clerk, and by next week we'd like very specific answers to them, in writing. I don't think a satisfactory answer would be that future discussions are being held. Just for the record, if I may, these are the questions.

If adopted, the Federal Accountability Act will bring about a major change in the status of deputy ministers. How might your role and responsibilities change in light of this?

The second question: The Federal Accountability Act proposes the dispute resolution mechanism when deputy ministers as accounting officers and ministers disagree over administrative issues. Do you anticipate that you and your office will have a major role to play in the dispute resolution process?

The third question: If deputy ministers are designated accounting officers, they will be accountable for comptrollership matters within their departments. Do you and your office anticipate providing enhanced support to deputy ministers as they take on this heightened accountability?

The final question: Your office has been working with departmental chief financial officers on a new policy on internal control. This new policy would set out the accountabilities of deputy ministers and CFOs. The deputy minister would be responsible for extended risk management and the system of control. The CFO would be responsible for core risk responsibilities related to financial systems, records, reporting, and financial controls, including all financial controls and programs. How would a new CFO model work with the accounting officer model?

Again, we'll give them to you in writing. I'm not looking for a comment right now, but we would like a very clear answer as part of this whole process, and we appreciate your help.

Mr. Williams, for eight minutes.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Thank you, Mr. Chair.

I hope this isn't the blind leading the blind, but I do feel that we're supposed to be leading, and I feel we're kind of blind here. We hope that Treasury Board is not blind. I still haven't got a feel for what we're trying to achieve here this afternoon.

I liked the fact that you put these four questions on the table and that we're going to get some answers. Perhaps if we'd had the answers, we could have had some debate around them, but we're a bit “cart before the horse” here, and this is unfortunate.

There is going to be a change in the management, by virtue of the Financial Administration Act, which is hopefully going to be approved in law pretty soon. How much preparation have you done in anticipation of this? Have you had your discussions? You mentioned “robust discussions”. I presume that's heated arguments, turf protection, and so on. Are you prepared, Mr. St-Jean and the Treasury Board, Mr. Fonberg, for the Financial Administration Act when it becomes law?

Mr. St-Jean.

[Charles-Antoine St-Jean]

Thank you very much for the question.

As we said, there was a robust discussion. There is never an easy answer to this. I would like to give you a definitive answer that there was a cookbook here that will tell us, you do this, this, this.

The Auditor General herself, the other day, made the point that it depends: it depends on the swing, it depends on the circumstances, and it depends on the expectations. I've had the discussion with many of my colleagues who say that civil society has changed in the last five or six years. Performance expectations, in terms of the quality of financial management, have changed. We don't expect—

[John Williams, Conservative, Edmonton—St. Albert, AB]

Are you getting ready for the Financial Administration Act? Don't worry about societal change. Tell me about your progress and work to be sure that you're ready for the Financial Administration Act.

[Charles-Antoine St-Jean]

We're moving along those lines. Some of those indicators of performance will be the audited financial statements. As you know, we have a target for tier one--the top 22 departments--to be audited by March 31, 2009. I'm pretty sure that it's going to be very tough to get there. Some will be kicking and screaming getting there, there is no question about it, but we have to have some timelines to do it. Then once we are done with tier one, we'll go to tier two, and tier two will be the other 15 to 20 departments.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Let me interject again. I'm sorry, Mr. St-Jean, but you're telling me what is normal policy evolution and where the department is going. I asked you about the Financial Accountability Act, which is going to become law, which is going to change the parameters. Are you having discussions, and are you going to be ready for that if it comes into law, say, before Christmas?

[Charles-Antoine St-Jean]

Well, as you know, the policy on internal audit was a good example on the point. We put in the smallest internal audit, to be phased in over three years, because as we were saying before, we can have all the money in the world, but it's a people business. We need to have the right people in the right places, and so on. So we're recruiting some new senior financial officers. We should have 11 or 12 becoming available within the next week or the next month. We're getting ready.

[John Williams, Conservative, Edmonton—St. Albert, AB]

I'm sorry, I have to interject. I was referring to the Financial Administration Act when I meant the Federal Accountability Act.

[Charles-Antoine St-Jean]

Yes, I appreciate that.