Public Accounts Committee on Oct. 21st, 2009

[The Chair, Liberal, Shawn Murphy]

At this point in time, I'd like to call the meeting to order and extend to everyone a very warm welcome.

This meeting today, colleagues, is in two parts. In the first hour we're going to hear from witnesses, and in the second hour, from 4:30 to 5:30 p.m., we're going to consider reports.

The committee is very pleased to have before us today representatives from the Australian National Audit Office. Let me introduce Barbara Cass, the executive director from performance audit services group, and Brandon Jarrett, executive director, professional services branch. They are both from the Australian audit office.

Welcome, Ms. Cass, and welcome, Mr. Jarrett, to Canada and to this committee.

The committee also has before it the Auditor General of Canada, Ms. Sheila Fraser, and she's accompanied by the deputy auditor, Mr. John Weirsema.

We're going to hear a presentation from the Australian audit office dealing with a peer review that is under way right now. It's being led by the Australian audit office, but there are a number of other countries involved in this peer review. It will be finished sometime next year and tabled in Parliament.

Let me just say a few words on the entire process that is under way here.

When we talk about the Office of the Auditor General and who's auditing that office, or who's watching the watchdog, there are a number of processes involved.

First of all, as I believe many of us are aware, the initial budget of the Office of the Auditor General goes through a panel of parliamentarians, chaired by the Speaker, and that recommendation goes to Treasury Board. It does not have to be accepted, but it certainly has considerable weight. That figure then makes its way into the main estimates as a line item. Then the Auditor General, at a meeting we have every year, usually in May, comes before us to justify the appropriations and to discuss her office's report on plans and priorities and her office's departmental performance report. That estimate line is approved. That, of course, makes its way into the main estimates, and that is the parliamentary appropriation for the office.

The second phase, of course, is the audit. Parliament has to ensure that the money is spent in accordance with the appropriations. Of course, the audit can't be done by the Office of the Auditor General. In that process, Treasury Board assigns that work to a Canadian accounting firm, usually a mid-sized firm. That audit is done to assure Parliament and Canadians that the funds, as appropriated, are spent in accordance with standard public sector accounting standards and that all transactions are recorded, etc. Those audited statements eventually make their way into the consolidated summary of financial statements of the Government of Canada.

The third area, colleagues, is a peer review. I believe this is the third one that has been conducted on our Office of the Auditor General. The first was done by a major accounting firm. The last two were done by international audit firms, and that is exactly what's going on now. They take place every five or six years. This peer review is being led by the Australian audit office. I think there are five or six other countries involved, and they all have certain assignments. At the end of the day, a performance report will be completed. Of course, we will have access to that report when it is done sometime next year.

The steering committee and the committee as a whole thought it would be beneficial for us at this point in time, when the work is being started, to hear from the office of the Australian Auditor-General, the audit office, as to the processes followed, the mandate, and when the work will be expected to be done, so that we have a clear understanding as to what the peer review process entails.

Having said that, I'm going to reverse the order and ask for the presentation from the Australian National Audit Office.

The floor is yours, and again, welcome to the committee.

[Barbara Cass, Executive Director, Performance Audit Services Group, Australian National Audit Office]

Thank you very much.

I won't bother to read out our opening statement. I'll just go through what our presentation is.

As you're aware, and I'm sure your Parliament is no different to ours, members of Parliament and the public look to the Auditor General of Canada for independent, objective, and reliable information upon which they can rely in assessing the government's performance and holding it to account.

This is by way of background information so that you're aware of what we're doing in terms of the peer review.

The Office of the Auditor General's audit work is guided by a rigorous methodology and quality management framework that is aimed at providing reasonable assurance that the OAG discharges its legislative authority in accordance with applicable standards of professional service. The objective and independent review that's being undertaken by our office and other experienced reviewers provides an opportunity to constructively examine and strengthen the work of the Office of the Auditor General of Canada.

The OAG has a quality management system for each of its product lines. The QMS, as it is called, covers areas such as audit and examination management, people management, and continuous improvement as some of the areas. The review objective is to provide the Auditor General of Canada with an independent opinion on whether the Office of the Auditor General of Canada's quality management system is suitably designed and operates effectively to provide reasonable assurance that the work of the OAG complies with its legislative authorities and professional standards.

The scope of the peer review will include all audit and assurance practice lines as well as key support areas that directly support the audit and assurance areas. These will be professional development, the resourcing of individual audits, and the continuous improvement processes that the OAG has in place.

The period under review will cover audit and assurance engagements reported during the period of September 2008 to October 2009. As has already been mentioned, the Australian National Audit Office is leading the peer review team, and it will cover all product lines. We have split the team to cover those lines.

The Netherlands and Denmark, with Australia, will be involved in the review of the performance audits and special examinations of crown corporations. Again, with Australia, Norway and Sweden will be involved in the review of the audit of the annual summary financial statements, the Government of Canada, and financial audits of crown corporations and territorial governments.

The review criteria we are using are going to be based on the OAG's quality management systems, key legislative authorities such as the Auditor General Act, the Financial Administration Act, and the Federal Sustainable Development Act, and it will be based on the Chartered Accountants of Canada assurance and auditing standards.

The peer review will be conducted in a number of stages, and it is our intention to provide a report by June 2010. The actual review commenced with a planning meeting with the OAG and the peer review team members from Australia in June this year. In August, the OAG provided the whole peer review team with comprehensive briefings and explained all elements of the quality management framework. These briefings will assist the team in assessing whether the QMSs are suitably designed for performance audit, special examination, and annual audits.

We've also analyzed the OAG's quality management system, auditing standards, their policies, and guidance as it applies to each of the audit categories. Our current visit is perhaps the most important one because we will look to see how the OAG implements its quality management system, and we'll do this by reviewing a sample of audit files.

The sample that we have chosen covers 17 audits as well as components of the consolidation of the summary of Public Accounts of Canada. It will include performance audits, special examinations, departmental financial audits, financial audits of crown corporations, a territorial financial audit, and other statutory financial audits.

For your information, when we looked at selecting our sample we based it on a number of factors. These included the risks that were associated with either the entity or the audit topic, the materiality of the particular audit, the timing of the audit, the number of agencies involved, how complex it was, and the audit practitioner and assistant auditor general of the OAG.

We are also seeking, as part of our peer review, to get the views of a number of key stakeholders and their view on the work of the OAG. As well as appearing before this committee and speaking to your chair and vice-chairs, we will be speaking to the chair and vice-chair of the Standing Committee on Environment and Sustainable Development, the Comptroller General and his assistant, the chief executive officer of Export Development Canada, the Privacy Commissioner, the Deputy Receiver General of Canada, and senior executives of the Department of National Defence and Revenue Canada. So we have a broad section of stakeholders that we will be talking to.

The final report, which, as I said, we will be able to present to the Auditor General by June 2010, will include findings of the performance audit, special examinations, and financial audit reviews. It will provide an opinion against the review objective. It will also include examples of good practice at the OAG and suggestions for improvements.

We would also like to acknowledge this committee and to thank the Auditor General and her staff for their cooperation and full support for this peer review.

If you have any questions you would like to ask, we are more than happy to answer them.

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Ms. Cass.

I will now turn it over to the Auditor General, Sheila Fraser.

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

Thank you, Mr. Chair.

I would like to make a few comments regarding the external peer review, and my comments will be brief.

Let me start by providing a little bit of background information.

As you mentioned, this is the third peer review of my office. The first one was conducted in 1999 and focused on our financial audit practices. The second peer review, in 2003, focused on our performance audit practices. That particular review was the first of its kind for any national audit office. As you indicated, it was undertaken partly in response to a question that we are often asked: who audits the Auditor General of Canada?

The peer review under way now is even more comprehensive because it encompasses all of our product lines as well as some of our corporate services.

International peer reviews of legislative audit offices are becoming more common. Ultimately, they provide independent assurance that our work can be relied on.

We are grateful that the Australian National Audit Office accepted to lead this review. The peer review team is made up of representatives from several audit offices, including the Netherlands, Denmark, Norway and Sweden. The arrangement is that we pay the expenses of the peer review team while their salaries are paid by their respective audit offices.

As mentioned, the peer review team's report should be finalized by June 2010. At that point, we will provide responses to their recommendations and develop an action plan. Both the report and our action plan will be shared with this committee and made public. We would be pleased to appear before the committee to discuss both the report findings and our plan going forward in response to the recommendations of the peer review team.

Mr. Chair, if you permit I would like to present some of the members of the peer review team who are here today. In addition to Ms. Cass and Mr. Jarrett, we have from Australia Deborah Jackson, Clea Lewis, and Amy Fox. From Norway we have Erna Lea and Lars Moller. From Sweden we have Anna Fahl and Jan-Ake Nelsson, who are present in the room.

Thank you, Mr. Chair.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Ms. Fraser.

We're only going until 4:30 on this matter, colleagues, so I'm going to start with five-minute rounds and see how we get along.

Go ahead, Mr. Kania, for up to five minutes.

[Andrew Kania, Liberal, Brampton West, ON]

Thank you, Mr. Chair.

Welcome to all our guests.

For the Australian guests in particular, I would like to comment that I was in Australia this summer as the joint chair of the Standing Joint Committee for the Scrutiny of Regulations. I met with your parliamentarians and some of your senators. You have a beautiful parliament, and I was treated very well. I will comment on that and say thank you.

My first question for our guests is this: what is not covered in the scope of this peer review, if anything, and if not, why not?

[Barbara Cass]

From our perspective, the peer review covers all the practice lines. It also covers what we have called the key support areas. With that, we haven't covered all the human resource management areas. We have looked at the ones that we considered to be important. Examples are the resourcing of the audits, the continuous improvement, and the training of the teams. We haven't looked at corporate services from the point of view of looking at payrolls and things like that.

[Brandon Jarrett, Executive Director, Professional Services Branch, Australian National Audit Office]

In terms of what the OAG releases, nothing is out of scope. It's been made very clear from the discussions from the Auditor General that we can look at anything we want, and we've looked at a sample of what we believe to be most important and representative aspects of their work.

[Andrew Kania, Liberal, Brampton West, ON]

While I'm in no way suggesting that the practices are not adequate, what criteria will you be using to determine if they are in fact adequate and whether they need improvement?

[Brandon Jarrett]

The OAG, like ourselves, operates under auditing standards and also has its own internal policies designed to make sure that the quality of work meets expectations, so we'll be assessing it against the auditing standards and also against the internal policies that it has set for itself. We'll also look at those policies to see whether we think they are appropriately designed for an audit practice.

[Andrew Kania, Liberal, Brampton West, ON]

Are these standards and policies that you will be using as a reference point all reduced to writing already? Do you have them such that you could actually present them to the committee?

[Barbara Cass]

They are actually using what are called the general standards of quality control for firms performing audit. Those are the Canadian auditing standards.

[Brandon Jarrett]

They are publicly available documents.

[Andrew Kania, Liberal, Brampton West, ON]

That's fine. I'm not on this committee; if the committee members are satisfied, that's fine.

Ms. Fraser, I understand from this report that previously there were opportunities for improvement. That is from the 2003 study. Could you tell us what state that is in, whether the improvements have all been implemented, and whether that is also something that will be audited, in terms of whether they were satisfactorily implemented?

[Sheila Fraser]

Actually, from both of those peer reviews there were opportunities for improvement, as we would expect, quite frankly, from any audit. An action plan was developed for the recommendations that we thought were appropriate and relevant.

I'll give you an example of one that wasn't. Not all of the national audit offices work to the same standards that we work to. We work to what we call assurance standards. Other offices don't need to have the same level of confidence, if you will, that we require in our work. So, for example, there were suggestions that we should be using other techniques in conducting our audits, such as focus groups. We looked at that and we agreed that focus groups would not be an appropriate source of information for us to bring to parliamentarians. It would not fit within our assurance standards. There were some recommendations like that, recommendations that we analyzed and concluded were not appropriate.

I would say most of the recommendations, the action plans, have been completed. There are still some areas that are ongoing, with new standards coming in and methodologies being updated. We have a very big initiative going on right now in the office to redo our methodology and to bring that up. I am convinced that one of the recommendations that will be coming out of this practice review will be that we need to complete that work, but I would say most of the work has been done. If the committee wishes, we can obviously provide an update on where those actions were from the last review.

[Andrew Kania, Liberal, Brampton West, ON]

I have a specific question. With regard to the opportunities for improvement that you have mentioned, will that segment be audited by our friends to determine whether they agree with what has or has not been done?

[Sheila Fraser]

It is up to them to decide the scope of their audit.

[Brandon Jarrett]

Basically we've re-based the work. Whilst we're aware of other work that's been done in the past, we've looked at it from the base up. We make a judgment about where things need to be based on our analysis, but we will be informed on what's happened in the past.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Kania.

Thank you to our guests.

Go ahead, Madam Faille, please.

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

Thank you, Mr. Chair.

I am tempted to discuss accrual accounting with you, but I will limit myself to one comment. We have with us a committee member who worked very hard on the accrual accounting file, and I am happy to point out, at every meeting of the Standing Committee on Public Accounts, that his experience is invaluable to us. I benefited from his replacement as chair.

I would like to know whether the objective of the review takes into account improvements that have been made since 2003. The review covers the quality management system that was put in place in the Office of the Auditor General overall. There is a high level of satisfaction with the work done by that office. In 2003, certain improvements as well as an action plan were put forward. Will the review check to see whether those improvements were made?

[Barbara Cass]

In terms of looking at this peer review, I think it's important to note that the previous peer reviews did not cover all the areas that we are looking at. They really only covered elements. The 1991 review looked at the financial audit. The 2003 one looked at the performance audit. We are looking at all the practices. We will be informed by the previous reviews, but as my colleague Mr. Jarrett pointed out, ours will be based on the analysis of our own findings and the work we do at this point.

We are aware of the previous reviews. We've certainly read them, and we will certainly see what action has been taken, but it will have to depend on the criteria and the analysis that we do ourselves.

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

Thank you.

The quality of the Auditor General's observations often depends on the quality of the data and information that are provided to her by the departments. Will your review include observations on access to information that your office needs to carry out high-quality audits?

[Barbara Cass]

When we do our peer review of the various audits that have been done, we will be looking to see, for example, that the evidence that has been collected supports the findings, the conclusions, and the recommendations of that particular audit. If that evidence is not available, or if for some reason there have been difficulties collecting it from the department, then we would certainly discuss it with the Office of the Auditor General, but that is not our primary task. We are looking to see that, by auditing standards, the work that has been done supports the reports that have been tabled in this Parliament.

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

Will you comment on how our audit system compares with that of other countries?

[Barbara Cass]

We will not be benchmarking your audit system or quality management systems as they are against other countries, because, as the Auditor General herself pointed out, there are very different standards applied. What we will be looking at is whether the systems that are in place support the ability of the OAG to provide public reports that are supported and done in accordance with the accounting standards.