Public Accounts Committee on May 27th, 2008

[The Chair, Liberal, Shawn Murphy]

I'd like at this point in time to call the meeting to order.

I want to extend a welcome to everyone.

We have a big crowd here today, colleagues. This meeting has been called pursuant to the Standing Orders, to deal with chapter 1, “Management of Fees in Selected Departments and Agencies”, of the May 2008 report of the Auditor General of Canada.

We're very pleased to have with us today, from the Office of the Auditor General, assistant auditors general Douglas Timmins and Clyde MacLellan, and Rona Shaffran, director of audit operations.

From the Treasury Board Secretariat, we have the Comptroller General, Rodney Monette, and assistant comptroller general, John Morgan.

From the Department of Foreign Affairs and International Trade, we have the associate deputy minister, Stephen Rigby; Mr. William Crosbie, assistant deputy minister, consular services and emergency management branch; and Francine Côté, director general, corporate finance, planning and systems bureau.

Again, I want to welcome you.

We are now going to opening remarks. I understand, Mr. Timmins, you are giving the opening remarks on behalf of the Office of the Auditor General.

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

Thank you, Mr. Chairman.

Thank you for this opportunity to present the results of our audit from the May report of the Auditor General on management of fees in selected departments and agencies.

Joining me today, as you've mentioned, is Clyde MacLellan, assistant auditor general, and Rona Shaffran, director, who were responsible for the audit.

In this audit we looked at 13 fees established by six federal organizations that are responsible for a major portion of the fee revenue reported by the government. In addition, we looked at any related government policies or guidance on the fees that the Treasury Board of Canada Secretariat provided to organizations. We also looked at the scope and application of the User Fees Act.

There are two categories of fees. The first category includes fees for goods, services, or the use of a facility, such as the purchase of a government publication. For these fees the amount that is charged normally cannot exceed the cost of what is provided. The second category includes fees for rights or privileges, which mainly involve the authorization to use publicly owned or publicly managed resources, such as commercial fishing licences. For these fees the amount that is charged is normally related to market value rather than cost.

Departments and agencies are not required to charge the full cost or value of the good or service provided but need to know this information. Other factors must also be considered when determining the amount to be charged. For example, consideration should be given to the proportion of the cost or value that should be borne by the fee payer.

As a result, we expected to find that departments and agencies had appropriate systems and practices in place for managing fees and establishing a reasonable relationship between the fee and its cost or value. A clear accountability mechanism was also a critical component of our audit criteria to ensure that Parliament, fee payers and taxpayers receive fundamental information about fees.

For the cost-based fees we audited, we found that organizations varied from those with systems and practices that captured the full cost of fee-related activities, such as Parks Canada, to organizations that did not know the cost.

The rationale for the amount charged for fees also varied, from fees based on a comprehensive analysis of the amount charged to fees based on factors unrelated to cost or value of what was provided. We concluded that some organizations do not have all the necessary information to determine what amount to charge for the fee or to determine whether there is a reasonable relationship between the fee and the cost or value.

As previously mentioned, the total amount collected as a fee for a service should not exceed the cost of providing that service. For the consular service fee in particular, we found that Foreign Affairs and International Trade Canada allocated to the fee included in the cost of an adult passport costs for activities that were not outlined in the Treasury Board approval of the fee. These additional costs were for activities performed on behalf of other government organizations.

The department reported a deficit for this fee in its departmental performance reports. However, our audit work and recalculations by the department showed there was actually a trend toward surpluses. In other words, the amount collected through this fee was more than the cost of providing the services. The department therefore is at risk of not having determined fees in a way that is consistent with cost recovery, as its own legislation requires.

Foreign Affairs and International Trade Canada has acknowledged it needs to review the impact of the surpluses on the amount charged for the fee, as well as related issues. The department also agrees that the costing methodology for the consular service fee, including its time reporting system, needs to be reviewed. The committee may wish to ask the department to outline its specific actions to resolve this matter as well as how it intends to amend its reporting to Parliament.

We also found that many accountability provisions of the User Fees Act cover only fees that are new or have been increased since the act was introduced in 2004. This means, for the vast majority of fees that were set before the act was passed, that the related organizations are not required to publicly report costs, performance standards, or performance information, nor are they required to reduce fees when service standards are not achieved.

The Treasury Board Secretariat has agreed that there have been challenges in the interpretation and application of the User Fees Act and has agreed to provide the President of the Treasury Board with an analysis of the issues raised in our report by November 2008. The Committee may wish to ask the secretariat for its plan and timetable for its report on the User Fees Act.

Mr. Chairman, this concludes my opening statement. We would be pleased to answer any questions the committee may have.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Timmins.

We're now going to hear from the Comptroller General, Rod Monette.

[Rodney Monette, Comptroller General of Canada, Treasury Board Secretariat]

Thank you, Mr. Chair. Good morning. And also good morning to members of the public accounts committee.

I'm here today with John Morgan, assistant comptroller general for the financial management and analysis sector. We are pleased to appear before you this morning to discuss user fees.

Having recently returned to the Office of the Comptroller General after a few years, I have noted the significant change in how user fees are managed. In particular, the User Fees Act of 2004 has had a real impact. The transition from what was previously a Treasury Board policy to the legislative provisions of the User Fees Act has brought about some important changes.

Managing user fees requires that departments do a number of things, including stakeholder consultation, impact analysis, costing, dispute management, and setting service standards.

Last week I spoke with the chief financial officers of the six departments included in the Auditor General's report, with the purpose of discussing action plans and how to share best practices. We agreed that an interdepartmental committee would be struck, focusing on issues such as costing and service standards. I believe this step will help advance user fee management.

As noted in our response to the Auditor General's chapter on the management of user fees, the Treasury Board Secretariat is supportive of her observations and recommendations.

Continued improvement is the ongoing objective both for TBS within its role of providing central guidance, and for departments in terms of strengthening the practices I just mentioned.

The Treasury Board Secretariat action plan to address the recommendations is as follows:

Firstly, in March 2008 we effectively fulfilled one recommendation by releasing a revised guide to costing. Our plan for the next period is to promote its use across government.

Secondly, by November 2008 we will provide the President of the Treasury Board with an analysis of challenges in implementing the User Fees Act.

Thirdly, by March 2009 we will update our guidance to departments in setting fees.

And fourthly, over the course of the upcoming months we will work with the six audited departments regarding the Auditor General's recommendations directed their way. We will also engage other departments.

Before closing, may I bring to your attention some improvements worth mentioning.

Departmental performance reports now contain more user fee information than ever before. Cost, revenue, and performance information is widely available, and more departments are committing to these kinds of improvements.

In 2004 Treasury Board introduced a policy that asked departments to develop service standards for all external user fees. Today, 85% of user fees have service standards. Before 2004 this was not mandatory and only a few departments had service standards.

Since 2003-2004, TBS has conducted an annual review of the user fee information departments reported in their Departmental Performance Report.

This past year we have included the results of our reviews in the management accountability framework exercise, as part of the department's rating in relation to financial management and control.

Thank you. I look forward to your questions and comments.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Monette.

We're now going to hear from the Department of Foreign Affairs and International Trade, and the associate deputy minister, Mr. Stephen Rigby. Mr. Rigby.

[Stephen Rigby, Associate Deputy Minister, Department of Foreign Affairs and International Trade]

Thank you very much, Mr. Chair, honourable members of the committee, and ladies and gentlemen.

I am joined this morning by Bill Crosbie, the assistant deputy minister of the consular services and emergency management branch, and my colleague Francine Côté, who is the director general of corporate finance, planning and systems within our chief financial officer branch.

The Auditor General's report on the management of fees in selected departments and agencies included a review of the $25 consular services fee that is collected from adult passport applicants when they apply for a new or renewed passport.

The Auditor General has made two recommendations with respect to that fee. Paragraph 1.58 of the report has recommended that the department review its time-reporting practices and the allocation of costs and activities to the consular services fee to ensure that they remain consistent with the authorization for the fee, and exclude costs of any services provided by Canadian missions abroad on behalf of other departments and agencies that are not part of the consular services fee.

It also recommended that the department amend our reporting to Parliament to take any necessary action to adjust the fee in view of the trend toward surpluses, which is indicated in the report.

In addition, the Auditor General recommends that we--along with other departments--take steps to improve the transparency of the fee by providing more complete public reporting of financial and non-financial performance information.

The Department of Foreign Affairs and International Trade agrees with the recommendations of the Auditor General, and we will be implementing these recommendations as we outlined in our response contained in the report.

Mr. Chairman, if I may, I would like to give a short history of the Consular Services Fee in order to explain to committee members how the Auditor General and the Department have come to an agreement on the recommendations contained in her report.

In 1995, as part of Program Review, the Government decided that the Consular Program should be self-financed through the imposition of a fee levied at the time passports or other travel documents were issued. This shifted the cost burden to those Canadians who hold Canadian passports.

The fee was fixed at $25, as at that time approximately 1.5 million passports were issued annually and the estimated cost of the consular program was $47.9 million. However, instead of providing the funds directly to the department to manage the program, the funds from the consular services fee were deposited into the consolidated revenue fund.

As was noted in the original Treasury Board submission, the consular services fee is in the nature of an insurance fee that will support services delivered abroad to Canadian citizens as per the Vienna Convention on Consular Relations. These services provide protection and assistance to Canadians who travel abroad and find themselves in distress as a result of an accident, illness, crime victimization, arrest or detention, natural disaster, and civil unrest. Because of the nature of insurance, not all passport holders will require consular services.

The types of the consular services provided have not changed significantly since the fee was introduced in 1995. However, the nature and complexity of the cases has increased substantially, particularly since 2001. For instance, demand for more complex services, including cases of arrest, child custody, and medical evacuation, increased by some 39% between 2004 and 2007, and this trend is expected to continue.

As we noted in our response to the Auditor General, we have also faced a general increased demand for consular services, increased expectations from Canadians abroad for more services, and must provide services to larger communities of Canadian citizens who are permanently resident abroad. The evacuation of Canadian citizens from Lebanon in 2006 is the most visible example of how the complexity of consular services has evolved over the last decade.

At the same time, the number of passport applicants has increased dramatically in the last few years, particularly and principally due to the U.S.A.'s western hemisphere travel initiative. When the fee was established in 1995, an estimated 1.5 million passports were issued, whereas for the year ending March 2007, over three million adult passports were issued. The result has been both increased revenues and increased workload.

The original approval for the consular services fee required that the cost of the program to the department and the revenues from the fee would be reviewed annually. If there was a significant difference between the costs and the revenues, we would seek Treasury Board's approval to adjust the fee. The department prepared a costing of the fee on an annual basis and compared it to the revenues generated. Based on our original assumptions at that time and as reported in the departmental performance reports, we believed the costs exceeded the revenues generated by the fee.

When the Auditor General reviewed the original documentation on the calculation of the fee, it was determined that the department was incorrectly interpreting the original Treasury Board submission. The department calculated the full cost of the consular program and subtracted the revenues received primarily from Passport Canada to determine the costs to compare with the revenues generated.

However, the Auditor General determined we should not be deducting the revenues received. Rather, we should have been deducting the cost of the activities related primarily to passport issuances abroad. Since the revenues for these activities are much lower than the costs, the change in interpretation from deducting the revenues to deducting the costs of those services resulted in moving from a deficit to a surplus for some of the years audited.

As a result of the Auditor General's observation, we reviewed our data and report and we performed a second recalculation which was accepted by the Auditor General. The calculation excludes the time spent on passport issuances and includes other passport services performed by consular staff abroad. The Department's new calculation shows a similar trend of surpluses. However, over the five-year period, it shows a cumulative deficit.

Even with this deficit over the five-year period examined by the Auditor General, the department agrees it is important to review the costing methodology. We believe this is an opportune time, as budget 2008 announced additional funding of some $32.4 million in 2008-09, rising to $95 million ongoing, to improve the delivery of vital consular, business, and diplomatic services abroad. A significant portion of this will be directed at improving consular services.

It also announced that the government would be instituting a ten-year passport by 2011. Therefore, spending on consular services will increase, while the consular fee will be collected half as often.

The department is committed to working with the Comptroller General, the Treasury Board Secretariat program sector, and the Department of Finance to resolve the outstanding issues related to the consular services fee and to ensure the department is in compliance with the recommendations of the Auditor General.

Mr. Chair, thank you very much.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Rigby.

Before we go to the first round, colleagues, I want to formally table before the committee a letter and enclosures that we received from the Office of the Auditor General. It's a lengthy document, and I believe you all have copies. It sets out the executive summary of the internal audit on hospitality. Second is the management letter from the external audit auditor of the office's financial statements. And third is the relevant briefing notes and policies regarding the communications principles issued from the Treasury Board Secretariat. So they are formally tabled before the committee.

Also, I should point out we'll go until a quarter to one, when we'll deal with Mr. Wrzesnewskyj's motion.

First round. You have seven minutes, Mr. Wrzesnewskyj.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Thank you, Chair.

It appears that fees set by contract allowed departments to avoid the User Fees Act. Do we know how many situations of this sort are out there? The medicinal marijuana was listed as one, but how many other cases out there are you aware of?

[Douglas Timmins]

We only examined that case; we didn't do an exhaustive study. I think we have tabled with the committee the long list of fees that are collected, and we did not examine all of those to determine. So the only one we are aware of is the medical marijuana case at this point.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

So we really don't know how many departments may be setting fees and avoiding the User Fees Act by using this contract method.

[Douglas Timmins]

That would be true, Mr. Chairman. Equally, I would point out that as I mentioned, all fees existing in the past that have not changed are also avoiding the User Fees Act similarly, so it's not just the contracting. But we point out that by using a contract you can avoid the User Fees Act indefinitely.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

And these would be the new ones, as opposed to the fees that have been grandfathered and not been changed in the meantime.

What were the specifics of the user fees with medicinal marijuana? Why did they take this route? You must have looked at it in some detail. What was it that spurred them to work around the legislation?

[Douglas Timmins]

Mr. Chairman, I'd ask Mr. MacLellan perhaps to respond to that.

[Clyde MacLellan, Assistant Auditor General, Office of the Auditor General of Canada]

In the case of the medical marijuana fee, what would have happened in that particular case is that the department would have needed to get the fee set very quickly to respond to an increasing demand that there be a safe source for that particular product. It was that situation that dictated that they respond or have a mechanism to respond very quickly, and contract was the easiest way in which to do so at the time.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

On a somewhat related topic to this, if a person ends up having to pay this sort of fee, is it a fee that would be covered by provincial health plans, and how expensive would the fee end up being? You said, I guess, that there was the impetus to move quickly on this, and perhaps some of the details hadn't been fully worked out.

[Clyde MacLellan]

In respect to the first question, about whether or not it would be covered by provincial legislation, we did not examine that particular aspect in the performance of our audit work, so I would not know whether or not a provincial plan would cover such a cost.

The fee itself is $5 for a gram of dried marijuana or $20 for a pack of 30 seeds. That's the fee that's established in accordance with the arrangements.

In our audit, we simply looked at the issue of how the costs for a particular fee in this particular case related to the particular sources of revenue, to determine whether or not the department had a good understanding of the costs. What we identified was that there was not a good understanding of the costs at the time to meet the increased demand to have the fees set and the product delivered. It was only when our audit began that the department undertook a study of the costs in relation to the fee and produced a consultant's report that indicated that the fees at that time were in excess of what they needed.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Thank you.

Moving on to the Department of Foreign Affairs, it appears that prior to the Auditor General's report, Mr. Rigby stated that it appeared that consular services were costing more than the various fees you were bringing in, but that you had incorrectly defined what should be included in those costs. Could you clarify that? It's hard to believe that the department would have thought that all sorts of consular services—you referred to Canadians getting into trouble abroad, then you referred to the situation in Lebanon—that all of those types of services would have been covered by passport fees. Could you clarify what the department's thinking was, when those were the parameters it was using?

[Stephen Rigby]

Generally speaking, the services that are appropriately billable to the consular services fee are true consular services provided by our staff abroad. Those would be the sorts of things I've described in terms of assistance to Canadians abroad in cases of disaster or crime, or similar situations.

What are typically not appropriately billed to the fee are the passport services that we provide abroad for the issuance of passports. At the time the fee was originally instituted, the interpretation made by the department was that the cost should be deducted from the gross costs of our consular program, where the actual revenues that we received from agencies like Passport Canada.... The assumption that was made by the department was that those revenues represented fair value for the services we were providing on their behalf.

After having the opportunity to discuss it with the Auditor General, it became clear to us that it was an unreasonable expectation. So you see the recalculated or corrected calculation in the report. We are continuing to do a range of things to try to clarify the extent to which the surpluses pointed out by the Auditor General suggest there is a need to adjust the fee forthwith.

[The Chair, Liberal, Shawn Murphy]

You have time for one more question.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Thank you.

You referenced that there are an additional 1.5 million passports issued recently because of the new regime. By how much do you estimate those 1.5 million Canadians overpaid on their passport fees?

[Stephen Rigby]

On the basis of the information that we have in this report?

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

That's correct.

[Stephen Rigby]

If you take the information in the report as final, the adjustment on the consular fee might be somewhere between—and this is a very preliminary estimate—$2 and $8, depending on the year in question.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Thank you.

[The Chair, Liberal, Shawn Murphy]

Just before we go to Mr. Laforest, in your last answer you said that if we “take the information in the report as final...”, but I take it that you and the department have signed off on this report.