Public Accounts Committee on May 15th, 2012

[Michael Ferguson]

Every year that you see the office evolve in direction or emphasis, that will be with my input, but it will not be at my specific direction. It will be based on taking the information, advice, and knowledge from all of the good people who work in the office, and very much relying on their expertise and knowledge to determine in which directions we should go.

So I think you will see some changes moving forward, but I believe they will be evolutionary rather than large changes at any point in time.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

Specific to 2010-11, targets were met on performance audits but they were not met for financial audits or special examinations. You mentioned earlier that the financial audits you're going to concentrate on this coming year are in areas of greatest risk. I think you said there would be no change in performance audits.

Can you discuss performance audits versus financial audits, and which ones are most important, if there is such a thing?

[Michael Ferguson]

Certainly I think the work the office does on financial statement audits is a piece of work we do that people are not necessarily as aware of. We do audits of around 150 financial statements. The one that gets the most visibility, of course, would be the audit of the financial statements of the Government of Canada, which are the Public Accounts of Canada.

A very large portion of the work we do in the office is auditing of financial statements, providing Parliament or boards of directors with the assurance that those financial statements were prepared in accordance with generally accepted accounting principles, and bringing to the attention of the organization any issues we feel need to be brought forward.

It's a very different focus from a performance audit. In a performance audit, what we do is set a specific objective to look at a certain question, really. We identify our own criteria around that, depending on what it is we are looking at, and then we present that.

We are anticipating that there will be no reduction in future years in terms of the number of performance audits we do. And it's the performance audits I think a committee like yours is most familiar with, because those are the things we come forward to discuss.

[The Chair, NDP, David Christopherson]

Thanks very much. I appreciate that.

Madame Blanchette-Lamothe, you have the floor, ma'am.

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

Thank you.

Mr. Ferguson, you say you anticipate being able to do 30 performance audits of federal and territorial entities during the next fiscal year, while 26 audit reports were done during the previous fiscal year. Given the budget cuts, how do you think you will be able to meet the objective of 30 audits?

[Michael Ferguson]

Again, the practice in the office is divided into three main products: our performance audits, our financial statement audits, and our special exams.

With the budget reductions we have identified, we have identified that a significant amount will come from our financial audit practice, because we feel that some financial audits we are doing have not been adding as much value as other work we might do.

Also, we identified that there are some administrative changes we can make that will help provide some savings. And as I said in my opening remarks, the project we've been doing on our audit methodology will also provide us some savings that will contribute towards the overall budget reductions. So we don't believe that we are going to have to take any reductions in the area of the performance audit work we do, which is the area you're referring to.

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

Thank you.

With Bill C-38 and the budget that has been announced, cuts are going to affect your work. I would like you to tell me a little about that. Is this something you were expecting? Have you proposed the agencies you were not required to audit? How does this work, in these circumstances?

[Michael Ferguson]

Certainly, as I said in the opening remarks, before I joined the office, the office received a letter from the Minister of Finance, indicating the government was going to go through a budget reduction. The office at the time decided it would go through everything it does in a complete manner to identify where there could be some reductions. Everything that was brought forward was something the office itself brought forward. We believe that because of that intense look at the work we do, the items we are proposing that we change or no longer do, it's the right thing to make these changes anyway, regardless of whether there was a budget reduction or not.

The changes are in a number of organizations we were doing financial audits in--for example, the Canadian Institutes of Health Research, and some were in the territories as well. There are a number, and I believe those have been tabled with the committee before. It's the same list that was presented to this committee back in October 2011, with one change: we will continue to audit the Canadian Nuclear Safety Commission, which was one we had proposed to stop.

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

Thank you.

When you talk about legislative amendments that you work with the government on, do they relate to that or to something else?

[Michael Ferguson]

Yes.

We are required by legislation to do most of those financial statement audits. To cease doing those audits, we have had to work with the government in terms of getting legislative changes, so we are no longer required to do them.

[The Chair, NDP, David Christopherson]

Sorry, Madame, we're right on the line, so your time has expired. Merci.

Over to Mr. Dreeshen. You now have the floor, sir.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thanks very much, Mr. Chair.

Welcome. I'm glad to see you back.

I want to go through three points. The first goes to the use of tax dollars. The second will be a comment on some of the savings you've indicated in your speech. The third is specific to your summary of indicators, tables. I will have a comment there. I'll try to get through those in the five minutes I have.

First, as we look at using tax dollars wisely—and of course it's important that we do that for us to be able to do our jobs—for that reason I think it's important that as we discuss the main estimates, you go through how you deal with an allocation of just over $84 million for your office, and how it fits into your priorities for 2012-13.

I want to go on to the next. It ties in with the same type of thing. The government is very clear about its intentions to balance the budget, and in the process to reimagine how government operates to the benefit of taxpayers. All areas of government are engaged in this process.

The estimates prepared by your own office show some savings of approximately $625,000. I wonder if you can explain what those savings represent, and how you are reassessing and realigning what's occurring in your office to ensure we have high-quality results for taxpayers.

[Michael Ferguson]

In terms of the allocation of our budget—and if required, we could probably provide some more details—in the $84 million, fundamentally we have the administration of the office and then we have three product lines: our financial statement audit practice, our performance audit practice, and the special exams we do. Those are the three main pieces of work we produce. I don't have the exact allocation off the top of my head as to how much goes into each one.

The second part of your question, I'm sorry, you referred to $625,000....

[Earl Dreeshen, Conservative, Red Deer, AB]

Yes, the savings you had last year. I believe that was.... I've got to dig through my own notes here.

[Michael Ferguson]

Certainly in the last year we did not have to spend all of the appropriation we had, and that was through a process of making sure we brought in our spending within budget. We were within a very small percentage of our total. That is normal for the office to land under budget.

[Earl Dreeshen, Conservative, Red Deer, AB]

When I read through your notes that you had today, you talked about the renewal of audit methodology. There's also the savings that are going to come because you have completed that project. When a person looks at the overall budgets for the future, you've taken—what is it—$2.2 million that's budgeted right now that's not going to be required later. I think that is one of the things people should be aware of. This allows you to kind of work into the dollar figures that you have.

Just in case I run out of time, the last question—and I always mention this point—is on the summary of indicators table. Footnote 3 speaks of “on budget”. It says:

“On budget” means the actual hours to complete an audit did not exceed the budgeted hours by more than 15 per cent.

Again, when we take a look at that, an auditor is saying, “Well, as long as you're not 15% over what you said you were going to do in an area that should be fine”. I don't think that's how it is when you take a look at other people's books, so could you comment on that as well?

[Michael Ferguson]

What we do when we are budgeting for an audit is we essentially budget for the audit to unroll without there being any issues. For example, we say this is the number of hours we expect we should be able to complete this audit in if we don't identify there being any issues within that audit. The 15% is giving us a 15% cushion across our whole portfolio of audits, in that we recognize there are going to be instances when there are issues in an audit that need to be worked through.

We don't go in assuming that every audit is going to have those types of issues and therefore provide a higher budget to deal with it. We go in assuming there are no issues—the lower amount of budget—but then we give ourselves some room to say we've still got a 15% cushion to deal with any issues that might arise.

[The Chair, NDP, David Christopherson]

Thank you, Mr. Dreeshen. Your time has expired, sir.

Moving over to Monsieur Ravignat, you have the floor now, sir.

[Mathieu Ravignat, NDP, Pontiac, QC]

Thank you, Mr. Chair.

I share the concern of my colleague Mr. Dreeshen with regard to respecting taxpayers. That's why I'm quite worried about your diminished role due to these cuts as we go forward.

With regard to your budget-cutting efforts, you suggest that cutting your office administrative services by significantly reducing or eliminating positions will lower service levels. So lowering your service levels will simply lower the level of oversight of federal departments and agencies, when your goal is transparency and good management.

Are you not afraid that under a Conservative government that is clearly lacking in transparency on a number of issues, there may be some inherent danger in proposing this?

[Michael Ferguson]

The service level reductions we are referring to in the budget proposal are internal service levels. In fact our renewal of audit methodology project has been geared to making sure we continue to produce quality audits—audits this committee can depend on. Our intention is to continue to do the same number of performance audits as we've been doing for the last couple of years.

There will be some instances within our own delivery of services to staff when perhaps some things will take a little longer than they had before or that type of thing. The reduction in service we are referring to is service to our own staff.

[Mathieu Ravignat, NDP, Pontiac, QC]

You'd think that writ large in the complete public service there may be more significant areas and areas of greater priority than cutting the Office of the Auditor General, with the important function that you play for Canadians.

I'd like to talk to you about some of the cuts to the positions going forward.

You talk about spending that will be used to reassign and train the employees affected. We are talking about a loss of approximately 60 jobs. What positions are you planning to eliminate? Will those people be reassigned? Will they receive severance pay? What kind of training are you referring to?

[Michael Ferguson]

We have identified that the reduction could affect up to 60 positions. Our plan is to deal with as many of those as possible through attrition. I believe probably about half of those are administrative positions and half of them are audit positions. The audit positions would be a direct result of us saying there are 18 financial audits that we feel we no longer have to do.

There may be a few people impacted, and we will deal with those through the normal mechanisms. Certainly our intention is to deal with those staffing issues through normal attrition and staff turnover.

[Mathieu Ravignat, NDP, Pontiac, QC]

In 2011-2012, 178 of the OAG's 629 employees were executives. That is a relatively high percentage. The proportion we are talking about here is 29%, while 257 employees, or 41%, were auditors.

Do you believe you have the right mix of executives, auditors and support services? Are you going to keep the same balance, notwithstanding the elimination of those 60 jobs?

[Lyn Sachs, Assistant Auditor General, Office of the Auditor General of Canada]

Mr. Chair, I would like to thank the member for his question.

There are 178 executive-level positions at present. Given the reductions, we are going to eliminate about 60 positions, as we explained earlier, and I imagine that will mean about 10 or 15 executive-level positions.

In addition, our effectiveness plans provide for a reorganization that involves reducing the number of managers and adding about 10 or 15 auditors. We have reviewed all of the responsibilities and levels to make sure the appropriate levels are impacted and to be sure of the proportions and needs associated with our audits, which call for a fairly significant effort in relation to what we produce.

[The Chair, NDP, David Christopherson]

Thank you very much. Time has expired, sir.

We are moving over now to Vice-Chair Kramp.