Mr. Chair, thank you for inviting us to discuss the Office of the Auditor General of Canada's current funding situation. This discussion is necessary to ensure that our office is able to deliver on its mandate. With me today are Andrew Hayes, deputy auditor general, and Casey Thomas, assistant auditor general responsible for performance audits.
I'm going to provide a recap of the office's funding and the pressures that have developed. Then I will speak to some challenges presented by the current funding mechanism.
The office has faced funding pressures in recent years. This has impacted our ability to deliver on our mandate, to keep up with the complexity of the audit environment, and to ensure that we have the people, support services and systems we need to fulfill our responsibilities.
Our need for additional funding was first raised by former auditor general Michael Ferguson in the office's 2016-17 report on plans and priorities, in quarterly financial reports since then, and, more formally, in July 2017 correspondence with the Minister of Finance. At that time, we had not requested or received a budget increase in about 10 years.
In 2011, the government undertook a broad budget reduction exercise. Though our office, as an independent agent of Parliament, was under no obligation to make any cuts, we were strongly encouraged by the Minister of Finance to endorse the reduction exercise.
We voluntarily participated. Some audit mandates were stopped, and investments in technology and knowledge building were reduced or postponed. Through these measures, we were able to reduce our workforce by about 10% and our funding by 8%. As a result, we returned $6.7 million in 2014-15 from our vote 1.
Up to Budget 2018, our funding remained largely unchanged, except for receiving $3.2 million for yearly economic increases, consistent with the rest of government. It is important for you to know that we have been and will continue to be forced to use about $1.5 million every year from our vote 1 to cover unfunded salary increases from 2014-2015 and 2015-2016, and also to cover additional measures that we have had to put in place as a result of the Phoenix pay system, so that we could pay our employees.
We managed within our allocated budget for a few years, but by 2017, our budget was no longer sufficient to allow us to keep up with the complexity of the audit environment, the size of our mandate and our operating context.
The former auditor general then asked for a permanent increase of $21.5 million to our vote 1, to be phased in over two years: $9 million starting in 2018-2019, and $12.5 million starting in 2019-2020. This increase was intended to allow us only to maintain the current number of audits that we did, not to increase them. Since that request, we have received additional unfunded mandates.
In Budget 2018, we were allocated $8.3 milllion, which included $1.3 million for accommodations and contributions to employee benefit programs. This means that the permanent increase voted by parliamentarians and available for our operations was $7 million, which was a third of the total increase that we needed.
In July 2018, Mr. Ferguson wrote to the Minister of Finance again to request $10.8 million in additional funding, which represented $3.7 million less than his original request for $21.5 million. The Minister of Finance acknowledged the thorough analysis conducted by our office. However, in Budget 2019, we received no additional funding.
Many audits we conduct are required by legislation, including special examinations of Crown corporations, most financial audits, and some work conducted by the Commissioner of the Environment and Sustainable Development. We continue to receive additional mandates with no related funding, or any discussion of the cost of this work for our office.
There is also the fact that the government's program expenses have increase by almost $75 billion over a five-year period ending in 2019-2020, and they are expected to increase by some $40 billion over the coming four years. Because these increases are reflected in the government financial statements, they mean an increase in our mandated workload.
In parallel, the auditing environment has become increasingly complex. This is due to many factors, including the transformation of the government pay system, new infrastructure arrangements that include different public-private partnership arrangements, and additional complex transactions such as pension investments made by the public sector pension plans.
Auditors must adjust to the increasing complexity of the audit environment. They need access to and must continue to build their expertise in areas such as IT system control environments and data analytics. It's equally important to stay current with accounting and auditing standards and to have access to technical professional development. Without additional funding, we struggle to provide our staff with this expertise.
In performance auditing, we have seen an erosion of our capacity to gather and maintain the knowledge and expertise of the complex government programs we audit. We must be able to assign staff to develop this knowledge before audits begin, so that we have all of the information we need to select the best audits and are ready when it's time to start our audit work.
Our inability to invest in new technologies or audit approaches that are necessary to prepare the office for the present and future remains a serious concern. For example, some of our IT systems will no longer be supported, starting in 2019-20. At our current level of funding, we are unable to replace them before 2021-22 at the earliest. We also estimate that our IT security risk will not be reduced to an acceptable level until at least 2021.
Industry experts have expressed the view that we are significantly behind them in the development and use of IT-enabled audit approaches. We do not have the funding to modernize our approaches and train our staff to keep pace with the industry.
Because most of our financial audits and other work is not discretionary, if our funding remains inadequate, we will be forced to readjust priorities to meet our statutory responsibilities, and to comply with government policies and meet our own organizational requirements, such as replacing IT systems. This means that parliamentarians will receive fewer performance audit reports they can use to hold government organizations to account for the results they deliver for Canadians.
Ten years ago, we were completing about 27 performance audits every year. In 2019, we will complete 16 performance audits. Going forward with our current level of funding, we expect to deliver 14 performance audits each year. This will include three audits for territorial legislatures, four audits presented by the commissioner of the environment and sustainable development and seven audits from the Auditor General.
Before closing, I would like to turn to what Michael Ferguson, our former auditor general, considered to be the largest issue underpinning our funding pressures: the process by which our office, like other agents of Parliament, receives its funding.
The fact that government departments that we audit are involved in determining how much money is allocated to us is not consistent with our independence or our accountability only to Parliament. To give you an example, in the audits we released in early May, we reported on the activities of the Department of Finance and the Treasury Board Secretariat, both of which are involved in supporting government decisions about our funding. That just does not make sense.
We would note that, in his November 2015 mandate letter, the Prime Minister tasked the Leader of the Government in the House of Commons with ensuring—and I quote—“that agents of Parliament are properly funded and accountable only to Parliament, not the government of the day, in collaboration with the President of the Treasury Board.”
In a January 2019 letter addressed to the Clerk of the Privy Council Office, six agents of Parliament, including former Auditor General Michael Ferguson, stated their desire for an alternative funding mechanism, independent of the executive arm of government.
They further detailed the need for an automatic annual budget adjustment based on a factor directly linked or pertinent to the mandate in functions of each agent of Parliament. One option could be to link our budget to the government's total program expenses. In July 2018, Mr. Ferguson wrote to the Minister of Finance to propose such a mechanism.
The process required to release funds is also challenging, not only for our office, but for government as a whole. For example, the $7-million increase to our vote 1 in Budget 2018 was not received by our office until October, after a laborious process of application to the Treasury Board Secretariat. This delay prevented us from using all the funding because of the time required to hire staff and put in place contracts.
In conclusion, Mr. Chair, I thank this committee for the opportunity to present the recent history of our office's budget and the challenges we face as a result.
We would be pleased to answer any questions that you may have.