Public Accounts Committee on Nov. 28th, 2011

[Nancy Cheng]

Thank you, Mr. Chair.

Accountability is germane to public administration. In the Financial Administration Act, designating the deputy head as the accounting officer, it also means that the accounting officer is accountable for the various results and performance of the organization he or she leads. That individual relies significantly on the chief financial officer in terms of being able to provide the information so that indeed the accounting officer can be held accountable. Hence, the linkage is there to support the broader accountability.

The other aspect is that without good financial reporting it is difficult to see what the results are, and it would be difficult to generally hold that organization accountable for the resources that have been vested with it.

[Jay Aspin, Conservative, Nipissing—Timiskaming, ON]

Thank you.

My second question, Chair, could perhaps be posed to Ms. Cheng or Mr. Ralston.

Monitoring and constantly strengthening the internal financial controls across government should be a priority if there is an expectancy for strong financial reporting. From what I gather, the policy on internal control is moving ahead and all departments are continuing to work to implement them. Could you update us on the status of this policy and perhaps on how the OCG and TBS can continue to ensure that departments are on track?

[Jim Ralston]

If I may, Mr. Chair, I'll ask Mr. Guéranger to talk a bit about our monitoring of these efforts.

[Gonzague Guéranger]

First of all, I'd like to mention that the policy on internal control really has strengthened significantly the requirements imposed on departments to demonstrate their accountability with respect to maintaining affected systems of internal control. With this policy, which is relatively new, all departments across government now have to complete an annual assessment of the effectiveness of the key controls, based on risk. But more than that, they are mandated to provide an action plan, and we show in the report of the Office of the Auditor General some examples of that, on the results of those assessments. They also have to publish every year a report on progress. So that's the first thing I wanted to mention.

In terms of monitoring, I can tell you that the 22 largest departments that are in the first group of departments to implement the policy on internal control--and which represent 90% of government spending--on November 17, two weeks ago, produced their second public report. Based on these two first reports, we can say that there are significant improvements in the progress of departments with respect to meeting the requirements of the policy on internal control.

In 2010, about 50% of the departments were in the middle stage. They were not in fact proceeding with operating testing, effectiveness testing. This year, based on the second report, we can say that over 80% of them have commenced this kind of activity. So we are monitoring the progress of those departments, and we can see progress.

We are also using the management accountability framework process, which is an annual assessment managed by Treasury Board Secretariat and the Office of the Comptroller General, to assess every year the management performance of departments in different areas, including internal controls.

We also leverage on the internal audit departments and also we leverage on the departmental audit committees that exist in departments to monitor on a periodic basis, with deputy heads, progress made in each department.

[Jay Aspin, Conservative, Nipissing—Timiskaming, ON]

Thank you.

[The Chair, NDP, David Christopherson]

Very good, thank you.

And on to Madame Blanchette-Lamonthe. You have the floor, Madame.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Thank you.

My question is for Ms. Cheng.

At the beginning of your report, you emphasized the fact that the Office of the Comptroller General has not yet established the process for monitoring the completion of those assessments or for assessing the actions taken by the departments. Could you explain to me, in layman's terms, what exactly that means?

[Nancy Cheng]

Thank you.

The first audit question that we pose has to do with recommendations we laid out before on how the Comptroller General's office would try to improve the system of internal control. And there are various elements. One of the elements is to see that they would be monitoring the progress of what is happening in the large departments and agencies. So at the time of the audit—this was taking place in the latter part of 2010—we indicated that they have not actually set up the monitoring process. For that reason, we indicated that this was still an area of work that is required. Hence, you see in our recommendation that more emphasis would be put on the monitoring side.

What we saw was that there has been very good progress on the policy front. We have the policy suite there. There are tools and guidance and there is professionalization. But the monitoring side seems to be just in the early days, and hence we made the recommendation.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Mr. Ralston or Mr. Guéranger could perhaps tell us what will be done or what has already been done since the study on monitoring.

[Jim Ralston]

I think I'll ask Mr. Guéranger to add to what I'm going to say if he so wishes.

The first point to make is simply that we haven't necessarily put in place new monitoring mechanisms. The fact of the matter is that, through the management accountability framework, we do some regular monitoring. We also are able to do, fairly simply, the kind of monitoring Mr. Guéranger just spoke of, which is observing what changes get posted.

We still believe that the primary responsibility for keeping these things on track is with the deputy heads and their audit committees. It's not primarily the OCG that should be taking charge of this.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

So, you do not share the opinion expressed in the report, which states that more monitoring activities are needed.

Do you agree with that or not?

[Jim Ralston]

I sense that perhaps the Office of the Auditor General was looking for something tailored to this particular monitoring task. As I've said, we've tried wherever we can to do the monitoring. It's really a question of whether or not we can achieve that monitoring by relying on some of our existing monitoring tools.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Unless I'm mistaken, you have no intention of changing anything as far as monitoring goes.

[Jim Ralston]

Hopefully, the earlier comment made by Mr. Guéranger points out that we believe we do have a fairly good handle on what's going on out there through the means that we have chosen to use.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Ms. Cheng, what do you think?

[Nancy Cheng]

Thank you.

I don't think there is a sense of disagreement. What we're indicating is that when we look at the audit, all these DPR disclosures were in the very early days. The earlier model of just looking at some of the math of the management accountability framework results seems a little bit light. It doesn't give the Comptroller General's office, in our view, the overall picture as to how the government is progressing.

What we're looking for is that we know how the government may be progressing towards improving internal control. In essence, if things are moving in the right direction the Comptroller General's office may not have to do very much more. But if things are not progressing and if everybody is slow and we're running into a stalemate, then we would expect the centre to have a bit more of a step-up role. That's where we're coming from.

The monitoring we saw at the time of the audit was too early for us to say they had enough information to manage that.

[The Chair, NDP, David Christopherson]

Your time has expired.

Merci, to both of you.

Over to Mr. Dreeshen to wrap up our questioning of witnesses. You have the floor, sir.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you very much, Mr. Chair.

Thank you to our guests.

Ms. Cheng, you mentioned in your opening remarks about the Treasury Board Secretariat's role regarding the development of the policy frameworks and relevant guidance on internal controls and the implementation of risk management measures.

You also talked about a demonstrated leadership in the development and strengthening of financial management and the policy suite that is associated with it. You've gone so far as to say that in your audits of financial management internal auditing, there are descriptions of improvements that were significant, in your mind.

Could you discuss the significance of those particular changes? Are those improvements broad enough in scope that they would be what you would consider best practices that could be used?

[Nancy Cheng]

Thank you.

The government has laid excellent groundwork to improve financial management and internal controls by having senior people in the financial shop who have the financial competency to support all of that.

There are several aspects here. In terms of the internal control, there are plans under way. We will assess them, know what the gaps are, and then we can have an action plan to remediate them. If they are following their timeline—we're so close to 2012-13 anyway—then we're probably on a good track.

On the risk management side, there needs to be an appreciation that when we talk about corporate risk profile, it is more than financial risk. Earlier there was a question about whether we would have better risk management if we had more people with an accounting designation. Well, risk management is broader than the financial risk. It has to take into consideration the strategic risk, environmental risk, operational risk, and program risk, which are beyond financial risk. The two elements are not necessarily lined up, and we're not talking about apples and apples here.

But what we saw with the professionalization of the chief financial officer were some on-the-ground differences. They're participating more in strategic discussions. For example, if we talk to deputy heads, they say that they have a financial adviser who understands the program they run but who also has the financial wherewithal to give the right kind of advice when they talk about resource allocation and prioritization.

I think we've got the groundwork laid to help build on improving controls and financial management, and supporting this management.

[Earl Dreeshen, Conservative, Red Deer, AB]

Mr. Ralston, you also have a role in looking for those best practices. I believe that Mr. Guéranger was speaking to some of those as well. I wondered if either of you could comment on some of those best practices.

[Jim Ralston]

Gonzague, would you like to comment on best practices?

[Gonzague Guéranger]

If I understand the question, based on leading jurisdictions around the world and within Canada, the requirements that were implemented through the policy on internal controls are really the best practices of leading jurisdictions. The fact that we are asking departments to complete an annual assessment, to develop an action plan, to remedy the weaknesses, and to make public those actions plans and assessment results is a significant best practice that we see in the private sector, for instance.

[Earl Dreeshen, Conservative, Red Deer, AB]

Ms. Cheng, just as a last question with respect to financial management, can you tell us what government measures have been particularly important to the improvements that you found?

[Nancy Cheng]

Thank you, Mr. Chair.

I believe, first and foremost, that the policy suite requiring departments and agencies to maintain effective systems of internal control, and that they have assessments on an ongoing basis, so that they know they have proper controls in place, are elements that are really critical in terms of improving controls over financial reporting.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you, Mr. Chair.