Public Accounts Committee on Oct. 3rd, 2017

[Marie Lemay, Deputy Minister, Department of Public Works and Government Services]

Thank you very much, Mr. Chair.

Before I start, I have to say that this is the first time I have come to a committee meeting in this beautiful building, this beautiful room. I hope that the space is conducive to good discussions and decisions. I have to say that the team at Public Services Procurement Canada is very proud to be able to lead such an important rehabilitation project.

Mr. Chair, ladies and gentlemen of the committee, I am pleased to be with you to discuss the measures Public Services and Procurement Canada has in place to manage the risk of fraud.

Public Services and Procurement Canada acts as the government's central purchasing agent and real property manager on behalf of government departments. As such, we work within a broader government context to identify and address fraud and wrongdoing. In that regard, the programs of Public Services and Procurement Canada are delivered in accordance with a rigorous fraud risk management framework that focuses on this wider context.

The controls examined by the Auditor General did not include those used by Public Services and Procurement Canada to mitigate the most significant fraud risk in its role as common service provider to other government departments. Rather, the audit assessed Public Services and Procurement Canada's internal mechanisms for managing the risk of fraud. That said, we are committed to ensuring the utmost care and prudence in how all our transactions are handled.

I welcome the findings of the Auditor General, which recognized some of our good practices and helped us identify areas that need further improvement.

As noted by the Auditor General, PSPC has an effective governance structure in place that has contributed to fraud risk management. It also recognized that PSPC has a fraud risk framework as well as an understanding of fraud risk in the organization.

To enhance our fraud risk management, PSPC has formally identified fraud as one of the key risks in the departmental plan for 2017-18. As per the recommendation of the Auditor General, a multi-year fraud risk assessment approach has been developed. In our first phase, which is already well under way, we are focusing on procurement. Fraud risks are identified for each phase of the contracting process, and a detailed description of the risks, their causes, and consequences has been finalized. We believe that this assessment will help us to identify areas in which we can further strengthen our fraud risk framework.

The department has recently implemented a new learning management system, which will help us track all employees' completion of mandatory training on value and ethics in a timely manner.

In addition, we have added to our training an online course on how to identify and report fraud or wrongdoing.

Fraud and corruption in procurement increase the cost and risk of doing business and undermine public confidence in government institutions.

Public Services and Procurement Canada is dedicated to managing open, fair and transparent procurement processes.

Over time, we have established a strong framework that addresses prevention, detection, enforcement, recovery, governance, and culture, and that includes a range of mitigation strategies. This framework is periodically updated to respond to emerging threats, in consultation with departmental stakeholders, law enforcement, and international organizations such as the World Bank.

In response to identified risks, the department continues to implement mechanisms to support accountability and integrity within all departmental transactions. The fairness monitoring program provides client departments, government suppliers, parliamentarians, and Canadians with an impartial opinion that PSPC conducts its procurement activities in a fair, open, and transparent way.

In addition to a code of conduct for employees, we have a code of conduct for procurement, which clearly outlines acceptable conduct and roles and responsibilities for both suppliers and public servants.

In July 2015, the department introduced the government-wide integrity regime, which ensures that the government does business with ethical suppliers.

On September 25, we launched a public consultation to seek input on potential enhancements to the integrity regime. The input provided by Canadians, the private sector, and others will help to make the regime more effective and ensure that it is achieving its objectives.

We are also collaborating on other initiatives. We are partnering with the Competition Bureau and the Royal Canadian Mounted Police on a new federal contracting fraud tip line, launched in April. Information received will be used to conduct investigations and introduce due diligence measures where warranted, to protect the integrity of contracts and real property agreements.

We have also improved the quality of procurement data to monitor and detect anomalies and to ensure corrective action is taken where appropriate.

To conclude, Mr. Chair, I can assure you and the members of the committee that I, as a deputy minister of the department, am committed to ensuring that the department conducts its business with the highest ethical standards.

I will be pleased to answer questions.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Ms. Lemay.

Last, but certainly not least, we welcome Mr. Matthews, the Comptroller General of Canada.

Welcome to our committee.

[Bill Matthews, Comptroller General of Canada, Treasury Board Secretariat]

Mr. Chairman and members of the committee, thank you very much for the invitation to appear today to discuss the Auditor General's 2017 Spring Report on Managing the Risk of Fraud.

I am pleased to be here in my role as Comptroller General of Canada.

The Office of the Comptroller General of Canada works to strengthen the stewardship of taxpayer dollars and government assets across the federal public service, and thereby to support the overall effectiveness of public administration in Canada. We are responsible for providing functional direction with respect to financial management, internal audit, investment planning, procurement, project management, and the management of real property and materiel across the federal government. I would like to thank the Office of the Auditor General for its work on this chapter. It is most timely.

The government recently introduced a new policy on financial management as well as a new policy on internal audit, both of which took effect on April 1, 2017. Amongst other things, these policies reinforce how departments establish, monitor, and maintain a risk based system of internal control over financial management. As the Office of the Comptroller General assists departments in determining how best to implement these new policies, this audit will be most helpful.

Mr. Chair, the Government of Canada is committed to the sound stewardship of taxpayer dollars.

As a result of his review, the Auditor General recommended that the Treasury Board of Canada Secretariat should: increase awareness of the importance of managing fraud risks by supporting senior management in implementing fraud risk management; and consider issuing specific guidance on managing fraud risks and how its implementation could be monitored.

Mr. Chair, we agree with the Auditor General’s findings and are taking steps to implement these recommendations. In addition to introducing the policy I mentioned, the Treasury Board Secretariat is working with organizations to ensure they are effectively managing and monitoring fraud risks.

In May of this year, departments and agencies were contacted to remind them of deputy ministers’ responsibilities under the new policy on financial management. These responsibilities include establishing, monitoring, and maintaining a risk-based system of internal control over financial management; providing reasonable assurance that financial resources are safeguarded against material loss; and taking prompt corrective action when control weaknesses and material unmitigated risks are identified, including the risk of fraud.

At the same time, departments and agencies were also directed to comply with specific standards issued by the Institute of Internal Auditors on the management of fraud risks in accordance with the new policy on internal audit.

Moreover, in June 2017, a presentation was made to members of the internal audit community on their role regarding fraud.

Mr. Chairman, as you can see, much work has been done to address the Auditor General’s recommendations.

Going forward, the secretariat will continue to consult with departments and agencies on the need to update its guidance on the management of fraud risks. Going forward, this challenge is one of striking a balance between raising awareness and not overburdening departments and agencies with new requirements in the area of reporting and monitoring.

Thank you for your time today.

I look forward to your questions.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Matthews.

Thank you again to all of our deputy ministers and to the Auditor General for their presentations. If we stick very close to the time, all sides should have the ability to ask a question in the first round. Again, I remind you that we'll continue this study on Thursday.

We'll start with Ms. Mendès.

You have seven minutes.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Thank you very much, Mr. Chair.

Thank you all very much for being here today. I am very pleased to see that you would like to correct what the Auditor General has identified.

My first question is for Mr. Ferguson, because this has come up regularly at our committee meetings for the past two years. In fact, it comes up in nearly all reports. I am referring to problems in the collection of computer data and the fact that the systems will eventually be unable to meet the requirements or what would be expected in a department. In each of the departments we have looked at thus far, there has always been a data management problem.

Mr. Ferguson—I know you get this question at nearly every meeting—, but is this due to a problem with the culture, failure to update systems that therefore remain stagnant? Are the findings from the data collected simply ignored? This is becoming a marked trend in everything we see.

[The Chair, Conservative, Kevin Sorenson]

Mr. Ferguson.

[Michael Ferguson]

Thank you, Mr. Chairman.

First, I think it is merely a lack of control in a few systems to ensure that the data is properly collected. In paragraph 1.70 of the report, we provided a few examples of the data problems.

Each organization should have the control and procedures needed to ensure the quality of the data in each of these systems. It would then be possible to conduct analyses using the relevant information. If there are problems involving information, it would be impossible to do a proper analysis to understand what is in the system.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

And to correct mistakes, I assume.

It does seem, Chair, that this problem with data is pretty well a constant.

I would like the deputy ministers, one by one, to address it, maybe starting with Mr. Shugart.

What is so difficult about this data collection? It seems to be such an issue from one department to the next.

[The Chair, Conservative, Kevin Sorenson]

Mr. Shugart.

[Ian Shugart]

Well, I think you've correctly identified that you can't intervene if you don't have the signals in data.

I would point out that we're not talking about a complete lack of data or the lack of systems. What the Auditor General pointed out in a number of cases is the lack of sophistication of data and procedures to provide assurance.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Even the use of data and properly analyzing it is what I understood from it too.

[Ian Shugart]

Absolutely.

One thing we've done as a result of this is to institute a new case management tool, which is going to equip us better to do the follow-up on things that are flagged, cases that come to light, anomalies and so on. Bear in mind that we wouldn't even know about those anomalies and those flags if we did not have data systems there in the first place. I think that in many cases, Chair, we're talking about the enhancement and the sophistication and the refinement of those data systems, and then putting in place the protocols.

I mentioned these common service-delivery points that we've instituted in the department. We will not be dependent on every single mission. Every mission will have a responsibility to monitor, but the consolidation and the standardization of those protocols in those delivery points will be very useful in standardizing and making more use of the analysis of the data.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Thank you.

[The Chair, Conservative, Kevin Sorenson]

Mr. Glover.

[Paul Glover]

Particularly at the CFIA, in some instances it is a question of the sheer volume—thousands of import/export certificates every day and numerous inspections occurring in facilities right across the country. Also, we've gone from a system in which we were very prescriptive—all we and our inspectors and front-line staff and industry needed to do was to follow the rules—to having to comply with something that's a little more sophisticated, from which we're starting to better understand the value of those data sets that we now have and how to mine them so that we can work more intelligently. In the case of procurement, the Auditor General found that we did do data mining to figure out where our risks were and to tighten our contracting procedures.

One of the recommendations was around our systems, to follow up on where there had been conflicts, and the report noted 185 days. We moved very quickly—by April 1—to put a new system in place in less than six months. That's down to about 40 days. That's an example of where we were able to say to staff that the mining this data could be valuable and could have a profound impact in changing the way we work, so that we work smarter and better and achieve better results for Canadians. We're starting to see that.

In some ways, having more examples that are positive like that gets people more excited, which gets them more interested in trying to do better on these sorts of things. At the border, where we have three thousand or four thousand import/export certificates every day, we're mining that data, working with CBSA and RCMP to be more targeted on where we think the potential risks are and where to intercept. Our success rate is going up, now that we are able to better mine that data. I think we've been a little slow to figure out the value of the data, but now that we're seeing that, I think you will see a significant acceleration in our interest in this area.

[The Chair, Conservative, Kevin Sorenson]

I am going to say that unless this question comes up from someone else, we're out of time on this round. However, we may ask you as a department to forward us your answer, if you would, regarding the question and the collection of data, because it is a very important issue that I know our committee is really taken with, as we hear about it in study after study.

We'll now move to Mr. Deltell for seven minutes.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Thank you, Mr. Chair.

Thank you, madame et monsieur. Welcome to your House of Commons committee.

First of all, I want to congratulate every department representative today, because fraud is a serious matter and no one is exempt from that. It's not because you can fix something; it's always a job to renew, day after day and year after year.

On that issue, I think it would have been interesting to hear from some senior cabinet ministers, such as the Finance Minister or the Treasury Board president, just to know where they stand on that. For sure they will support every policy, but more than that, what can we do to be proactive on this matter?

My question will go to Mr. Ferguson.

Mr. Ferguson, your French is excellent so I will ask my questions in French.

You mentioned certain recommendations that have all been well received by the departments and agencies, which is a good thing.

I would also like to go back to what I was saying earlier about ways of being proactive and detecting potential cases of fraud before they arise. The fact is that, every time we adopt a measure, there are wily people who find a way around it. It is unfortunately the bad or nasty side of human nature, which includes both men and women, that leaves us in this predicament.

In your opinion, Mr. Ferguson, based on your analyses, do you think there are ways to be proactive, to prevent and assess the potential for fraud in each department?

[Michael Ferguson]

Thank you, Mr. Chairman.

Once again, broadly speaking, I think it is due to the governance system. We determined in the audit that each organization has an appropriate governance system. It is also important, however, to implement these systems and ensure that they work as intended. For example, we found that the organizations' systems include independent audit committees and that they each have an office of values and integrity. This kind of governance system is the first thing to be verified.

It is also important for each organization to assess fraud risks, to determine what kind of fraud might occur, and what measures should be taken to mitigate those risks. They must be willing to assess fraud risks, to manage them, to have a governance structure, and to ensure that the governance system works as intended at each stage.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Thank you very much, Mr. Ferguson.

My question now will go to Mr. Shugart from Global Affairs.

As we know, you talked about decentralization and regional issues, and we know that each and every country has different trading attitudes. We all know and have to recognize that in some countries there is corruption, so how can you deal with that?

[Ian Shugart]

To answer that question, I will add to what the Auditor General just said.

The tradition is that, before our heads of mission begin in their position, various senior departmental officials speak to them about this problem, provide information or offer training. The deputy minister of Global Affairs also contributes to this process.

This year, I met with all our heads of mission who were about to leave. I talked almost exclusively about fraud detection and management and stressed the importance of awareness. We will strengthen procedures, which include a categorization system for missions. You are correct in saying that each culture, each system of government is different.

There are some indicators that we use to assess risk, the complexity of the mission. We use the index that Transparency International has developed for, as you said, “corruption”. We use these indicators to assess the level of risk. The hardship level in the country is another one. It's not that we ignore these procedures in all of our other missions, but we are increasingly focused on using those metrics for those particular countries.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Do you have any examples from the past few years to give us, without, out of discretion and politeness, identifying those countries?

[Ian Shugart]

I appreciate what the honourable member has said in guiding me to the right examples. I will use the example that is already public, and that is that of Port-au-Prince in Haiti. This involved an episode that was detected initially with locally engaged staff. When we investigated the use of diplomatic plates on private vehicles, we went from there and further anomalies came to light, and we investigated those, and a considerable amount of fraud was uncovered, to the amount of $1.7 million. I will tell the committee that the appropriate actions were taken, including dismissals of locally engaged and Canada-based staff as well as systematic efforts to recover the funds for Canadians.

I can tell you that we learned from that episode, and I instructed that further audits be undertaken to give me the assurance that the same things were not happening elsewhere. I think, in detecting fraud, you have to be prepared to go anywhere that the facts might lead and not be afraid of what you will find, and that's what we've done.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Shugart.

Now we'll go to Mr. Christopherson, please, for seven minutes.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you, Mr. Chair.

Thank you all very much.

Mr. Shugart, you put me in an awkward spot, because now I feel as though I was part of why you got hired, and now I need to see you do good—

[Voices]

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