Public Accounts Committee on April 1st, 2008

[The Chair, Liberal, Shawn Murphy]

I call the meeting to order. I want to welcome everyone here. Bienvenue.

This meeting is called pursuant to the Standing Orders, colleagues, to deal with chapter 4, “Canadian Agricultural Income Stabilization - Agriculture and Agri-Food Canada”, from the May 2007 Report of the Auditor General of Canada.

We're very pleased to have before us today, from the Office of the Auditor General, Andrew Lennox, assistant auditor general. He's accompanied by Mr. Raymond Kunze, director. Representing the Department of Agriculture and Agri-Food, we have Yaprak Baltacioglu, deputy minister; and Nada Semaan, assistant deputy minister, farm financial programs branch.

Before we go any further, did I pronounce your name right, madame? I'm sure I didn't.

[Yaprak Baltacioglu, Deputy Minister, Department of Agriculture and Agri-Food]

It was perfect, Mr. Chairman.

[The Chair, Liberal, Shawn Murphy]

But I will never be able to do it again. It doesn't mean I can do it twice!

Anyway, thank you very much for coming.

What we're going to do here is to follow customary practice and ask for an opening statement from the Office of the Auditor General. I'll turn the floor to you, Mr. Lennox.

[Andrew Lennox, Assistant Auditor General, Office of the Auditor General of Canada]

Thank you, Mr. Chair.

Mr. Chair, thank you for the opportunity to meet with your committee today to discuss the audit of the Canadian agriculture income stabilization program, otherwise known as CAIS, which we reported on in chapter 4 of our May 2007 report.

With me today is Raymond Kunze, director of the Agriculture and Agri-Food Canada audit team.

We audited the CAIS program at the request of the House of Commons Standing Committee on Agriculture and Agri-Food. In this audit we examined, first of all, how Agriculture and Agri-Food Canada processes applications for income support; second, how it ensures that all parties respect the various monitoring provisions set out in the federal-provincial-territorial agreements; and third, how it measures and reports its performance to Parliament.

The department delivers the program in all provinces and territories except Alberta, Ontario, Quebec, and Prince Edward Island, where the provincial governments deliver the program. We did not audit the delivery of the CAIS program by provincial administrations.

Mr. Chair, I should point out that we completed our detailed audit work for this report in October 2006. Our ability to comment on developments since then is limited.

The CAIS program was designed to provide income support to agricultural producers when farm income dropped due to circumstances beyond farmers' control. At the time of our audit, Agriculture and Agri-Food Canada was receiving about 55,000 applications—

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Mr. Chairman, do we have Mr. Lennox's comments in writing?

[The Chair, Liberal, Shawn Murphy]

We should, Mr. Sweet.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Have they been distributed on the government side?

[The Chair, Liberal, Shawn Murphy]

This side has them, and this side doesn't. Is that it?

Just hold on for a second, Mr. Lennox, and we'll see what's going on here.

Okay, we'll let you continue, Mr. Lennox. I'm sorry for the interruption.

[Andrew Lennox]

I'll start again in paragraph 6.

The CAIS program was designed to provide income support to agriculture producers when their farm income dropped due to circumstances beyond their control. At the time of our audit, Agriculture and Agri-Food Canada was receiving about 55,000 applications through CAIS every year. In the 2005-06 fiscal year, the department spent more than $1 billion on the program.

In the chapter, we noted that the CAIS program was very complex. We found that there was a lack of transparency in how the benefits were calculated. Producers did not receive, in an easy to understand manner, all the information they needed to ask for a payment adjustment or appeal an unfavourable decision.

There were long delays before producers were told whether they would receive a benefit and what the benefit would be. The department's service standard was 60 days for non-peak processing times and 90 days for peak processing times. We found that, on average, the department took 120 days to process the 2004 program year applications.

At the end of our audit, the department's records indicated that it met its service time standard for the 2005 program year applications about 38% of the time.

Furthermore, the processing of applications focused on detecting and preventing overpayments made to producers. For example, the major risk assessments test during the initial processing triggered a detailed review of applications, when there was an indication of a potential overpayment. However, there was no equivalent trigger for potential underpayments.

The review group returned about 30% of the applications it received to the initial processing group for correction, representing an error rate of about 7%, or $33 million. In our opinion, it would have been more efficient to improve its procedures to prevent errors in processing, rather than detect them during reviews at the end of the process.

The review group, in addition to other groups within the department, generated a lot of relevant information on the nature and extent of errors that were made during processing and that producers made in their applications. We noted that these data were not gathered and analyzed systematically. The department was therefore missing an opportunity to continuously improve the way it processed applications.

We also found that some department employees were acting as paid consultants, helping producers prepare their applications. This practice contravened the conflict of interest provisions and the Values and Ethics Code of the public service, and it could have provided an unfair financial advantage to some applicants. The department has since told employees to stop this activity.

Mr. Chair, in July 2007 the government announced it would replace the CAIS program with two programs, AgriInvest and AgriStability. We have not examined these programs. However, our understanding is that AgriStability is also a margin-based program for which program payments are based on similar eligibility criteria as the CAIS program, and that applications are processed in a similar manner by the same organizations. Therefore, we believe that our concerns and recommendations remain largely intact.

Following the tabling of our chapter, the department released an action plan that identified actions it had already taken and actions it planned to take to address our concerns. In addition, the department recently provided a status report on actions and progress.

As I previously stated, we have not done audit work in this area since 2006, so our ability to comment on the plans and results achieved is limited.

The committee may wish to ask the department to indicate how the actions taken have resolved the underlying problems and to demonstrate how the recommendations will be addressed with these new programs.

That concludes our opening statements. We would be pleased to answer any questions the committee may have.

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Lennox.

We're now going to turn over to Madam Baltacioglu for her opening comments. She, of course, is the accounting officer with the department.

[Yaprak Baltacioglu]

Thank you, Mr. Chairman.

My name is Yaprak Baltacioglu. As mentioned, I'm the Deputy Minister of Agriculture and Agri-food Canada. I'm very pleased to have this opportunity to appear before the committee to respond to your questions on this very important report of the Auditor General.

I was briefed on the initial recommendations of the Auditor General's report in March 2007, a couple of weeks after I took over my position. We took the recommendations and the conclusions very seriously, and we started acting on them even before the report was tabled in Parliament.

At the outset, let me say that we welcome the Auditor General's report and we accept all of its recommendations. It's invaluable to us in two ways.

First, it helped us improve the CAIS program. It told us which areas needed improvement, which areas needed strengthening. We acted on them and are continuing to act on them.

Second and most important, as Mr. Lennox has mentioned, the new business risk management program suite benefits from the recommendations of the Auditor General's report. We have used a lot of their conclusions in the design and the implementation of the new program suite, so we're very grateful for the input.

The department's management response is part of the report. I'm not going to go through that. We have provided the committee with a chart in English and French that shows the actions taken since the Auditor General's report was tabled. As you'll see, there's a lot of detail in that document. I'm not going to take up your time in the opening remarks, but I'll just give you some of the highlights of what the department has done.

Our focus has been on three areas: administration and accountability, transparency, and conflict of interest.

Regarding administration and accountability, this is an area in which the department strives for continuous improvement. This is not a one-time fix. We're always learning, we're always fixing, and there's always room to improve. It's very important to note that in this area we always strive to strike the right balance between getting money out quickly to farmers and putting in place checks and balances that will ensure good public administration, and the Auditor General's report has recognized the fine balance that we have to achieve. So that's what we strive for.

We have done a number of things since the Auditor General's report. We're measuring our performance better, and in the fall we will be reporting to Parliament and to the public in terms of our performance measurement. The Auditor General has told us that we put more risk focus on overpayments to farmers, and that did not take into account underpayments and zero payments, which is important for the livelihood of Canadian producers. We have revised our reviews to ensure that we included this group of payments in terms of our checks. We have shortened our forms. We have put in electronic tools for the producers so that they can access their accounts. We're hoping these types of actions that we have taken make the administration and accountability of the program better.

The second area is transparency. This is, again, an area of continuous improvement. In the next program year—actually, it starts today for the 2007 year—we will be providing the producers with a calculation of benefits document that highlights the areas that the government has changed in their applications, because one of the things the Auditor General said was that when we sent out the forms to the farmers, between the pages they had submitted versus what we had given them, they couldn't tell what had been changed and why. So we are highlighting the changes. Further work is needed in this area, and we will continue to do that over the coming years.

We have also put in a service called “My Account”. A producer can go in through the Internet with their codes and check the status of their payment, where it is, what's happening to it, etc. We're hoping that will increase transparency.

The recent targeted advance payments that we have made and the letters that went back to the producers were way more detailed and explained way more how these things were calculated. We are learning from past experience, and we are benefiting from the Auditor General's recommendations.

Let me turn to the last area of our focus, the conflict of interest. Over the last year and actually prior to the Auditor General's report, we have strengthened the processes and systems in the department to ensure that potential risk of conflict of interest is minimized in the department, not only in CAIS but as it applies to the whole department.

We have a values and ethics office with a website, a 1-800 number, and staff to support it. We started formal training programs. We started them with CAIS because we have to focus on CAIS due to the AG's report, but we're expanding it to the rest of the department.

Periodically I put out documents to all staff to remind them of the values and ethics rules that they have to abide by. As well, management has sent in bulletins, things we call News at Work, so that employees are aware of the rules they have to live within and how important it is to ensure that the ministry advises the employees of their obligations.

Also, when we hire a new employee or when any employee comes into Agriculture and Agri-Food Canada, we now have revised our systems so that when they get their letter of offer, we ask them to acknowledge that they have received the Values and Ethics Code and to attest that they will comply with the rules of the code.

It's important to note that the code is values based. It's not a compliance-based code. The responsibility and the onus are on the employee to ensure that they comply with this important code, which is a pillar of Canadian public service. It is my accountability and my management team's responsibility to ensure that we inform our employees. As well, if we get any complaints, we do investigate, and we will continue to investigate.

To sum up, Mr. Chair, we welcome the Auditor General's report. It has informed our improvements to CAIS. The Auditor General's observations and recommendations have been carried over to the new suite of business risk management programs.

Mr. Chairman, we have made progress, and we will continue to do so, but we still have a lot of work to do.

I'm ready to answer your questions.

Thank you, sir.

[The Chair, Liberal, Shawn Murphy]

Thanks very much, Ms. Baltacioglu.

Mr. Williams, on a point of order.

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

I just want to note that the remarks of the deputy minister are different from the statement provided. Therefore, I would ask that the written statement, together with the appendices--being the status update of March 2008, the response to the AG report of the CAIS program, and the fact sheet provided--be appended to the minutes of this meeting.

[The Chair, Liberal, Shawn Murphy]

It shall be done. Thank you very much for bringing that to the committee's attention.

We're going to start with a first round of seven minutes each. Mr. Hubbard, go ahead, please, for seven minutes.

[Charles Hubbard, Liberal, Miramichi, NB]

Thank you, Mr. Chair.

Again, most of these reports from the Auditor General aren't good reports. I guess that's the reason we're looking at them.

On CAIS, in terms of the audit that was done, Mr. Lennox, the year that you audited seems to be a different year from what the deputy has talked about. In her report she talked about 2004 as the year the audit was done. When was your audit done--on what fiscal year?

[Andrew Lennox]

Thank you, Mr. Chair.

I will make two comparisons here. Our end date for our field work finished October 2006, but it mainly focused on the 2004 program year of the CAIS program. In fact, that is one of our observations, dealing with the timeliness issue. It takes a while for the 2004 program applications to get in and get assessed, etc. So it focused on the 2004 application program year.

[Charles Hubbard, Liberal, Miramichi, NB]

So really, it was over two fiscal years. Why would you do it over two fiscal years, not use calendar years instead of fiscal years? It doesn't seem to be the natural way that the Government of Canada and most provincial governments work.

[Andrew Lennox]

It's just mainly dealing with the timeline to get a program year that is complete. In order to focus on a program year that was complete, we had to focus on the 2004 program year.

[Charles Hubbard, Liberal, Miramichi, NB]

So when you report about what the federal government contributed to the program, you're really covering parts of two fiscal years.

[Andrew Lennox]

Yes.

[Charles Hubbard, Liberal, Miramichi, NB]

So your investigation and your audit covered only about half our Canadian provinces. In fact, two of the biggest agricultural producer provinces--in fact,you may say three of them--weren't covered with your work.

Farmers across the country are served by provinces and by our federal government, and CAIS was an agreement with participation by our territories and provinces into the program. When you spoke to the auditors general of any of the other provinces who have big agricultural communities, did they report or indicate similar problems in terms of how they were administering...or whether farmers in Ontario or Quebec or Alberta were dissatisfied with the program to the extent that the farmers in B.C. or Saskatchewan or Manitoba or New Brunswick were? Did you consult other auditors general when you looked at the program?

[Andrew Lennox]

Yes, we did look to see what other auditors general had done in this particular case. I'll ask my colleague, but I'm pretty sure there was no recent audit work done by AGs at that point in time.

[Raymond Kunze, Director, Office of the Auditor General of Canada]

During our survey phase we did meet with all the provinces in terms of their interactions with the federal government. We did include one office of a provincial auditor general that we met with as well.

[Charles Hubbard, Liberal, Miramichi, NB]

In both reports we seem to have a great amount of frustration with the administration, and there was concern in the Auditor General's report that some Agriculture workers, people within the department, had assisted farmers in completing their reports. Was this done as a method to assist farmers or as a method to gain income for the people who were helping farmers? What I've heard is that the damned thing was so costly to farmers, with the accountability required, that many farmers simply couldn't pay the accountant. He became one of their bigger expenses in terms of dealing with CAIS.

When you are critical of those people in the field who helped, are you saying they did that for financial gain or to assist farmers?

[Andrew Lennox]

As we state in paragraph 4.9, indeed we found that between 70% and 80% of the applications were completed through assistants such as accountants. So you're right, a large number of farmers and producers do use other people to help them in the preparation.

In terms of what was motivating the people who were doing the work--who worked in Agriculture and then helped farmers--I don't think we get into the intent of that as much as flagging the fact that there were those who were charging fees for it. So in some cases there were those who were charging fees, and in other cases there were those who were just helping.