Public Accounts Committee on Oct. 26th, 2011

[The Chair, NDP, David Christopherson]

I call to order this meeting of the Standing Committee on Public Accounts.

This is meeting number 10. The purpose of today's meeting is to study chapter 3, “Internal Audit”, of the 2011 Status Report of the Auditor General of Canada, which was referred to this committee on Thursday, June 9.

We have quite an ensemble of guests with us today. I will ask them to introduce themselves. I understand that everyone but one has an opening statement.

With that, as is my custom, we'll begin with the Auditor General and go through the ranks of our guests from there.

Mr. Wiersema, you have the floor, sir.

[John Wiersema, Interim Auditor General, Office of the Auditor General of Canada]

Thank you, Mr. Chair.

My name is John Wiersema. I am the Interim Auditor General.

I'm joined today by Nancy Cheng, assistant auditor general, and Bruce Sloan, principal. Nancy and Bruce were the auditors responsible for the chapter you mentioned.

[The Chair, NDP, David Christopherson]

Mr. Ralston, introduce yourself, please.

[James Ralston, Comptroller General of Canada, Treasury Board Secretariat]

I'm Jim Ralston, Comptroller General of Canada.

[The Chair, NDP, David Christopherson]

Thank you.

Mr. Aiken.

[Brian Aiken, Assistant Comptroller General, Internal Audit, Treasury Board Secretariat]

I'm Brian Aiken, Assistant Comptroller General of Canada, responsible for the internal audit function.

[The Chair, NDP, David Christopherson]

Thank you.

[Yves Vaillancourt, Chief Audit Executive, Department of Foreign Affairs and International Trade]

My name is Yves Vaillancourt. I'm the chief audit executive for the Department of Foreign Affairs and International Trade.

[The Chair, NDP, David Christopherson]

Very good.

Welcome.

[Jorge da Silva, Chief Audit Executive, Canadian International Development Agency]

Good afternoon. My name is Jorge da Silva, and I'm the chief audit executive for the Canadian International Development Agency.

[The Chair, NDP, David Christopherson]

Excellent.

Welcome to all of you.

I'm sorry. There are more. I apologize. Go ahead.

[Dennis Watters, Chief Audit Executive, Royal Canadian Mounted Police]

Hello. My name is Dennis Watters. I'm the chief audit executive for the RCMP, the Royal Canadian Mounted Police.

[Don Love, Director General, Audit and Evaluation Division, Department of Veterans Affairs]

I am Don Love. I'm the chief audit executive with Veterans Affairs Canada.

[The Chair, NDP, David Christopherson]

That's great. Is there anybody else I've overlooked?

Okay. Then it's back to Mr. Wiersema for the first of the opening statements.

Mr. Wiersema.

[John Wiersema]

Good afternoon, everyone.

Thank you, Mr. Chair, for the opportunity to discuss chapter 3 of our 2011 spring status report on internal audits.

Mr. Chairman, we found that satisfactory progress was made in the area of internal audit. I'm very pleased to say that the government has significantly strengthened its internal audit capacity since we last reported on this issue in 2004.

We noted a number of factors that contributed to the improvement. First, we noted that the government had established an independent audit committee in each of the 24 largest departments and agencies. These committees include individuals from outside government who have impressive qualifications.

We also noted that internal audit activities are reporting directly to the deputy head. This direct reporting has strengthened internal audit's independence within departments.

Mr. Chair, we found that departmental internal audit groups are looking at the right things when they develop their audit plans, that is, they are developing risk-based audit plans for their work.

Last fall we reported on how internal auditors were adjusting their plans in response to the economic action plan, and in completing that particular audit we were able to rely on the work of internal audit in several instances.

We noted as well in our report that the Office of the Comptroller General has provided good direction and guidance to departmental audit groups and departmental audit committees.

As we indicated in our report, while there has been considerable progress, few departmental internal audit activities have undergone an external quality assessment, as required by professional standards. In response to the one recommendation we made in this report, each department committed to undertake such an assessment by a certain date.

Your committee, Mr. Chair, may wish to ask departments if they're on track to meet this commitment.

The government, Mr. Chair, has made a significant investment in strengthening its internal audit capacity. In my opinion, it's important that the government maintain that investment. We would encourage government not to repeat past decisions to reduce funding for internal audit in an attempt to save money. Internal audit is an important management tool, particularly in times of fiscal restraint.

Mr. Chair, that concludes my brief opening statement. We would be pleased to answer the committee's questions.

[The Chair, NDP, David Christopherson]

Thank you very much.

Mr. Ralston, you're up next.

[James Ralston]

Thank you, Mr. Chair and members of the committee. Thank you for the opportunity to speak to you about internal audit, and how we have strengthened it in recent years.

I have with me today Brian Aiken, Assistant Comptroller General, Internal Audit. I will make a brief statement, and we would then be pleased to answer any questions you may have.

The Office of the Comptroller General of Canada works to strengthen the stewardship of taxpayer dollars and government assets across the federal public service and thereby support the overall effectiveness of public administration in Canada. We are responsible for providing functional direction with respect to financial management, internal audit, investment planning, procurement, project management, and the management of real property and materiel across the federal government.

To focus on internal audit: it is the professional appraisal function that looks at management systems, processes and practices, and the reliability of information. As such, it provides deputy heads with information on how well government's risk management and control processes are working in their departments.

This allows deputy heads to: exercise oversight and control; manage risk in an informed manner; and give attention to areas that need improvement.

Mr. Chair, to support the government's accountability agenda, we implemented the Policy on Internal Audit in April 2006. This policy includes: the clear assignment of accountabilities and roles and responsibilities; improvement in the independence of internal audit through changes to reporting relationships; the inclusion of a majority of members from outside the government on audit committees; and the adoption of professional auditing standards and practices.

Thanks in large part to this policy, significant strides have been made in improving internal audit in the government. For example, we have considerably increased the focus of internal audit on areas of higher risk and significance, and we have increased the credibility and professionalism of the function through community development efforts championed by my office and supported by chief audit executives across the Government of Canada.

As a result, deputy heads have confidence in the independent assurance that internal audit gives them, and they are increasingly relying on it to support them in their role.

Five years after bringing in the policy, we did an evaluation of the implementation—and the results have been extremely positive. They demonstrate that the policy has helped to improve risk management, governance, internal control and the stewardship of resources in departments and agencies.

The Auditor General's audit of the economic action plan in the fall of 2010 praised the work of internal auditors in supporting the successful implementation of this major government initiative. Moreover, the Auditor General comments at length on the progress made in the government's internal auditing function in the 2011 June status report.

We thank the Auditor General for this report, and recognize the value it brings to the continuous improvement of the management and operations of the Government of Canada. Finally, the establishment of departmental audit committees has received attention from academic experts in public administration.

To conclude, we in the Office of the Comptroller General, together with the entire internal audit community, are proud of what has been accomplished, and we are delighted that our efforts have been recognized.

However, we continue to make further strides and welcome the recommendations of the Auditor General, the independent evaluators, and academics as possible directions for future improvements.

We would now welcome the committee's questions.

Thank you.

[The Chair, NDP, David Christopherson]

Thank you, Mr. Ralston.

Now we go to Mr. da Silva.

You have the floor, sir.

[Jorge da Silva]

Good afternoon, Mr. Chairman and members of the public accounts committee. Thank you for the opportunity to appear before you today.

We are pleased with the assessment of the Canadian International Development Agency in this report. For us, the observations made by the Office of the Auditor General represent an acknowledgement of the effectiveness of the work undertaken by management to implement the requirements of the Treasury Board policy on internal audit.

It also acknowledges our efforts to ensure that the internal audit practices followed by the organization meet the standards of the Institute of Internal Auditors' international professional practices framework, which has been integrated by Treasury Board into its policy and directives.

In sum, the Auditor General report confirmed that CIDA's internal audit function has implemented the Institute of Internal Auditors' standards, applies them effectively, and achieves their stated objectives.

Chief among them is the establishment of an independent audit committee, which held its first meeting in May 2009. The agency's audit committee is composed of five members, four of whom come from outside the federal public administration. One of the individuals is the former Auditor General for the Government of Manitoba. Collectively, these members have the skills and experience required to provide the president of the agency with objective advice and recommendations.

Since its inception, the audit committee has deliberated on a number of internal and external audit reports, accountability reports, and the financial statements of the agency. In accordance with the Treasury Board's internal audit policy, the audit committee presented annual reports to the president on their assessment of the agency's governance, risk management, and control practices.

The agency has also engaged a fully accredited certified internal auditor as its chief audit executive, who reports directly to the president. The Office of the Chief Audit Executive prepares a robust, risk-based audit plan focusing on all of CIDA's management systems, practices, and processes, including the integrity of financial and non-financial information.

To ensure its continued adherence to recognized international audit standards, the office will continue to promote the necessary rigour in its internal audit activities and maintain the professional capabilities of its audit team.

I look forward to addressing any questions you may have regarding CIDA's internal audit practices.

Thank you.

[The Chair, NDP, David Christopherson]

Thank you, Mr. da Silva.

And now to Mr. Watters.

[Dennis Watters]

Mr. Chair, thank you for this opportunity to discuss Chapter 3 of the Auditor General's Report on Internal Audit, tabled in Parliament in June 2011.

I am here representing the Royal Canadian Mounted Police. I fully agree with the findings and I agree with the recommendations of the Auditor General's report.

Prior to joining the RCMP in April, I was Director General of Internal Audit at the Department of National Defence. The Department of National Defence was also subject to the Auditor General's audit. The internal audit function was rated as generally conforming to the Treasury Board policy on internal audit and the Institute of Internal Audit Standards.

The report of the Auditor General has been a useful tool and starting point for me since being appointed the RCMP's chief audit executive.

The mandate that I have been given by the Commissioner of the RCMP is to stabilize and improve the internal audit function. The objective is to overcome the challenges identified by the Auditor General.

We have used her findings and recommendations to develop an action plan for returning our internal audit function to a rating of “generally conforms”. The action plan has been shared with the departmental audit committee and the Office of the Comptroller General. Both have indicated that they are satisfied with our progress.

More specifically, we have now completed a comprehensive review of our quality assurance and improvement program, which includes all internal audit policies, procedures, and practices.

We have initiated a process whereby all ongoing audits will be subject to an internal quality assurance review at the end of each phase of the audit, whether it's planning, conducting, or reporting. We are planning for another external quality assurance assessment within the next 18 to 24 months.

I am committed to returning the RCMP internal audit function to a “generally conforms” rating. We have the full support of our departmental audit committee and the senior management of the RCMP.

Mr. Chair, this concludes my opening statement. I will be pleased to answer the committee's questions.

Thank you.

[The Chair, NDP, David Christopherson]

Very good. Thank you, Mr. Watters.

Last, but certainly not least, Mr. Love.

[Don Love]

Mr. Chair, thank you for this opportunity to discuss the Auditor General's status report on internal audit.

As a recently appointed chief audit executive, I found the Auditor General's report to be very informative. I support the Auditor General's overall conclusion that the function of internal audit is now stronger and plays a larger role than it was providing in 2004.

I believe that departmental audit committees are making significant contributions to the overall governance, risk management, and control within departments by providing outside experience and independent perspective.

I would also like to acknowledge the vital contributions that the Office of the Comptroller General has made through the development of various guidance documents. Guidance provided in such areas as core management controls, risk-based audit plans, and departmental audit committees has been very helpful and promotes consistency across government.

The successful implementation of the new human resources strategy for internal audit should further strengthen the function by unifying the internal audit group and increasing development opportunities.

During this time of fiscal restraint, we are contributing a critical service, providing deputy ministers with strategic advice, assurance that the appropriate controls are in place, and opportunities for improved efficiency.

Now more than ever, the Government of Canada requires a strong function of internal audit, and we need to continue to build on the progress that has been made since 2004.

Mr. Chair, this concludes my opening statement. Thank you.

[The Chair, NDP, David Christopherson]

Thank you, Mr. Love. I appreciate that.

Colleagues, we will now begin questioning through our regular rotation process.

With that, Mr. Saxton, you have the floor first.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Mr. Chair.

Thanks to our witnesses for being here today.

We are pleased that the Auditor General has recognized the significant progress made to improve the quality of internal audit across government. Internal audit is an important management function to ensure sound decision-making and the good stewardship of taxpayer dollars.

My first question is for the Auditor General. On your audits of the internal audit function, comparing what was found in 2004 to the positive developments in the follow-up audit this spring, do you consider this to be an important achievement by the government?