Public Accounts Committee on April 29th, 2008

[Mauril Bélanger, Liberal, Ottawa—Vanier, ON]

May 2009.

[Sheila Fraser]

So that will be coming forward and will be made public sometime next year, and we will be reporting to Parliament on the results of that probably in the spring of 2010.

But for departments and agencies, we go through a risk-based approach to try to determine the major risks to the department or agency accomplishing its mandate. We also do that on cross-cutting issues, be they human resources, IT management, or information management, etc.

The other day we were actually doing one on the Department of Finance and OSFI and the whole financial regulatory system, asking, what are the biggest risks in there and how do we audit those risks? Then we develop a plan over five years, and we have to sit down after that and ask, how many can we actually do in a year? What skills do we have, and how do we stagger them, depending on our resourcing?

That's generally how we pick the audits we do. There are, of course, the committee requests that come in, which we assess and try to accommodate to the extent we can.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Another area I'm interested in is the status of the crown corporations in the picture. I'm sure you've explained this before, but I'm the type of person to whom you may have to explain things two or three times before they register. In a more simplified world, to me, crown corporations are simply agents of government with a mandate to carry out government mandates or policies. In that sense, as a member of Parliament, I view them very much in the same light I view any agency or department, in terms of accountability and knowing what's going on, and so on.

I guess the question I'm asking you is, are you happy at this stage with the degree of accountability and control that government has over crown corporations?

[Sheila Fraser]

That's actually not an issue that we have had particular concerns about, given the governance structure that's been established for crown corporations, which is different from that of departments, in that corporations have a board of directors. We have done a number of audits over the years on the governance of crown corporations, talking about how boards are selected, for example, how the presidents and CEOs are named, and about the corporate plans that are presented to government. We did have an issue with the special examination reports that were not made public and not presented to Parliament, which was addressed in the budget of 2004.

So there will be more information coming to this committee, certainly, about the special examinations of crown corporations—and we can talk about that, obviously, next week. But I think it would be a good idea perhaps for crowns to have more hearings before Parliament—

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Right.

[Sheila Fraser]

—and that parliamentarians be better informed about their operations. They are very, very significant, both in terms of their financial impact and their public policy impact.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Right. It's rather strange when you have crown corporations that are publicly in dispute with government. You kind of wonder, if you're an ordinary citizen, who's in control. It's probably more complicated than that, but it's still an odd observation to have them publicly feuding over who should be in charge of things. I think Parliament should ultimately be in charge, not crown corporations.

You have something in the order of 600-plus employees. I think a lot of folks across the country would probably figure that everybody in your department is a chartered accountant. I know that isn't correct. Can you give us an idea of the array of personnel you have in your department, the expertise that's in the Auditor General's office?

[Sheila Fraser]

With pleasure.

We have about 450 people who are audit staff. Roughly half of those are professional accountants, so they're chartered accountants, CGAs, or CMAs. The other half must have at least a master's degree, so we have people who have master's degrees in public administration, in economics, in sociology, in environmental sciences--the whole gamut. We will also go out and get people as required. At one point, when we were doing a lot of work in health, we actually had a doctor on staff working with us.

In our support group, we include people such as Lyn, who will have responsibility for our finance, human resources, and IT shops. We also have legal services, knowledge management, communications, parliamentary liaison, and all our professional practices training—I hope I'm not missing anybody. In those groups as well, of course, a lot will be people who have come from the audit side and have moved in, or people who have the specific expertise needed for that particular service.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Thank you.

[The Chair, Liberal, Shawn Murphy]

Ms. Fraser, I have a few areas I want to cover.

First of all, I'm going to be asking this committee within the next hour to vote on the recommendation to go to Parliament on the main estimates, which will recommend an appropriation of $72,239,000, plus statutory admissions of $9,620,000, which is a slight increase over the previous year, probably less than inflation. In your opinion, are those sufficient resources to operate your office for the 2008-09 year?

[Sheila Fraser]

Yes. We are very comfortable with that level of resources.

[The Chair, Liberal, Shawn Murphy]

The other area I want to cover off is that in previous appearances before this committee at this time of year—I believe it was the last one—there was an issue regarding labour relations and a dispute between your office and Treasury Board. I guess the word “uncomfortable” would be the term I'd use. Has that been resolved? I don't see it mentioned this year.

[Sheila Fraser]

Actually, Lyn and I had a very good meeting with the Secretary of the Treasury Board and his assistant secretary responsible for labour relations to try to clarify the process. The committee may recall that we believed we had a mandate. We did our negotiation, arrived in agreement with the unions, had to go back to have it all approved by the Treasury Board, and they did not want to approve it; it was delayed for a year before it finally got resolved. We've had two cases, I think, where we had to go to mediation, and in fact the employees ended up getting more than what we had settled for, which seemed to me wasn't a very good process. Anyway, the employees were happy.

I think we have reached an understanding of how the process will work. We are about to begin negotiations. I can perhaps ask Lyn to provide a little more commentary on where we actually are with all of that.

[Lyn Sachs, Assistant Auditor General, Office of the Auditor General of Canada]

We have worked closely with Treasury Board over the last six months following that meeting to ensure that we were clear on their role and our role. We are now just finalizing our mandate—smoothly, I expect—and will negotiate within the next 30 days, ideally, with our unions for a fairly complex restructuring that I think everybody will be happy with.

[The Chair, Liberal, Shawn Murphy]

The third area is more in the nature of a comment than a question. I just want to pass on that I've reviewed the report on plans and priorities and the departmental performance reports, especially in the area of human resources and your turnover rate of 14%.

I know you operate in a brutally competitive environment. There's a North American shortage of designated accounting professionals. That's reflected in turnover, and it's reflected in wage rates. I think if you asked the CEOs of the four or five major accounting firms, they'd say they don't enjoy those figures, and I'd say you're the envy of the accounting profession. So I do want to congratulate you and senior management in this very difficult environment, which I don't think will get any better for a whole host of reasons. Not only that, you're getting competition from within government—

[Sheila Fraser]

Absolutely.

[The Chair, Liberal, Shawn Murphy]

—because of the internal audit increases we're seeing in all departments and crown agencies. I just want to congratulate you in that regard.

[Sheila Fraser]

Thank you.

[The Chair, Liberal, Shawn Murphy]

There is another area on which I just want clarification. There was a legislative change a year and a half ago that gave your office authority to go in and audit money that was transferred to third-party organizations. Have you ever used that legislative authority, and do you see yourself using it?

[Sheila Fraser]

There were two changes, actually. There was an initial change that allowed us to go into organizations that have received more than $100 million over five years to perform performance audits, largely to address our concerns about the foundations that had been established by government. We have now audited two or three of the foundations, and hopefully we'll complete the larger ones over the next couple of years.

There was then a subsequent change to expand that legislation to any recipient of a grant, contribution, or loan of over a million dollars over five years. We indicated at the time to government that we were not seeking that authority, that we did not think it appropriate for us to be out auditing individual recipients, that it was really up to the departments or the crown corporations involved to make sure they were doing that, and that we would look at the systems and practices. So we have not gone to any third party outside of government except for the foundations.

[The Chair, Liberal, Shawn Murphy]

There is a last point I want to raise with you, Mrs. Fraser. You talked about the international accounting and auditing standards that you see changing and having a dramatic effect on your office. One issue that I have—and I've raised it before, and you probably know where I'm coming from—is the domestic Canadian standards set by the Public Sector Accounting Board regarding the intergovernmental transfers of moneys from the Government of Canada to provincial and territorial governments.

We have a situation—and we're seeing it much more these days—in which the Government of Canada will transfer moneys to provincial governments with absolutely no legislative accountability about how it has to be spent. We've seen it in the Environmental Trust Fund, the communities trust fund that was done a couple of months ago, the infrastructure funds. Funds are transferred to provincial governments with absolutely no strings attached to their being spent on those issues that were voted by Parliament, debated, and/or allocations made on that basis.

I know for a fact that it's not being spent in those particular areas, but you're giving to Parliament an opinion that it is being spent on that basis, and the provincial auditors are in turn giving the very same opinion, that everything is above board and there are no concerns. To me, as a parliamentarian, this is totally contrary to my view of parliamentary government democracy and the Westminster system, so I have a concern with it. Maybe I'm wrong—and I know there's kind of a dispute or fight within the Public Sector Accounting Board—but as chair of this committee, I look at it and I just shake my head. Why is this going on?

Do you have any comment?

[Sheila Fraser]

I have a comment with two elements. We share the concern about the lack of clarity, I think, over some of these transfers. People may think there are conditions attached to them when there may not be. So we have a report actually coming--you'll see at the end of the list--in November of this year, which is a study of federal government transfers, including certainly all the major transfers, to indicate to Parliament whether there are conditions or not. Then it will be up to Parliament, of course, to decide if it wishes to put conditions in when it votes for these transfers.

The second issue revolves around the accounting for this. The federal government, if there are no conditions when that transfer is made, records the transfer as an expense. The issue has been in the recipient provinces. There is a debate going on now because some of the provinces are actually spreading out these revenues over several years. The debate is as to why, if there is no condition, they wouldn't be recording it as revenue all in the year they receive it. This is a project that has been going on I think for four or five years now. There is great debate in the community. There's a lot of debate, particularly from governments and preparers of financial statements who do not want to see this money come in as revenue, for a number of reasons. There's balanced budget legislation that it could affect. There will be a lot of variability in their finances, but there's a great resistance in the community to this. I'm hopeful it can get resolved, but we may have to wait until there's actually an international standard on all this before it is resolved here in Canada.

[The Chair, Liberal, Shawn Murphy]

My only final comment is that with the present system, the accounting treatment does not reflect the true economic nature of the transactions going on.

[Sheila Fraser]

That's true.

[The Chair, Liberal, Shawn Murphy]

Okay. We'll go to the second round, colleagues, for five minutes.

Mr. Bélanger.