Public Accounts Committee on June 13th, 2019

[The Chair, Conservative, Kevin Sorenson]

Good morning, colleagues.

This is meeting number 144 of the Standing Committee on Public Accounts on this Thursday, June 13, 2019.

We are here this morning to consider the budget request of the Office of the Auditor General for 2019-20. I believe we're televised this morning.

Before we begin, I would like to take a minute to commend the committee for the congenial spirit demonstrated by all members. In particular, I would like to thank deputy chairs David Christopherson of the NDP, Alexandra Mendès of the Liberal Party and Pat Kelly from the Conservative Party for their amiable negotiation and drafting of what I felt was an excellent letter to the Minister of Finance. It was a letter that this committee wholeheartedly supported.

All members of our committee recognize the crucial, important work of the Office of the Auditor General of Canada, and therefore unanimously recommend that the OAG be provided with the $10.8 million it requested in its 2019 budget proposal. Furthermore, we strongly recommended that budget decisions relevant to the officers of Parliament, most specifically the Office of the Auditor General, should revert to Parliament.

To discuss the budgetary ask of the OAG, we have a number of guests with us here this morning, but before I introduce them, let's take just one minute for a few sentences by Mr. Christopherson, please.

[David Christopherson, NDP, Hamilton Centre, ON]

Thanks, Chair.

To follow up what you said, I want to give my thanks and appreciation.

Colleagues will remember that in the beginning, we were dealing with the previous government's audits. We were doing great stuff, but it's a lot easier to do that when it's the former government.

I said to the government members at the time that the day would come when it would not be easy for us to do the right thing as the public accounts committee and to be non-partisan and only look at the issue of government spending and efficiencies and waste, etc. They were going to get a lot of pressure from their government not to give anyone a wedge.

What happens is—and you know it ahead of time—that the issue of voting unanimously on something that's in any way critical or not supportive of the government becomes weaponized in question period, and the parliamentarians know that. The job here is difficult. It's one that's different from any other committee, and we have to be non-partisan. When we're partisan instead of non-partisan, Canadians aren't getting the oversight that we are mandated to provide.

I want to give a special shout-out and thanks and appreciation and respect to the government members who, in spite of the politics outside this room, grew to the full parliamentary responsibility of this committee. They were fully prepared, and weeks before an election set aside their partisan membership and said that in the interests of Parliament and the work of the Auditor General and this committee, they thought this was the right thing to do and that they would deal with the politics outside. That's exactly what they did, and I have the greatest respect and admiration for them.

Anyone who wants to use that as a clip or to give their material some oomph, you're welcome to it—

[Some hon. members]

Oh, oh!

[David Christopherson, NDP, Hamilton Centre, ON]

—because the government members, in particular, on this issue of the underfunding of the Auditor General rose to the occasion and deserve the respect of all of Parliament for doing the job that's expected of them, in spite of the fact that, politically, it was going to cause them a problem.

Thank you, Chair.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Christopherson.

I think that's fair. I think all of us recognize that—but there's a difference when you're in government. The non-partisanship of this committee is what gives the power behind it. We are not driven by partisanship and we've worked hard. I commend government and both opposition parties.

To discuss the budgetary ask of the OAG and the effect the lack of funding is having on its office, we welcome this morning from the Office of the Auditor General, Mr. Sylvain Ricard, interim auditor general of Canada; Mr. Andrew Hayes, deputy auditor general; and Ms. Casey Thomas, assistant auditor general.

From the Department of Finance we have Mr. Nicholas Leswick, assistant deputy minister, economic and fiscal policy branch. My understanding is that the deputy minister is with the minister in Vancouver today, so we welcome you, Mr. Leswick.

Without further ado, we'll turn over the floor to our interim auditor general of Canada, Mr. Sylvain Ricard.

[Sylvain Ricard, Interim Auditor General of Canada, Office of the Auditor General]

Thank you.

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.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Ricard.

We'll now move to Mr. Leswick.

Welcome to our committee.

[Nicholas Leswick, Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance]

Thank you very much.

Thank you for the opportunity to be here today. I hope I can be of some assistance in addressing questions with respect to the committee's study of vote 1 funding for the Office of the Auditor General.

As you noted, the deputy minister could not be here today due to a scheduling conflict.

I would begin by clarifying that while the Auditor General is an officer of Parliament, his office is part of the executive branch. It is listed in Schedule I.1 of the Financial Administration Act and, therefore, falls within the definition of a department in that act, as do the Offices of the Information and Privacy Commissioners, the Commissioner of Lobbying, the Commissioner of Official Languages, and the director of public prosecutions.

While all of these officers are functionally independent of government, their offices are treated as government departments. As such, they are governed by the same funding framework as other government departments and agencies.

That framework requires that a funding request be submitted to the Minister of Finance, typically in the context of the annual budget process. Requests for new funding must be supported by a business case.

The staff of the Department of Finance analyze incoming funding requests and their supporting business cases. Advice is then provided to the Minister of Finance based on the department's analysis, which, in turn, informs the decision. If a decision is taken to provide additional funding, the department or agency is appropriated approved funding through the estimates process and appropriation bills.

The advice provided to the Minister of Finance on specific funding requests and the rationale for decisions taken are confidences of the Queen's Privy Council. I have no authority to disclose them, as I trust the committee will understand.

However, I can shed some light on the analytical process undertaken by the Department of Finance.

The department assesses funding requests from two main perspectives.

The first is from a vertical organizational perspective. Through this lens, the department examines the resource needs and business priorities of the organization; the detailed elements of the funding proposal and the strength of the supporting business case; and benchmarks and other metrics to help understand and evaluate the proposal's merits. At the same time, the department considers the organization's ability to reallocate and absorb cost pressures within its existing funding levels and to implement a significant increase in its resource base.

The second is from a horizontal, all-of-government perspective. Through this lens, the department assesses an organization's request against other competing priorities across government. In this context, the request is competing for limited new resources against other social and economic priorities.

In his initial request, the Auditor General asked for a 31% increase in the operating base for his office, a significant increase from the two perspectives outlined above. Recognizing the importance of the work of the OAG, through budget 2018, the office received a 16% increase in funding relative to the 2015-16 fiscal year.

In July 2018, the Auditor General submitted another funding request in the context of budget 2019. The committee has been provided with a copy of this request, which was supported by the same business case as the previous year's request.

The government remains committed to working with the Office of the Auditor General to ensure that the office is able to continue to provide Parliament with objective information and sound advice with respect to the performance of government programs and activities.

Also, under the Auditor General Act, the Auditor General is able to make a special report to the House of Commons in the event that the amounts provided for his office in the estimates submitted to Parliament are, in his opinion, inadequate to fulfill his responsibilities.

Finally, I would note that previous parliamentary committee studies and pilots have been undertaken since 2005 to propose and test new processes for the budget-determination mechanism for officers of Parliament. Their purpose was to ensure the independence of the officers of Parliament from the executive while providing the appropriate measure of accountability for their spending and performances.

Thanks for the opportunity to be here today.

[The Chair, Conservative, Kevin Sorenson]

Thank you for that, Mr. Leswick.

We'll now move into our questions, beginning with Mr. Arseneault.

You have seven minutes.

[René Arseneault, Liberal, Madawaska—Restigouche, NB]

Thank you, Mr. Chair.

Welcome, dear friends. Thank you for your very interesting and informative opening remarks.

Mr. Ricard, I will repeat what I told you when we studied your report on national parks. We have an expression in French meaning that you cannot be trusted. We are here to talk about serious matters: the budget of an important government organization—yours.

Although the Office of the Auditor General of Canada has one of the most important functions in our democratic country, our function is just as important. We have a responsibility to our fellow Canadians.

That said, in your presentation you mentioned that, since 2011, the government has asked you to reduce your activities because it cut your budget. Did I understand correctly?

[Sylvain Ricard]

During the 2011 strategic review—I think the committee had access to the letter that was submitted by the auditor general then—

[René Arseneault, Liberal, Madawaska—Restigouche, NB]

Mr. Ricard, I have only seven minutes, and I would like you to answer me with a yes or no. Am I right in saying that, in 2011, the Office of the Auditor General was asked to reduce its budget and, thereby, its activities? You were not in office at that time; it was Mr. Ferguson.

[Sylvain Ricard]

That was even before Mr. Ferguson. The budget was cut by reducing the workload.

[René Arseneault, Liberal, Madawaska—Restigouche, NB]

That is what worries me. You reduced the workload. Obviously, some studies had to be eliminated.

[Sylvain Ricard]

Those are essentially financial audits that, over time, were added to our mandate. I will give an example.

At some point, the government wanted to have every department's financial statements audited. Finally, that did not come to pass. At the same time, we were asked to start delivering on certain mandates. Given that the government initiative had ended, we suggested that we stop delivering on those mandates.

[René Arseneault, Liberal, Madawaska—Restigouche, NB]

The government of the day suggested that you stop conducting audits, so that you could stay within your new budget.

[Sylvain Ricard]

On a voluntary basis, we embraced the spirit of the exercise.

[René Arseneault, Liberal, Madawaska—Restigouche, NB]

Great. It was on a voluntary basis.

You said that the Office of the Auditor General had to cut its budget by $6.7 million, from 2011 to 2015. Did I understand correctly? Was that annually?

[Sylvain Ricard]

It was an annual cut of $6.7 million.

[René Arseneault, Liberal, Madawaska—Restigouche, NB]

Okay.

I am not jumping around here, as I see the issue of your department's lack of financial resources as a whole. Were the issues of outdated computers mentioned in your presentation predictable when those annual cuts of $6.7 million starting in 2011 were accepted? Was it predicted that things would get there?

[Sylvain Ricard]

I suppose it had to happen eventually, but sometime over the distant horizon. Back then, our computer infrastructure was relatively stable. We had just invested a significant amount in the essential tool we use for our audits, with a multi-year life expectancy.

Computer systems have a life cycle. Be it in 2017, in 2018 or in 2020, ultimately, they will be outdated. However, other elements should be considered here. There is an acceleration of technological development among our clients or entities subject to our audits, so the time when we would have needed to reinvest in our computer system came sooner.

[René Arseneault, Liberal, Madawaska—Restigouche, NB]

Okay.

[Sylvain Ricard]

When we let the funding go, everything seemed to be stable for a fairly long period of time. The challenge posed by the acceleration of technological developments leads to staff recruitment and retention issues for us. As I mentioned at a previous meeting, it is difficult to attract the new generation to work for us, as we are not a modern organization.

[René Arseneault, Liberal, Madawaska—Restigouche, NB]

As far as I understand, in 2011, when the Office of the Auditor General agreed, voluntarily, to reduce its costs, its financial resources and its audits—or to sacrifice some of them—it had not been predicted that four, five, six or seven years later, the computer system, among other things, would need a facelift.

[Sylvain Ricard]

I would not say that we had not predicted it. All technology must eventually be updated. So it was predictable over a multi-year period.