Public Accounts Committee on Nov. 2nd, 2006

[Charles-Antoine St-Jean]

On this one, the issue is not material enough when we look at the materiality of the public accounts of the Government of Canada. The Auditor General was making reference to a $1-billion materiality. The asset of that entity is less than that, so it's not material. When we're doing the audits of the departmental financial statements, that will become material to one of the departments. At that point in time, we will be looking for guidance or a legislative change and will ask what you want us to do. Do we put it in or leave it out?

I don't think it should be the accountant telling you what to do. I do think you should be informed that there's an issue, and you should know of the options so that you can tell us what you want us to do. We'll be glad to follow.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you.

Mr. Chair, maybe you or one of the analysts can help out. In a case like that, where it's not controversial to the point where the minister has to make a decision but it is reported to them as being done a certain way, is there a mechanism for reporting back? Have we covered that off in our deliberations?

[The Chair, Liberal, Shawn Murphy]

Do you mean from a financial point of view?

[David Christopherson, NDP, Hamilton Centre, ON]

Yes. We were trying to avoid this business that's been pointed out as to whether it is accountants, or whether it's lawyers. And we didn't like and didn't accept what we saw in the report.

Do we have a system in place now that will prevent this?

[The Chair, Liberal, Shawn Murphy]

Not that I'm aware of.

I think what we were looking for, Mr. Christopherson, was a very firmly established well-known protocol if there is a dispute. And these disputes arise every day: there is a dispute as to how a certain transaction will be recorded in the published statements of a department or the estimates.

There should be a protocol. Someone out there should have the final say. The system seems to be fairly well established in the private sector. In the government, as we've seen in the firearms situation, there didn't seem to be any system that we have seen, and we were looking to have a system in place.

I would have thought it would be under the leadership of the Comptroller General; that his office would have developed.... In fairness to Mr. St-Jean, the department was only reinstated in 2004, so I think the recommendation is that we are looking for a protocol.

[David Christopherson, NDP, Hamilton Centre, ON]

That may be an area we still have to go back to revisit and maybe keep in mind as we go through our deliberations, because it's really a continuation of that whole business we just went through.

[Charles-Antoine St-Jean]

Let me say on this issue that we also have to reconcile two aspects. We want deputy heads to be accountable. These are their financial statements; we also have to respect that we want them to be accountable for their statements. So it's difficult to say that somebody else will be overriding them.

But I take your point: it has to be transparent. I'm trying to reconcile those two, and we'll come up with a protocol.

[David Christopherson, NDP, Hamilton Centre, ON]

Let me t quickly ask where that stands right now. If a deputy came to you and wasn't sure what to do, and you had a differing opinion and the two of you were standing there, who has the primary decision-making role?

[Charles-Antoine St-Jean]

At the moment, it's clearly the deputy head. These are the statements of the deputy head.

[David Christopherson, NDP, Hamilton Centre, ON]

And that won't change with the new legislation?

[Charles-Antoine St-Jean]

Well, the legislation would not change that, because the deputy head is responsible, unless the roles and responsibilities are changed to reflect what the protocol is to deal with those kinds of issues.

[David Christopherson, NDP, Hamilton Centre, ON]

Is that consistent with the thinking we did, really, that it go to the deputy and end there? Correct me if I'm wrong, but I thought we were trying to sway things more your way, in terms of your being a final arbiter and preventing this business, because the deputy, of course, is under the supreme direction of the minister and the Prime Minister.

[The Chair, Liberal, Shawn Murphy]

Don't forget that we have a situation of very few deputies having a financial background, and we still have situations where CFOs in government don't have a financial background, so you have the “blind leading the blind” situation.

[Charles-Antoine St-Jean]

But the recommendation is well taken. That might be one of the changes we need to reflect the reality and the wishes of Parliament. For those particular circumstances, we'll review this to see what the president and the Prime Minister and the PCO....

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you.

Thank you, Chair.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Christopherson.

Mr. Wrzesnewskyj, you have eight minutes.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Monsieur St-Jean, I took note when you said that your office was reinstated two years ago during the previous government's term.

I'm curious. You're providing accounting oversight. What about the procedures in place, for instance, with contracts, etc.? Have you established some protocols to report on them as well?

We've seen situations in the past when contracts were tendered where procedures may not have been properly followed. Have you arrived at the point that you're reporting on this as well, besides just the accounting aspect?

[Charles-Antoine St-Jean]

Thank you very much, sir, for the question.

I have two hats. One is financial management; the other one is internal audit. Making sure that the real risks, the most important risks, are audited comes under my internal audit hat.

Concerning the contract situation, we ask what management processes are in place, we look at what the control points are, we look at the current practices. It's done department by department, depending on the risk profile of the department. That is part of the envelope of responsibility, looking at what the internal control is.

It's internal control on any resources that are being deployed: people, contracts, grants and contributions. They're all part of the internal control framework on which the chief audit executive of the department will opine in the next few years.

We are working at establishing all these audit programs that will be followed by every department. We're taking away variability. So yes, we're looking into it. That's part of the envelope.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

We know the intention of the various rules in place, especially when it comes to contracts and tendering of contracts, but if certain loopholes potentially exist and lawyers say that technically nothing illegal has happened, do you foresee that you might be providing some recommendations to make sure we close off some of those loopholes?

[Charles-Antoine St-Jean]

Of course.

The most important value added by a strong internal audit function is to provide the assurance to management and to stakeholders that proper controls are in place.

The second most important is occurs when we have some weaknesses or some risks to address. That's the reason why every single internal audit report, before it's completed, must have recommendations.

You also have to have a management response. When you look on the web, every given year we have about 200 internal audit reports. All those reports must have the problem that we're trying to correct, the impact, the recommendation, and the management action plan.

This is where we're looking to strengthen this--in the departments' independent audit committees, to make sure that they follow up on the action plans on a timely basis and report on an annual basis on the status of the health of the internal audit and the status of the health of the financial management.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

One of the departments that perhaps makes some of the largest purchases and procures the largest dollar-value amount of goods is the Department of National Defence. Recently we saw, within a couple of days after we recessed for the summer, a week-long string of announcements about $17.5 billion in military purchases.

I assume all of that was within the budget, but one in particular seemed to stand out. There was an announcement of a $2.5 billion sole-source untendered purchase of heavy-lift aircraft from Boeing against the recommendations of the actual department.

There was another aspect to it that's quite worrisome: it turns out that on top of this being a sole-source untendered $2.5 billion contract against the advice of the department, there was a multi-year $4 billion service contract attached to it.

Would this sort of thing raise flags?

[Charles-Antoine St-Jean]

This particular transaction that you refer to was approved by cabinet in the normal course of events. What's important from an internal audit perspective or from a control perspective is that if it's sole source, it has to be disclosed as sole source, so that management can then make their own assessment in terms of whether it is reasonable.

It's not for me to make that policy decision. My job there is to make sure that there's a control framework in place and that if a certain protocol is not followed, the reason is transparent and is reported.

At that point I've done my job, and it is for members or stakeholders to ask those questions.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

In that case it appears we have some tightening up to do in Parliament. When former lobbyists for some of these military contactors now sit in cabinet and we have sole-source untendered multi-billion-dollar contracts issued against the advice of the department, it's fine as long as we declare it openly.

[Charles-Antoine St-Jean]

I think I cannot comment further on that question. My job is to make sure that it's reported.

[The Chair, Liberal, Shawn Murphy]

There's a minute and half left. Ms. Ratansi, please go ahead.