Public Accounts Committee on May 11th, 2010

[The Chair, Liberal, Shawn Murphy]

I would now call this meeting to order. Bienvenue.

This meeting, colleagues, has been called pursuant to the Standing Orders to deal with the main estimates for 2010-11 for the Office of the Auditor General, which would include vote 15 under Finance, as referred to this committee. Also, we will be dealing at the same time with the report on plans and priorities and departmental performance reports from the Office of the Auditor General.

I should point out that we have before us this morning the Auditor General, Sheila Fraser. She's accompanied by the Deputy Auditor General, John Wiersema, and the Assistant Auditor General, Lyn Sachs.

Before I call upon the Auditor General, I want to make a few preliminary comments that I think are important. I view this as a very important meeting and a meeting that is somewhat different from every other meeting that's held by the public accounts committee. In most other meetings, as everyone is aware, the committee reviews the expenditures and actions of various government departments and agencies to determine whether those departments and agencies are being managed with due regard to economy and efficiency, and whether measures are in place to measure and report on effectiveness. In other words, our job is to hold the government to account. In so doing, we rely extensively on the work of the Office of the Auditor General.

Then the question becomes, who holds the Auditor General and her office to account? The general answer, of course, is Parliament: the Office of the Auditor General is accountable to Parliament. The specific answer is the public accounts committee.

So in this meeting the committee will review the estimates document, the departmental reports on plans and priorities, and the departmental performance reports and make due inquiry as to whether or not the Office of the Auditor General is managed with due regard to efficiency, effectiveness, and economy.

I want to remind members that pursuant to the Financial Accountability Act, the Auditor General is a designated accounting officer, and she's personally accountable to Parliament for ensuring that all funds appropriated to her office are spent in accordance with all government policies and procedures, that the accounts are properly recorded and presented, and that the proper systems of internal control are in place.

At the end of the hearing, the committee will vote on vote 15, that being an appropriation of $75,103,833. According to our rules, the committee can either approve this vote, negate it, or reduce it. Of course, it cannot increase this amount.

I also want to remind members that in reviewing these reports it's incumbent upon us to ensure that the Office of the Auditor General is and remains totally independent of the executive, and secondly, that the Office of the Auditor General has sufficient resources to do the job it is mandated to do.

Having framed the nature of the hearing, I am now going to call upon Ms. Fraser for her opening comments.

[Sheila Fraser, Auditor General of Canada]

Thank you very much, Mr. Chair. We are pleased to be here today and would like to thank you for this opportunity to discuss our 2008-09 performance report and our 2010-11 report on plans and priorities.

As you mentioned, I am accompanied today by John Wiersema, Deputy Auditor General, and Lyn Sachs, Assistant Auditor General of corporate services and our chief financial officer.

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 performance audits, financial audits, and the special examinations we conduct. All of 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 system and is subject to internal practice reviews and to external reviews by peers. All of this provides assurance that you can rely on the quality of our work.

During the 2008-2009 fiscal year, the period covered by our most recent performance report, we used $84.4 million in parliamentary appropriations available to us. We employed the equivalent of 628 full-time employees, just under our budget of 635. Using these resources, we completed 148 audits, including 32 performance audits of various federal and territorial departments and agencies, eight special examinations of Federal Crown Corporations, and 108 financial audits.

Our 2008-2009 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 indicators and measures are attached to this statement as Appendix 1.

For the 2008-2009 fiscal year, our performance report shows that almost all of our indicators of impact remained positive. It also shows that our on-time performance remained good, but our on-budget performance left some room for improvement. We have started to see improvements in our on-budget performance for financial audits, and I can now say that for 2009-2010 we will likely meet all of our targets for this indicator. As you will note we have increased these targets for 2010-2011.

Our performance report also shows that our internal practice reviews identified a number of instances when our quality management system was not applied consistently and rigorously, and where improvements should be made. As you may recall, an international peer review team is reviewing our audit practices and support services. The preliminary peer review findings are similar to those of our internal practice reviews, and we anticipate receiving their final report in June. I wish to assure the committee that we are not satisfied with these results, and I will outline shortly a major project we are undertaking that will address both this situation and the adoption of international accounting and auditing standards.

With respect to our 2010-11 report on plans and priorities, let me begin by saying that in light of the current economic situation, we plan to take the same course of action for this fiscal year as we did last year, and not request any additional funding. Our planning includes continuing our efforts to reduce our total expenses and delivering fewer performance audits—24 are planned in 2010, as compared with 30 in 2009. Appendix 2, attached to this statement, provides an updated list of our planned performance audits and special examinations for the coming years.

In budget 2010, the government stated that departmental operating budgets are frozen at 2010-2011 levels for the next three years and that departments are expected to absorb the economic increase of 1.5% in salaries. We estimate that the impact of this latter decision will require us to find a further $860,000 in savings for 2010-2011.

Given this requirement, we have reviewed and prioritized the work carried out by my office to identify any assignments or areas that could be reduced or eliminated. As a result of this review, we have recently communicated to the Comptroller General that we will not audit departmental-level financial statements. In addition to the issue of funding, we reached this decision after considering the delays in the readiness of the largest government departments to have their financial statements audited, as well as a lack of a formal government policy on audited departmental financial statements.

The adoption of international standards in 2010 and 2011 will lead to significant changes in accounting and auditing in Canada. And as I mentioned a moment ago, we also need to make improvements to our Quality Management System and its application in our audits. In response, we have launched a major project—a renewal of audit methodology—that will continue until December 2011. This project involves the development or updating a four audit manuals—one on matters common to all of our audits and three that are specific to our product lines. The project also includes developing or updating all our supporting tools, templates, checklists, and audit procedures. In addition, it includes the necessary change management activities, including revamping the training of our audit staff to ensure that our methodology is put into practice and implementing procedures to ensure that it is kept up to date.

The project involves about $3 million of out-of-pocket costs, largely for translation, and a significant amount of staff time over the next two years. Staff time includes the time spent to develop the material, take the training, and provide project management.

As we have said many times, our people are very important to our success. While we have been recognized as one of Canada's top 100 employers for the past three years and one of Canada's top 20 family-friendly employers for a second consecutive year, we foresee continuing challenges. In recent years the market for auditors and accountants has seen both increased demand and limited supply, affecting both the private and public sectors. We expect this competitive market to continue and to result in significant pressure on compensation.

Finally, we would like to inform the committee that we have recently had difficulties with access to information when conducting our audits. Officials have refused information that we requested, have redacted it, or have provided it very late. Some members will recall a similar situation in 2006. An order in council was prepared then that was supposed to resolve this type of conflict; however, it has been interpreted very narrowly by officials.

Senior government officials have recently agreed that there has been a problem with the interpretation of the order in council and that steps must be taken to resolve this matter immediately. As a result, the Secretary of the Treasury Board will be providing this week instructions to deputy ministers and to departmental legal counsel in order to provide clarity on our rights of access. I am pleased with the attention that senior officials have paid to this issue and believe it will resolve the matter.

In conclusion, Mr. Chair, my staff and I appreciate your ongoing interest and support for our work. My colleagues and I look forward to continuing to support you in holding the government to account for its management of public funds.

Thank you, Mr. Chair. We would now be pleased to answer any questions that committee members may have.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Ms. Fraser.

I should point out to the members that what I propose to do is adjourn this portion of the meeting at a quarter to eleven and go to committee business, the adoption of the report from the steering committee.

You have seven minutes, Mr. Lee.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

Thank you.

Well, I thought we were going to have a happy meeting here this morning and join in our efforts to reach the utopian state of homeostatic balance and good accounting and good performance. But there are at least a half a dozen items in your report, Ms. Fraser, that I think colleagues are going to want to deal with, and I'm going to jump right in.

I have been disturbed by a number of things, and you've reflected one of them in your report. It has been styled as the Conservative government's culture of deceit. I don't expect you to answer that, and this committee's usually pretty non-partisan, but this is a message that things are going to change.

I hear grumbling from the other side: “Oh, my God!“ But not only is there a culture of deceit; there is also a process of retribution undertaken by the government to deal with politics out on the street. It has to do with selection of program spending; it has to do with dealing with employees. So I'd like you to keep your eye open. I know you will.

I'm concerned in your paragraph19 by your stating that notwithstanding the sterling record of all of our Auditors General over all of the years, “Officials have refused information that we requested, have redacted it, or have provided it very late.” Are you in any way aware of why it would be that they would try to circumvent or block or deceive the Auditor General in the work that you do?

[Sheila Fraser]

Chair, if I could clarify—

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

Get ready.

I'm sorry. I'm just telling colleagues to get ready. We've gone past the line now, and—

[The Chair, Liberal, Shawn Murphy]

There's a point of order.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

Mr. Chair, there's actually a government minister now—

[The Chair, Liberal, Shawn Murphy]

You've asked the question.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

All right, let's go to Ms. Fraser. I'll have more to say about this later.

[Terence Young, Conservative, Oakville, ON]

Mr. Chair, I have a point of order.

[The Chair, Liberal, Shawn Murphy]

Mr. Young, on a point of order.

[Terence Young, Conservative, Oakville, ON]

Mr. Chair, I don't think it's a fair question to ask the Auditor General to read into the mind of the government for any specific action they take. They took an action; they're working forward to issue a directive to settle an issue she's identified. But to ask her opinion on why the government might have done something isn't fair.

[The Chair, Liberal, Shawn Murphy]

That's not a point of order.

Ms. Fraser, you've been asked a question. Please go forward.

[Sheila Fraser]

Chair, the issue revolves around access to cabinet documents that are considered cabinet confidences. Some members will remember that in 2006 we had a number of issues in two audits that we were doing at the time, having to do with access to documents that demonstrated that Treasury Board Secretariat had challenged an analysis function. We were able to resolve that going forward by a new order in council. I was very appreciative that government actually worked well with us on that and resolved it, to what we thought was our satisfaction at the time.

What has happened since is that legal counsel in certain central agencies have interpreted that order in council very, very narrowly. The order says, for example, that we have analysis related to the Treasury Board submission. Counsel have interpreted that to mean only the final submission and not draft submissions. That is one example. Or we have access to records of decision, and in one case that record of decision referred to an annex. In just reading the record of decision, you couldn't actually know what the decision was, and we were refused access to the annex. So there has been a very strict, very legalistic interpretation of the order in council.

We have been to-ing and fro-ing with government for many weeks on this, and when senior officials finally got engaged, I am pleased to say, they agreed with our interpretation of the order in council. They agreed that the interpretation had been far too strict, and guidance is going out, as I said, this week to deputy heads and to legal counsel that I believe will clarify our right of access and resolve the issue going forward.

We'd be happy to provide that guidance to the committee, if the committee wishes

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

So this could just be a matter of quarrels over details involving that order in council, and not part of a conspiracy to cover up anything. It's just—

[Sheila Fraser]

I see absolutely no indication of any untoward behaviour, except for a very narrow legal interpretation. As well, after our discussions with senior officials, we are receiving the material, and have received it very quickly, and are satisfied that the material we are getting is complete and that any redactions that may still exist are appropriate.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

In your remarks you have also said that as part of your work plan you will have to reduce the number of your performance audits from about 32 to 24. I think the committee views your performance audits as very helpful. I suppose it's not a huge change, and you've explained why.

Would you like to make any further comment about why you're in a position where you're forced to reduce the number?

[Sheila Fraser]

I'd say it's in large part due to budgetary pressures. Obviously, our budget is frozen for three years, and we have to make up the increased costs of salaries. But we've also received increases in other mandates. For example, there were certain financial audits where we were joint auditors and we have now been asked to become sole auditors. So there have been other pressures that have arisen that require us to reduce the number of performance audits.

I think the level we are at is still appropriate. I would obviously like to get indications from the committee if you believe that is the case. I would also indicate that in this era of minority Parliaments and Parliaments that are often disrupted by elections, prorogations, or whatever, we noted that the committee was having difficulty dealing with a volume of 30 reports a year. So we think as well that 24 might be a more manageable number.

When we review reports very late, it makes it difficult for everyone, for the departments, the committee, and us, especially when we are looking at things when the audit is over a year old. Hopefully, with fewer in number, we can be more current with the committee reviews.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Lee.

Madame Faille, for seven minutes.

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

Madam Auditor General, thank you for being here.

I imagine that access-to-information issues may have caused problems concerning the delivery of certain outputs. Have you had timeframe issues related to this access-to-information difficulty?

[Sheila Fraser]

We have had problems related to excessive delays in obtaining documents. Currently we have received most of the documents and we are attempting to adjust our production and audit calendar to take the information we have just received into account in the October report.

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

Fine.

Your report points to two sectors to be improved. The results obtained with regard to the respect of financial audits of Crown corporations and other federal bodies continue to fall beneath the established targets. That is what we can read in the appendices. You also indicate that there are changes or improvements to be made to your quality management system. It says that you issued nine reservations in the financial statement audit opinions in 2007-2008 and that there was a reply to only one of these reservations in 2008-2009.

I would like you to share with me the solutions considered and the problems you encountered. Why haven't the problems you raised in your reservations been solved? What explains this?

[Sheila Fraser]

Some of the files concern the financial statements of territorial entities. There was at least one case where we had to refuse to issue an opinion because of a lack of internal controls and a lack of accounting.This was really attributable to a capacity problem within the organization, regarding proper accounting and management of its affairs. Each year for the past three years, we have had to issue such an opinion and not issue an opinion on the financial statements. We are trying to work with the organization in order to improve things, but I must say that in some cases, it is very difficult because of the lack of human resources that are very limited in certain territories.

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

Let's talk about your reservations. Do they concern large sums of money? Should there be an audit there, is there a problem?