Evidence of meeting #68 for Public Accounts in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was transport.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Michael Keenan  Deputy Minister, Department of Transport
Michael Ferguson  Auditor General of Canada, Office of the Auditor General
James McKenzie  Principal, Office of the Auditor General
Ross Ezzeddin  Director General, Air and Marine Programs, Department of Transport
Paul Glover  President, Canadian Food Inspection Agency
Ian Shugart  Deputy Minister of Foreign Affairs, Department of Foreign Affairs, Trade and Development
Simon Kennedy  Deputy Minister, Department of Health
Hélène Laurendeau  Deputy Minister, Department of Indian Affairs and Northern Development
Marie Lemay  Deputy Minister, Department of Public Works and Government Services
Bill Matthews  Comptroller General of Canada, Treasury Board Secretariat

9:40 a.m.

Conservative

The Chair Conservative Kevin Sorenson

Mr. Keenan.

9:40 a.m.

Deputy Minister, Department of Transport

Michael Keenan

Mr. Chair, the government has defined a very clear plan in terms of investing in Canada with multiple elements of infrastructure programming. One of particular importance to the northern and remote communities is the national trade corridors fund, which has a very clear plan and very clear objectives in terms of expanding the capacity of the transportation systems in Canada to meet the mobility needs of Canadians and to enable economic growth in the country and expansion of the middle class.

The operating strategy of these plans is to identify the highest-priority infrastructure projects and to allocate resources where the significant but ultimately defined federal dollars will generate the largest increase in infrastructure through leveraging partnerships. Having run transportation infrastructure programs for some time, we made the assessment that a unilateral federal determination of where projects go without partnerships and without engaging the priorities of partners would make for a relatively ineffective infrastructure program.

9:40 a.m.

Conservative

The Chair Conservative Kevin Sorenson

Thank you.

Our time is pretty well up. There are just a couple of questions. We have to write a report on our study today, and one of the questions that came from the table is that this report came out in the spring and the expected final completion date on the recommendations, especially the recommendation regarding the long-term strategy coming up, is expected to be in the fall of 2018. Following on the question of Mr. Nuttall and Mr. Deltell, why would it take a year and a half to come up with a strategy? For those of us up here who don't have to implement a strategy, it seems like a fairly long period of time. Why does it take that long?

9:40 a.m.

Deputy Minister, Department of Transport

Michael Keenan

It's a great question, Mr. Chair.

9:40 a.m.

Conservative

The Chair Conservative Kevin Sorenson

We need a quick answer.

9:40 a.m.

Deputy Minister, Department of Transport

Michael Keenan

I'll be quick.

First of all, we're exercising leadership in terms of acting to address pressing infrastructure needs as described. Second is that I think if we were to write a unilateral federal strategy, we could do it pretty quickly, but I don't think it would be that effective. I think a much more effective strategy that would generate results is one that is built on partnership with the territorial governments, the local jurisdictions, and the indigenous groups. The process of engagement, consultation, and defining shared objectives and shared priorities that align to community needs does take a bit of time. We're working it through in the context of the Arctic policy framework and other initiatives. I think we can get it done in the time we've committed.

9:40 a.m.

Conservative

The Chair Conservative Kevin Sorenson

I have one other very quick question as well.

There has been some discussion about the $38 million. It's been the same amount for 17 years. You've also said that there were other programs that have come: a $2 billion program over 11 years, a $400 million....

Are these partnerships, half partnerships, with the territorial governments? Are they projects that Transport Canada or the Government of Canada pays the lion's share of? What's the split on some of these programs?

9:45 a.m.

Deputy Minister, Department of Transport

Michael Keenan

That's a great question, Mr. Chair.

On the broad national trade corridors fund across the country, they're all partnership funds. On the broad programs, we would expect something like 3:1 or 4:1 ratios, where $1 of federal money unlocks $3 or $4 of total infrastructure build. Up in the northern and remote communities, we've structured the programs to be more generous in terms of the federal cost sharing, simply because of the tougher economics up there. For example, in ACAP in remote and northern communities, we say minimum 85% cost sharing from the feds. It's the same thing on the national trade corridors fund; we limit it to 50% in the south, but we allow 75% federal funding in the north. We won't get as much leverage, but we'll get some. More important, we'll ensure that where the investments are made is where the owners of the infrastructure in the communities think they should be made, which is a key strategic priority of the program.

9:45 a.m.

Conservative

The Chair Conservative Kevin Sorenson

Thank you.

Has there ever been money lapse in that $38 million program?

9:45 a.m.

Deputy Minister, Department of Transport

Michael Keenan

There has been money lapse in the past.

I think in recent years, Ross, there really hasn't been much money lapse in ACAP, right?

9:45 a.m.

Ross Ezzeddin Director General, Air and Marine Programs, Department of Transport

That's correct. There was a run maybe about five years ago when there were significant lapses, but we....

9:45 a.m.

Conservative

The Chair Conservative Kevin Sorenson

Sometimes when other partnerships, other players, don't have the funding, although the money is there, there are reasons why maybe it stays at that figure if there is lapse money.

Thank you very much. We have to conclude right now. We have six others coming in right away, and we don't want to take their time. I do want to thank you for coming. It's interesting. I think all governments understand the need for a focus on our north. We've had that commitment to focus on the north and infrastructure in the north. Certainly when we talk about medical evacuations, I think all Canadians understand that there are expectations.

Thank you for being here and helping us with our study.

We will suspend and come back with six from another department, to deal with fraud.

9:50 a.m.

Conservative

The Chair Conservative Kevin Sorenson

We'll call the meeting back to order.

Sometimes it's very difficult to get prepared when you have a meeting in the first hour and then six or seven witnesses in the second hour, but we welcome you back to meeting number 68 of the Standing Committee on Public Accounts.

In our second hour today, we're conducting a hearing on “Report 1: Managing the Risk of Fraud”, from the spring 2017 reports of the Auditor General of Canada. On Thursday we will continue this with another two-hour meeting. Anything we do today can be extended to the Thursday meeting as well.

The witnesses today include Mr. Michael Ferguson, the Auditor General of Canada; Mr. Paul Glover, president of the Canadian Food Inspection Agency; Ian Shugart, deputy minister, Department of Foreign Affairs; Simon Kennedy, deputy minister, Department of Health: Hélène Laurendeau, deputy minister, Department of Indian Affairs and Northern Development; Marie Lemay, deputy minister, Department of Public Services and Procurement; and, Bill Matthews, Comptroller General of Canada, Treasury Board of Canada Secretariat.

We again have an opening statement from our Auditor General. Then we'll have five-minute statements from each of our remaining witnesses. Hopefully, there will be time to go to questions as well.

I think they know the order in which they're going to speak, but we'll first welcome Mr. Ferguson.

9:50 a.m.

Auditor General of Canada, Office of the Auditor General

Michael Ferguson

Mr. Chair, thank you for this opportunity to discuss our spring 2017 report on managing the risk of fraud.

Fraud can happen in any organization. In federal government organizations, fraud can cause the loss of public money or property, hurt employee morale, and undermine Canadians' confidence in public services. Federal organizations must manage the risk of fraud.

The audit looked at how the five selected federal organizations managed their risk of fraud. We also wanted to know whether the Treasury Board of Canada Secretariat provided support to federal organizations to help them manage their risks, including fraud risks, and whether it monitored the implementation of its relevant policies and directives.

Overall, we found that the five federal organizations we looked at had some ways to manage their fraud risks; however, no single organization covered all the basics.

For example, we found that the Canadian Food Inspection Agency, Global Affairs Canada, and Indigenous and Northern Affairs Canada had completed fraud risk assessments. However, some key elements were missing from these assessments. For example, none of the three organizations evaluated all of their fraud risk mitigating controls to assess whether they were operating effectively and efficiently.

As for Health Canada and Public Services and Procurement Canada, although they each had a fraud risk management framework in place, neither had completed a fraud risk assessment.

We were concerned that controls we looked at to manage the risk of internal fraud were not always implemented. Very few employees of the five organizations we looked at received the mandatory training on values, ethics and conflicts of interest.

We found that, while Public Services and Procurement Canada adequately managed employee declarations of contract of interest, the four other federal organizations did not. They either took too long to resolve conflicts of interest or did not have an adequate approach to make sure that measures to mitigate conflicts of interest were in place.

In addition, we found that all five federal organizations we examined had controls and review committees in place to prevent and detect selected inappropriate contracting practices, which were contract splitting, inappropriate contract amendments, and inappropriate sole-source contracting. However, the controls were not always applied, and review committees may not have been involved when required. For example, some organizations didn't justify some sole-source contracts or contract amendments as required.

Also, the organizations didn't analyze their procurement data to help them identify all three types of inappropriate contracting practices. In addition, in all five organizations, we found data quality problems that limited the organizations' ability to analyze their contract data. For example, they didn't make sure that company names were recorded in a consistent way.

Finally, the Treasury Board of Canada Secretariat supported and monitored how federal organizations managed their overall risks. However, it did not monitor how federal organizations manage their risk of fraud or provide specific guidance about fraud risk management.

We are pleased to report that all the audited organisations have agreed with all our recommendations and have committed to taking corrective action.

Mr. Chair, this concludes my opening statement. We would be pleased to answer any questions the committee may have.

Thank you.

9:55 a.m.

Conservative

The Chair Conservative Kevin Sorenson

Thank you very much, Mr. Ferguson.

We'll now move to the Canadian Food Inspection Agency with Mr. Glover.

9:55 a.m.

Paul Glover President, Canadian Food Inspection Agency

Good morning, Mr. Chair.

My name is Paul Glover, and I am President of the Canadian Food Inspection Agency.

I appreciate being invited to speak concerning our response to the Auditor General's report on fraud risk.

I would just like to begin by saying the CFIA is a risk-based regulatory agency dedicated to safeguarding plants, animals, and food. Our work promotes the health and well-being of Canada's people, environment, and economy. The agency is pleased to note that this report did not identify any gaps or weaknesses at the CFIA that would have put food safety and human health at risk.

Prior to this audit, we had fraud risk management practices and mechanisms in place. These practices and mechanisms are: having a fraud prevention policy, undertaking fraud risk assessments, providing training on values, ethics and conflicts of interest,

restricting the use of sole-source contracts, and performing ongoing analysis of procurement data. Still the CFIA welcomes this opportunity to strengthen our management practices and mechanisms. As Mr. Ferguson has indicated, the CFIA agrees with all of the recommendations of the report and is committed to enhancing fraud-prevention measures and to making sure that all stakeholders, internal and external, understand the obligations.

I'm very pleased to report that the CFIA is on track to meet each of the milestones identified in the agency's management response and action plan. While some of the recommendations are already complete, others are well on track and the CFIA expects that all recommendations will be addressed by March 31, 2018.

I'll stop here.

I would be pleased to take your questions.

Thank you.

9:55 a.m.

Conservative

The Chair Conservative Kevin Sorenson

Thank you. I will just tell our committee that we have a larger statement from him, so it might be information that we can use on the Thursday as well.

Next we will move to Mr. Ian Shugart, deputy minister of the Department of Foreign Affairs.

Welcome.

October 3rd, 2017 / 10 a.m.

Ian Shugart Deputy Minister of Foreign Affairs, Department of Foreign Affairs, Trade and Development

Thank you very much, Chair.

I want to tell the committee, as evidence of how seriously we take the guidance and direction of the committee, that in my last appearance here, the honourable member for Hamilton Centre told me, “By the way, you might want to think about making the last part of your career in diplomacy.” A month later, I found myself the deputy minister of Foreign Affairs.

10 a.m.

Some hon. members

Oh, oh!

10 a.m.

Deputy Minister of Foreign Affairs, Department of Foreign Affairs, Trade and Development

Ian Shugart

Thank you for the invitation. We want to thank the Auditor General for the work of his office on this important subject. We acknowledge the findings. We accept the recommendations. We look forward to discussing the steps taken to strengthen fraud risk management in my department.

First, I think it might help the committee if I provide some brief contextual information on the Global Affairs Canada operations and network. We manage an overseas network of 178 missions in 110 countries, plus five regional offices in Canada in addition to our national capital headquarters. We're an employer to over 6,000 Canada-based staff and to some 5,000 locally engaged staff who support the Government of Canada's operations and programs around the world for Global Affairs; Immigration, Refugees and Citizenship Canada; and many other partner departments and agencies abroad.

This means that the context for fraud risk management at Global Affairs Canada is vast and complex, with many inherent risks in our different operating environments. We take seriously the responsibility that we carry to protect the assets and interests of Canada everywhere we operate, including at home, of course.

As deputy minister, I have placed significant priority on this task and on creating a zero-tolerance culture for fraud and wrongdoing, and I have communicated this directly to our senior management and to our heads of mission abroad. The findings of the Auditor General were timely and relevant, not least on the heels of the fraud investigations conducted at our mission in Port-au-Prince, Haiti, and for the losses reported by my department in the Public Accounts of Canada one year ago.

In some cases, the OAG findings have reinforced measures that were already being taken to strengthen our fraud risk regime, including the creation of a new fraud risk management policy framework in 2016 and the subsequent development of an evergreen action plan to implement its key elements. Other recommendations from the Auditor General have helped us to identify some additional gaps, including improving tracking of training measures and strengthening our database for risk management in this area.

Overall, the GAC approach is based on three core pillars: prevention, monitoring, and response to fraud risk. I can provide a few examples of some of the measures we have advanced in support of these objectives, but first I want to reinforce for the public accounts committee that sound fraud risk management is a long-term and ongoing function at Global Affairs, as it must be, given the diverse and ever-changing nature of our operating environment. It requires continuous vigilance of and adaptation to evolving risks, along with changes in our own operating systems and protocols to identify and minimize those risks.

On prevention, we have strengthened training on fraud risk management, particularly for heads of mission and our management and consular officers before they depart on post. We have also reinforced our mandatory values and ethics training modules for the whole department, and we'll soon be launching a new e-learning module on fraud awareness for all Global Affairs Canada employees.

Additionally, the department has undertaken a series of regional training workshops for management officers already in the field, with a focus on financial management and fraud risk. In the area of procurement, we have implemented a new monitoring tool for analyzing data integrity and potential fraudulent activities. We've also delivered focused training to purchasing and supply officers in operations at headquarters as well as specialized training for contracting officers abroad.

Our systems for monitoring fraud risk are supported by our financial management, internal audit, and mission inspection functions. In particular, we're continuing to undertake management practices audits at select overseas missions under the direction of our chief audit executive, and are using those findings to address any anomalies or vulnerabilities at missions, as well as to reinforce our systemwide management practices.

With the increased regionalization of our financial operations in our mission network, that is, the assignment of some financial management functions to certain larger embassies for all regional missions, we're also looking to finance specialists in Ottawa and in the special offices known as common services delivery points to support sound financial and fraud risk management practices across the network. This is already producing returns as they are able to identify anomalies that require follow-up action.

Finally, the department is committed to acting swiftly in response to signals of potential fraudulent activity and other wrongdoing, whether that comes through audit or inspection findings, via direct disclosure by employees under the Public Servants Disclosure Prevention Act, or through our regular monitoring of financial activity. In the case of our mission in Haiti, a number of employees were dismissed and actions were taken to recover some of the losses.

The Inspection, Integrity and Values and Ethics Bureau at Global Affairs acts as the office of primary interest on fraud risk, under my direction, and works in close collaboration with the key assistant deputy ministers for corporate, security, legal and geographic functions, and with our chief audit executive to assess and investigate such incidents.

In his report, the Auditor General acknowledges that no organization is immune to the risk of fraud. This requires from us constant vigilance and adjustment of our control mechanisms to increase our chances to prevent, detect and act swiftly when this risk materializes.

Thank you, Mr. Chair.

10:05 a.m.

Conservative

The Chair Conservative Kevin Sorenson

Thank you very much, Mr. Shugart.

We'll now move to Mr. Kennedy, deputy minister of health.

10:05 a.m.

Simon Kennedy Deputy Minister, Department of Health

Thanks, Mr. Chair.

Good morning, Mr. Chair.

My name is Simon Kennedy and I am the Deputy Minister of Health Canada.

Thank you for inviting Health Canada today to discuss the 2017 audit of the Office of the Auditor General on the management of fraud risk, and to provide us with time to present our departmental action plan to address the recommendations.

As you all know, Health Canada is responsible for helping Canadians maintain and improve their health. We work to ensure that high-quality health services are accessible, and we work to reduce health risks. As deputy minister of health, I am reassured that the audit of the Office of the Auditor General didn't find any fraud or major weaknesses in our existing control framework. I'd like to just emphasize that we take fraud risk management seriously and we appreciate that the Office of the Auditor General recognized our existing internal controls even as it found areas in which we can improve; we've been working on those.

The Department agrees with the four recommendations to strengthen our existing practices and has begun to implement all of the recommendations.

Maybe I'll speak briefly to what we're doing to address the concerns raised by the Auditor General.

With regard to recommendation 1.30, Health Canada is in the process of conducting a comprehensive fraud risk assessment. The risk assessment will be conducted jointly by our chief audit executive, the chief financial officer, and Deloitte. Deloitte was chosen through a competitive contracting process for its expertise in the area of fraud risk assessment. The draft risk assessment is expected to be completed for March 31 of next year and finalized following our departmental audit committee meeting in June of next year. We intend to use that risk assessment to inform our internal control framework, as well as our risk-based audit plan.

For recommendation 1.39, Health Canada agrees with the need for targeted training in high-risk areas and will continue to deliver its enhanced specialized training for new regulators. This was recommended by the Office of the Auditor General in its 2011 report on regulating pharmaceutical drugs, which is a particular area in which we have to worry about those kinds of issues.

For recommendation 1.54, I'm able to report this action item has been implemented. The assistant deputy minister responsible for conflict of interest management has modified our case management system and created additional fields to allow the department to better track and report information to support the timely resolution of employee declarations of conflict of interest. We've had our chief audit executive look at those changes and verify that the evidence is there to support the fact that we've done this, and that it meets the expectation set out in the Auditor General's report. The evidence and review have been documented in our audit follow-up system, which is managed by our internal audit branch. Our internal auditors are going to follow up on these to make sure they're all implemented.

We are pleased to provide this evidence to the Office of the Auditor General, if requested.

For recommendation 1.71, although Health Canada currently performs risk based data analytics as part of its procurement performance management framework, the department agrees that these measures could be enhanced. We are going to be modifying them between now and the end of March to improve data quality and to better detect potential contract splitting, abuse of amendments, and inappropriate sole-source contracting. That work to modify our data analytics will also benefit from the results of the comprehensive fraud risk assessment I talked about earlier. As an organization, we expect we will have addressed all the responses to the Auditor General's recommendations that were aimed at Health Canada by the end of this fiscal year.

In conclusion, with the existing and new management control practices in place, the department is well-positioned to manage and mitigate the risk of fraud.

Thank you once again for inviting me before the committee today. I am pleased to answer any questions that you may have.

Thank you.

10:10 a.m.

Conservative

The Chair Conservative Kevin Sorenson

Thank you very much, Mr. Kennedy. We'll now move to Madame Laurendeau from Indian Affairs and Northern Development.

10:10 a.m.

Hélène Laurendeau Deputy Minister, Department of Indian Affairs and Northern Development

Thank you, Mr. Chair. It is a pleasure to appear before this committee today. I would like to acknowledge that we are on the traditional territory of the Algonquin people. It's always good to remind ourselves.

Before I begin, I would like to take a few moments to repeat my apologies for not being able to attend your meeting on February 15. I also want to acknowledge the committee for its study on the management of fraud risk within certain federal departments. Your work helps maintain the strictest standards of integrity, standards that ensure public trust in the management of the Government of Canada's accounts.

Indigenous and Northern Affairs, as it is currently styled, comprises 4,900 employees working in 13 regional offices and in headquarters. I have read the report prepared by the Auditor General of Canada on this study, and I am pleased that the Auditor General found that Indigenous and Northern Affairs Canada had many good practices already in place.

My department and I agree with the six recommendations put forward to improve our fraud risk controls.

I would like to go through each of the recommendations briefly and provide an update for the committee on our progress in implementing them.

The first is the recommendation on improving our method of assessing fraud risk, relating to clause 1.29 of the report.

My department and I agree with the recommendation that fraud risk assessments be reviewed and updated periodically following best practices. Our current fraud risk assessment was first completed in 2014 and updated in 2016. A review and update of the department-wide fraud risk assessment will commence in 2017-18. We intend to follow a regular cycle of review from that point on.

The second recommendation in paragraph 1.39 relates to training.

My department has complied with both aspects of this item.

The first was to provide targeted training for employees in operational areas at higher risk for fraud. Specifically, applicable employees in all regions received training on construction fraud awareness by December 2016.

The second aspect of this recommendation was to ensure that all employees take mandatory training in values and ethics in a timely manner. Since 2008, INAC has offered values and ethics training to staff at headquarters and in the regions. In 2016, values and ethics training became mandatory for all staff. I should note that I receive monthly reports on sessions delivered and on attendance. We have also added a component on fraud to ensure that this topic remains top of mind to staff.

The third and fourth recommendations, found in paragraphs 1.54 and 1.55, have to do with how we handle conflicts of interest. On this particular issue I would like to report that we have put in place revisions to our conflict of interest log system to provide the level of detail that is required for better follow-up and for better tracking. We have also done the necessary follow-up work for employees working in operational areas at high risk for conflict of interest.

The fifth recommendation, clause 1.71, relates to fraud in contracting.

We have implemented a number of measures to date to comply with this recommendation, including training, improved records management, a review of contract files, and improved quality assurance. Finally, we are exploring ways to detect potential procurement fraud risks using software.

The sixth and last recommendation, found in paragraph 1.80, relates to fixing any weaknesses in how we manage allegations of fraud within the department. We agree with the recommendation, and I am happy to report that we are in the process of developing a tracking log that will be ready by this coming December. We take very seriously allegations of fraud, and we use every opportunity to educate or improve our processes based on findings made in assessing such allegations.

In sum, Mr. Chair, my department welcomes the recommendations of the Auditor General and is well on its way to a strengthened approach to fraud risk management. With our complex service delivery models, fraud risk management is of the utmost importance.

I thank the committee for their attention. I would be delighted to answer their questions.

Thank you very much.

10:15 a.m.

Conservative

The Chair Conservative Kevin Sorenson

Thank you very much, Ms. Laurendeau.

We will now move to Ms. Lemay.

Ms. Lemay is the deputy minister of Public Services and Procurement Canada.

Welcome.