Public Accounts Committee on April 16th, 2013

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

Thank you.

To Mr. Ferguson or to Mr. Barrett, to help us understand the scope of the context of this particular audit, as I understand it this was basically in response to the blue ribbon panel, the government's action plan on the blue ribbon panel, and that was more about the compliance requirements of recipients of grants and contributions post-award, as opposed to the processes of establishing the grant or contribution.

Would that be a correct statement?

[Michael Ferguson]

That's correct.

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

To help us put this in context.... We know that you did not audit the border infrastructure fund, for example, but the whole process by which grants and contributions were made under the G-8/G-20 fund to town councils and to others where there was no application process, where there was no assessment by any department, where the applications were actually done through the minister's office, that was not part of this audit. Would that be clear?

[Frank Barrett]

Mr. Chair, I think that's a very fair statement. Whereas in the past we've done audits of grants and contributions, where we've actually been a compliance-focused audit on all the requirements, in terms of following a grants and contributions agreement and whether they were doing it—the different steps along the process—in this one the focus was much more on whether they were implementing what they said they would implement in a government action plan. We specifically state in our focus of the audit that we did not seek to see if compliance was being followed on every agreement.

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

Thank you. I think that's very important. I hope we all take note of that for the production of our draft report, to put that in some context.

I now want to move to Mr. Scrimger. It was very important in this context for compliance for the client, to improve the efficiency of the client and the reporting requirements of the client here. A client had a risk of audit exposure based on the risk estimate that was established during the formation of the terms and conditions of the contribution agreement. Would that be correct?

I ask that because,of course audit is a heavy burden on a client. One of the things that was established here is that audit exposure will be somewhat based on the risk of the client itself.

[Tom Scrimger]

I think in most departments the determination of which clients, if you wish, to perform a recipient audit on would be based in some measure on the risk that is assessed around the capability of the client by the department.

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

And risk, as I understand it, is a factor of familiarity of the client to the department. In other words, if a particular client has been a long-term recipient of a grant or a contribution arrangement with a particular department and the terms and conditions have been satisfactorily upheld, their risk of audit is much lower. Would that be fair to say?

[Tom Scrimger]

If we're speaking in those generalities, I would say yes.

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

So familiarity lowers risk. And of course the audit function not only reduces the burden on the client, but it also reduces the burden on the contracting agency. For example, the Atlantic Canada Opportunities Agency has totally dismantled its internal audit function. One of the concerns I have is that an organization like ACOA or Western Economic Diversification would have an incentive to only want to or to preferentially want to contract grants and contributions, establish terms and conditions, with organizations that have been longstanding business partners with ACOA or Western Economic Diversification.

My concern, Mr. Scrimger, is that you've actually created a barrier to new organizations, new businesses, new clients, from participating in the grants and contributions process, and you've actually created an advantage to longstanding clients—because they have been longstanding clients, they are considered less risky and therefore won't draw down the resources of a particular department through the audit function and other monitoring functions.

Have you given consideration of that in your overall evaluation of this particular project?

[Tom Scrimger]

I don’t know if I could agree that the very narrow perspective you've put in front of me, that those two factors, given all the other factors that come into a department and agency in deciding whether to provide a grant and contribution...I don't know if I can come to the same conclusion you have: that we have made it more difficult for new recipients to come into the process.

Depending on the nature of the grant and contribution program we're dealing with, clients that have established relationships with organizations may have a reduced risk of additional audit, but I don't think that guarantees them necessarily that they are the only ones going to receive funding. I think we're really entering into an area that involves understanding the eligibility and the assessment processes of departments.

[The Chair, NDP, David Christopherson]

Sorry, Mr. Byrne, time has expired.

Moving now to Mr. Aspin. You have the floor, sir.

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

Thank you, Chair.

And welcome to our guests.

My questions are directed to Mr. Ferguson and Mr. Barrett.

How do the Auditor General's recommendations in the five-year administrative review of the policy on transfer payments align? As well, perhaps you could outline if this creates an additional reporting burden to respond to both.

[Frank Barrett]

I'd be happy to address the member's question.

Whenever we've completed an audit report, we do make recommendations. In this case, there is a recommendation that specifically speaks to the need to be measuring progress, which is not too inconsistent with the notion in the government's action plan that they would have a five-year review.

Now, in essence, putting in place what we're saying is different from what's worded in the government's action plan. However—and I believe Mr. Scrimger would agree—what we're recommending would actually make it easier for them, as they move forward, to be assessing progress.

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

Thank you, Mr. Barrett.

Mr. Scrimger, I perhaps should have directed that question to you first.

[Tom Scrimger]

If the question is whether there is additional burden because of these processes, personally, I believe the answer is no. As you are entering into a policy review process, you are looking for sources of information and data and feedback. The Auditor General, in its work, becomes a valuable source for us as we're moving into a review stage, as do program evaluations, as do many of the pieces of work done in departments and agencies and our own consultation processes.

This does not add any burden to the recipients of grants and contributions. The work is with us, in both responding effectively to the Auditor General's recommendations and in our daily work of the policy review process attached to the transfer payment policy.

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

Thank you.

What aspect of the action plan, in your opinion, was the most necessary to reduce the costs and administrative burden on recipients?

[Tom Scrimger]

Again, Mr. Chair, I will express somewhat of a personal viewpoint in the sense that I believe it was the cultural shift from a world of risk aversion at any cost to a world of intelligent risk management. That allowed departments and agencies to look at their processes to see where they could lighten up the burden based on their own analysis, their own assessment, and bringing in other instruments and tools so that we were not trying to prevent or manage risk by placing the same burden on every single recipient in the department's universe. I would say certainly that was a key one.

The second one I would answer briefly would be—and I believe it's becoming increasingly important—that departments and agencies realize that their grant and contribution programs are not so unique that they can't benefit from common business processes and standard approaches toward things. Again, certainly early in my career we all felt our programs were so unique that they had to almost have their own system around them, and I think that viewpoint has changed quite dramatically over the last seven or eight years.

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

I wondered if you could, Mr. Scrimger, please speak to the results of the pilot projects for restructuring grant and contribution agreements that TBS supported.

[Tom Scrimger]

Very briefly, there are a number of projects, but there are three that we are focusing on now in one form or another. There is a great deal of work occurring between Aboriginal Affairs and Northern Development Canada and Health Canada in working on integrating processes for the delivery of contributions for first nations health. Quite frankly, from our viewpoint as administrators and bureaucrats, there are some very exciting things that are moving forward there.

We had a project at the time between DFAIT and CIDA to bring together and look at the economies that could be done on the international front. The most recent machinery decision has probably forced that one to a final conclusion, or will in a sense, with the merging of the two organizations.

Last, and not least, Transport Canada and Infrastructure Canada are working with the work that's focused on significant transfers to provinces and territories to see if there is a more efficient way of structuring those agreements.

So those are three noteworthy pieces of work that are advancing at different paces and speeds, but that we hope will bring more efficiency into the overall process.

[The Chair, NDP, David Christopherson]

Thank you. Time has expired. I appreciate that.

Now we go over to Monsieur Giguère. You have the floor.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you, Mr. Chair.

I want to thank our guests for being here today.

My first question is for the Auditor General.

In paragraph 2.23, on page 9 of your report, you state the following:

We found that none of the organizations we audited had assessed the administrative impacts of reforms comprehensively [...]

That's a fairly straightforward remark.

Does that statement have to do with the fact that, very often, the main priority of those audited organizations was to cut their budget to ensure a sound administrative process? In other words, is it more important to respect the imposed fiscal frameworks or the administrative process?

[Michael Ferguson]

Certainly, our observation was as we stated. We found that none of the organizations had assessed the administrative impact of reforms comprehensively. We didn't try to determine the reason for that. We were simply looking to see whether the organizations were doing that assessment, and we found that none of them were doing it on a comprehensive basis.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you very much.

Mr. Scrimger, you said earlier that there has been a shift from a world of risk aversion at any cost to a world of intelligent risk management. That's what you said.

Here is my first question. How can you say that a risk management model is intelligent when there are clearly shortcomings in the very existence of the risk model?

[Tom Scrimger]

I would suggest that there's no risk management model that is perfect. The Auditor General pointed out, and I think in his report acknowledged, that the risk-rating systems were being used by departments to manage those risks. I believe the more complete observation he made is that we weren't specific enough in our guidance; we weren't reinforcing in our guidance the requirement to review regularly the risk management model in departments and agencies. I believe that in the details the Auditor General recognized that many departments had done that without having specific guidance placed in the Treasury Board policy suite.

So I'd look at it not that there is a fundamental break in the risk-rating methodologies being used by departments, but that there is an element in our policy guidance that needs to be there to make it clear that you need to review the risk-rating models on a regular basis to ensure that they are still legitimate. I would open it up to the Auditor General to add to my comments.

[Frank Barrett]

I'll just add one point. On one hand, it's an interesting question. It refers to the need to make sure that the criteria we use and how we weight them is reviewed regularly.

I think the other point that needs to be appreciated, as we say in paragraph 2.44, is that there needs to be some form of review of the individual who was at one point perhaps rated as being low risk, let's say, to some years later or some time down the road reassess that organization: is it still low risk, or if it was high risk and being audited every year and having lots of controls around it, is it still high risk down the road? That form of reassessment becomes very important.