Public Accounts Committee on April 23rd, 2009

[The Chair, Liberal, Shawn Murphy]

I would like to call the meeting to order.

Welcome everyone; bienvenue à tous.

Before I introduce the witnesses, I want to make a few opening remarks because this meeting is a little unusual. It's not the normal meeting we have every day.

As everyone is aware, this committee has the general mandate to review and report on the expenditure of public funds--in other words, to hold the executive to account for the expenditure of public funds, so that it is done in a prudent and compliant manner. As such, we do not concern ourselves with policy, the budget process, the estimates, or the appropriations from Parliament. Of course, before any money is spent, it has to be appropriated and approved by Parliament, and that's done through the estimates process.

The only exception to this general rule is the expenditures of the Office of the Auditor General. At this meeting, which again is somewhat unusual and does take place each year, we are going to hear from the Auditor General and other members of her staff as to why her office should be appropriated approximately $72 million in funds from the Consolidated Revenue Fund, less whatever amount was appropriated earlier in interim supply. At the same time, we're going to hear from the Auditor General on her agency's report on plans and priorities and her agency's departmental performance report, which again are part of the estimates process.

As we're all used to, at most other meetings the Office of the Auditor General assists us or acts, really, as our partner in holding other departments and agencies to account for the expenditure of public funds. Today it is different. It's our job as parliamentarians to hold her office accountable for the expenditure of the funds that are used in the operation of that office, not only in the expenditure of the public funds but in the overall operation of her office, whether the office meets its goals and objectives and whether it's being managed with due regard to economy, efficiency, probity, and compliance with all laws, policies, and guidelines.

Those, colleagues, are a few opening remarks.

We are very pleased to have with us today, of course, the Auditor General. She's accompanied by her Deputy Auditor General, John Wiersema. Also with them is Assistant Auditor General, Ira Greenblatt, and Comptroller Jean Landry.

Having said that, welcome again, Ms. Fraser, welcome to your colleagues, and I'll turn the floor over to you for your opening comments.

[Sheila Fraser, Auditor General of Canada, Office of the Auditor General of Canada]

Thank you very much, Mr. Chair.

We are very pleased to be here today, and we would like to thank you for this opportunity to discuss our 2007-08 performance report and our 2009-10 report on plans and priorities.

As you mentioned, I'm accompanied today by John Wiersema, Deputy Auditor General; Ira Greenblatt, Assistant Auditor General responsible for corporate services; and Jean Landry, our comptroller.

Each year we are privileged to contribute to Parliament's oversight of government spending and performance with the objective information, advice, and assurance that result from the audits we conduct. As you know, we conduct three types of audits: financial audits, special examinations of crown corporations, and performance audits.

All our audit work is conducted in accordance with the standards set by the Canadian Institute of Chartered Accountants. Our work is guided by a rigorous methodology and quality management framework and is subject to internal practice reviews and to external reviews by peers. All of this provides you with assurance that you can rely on the quality of our work.

During the 2007-2008 fiscal year, the period covered by our most recent performance report, we used $82.3 million of the $86.6 million in appropriations available to us and employed the equivalent of 608 full-time employees. Our net cost of operations—taking into account services provided without charge by other departments and other smaller adjustments—was $92.9 million.

With these resources, we completed 152 audits, including 33 performance audits of various departments and agencies, and 11 special examinations of Crown corporations.

Our 2007-2008 Performance Report contains a number of indicators of the impact of our work and measures of our performance. The tables containing our targets and actual performance for these measures are in Appendix I, attached to this statement.

For this past year, our performance highlights include the following:

Parliamentary committees reviewed 56% of our performance audit reports—a slight decrease from the previous two years. We participated in 33 committee hearings and briefings over the course of the 113 parliamentary sitting days.

Departments reported that they had fully implemented 55% and had substantially implemented a further 29% of the performance audit recommendations made in the reports we tabled four years ago.

For the second year in a row, the office has been recognized as one of Canada's top 100 employers and top 10 family friendly employers;

And our 2008 staff survey shows that 88% of our staff believe that the office is above average or one of the best places to work.

We also surveyed you and the members of certain other parliamentary committees on your assessment of our work. We are pleased that our reports are considered to be valuable and that no need to make significant improvements has been identified.

Our performance indicators, however, reveal that last year we were still having problems completing many of our audits on budget.

In planning for 2009-10, Mr. Chair, we have decided not to request additional funds. Instead, in response to the current economic pressures, we are undertaking efforts to reduce many of our costs. Our goal is to carry out our existing and new audit mandates with our current level of resources.

In order to do so, we will decrease the number of performance audits we conduct—from 30 to approximately 25 per year—for the next two years. In addition, we will table our reports twice a year—once in the spring and once in the fall—rather than three times per year. We believe this will give Parliament more time between reports to hold hearings, while still providing members of Parliament with the information they require for holding government to account for its use of public funds. These changes will allow us to reduce the overall costs of our performance audit practice. As well, we are seeking efficiencies in our other product lines and reducing administrative expenses and overhead.

We have three strategic priorities for 2009-2010, as described in our recently tabled Report on Plans and Priorities. Sustaining our overall capacity by focusing on our entry-level recruitment efforts and enhancing our student and training programs. Implementing the new international auditing and accounting standards in the Canadian public sector with the support of a strategic alliance we have formed with a major accounting firm. And improving our budgeting and project management through a number of initiatives. Preliminary results for 2008-2009 show that we have already achieved positive results in a number of areas.

Appendix II to my statement provides you with an updated list of our planned performance audits. You will see that the list includes audits of the administration of the House of Commons and of the Senate. Preliminary discussions are underway with the House of Commons Board of Internal Economy and the Senate's Committee on Internal Economy, Budgets and Administration regarding these audits. We also have begun an audit of Public Works and Government Services Canada's management of the Parliamentary Precinct.

With regard to our special examinations, a recent change in the Financial Administration Act prescribes that special examinations are now mandatory every 10 years instead of every five years. Therefore, the list of special examinations provided to you last year will change. We are currently reviewing the roster of special examinations for the next few years based on this new time frame. We will post a list of special examinations that will be reported on within the next year on our website shortly.

Committee members may be interested to know that we have recently created a national professional practices group within our office. Under the terms of a memorandum of understanding with provincial auditors general, we will provide technical accounting and auditing advisory services, practice advisories, and financial audit methodology and training support to their offices.

We have worked with Treasury Board to obtain approval for re-spending authority for the amounts to be recovered from our provincial counterparts. Treasury Board has informed us that this request related to the re-spending authority will come through the supplementary estimates (A).

Last year we informed you that officers of Parliament had encountered particular problems with the application of Treasury Board policies to their operations. Many of these policies, which apply to all government departments and agencies, had an inappropriate impact on our independence. I am very happy to say that there have been fruitful discussions with Treasury Board of Canada Secretariat officials over the past year on this subject. While our concerns have not been fully resolved, we are pleased with the progress to date. We look forward to a Treasury Board decision that will amend the application of certain aspects of Treasury Board policies to officers of Parliament.

In conclusion, my staff and I appreciate your ongoing interest in and support for our work. We look forward to continuing to assist you in holding the government to account for its use of public funds.

I thank you, Mr. Chair. I would be pleased to answer any questions that committee members may have.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Ms. Fraser. Thank you for appearing here today, and thank you for all your excellent work.

Before we proceed to the first round of questioning, I have a housekeeping matter I want to attend to.

Members, this matter is the review and approval of the minutes of the steering committee meeting held on Tuesday, April 21. Those minutes have been circulated. The main decisions deal with the scheduling of some of the hearings that are there.

The chair accepts a motion for acceptance from Ms. Ratansi.

If there's no discussion, are we all in favour?

[Some hon. members]

Agreed.

[The Chair, Liberal, Shawn Murphy]

Okay.

We'll move to questions. Ms. Ratansi will start the first round of seven minutes.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Thank you, Mr. Chair.

I thank the Auditor General and her staff for being here.

As this is being televised.... The Auditor General is always a mystery to the public. They know about the office, and they know that “Madam” Fraser is a she. They know that the Auditor General reviews the books and shows the accountability and transparency. They know that her office conducts financial audits, value-for-money, performance audits, etc. They rely on the Auditor General to provide assurance that taxpayer dollars are being properly utilized. But sometimes they want to know who's minding the minder.

For the benefit of the public, and I guess for the benefit of everyone--I'm sure that not everybody will read the performance reports and the estimates--how is the Office of the Auditor General held accountable? Who assesses their methodologies?

The reason I ask is that there are new accounting reporting standards, international financial reporting standards. So I have a number of questions.

First, how would that affect your reporting of government books--or would it affect the government? Second, on the funding that the AG's office receives, which is about $86 million, who audits or reviews the funding and its applicability? Third, how does your work add value not only to the Government of Canada and its agencies, boards, and commissions, but also on an international basis? Moving forward, what are some of the challenges that the AG's office faces that need to be addressed in its own shop so that it can be more effective, efficient, etc.?

I'm sure that will take all of my seven minutes.

[Sheila Fraser]

Thank you, Chair.

Let me start by answering the question of who audits the Auditor General, which is obviously put to us quite frequently. In our financial statements, we have an audit that is done by a firm from the private sector named by the Treasury Board. Our financial statements are audited each year and are included in our departmental performance report.

What is more significant to an office like ours are what we call the peer reviews or external reviews of the quality of our work. There are a number of reviews that are carried out. First of all, we carry out our own internal practice reviews as are required under professional standards. We have the institutes of chartered accountants of various provinces come in to review our work to ensure that we can continue to have students that come to work in the office and receive their training with us.

We have begun, over the past few years, to have external reviews done. The first external review of our financial audit practice was done in 1999 by one of the major accounting firms in Canada, and in 2003 we had a review done of our performance audit practice. Performance audit is quite unique to legislative auditors, so we thought long and hard about who should do that review and decided to ask our international colleagues to review our work. So it was a team of the national audit offices of the Netherlands, Norway, and France, led by Great Britain, that came and did a review of the office. That report is available on our website.

We are currently preparing for another review, which will no longer involve simply practice areas, but the whole office, including our corporate services. That review will be led by the Auditor-General for Australia and will include other national audit offices that have not yet been determined, but as soon as those details are worked out, we will certainly be informing the committee of that. All of those reviews actually assess a quality management system, and indicate that our quality management system is appropriate and that we are following that quality management system. As in any audit, there are, of course, recommendations, and our action plan with the recommendations is posted and indicates how we are dealing with all of that.

On the specific question of the international financial reporting standards, IFRS, they do apply to the crown corporations or many of the crown corporations. They do not apply to government per se, because government uses the public sector accounting standards. But this is a major initiative under way, and you can imagine that for some of the very large crown corporations like Canada Post or EDC or CBC this is significant. So we have been working with the crowns, encouraging them to do the diagnostics and reviewing with them the changes that this will mean for their accounting and other financial management systems, because IFRS can have a great impact on more than simply the accounting and the financial statements. This will go into effect in 2011, and they have to have, of course, comparative figures, so that means it actually has to be in effect next year. So it's coming very quickly for these crowns.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Sorry to interject, but if somebody were to look at the crown corporation financial statements and did not know that they were developed on the international financial reporting system, IFRS, and assumed they were developed on GAAP, would they be confused? Would the two sets of figures confuse anybody?

[Sheila Fraser]

Certainly in the year in which the crown corporations actually transition and adopt IFRS as their accounting standards there will have to be very extensive disclosure about that change and what the impacts of that change are. Obviously there will be a lot of discussion and analysis up front, as well in the management. I would presume we might even do something on it as well, because this is going to be major for many of the crown corporations.

On our value internationally, as the committee may know, we do a fair bit of work internationally. It's fairly modest in relation to the whole budget, but we work through an organization called INTOSAI, which is an organization of all the national audit offices or equivalent of all the country members of the UN. Our office has always been a very active participant in that. We lead various study groups. We led, for example, a working group on environmental auditing for six years. We are now leading a subcommittee on accounting and are very actively involved in many of the international standard setters for accounting standards and auditing standards. There is work on specific projects that are largely funded by CIDA. We are now working on assisting the development of an auditor general office in Mali. We have done work in Russia, China, and other countries. Those are very focused kinds of projects.

The very last part of the issue is challenges. I'd say our largest challenge is ensuring that we have the really good people we need to continue to do the work. We have been successful to date, actually quite successful, but that will always be an ongoing challenge. Especially with all of these new standards coming in, it is really critical that we develop and have the capacity to respond to these challenges in the professional standards. That's why we've done this strategic alliance with one of the major accounting firms.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Ms. Ratansi.

Madame Faille, sept minutes, s'il vous plaît.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Thank you, Mr. Chairman.

Thank you for being here. Appendix I to your presentation concerns objectives and indicators. It refers to the “percentage of performance audit recommendations fully implemented four years after their publication”, which is 55%. As for the “percentage of performance audit recommendations substantially implemented four years after their publication”, that is 29%. Why are these figures so low? The figures for 2008-2009 are 50% and 25%, and 75% for 2009-2010.

What are your expectations with regard to your recommendations? Does the office take part in the process, as the Treasury Board does, based on what we were told at the start of the week, when reviewing its policies or conducting consultations with various departments?

[Sheila Fraser]

We established the indicators based on our experience over past years. We consider a combined rate of 75% reasonable. It can be increased a little if the trend improves. However, we believe that it can never reach 100%, for two reasons. First, if that rate were set at 100%, I'm afraid that we would tend to make recommendations in order to reach it, and the recommendations must be quite demanding.

Second, you also have to leave a margin in case the departments do not agree with us. Also, for reasons of priority, the implementation of a recommendation can take more than four years, which is the measure we use. When we make Recommendation 18, it is possible that the departments may tell us they have an action plan, but that certain things are happening. For example, as a result of the economic situation we're currently experiencing, the resources may have to be allocated elsewhere and departments may not be able to complete their projects.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

So it's really based on the recommendations, on a gross figure, not on the qualitative value of the recommendation. Some recommendations were made 10 years ago, and you're still making similar recommendations. The government doesn't implement them, but these are nevertheless quite important recommendations. You don't add value to the recommendation; you don't say whether it's more or less important. You present a rough figure.

[Sheila Fraser]

We think that all the recommendations are important because, as a general rule, there are quite few of them in an audit. Where there is a qualitative element, it is with regard to the time needed to implement a recommendation and the difficulty involved in doing so. That we do not evaluate, but we believe that, generally speaking, four years later—these are really recommendations that were made four years ago—75% of them should be implemented.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Then, in Appendix I, you referred to work delivered on time and on budget, you have a very good success rate for being on time. I congratulate you on that. That also facilitates our work. I think you also have a good mark for providing a respectful work place. I believe people are happy to work for you.

On the other hand, what causes problems with regard to budget? Is it because, once you start the audits, things are more complex than you had expected? Let's take the example of the performance audits: the actual figure is 48%, and your target is 70%.

[Sheila Fraser]

There are a number of factors. First, it must be admitted that the budget was not established in as rigorous and perhaps comprehensive a manner as it should have been. In performance audits, teams sometimes planned their work but did not consider all the other individuals who had to intervene. That obviously resulted in a demand for additional time.

As regards the performance audits, based on our statistics, we've improved considerably. I'll be pleased to talk about those results with the committee next year. Where we still have a challenge is on financial audits. Quite honestly, we should be able to establish a more realistic budget because we are here every year. The actual difficult often lies in changes in accounting standards, and we underestimate the time that will be necessary to conduct the audit. Sometimes there are also discussions with the organizations that may not have clearly understood the standard, and, to a certain degree, we must take more time to produce those audits.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

That's somewhat what explains the decline in the number of audits you'll be conducting; this is a review to better meet your deadlines and have a more realistic budget in order to do the work. That's why you've reduced the number?

[Sheila Fraser]

Partly, but other mandates and responsibilities have been added. In more normal economic times, we would go back to request additional funding, but we decided, given the current situation, that this was not the time to do that. Instead we chose to reduce work volume, but we nevertheless feel that 25 performance audits is acceptable so as not to exceed the limits of the budget we had last year.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

As regards special examinations, is it one of your recommendations that audits should now be conducted every five to 10 years, or is that really because the 2009 budget directives...?

[Sheila Fraser]

That's a recommendation that we've made to the government for a number of years. In fact, it's a requirement for all Crown corporations. Some Crown corporations are relatively small and must undergo an audit of their system and practices every five years. On the other hand, there are departments that we audit every 10 years. So the audit effort was disproportionate. There is a section in the act that provides that a special examination may be requested earlier by the board of directors, the government or the Auditor General.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Ms. Faille.

Mr. Christopherson, you have seven minutes.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you very much, Mr. Chair.

Thank you again, Auditor General and staff, for your presentation. I know everybody always says it, but it needs to be on the record that you do great work for the people of Canada. It really is a joy to work with someone of your calibre on this committee. I can only hope that going forward the people who follow you hit the same standard.

[Sheila Fraser]

Thank you.

[David Christopherson, NDP, Hamilton Centre, ON]

It's well deserved.

A general question that came up at our steering committee is this—and you're right, it comes up all the time, and I asked it when I was a rookie and I'm still asking it every now and then. Who audits the auditor? Who watches the auditor?

I've been through the dynamic and I understand all of that. The one thing that I'm still left with is that every time we bring in anybody in this fashion, there's always a yin and a yang. There's always the deputy who talks about how wonderful things are and how wonderful their responses are to everything, and then there's always you or one of your colleagues with a “yes, but”. It works well. You're the expert, and it's best for us when we have the experts there and we can ask the questions and draw the conclusions that we will.

In this case, it's the only one I'm aware of where it's all one-sided, and there is no “yes, but”; there's no report, there's nobody else--and I will leave it with you to reflect on. Could you respond to that sort of lack in the process, particularly where we have new members? Nonetheless, the process itself I find works best when that natural tension is there. It's not there when you come here: it's your show. That's great while it's you, but it may not always be, so we need to make sure the system works for Parliament and for the Canadian people.

I'll leave that with you to comment on, because I'm going to move on to my next question.

You mentioned in your opening statement—and it was appreciated—on page 2, number 10, that your performance indicators, however, revealed that last year you were still having problems completing many of your audits on target. I appreciate the forthrightness. My questions relate to the fact, though, that I don't see anything that follows from this that says, “Here's what we're going to do about it.” In fact, when I look at the report, what I see in terms of budgets on time and what you're expecting, I believe 70% is the biggest number we get on budgets in terms of performance audits, financial audits of crown corporations, federal organizations. One is 70%, one is 55%, and the other is 70%.

Help me understand why, in acknowledging that last year wasn't good enough, that this year's target is only 70%. Please help me understand how you target less than.... If you know you're not going to make it on budget, don't you make adjustments going in, so that even if the quantitative number is smaller, the qualitative standards have been met. But to come in with a game plan that says, “Here's what we're going to do and we're looking for a 70% success rate”, doesn't seem to me to be.... Why aren't we going for something higher, particularly since you've acknowledged it as an issue?

[Sheila Fraser]

I would very much like to have the targets higher.

Let me go back to your first comment about our not having this sort of other side here. I agree with you on that. I think what the committee might want to consider is when we have a peer review done, that we have a hearing, if you wish, or a discussion with the Auditor-General for Australia. We could do that.

The other thing the committee might want to consider going forward is this. We have an audit committee, as do all the large departments. You might want to invite the chair of our audit committee, because all of our internal audit reports go there. You could ask as well what sorts of mechanisms we have put in place to make sure we're responding.