Public Accounts Committee on May 15th, 2012

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you, Chair.

I have a few questions, and I would like some clarification.

Let me just comment, first of all, and thank you certainly on behalf of the Government of Canada and all the taxpayers of Canada for showing the financial stability and of course the probity in moving forward and in coming up with some reductions in your own office expenses and your own operating expenses while still maintaining the effectiveness of your work. Thank you very much for doing that work.

A couple of things sort of stood out, and I'm just asking for some clarification. You said in 2010-11 that 99% of all the eligible managers received performance pay bonuses, and that over $2.25 million was paid out for these. Certainly we have no problem with performance pay going out when it is earned, but is that 99% standard? Has that been consistent all the way through? Is this what we should expect? If that is the case, why wouldn't it just be considered part of the actual regular salary, rather than a bonus?

[Lyn Sachs]

Thank you for the question. This is a question we know of and are fully aware of.

In the breakdown of our performance pay, we follow very much what the public service has done in the way of pay at risk. So if you perform as expected, you will get performance pay, which is why you end up with 99% getting it. The levels are set pretty much as part of a compensation package when you are hired so that if you meet your objectives you will be eligible for about 5% to 7% in performance pay. You can call it “pay at risk”. It's part of your compensation.

The additional amount, up to 5% in some cases, applies only if you have met an exceptional level. Those additional amounts are challenged across the executive, and there is a much more limited number of those who will receive that exceptional performance.

Yes, we're fully aware it is 99%, and perhaps the misnomer is in the term. It is expected performance pay, and it's all part of the compensation package. It's a competitive salary base, which we ensure our directors or management are paid according to the market and according to the public service, so we are quite comfortable with that amount.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you.

I think it's important for the general public, as well, to understand the explanation you have given right now. There's the perception out there that you are just fat cats drawing an extra salary on top, per se.

Could you give us a ballpark range? You said 5% to 7%. How much money are we talking about per year? As an example, some of the general public might say that someone is going to get a $100,000 or $200,000 bonus on top of this. Obviously that is not the case. Could you give us a range you've found to be serviceable?

[Lyn Sachs]

I'll try to be general.

We have three management levels. DX levels earn about $120K. I'm rounding; it's probably more like $118K. A DX earning $100K would get about 5% of that, which is about $6,000, divided by two measures, one for people and one for product. We focus on people management as well as product.

Your PX, or what we call principals, earn, I believe, about $150,000 and the same 5% to 7%. And your system auditors general are closer to $190,000, and they would get something a little higher on the range, about 7%, as a base.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you.

What we have seen is a pretty rapid rate in financial costs for the Office of the Auditor General, overall, over the years. I take a look at the chart of financial costs, and I see that back in 2006-07 the net cost of the program was $88.1 million. Now we are talking about $102 million. For performance audits, you're down just slightly. Financial audits went from $31.3 million up to $45.4 million. Special examinations went from $4.3 million to $4.5 million. Professional practices went from $7.5 million up to $11.1 million.

Over this three- to four- to five-year cycle, there have been some pretty substantial increases in the actual budgetary capacity of the Auditor General. We have no difficulty with that, quite frankly. The work you have produced and the results I think have demonstrated good value for money.

Quite frankly, in the years I've sat on this committee, with a number of other members, we've appreciated the work and we've considered them dollars well spent. But there is still no such thing as an endless move forward. That's why we do appreciate the move you have taken, particularly during this downturn in the economy, to be a bit more conveniently respectful of the taxpayers' dollars for this next term.

What do you see over the next three to four to five years? Are you comfortable with what you're at right now, with maybe a normal inflationary situation, or do you have any ambitious plans to take on a series of other projects that would take on some serious additional cost for the government? Or do you see yourself in a holding pattern?

[Michael Ferguson]

At this point, we've looked out over the next three years. The budget reduction proposal we brought forward deals with the three years. Actually, as I understand it, the reduction is all really in that third year, so we have some time to deal with the impact of it.

We haven't gone beyond that point in time. So really, right now, I couldn't say whether there would be anything else we would be proposing to come back with in terms of any expansion of our mandate. We've looked out over this three-year time period, and we're comfortable that we can continue to deliver on the important audits we do in that timeframe.

[The Chair, NDP, David Christopherson]

Thank you.

Time has expired, Mr. Kramp.

We'll go over now to Vice-Chair Byrne. You have the floor, sir.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Thank you, Mr. Chair, and thank you to our witnesses.

I want to explore a little bit the relationship between the Office of the Auditor General and its work on legislative auditing—not only financial but performance auditing, or value-for-money auditing—and the internal audit function within the Government of Canada.

It is important for us all, as parliamentarians, to recognize that changes are occurring not only within the Office of the Auditor General, but there are also very significant changes occurring in the internal audit function across government.

The Comptroller General of Canada was before our committee, and I asked him whether he could outline for the committee exactly what cuts were about to occur or were occurring within the internal audit function. He explained to me that he could not tell us until after the budget. We haven't recalled him, but we would still like to get those numbers.

How would you describe the relationship between the Office of the Auditor General and the internal auditors within the various government departments? Do you piggyback on the work they do? What will be the consequence of cuts, not only to your own shop but to the internal audit function as well?

I'll frame it this way. The regional economic development agencies, such as Western Economic Diversification, CEDQ—for economic development in Quebec—FedNor, and others have completely eliminated the internal audit function. They are asking the Office of the Auditor General to pick up the slack. How do you do both? How do you cut your own office while taking up the slack from cuts to the internal audit function?

[Michael Ferguson]

Certainly we work closely with internal audit shops in government departments and agencies. We will often share plans with them to try to make sure we aren't both auditing the same thing at the same time. So we do work closely with them. We also appear before departmental audit committees, so we do have a relationship with the departments at their internal audit level. That's as it should be, and we rely on the work of internal auditors.

Certainly I don't know anything about whether any departments are planning to reduce the level of their internal audit functions, but if that were something departments were proposing to do, I think they should be able to explain how they would be able to mitigate any reduction in internal audit.

So there's always a concern with budget reductions that the departments make sure they are thinking those types of reductions out clearly. We certainly believe internal audit is a very important function of the department to make sure that they do what they do well.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

I'm reading that your office has not been consulted by the Comptroller General's office as to their planned reductions in the internal audit function. You have not been asked for your advice as to whether or not internal audit functions within various government departments or agencies or crown corporations can be either eliminated or reduced. That has been left totally separate from your purview.

[Michael Ferguson]

To the best of my knowledge—and I think I can speak personally and for the folks here with me—we have not had any discussions with any department about potential reductions to internal audit they might be proposing.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Would you be concerned if crown agencies or departments had made that decision to cut the internal audit function or to reduce it substantially, with the expectation that it would be your office that would fill up the slack, so to speak, when you hadn't been consulted?

[Michael Ferguson]

When we look at a department and at what we're going to audit in a department, one of the things we assess when we're looking at risks is the strength of their internal audit shop. So if we found that a department was going to reduce internal audit—and again it's not something I have any knowledge of—we would be concerned about the possible increased risk to the delivery of programs in that particular department.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Would it also create a substantial burden on your office if the Atlantic Canada Opportunities Agency, for example, dismissed nine internal auditors and dismantled the entire internal audit shop, the wing, with the expectation that its efforts and its activity would actually be taken up by the Office of the Auditor General, when you had not made plans for that and were in fact cutting your own resources and streamlining and focusing your own efforts?

[Michael Ferguson]

Again, we haven't been consulted on any reductions in individual departments or agencies or what the impacts might be for us.

If an organization were significantly reducing its internal audit shop, that would increase the risk factors in that organization. We would want to make sure that there were some mitigating factors. When we look at a department and assess whether there are risks, an internal audit shop is a component of internal controls we would rely on. If it weren't there, that would change how we assess our look at that department and what work we might need to do.

[The Chair, NDP, David Christopherson]

Thank you. I'm sorry, but your time has expired.

Mr. Saxton, you have the floor, sir.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Mr. Chair.

I have just seen the clock, and we're almost out of time. I think it's important that we have an agenda going forward for the committee.

I would like to move that on Thursday the committee do one hour of report writing and then one hour of planning—because obviously we have to plan going forward beyond that point as well—and that the entire meeting be in camera.

[Mathieu Ravignat, NDP, Pontiac, QC]

Mr. Chair, there was planned business on our agenda. He's skipping the planned business on the agenda. I would ask that we respect the agenda as it is.

There was a motion from the NDP that was scheduled. We should have a little bit of respect for due process.

[The Chair, NDP, David Christopherson]

Which motion are you referring to?

[Mathieu Ravignat, NDP, Pontiac, QC]

The one that has been noticed on the agenda, if that's correct.

[The Chair, NDP, David Christopherson]

Yes, okay.

[Mathieu Ravignat, NDP, Pontiac, QC]

That was the first item on our business work.

I propose that Madame Blanchette-Lamothe go ahead with her motion, and then we could discuss Mr. Saxton's motion. I think that would be fair.

[The Chair, NDP, David Christopherson]

I hear your point, but I have to give some weight to the fact that if we don't pass a motion.... Again I want to emphasize that without a well-functioning steering committee, we continue to lurch in terms of our work plan and we're not nearly as efficient as we should and could be.

Having said that, if I don't entertain a motion that deals with business, that means there is no meeting on Thursday.

[Mathieu Ravignat, NDP, Pontiac, QC]

I'm not—

[The Chair, NDP, David Christopherson]

Let me finish.

I have to deem the overall business of the committee to be the priority. So I'm ready to entertain the motion with that in mind, given that bells are going to ring very shortly and the meeting is about to expire. I, as the chair, desperately need some order to bring us back for Thursday, or we lose the whole day.

I'm listening to you. Go ahead.