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EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, April 23, 1996

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[Translation]

The Chairman: Good afternoon everyone.

The Standing Committee on Public Accounts is meeting to consider the Main Estimates 1996-1997, that is vote 30 of the Auditor General.

Today we have three witnesses from the Office of the Auditor General of Canada, including the Auditor General of Canada, Mr. Denis Desautels.

Welcome, Mr. Desautels, to the Standing Committee on Public Accounts.

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Please introduce the people accompanying you today and tell us how we will be proceeding with your testimony.

Mr. Denis Desautels (Auditor General of Canada): Thank you, Mr. Chairman.

Today I am accompanied by Mr. Ron Warme, Deputy Auditor General; Mr. Michael McLaughlin, Assistant Auditor General in charge of Audit and Planning Operations; andMr. Raymond Dubois, well known by the members of this committee, Deputy Auditor General in charge of Audit Operations.

I have an opening statement and during that statement I will call on Mr. Warme to take us through parts of the document covering our estimates and to give us a picture of the figures contained in this document.

The Chairman: Fine. Go ahead, Mr. Desautels.

Mr. Desautels: Again this year, events have taken place that will have a significant impact on the work of our office for years to come.

The passage of amendments to the Auditor General Act to establish the position of Commissioner of the Environment and Sustainable Development, within our Office, became law in December 1995. These amendments give our Office new responsibilities that are important and relevant today. The environment is and will continue to be a concern to most Canadians. It is an area where postponing action involves considerable risk and long-term costs.

Our Office has taken a keen interest in environmental issues. In fact, over the last 10 years, we have devoted several chapters of our reports to them. The new responsibilities that are now part of our mandate are but a natural extension of our current environmental audit work.

These amendments provide for an additional ``green'' report to Parliament and a petitions function whereby any Canadian can write to the Auditor General concerning sustainable development matters. These petitions will then be forwarded to the ministers concerned, for response directly to the petitioner. Along with the original three ``E''s - Economy, Efficiency and Effectiveness - these environmental responsibilities have now added a fourth ``E'' to the Auditor General Act.

We are currently actively participating in the selection of the new or next Commissioner and I expect that we will have made our choice in the very near future. We are convinced that this new position will serve all Canadians well.

[English]

With respect to our ongoing work, the results of our first year of periodic reporting are, in my view, very encouraging. They've paved the road for improved service to Parliament by providing more timely and relevant information on the results of our work. As you know, we published reports in May, October and November in 1995 and we will soon be tabling our May 1996 report.

Because of the urgent need to reduce government deficits and the public debt, it's important for Parliament and the government to be able to demonstrate that identified opportunities for savings will be acted upon swiftly. Through the issuance of periodic reports, this committee and other parliamentary committees now have the opportunity to review matters sooner than would otherwise have been the case.

If the demand for input and advice from our office is a reasonable indicator of our success, then 1995 was a vintage year. Indeed, the responses by members of Parliament to our work have been very positive. For example, in 1995 your committee held 30 hearings on our reports and covered 19 chapters from our 1994 and 1995 reports. Your committee issued nine reports related to these hearings, and other committees of the House and the Senate requested our presence for 18 hearings in 1995.

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We really welcome such opportunities to respond to the needs of parliamentarians. We want to foster continued parliamentary interest in the work of our office. Your committee is a significant catalyst for change. Your hearings and reports speed up the process of change, as identified through audit by obtaining firm commitments from departments and agencies.

[Translation]

Your 12th report required definite reporting dates from the Department of National Defence on actions to be taken on cost management and cost reduction following our 1994 chapters. Your committee played a crucial role in having National Defence move quickly to respond to our recommendations. The Department made several commitments to implement our recommendations within a specific time frame.

Following our May 1995 chapter on the Office of the Superintendent of Financial Institutions and your 17th report, OSFI has submitted a detailed action plan in response to recommendations by your committee.

These are but two examples that clearly demonstrate this committee's impact. In general, departmental and agency officials respond more seriously and more quickly to PAC recommendations when the momentum created by our reports is accelerated by this committee. It truly is a question a synergy, Mr. Chairman. I look forward to continuing to work successfully with your committee.

Let me now address the financing of our office's activities for the coming year. We have consistently and voluntarily operated within the limits of the government's restraint programs. Again this year, we are asking for fewer resources as a result of downsizing, restraint and efficiency gains. We expect our expenditures to be $10 million, or approximately 16% less than the amount we spent in 1993-1994.

[English]

A question that inevitably comes to mind is whether we can sustain our work with a declining resource base and still deliver products of the same quality. The answer to quality is definitely yes. As to the quantity of output over the next years, I will address this matter shortly.

We have once more undertaken a thorough review of all our operations during 1995. We've cut back on administrative costs through reorganizations and consolidation of various staff functions. In addition, we've undertaken other measures to implement a more cost effective audit methodology.

We're now carrying out shorter, more focused examinations of particular issues at less cost. The days of large comprehensive audits are in the past. For example, our 1994 science and technology chapters were the result of very comprehensive coverage. While members seem to appreciate such coverage, it would now become more difficult to deliver, given our current resource base.

By focusing our audit coverage on high-risk areas, we believe we can lower the average cost of audits by approximately 25% and do the audits in less time. At the same time, we continue our search for further efficiency improvements.

I mentioned earlier that we cannot be expected to deliver the same quantity of outputs, at least in terms of their exhaustive coverage, as in the past. We simply don't have enough people to do so. From 630 people in 1991-92, we have declined to 535 in 1996-97, a reduction of 15%. In 1995 alone, 57 people retired from the office as part of our downsizing program. We have close to 40 chapters planned for the current year, although some of these represent the completion of work in process from prior years.

As you can appreciate, Mr. Chairman, there is a limit to delivering the same level of work using fewer people. Continuing to produce the same number of chapters with the same scope of coverage would also have costly human consequences in terms of stress and workload. On the other hand, my feelings are that our stakeholders' expectations are going up. While I welcome this, the fact is that our resources will probably not be able to keep pace with such expectations.

Mr. Chairman, over the past several years, as I mentioned earlier, your committee found it useful when Mr. Warme, our Deputy Auditor General of professional and administrative services, briefly took members through our part III document to explain some of the more significant exhibits. So, with your agreement, I'll ask Mr. Warme now to do just that.

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Mr. Ronald M. Warme (Deputy Auditor General, Professional and Administrative Services Branch, Office of the Auditor General of Canada): Thank you, Mr. Chairman. I would ask you to turn to page 5 of our estimates document, and we can start there.

What we are attempting to do in exhibit one on page 5 is put into perspective the size of the audit universe that we as an office have to audit. As you can see in exhibit one, the organizations we audit range from very small to very large. Obviously you can see in 1994-95 there are 22 organizations that have expenditures in excess of $1 billion. These are huge organizations. Some examples of these are: the Department of Foreign Affairs and International Trade; National Defence; Health; Finance; and so on. It's a very large audit universe.

On page 7, as Mr. Desautels pointed out, to carry out this work for 1996-97 we are asking for $2.4 million less than appeared in our estimates last year, or a 4.6% reduction. Basically, the decrease of $3.3 million you see in exhibit three is primarily due to our voluntary participation in the general government restraint program. There are two small increases that we're asking for this year: $500,000 for crown corporation work; and $468,000 is our share of the employer's contribution to the employee benefit plans. We feel that this is a major challenge for the Auditor General this year in deciding where these limited resources should be applied.

On page 8, exhibit four is a fascinating one. There's a lot of information in there, but let me try to explain some of it to you very briefly. This is for the year 1994-95. Obviously that is the last year we have complete information on, because when this document was prepared in the fall of 1995, obviously our 1995-96 year-end was not complete.

This shows the fully loaded cost of all of the work we did in that year, totalling $62,394,000. I think there are four significant numbers. On the top line, on the right-hand side, under departments and agencies, you see that 64% of our expenditures were devoted to department and agency auditing, and the one line underneath that is that 17% of our work was devoted to crown corporations. If you look at the bottom of the page on the left-hand side, we spent $18 million on annual attest and compliance audits, which represented about 30% of our effort, and 70% of our effort is the next column, which is our VFM and related compliance work.

Page 11 is a brief overview of the organization of our office. It is obviously headed byMr. Desautels. He surrounds himself with two senior panels: one an independent advisory committee, and the other a panel of senior advisers to provide advice to him directly when he feels that is necessary.

We have three branches in the office: an executive committee branch that reports directly toMr. Desautels; the professional and administration branch, which I run; and the audit operations branch, which Mr. Dubois runs.

On page 14, both exhibits eight and nine are attempting to show members what type of full-time equivalent complement of staff we have in the office. I think it's interesting to note in exhibit eight that Mr. Desautels took over in 1991-92, and he inherited 630 person-years or full-time equivalents. This year that number will be down to 535 person-years, or 85% of what he started with, a 15% reduction.

Exhibit nine merely takes that 535 person-years for next year and attempts to break that down by the category of worker in the office. There are two numbers I'd like to highlight. The subtotal for the management category of 179 persons this year is down 17% from the 1992-93 figures of 215 persons. The next line is the administrative and foreign service employees, which is 284 persons and is down 10% from our 1992-93 levels.

The reason I raise that is that as a result of all this downsizing the government recently suggested to government departments that they not restrict all of their downsizing to the junior people in government but rather to take a look at the senior categories as well. As you can see, we've almost doubled the reductions we have in our senior category compared to our juniors.

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We have a multi-disciplinary team in the office. Fifty percent of our staff are auditors, 10% have postgraduate degrees. And of course we have the normal disciplines of engineers, statisticians, sociologists, historians and so on.

Please turn to page 16. The top of page 16 attempts to give you a little bit of history of our actual expenditures over time. I think the most important line is the second line to the bottom, which shows we peaked in expenditures in the year 1993-94 when we spent $58 million. This year we are asking for $48 million, which is a 16% decrease, as Mr. Desautels mentioned, and represents $10 million.

As Mr. Desautels says - and I can't emphasize this enough - our challenge is, of course, to deliver the same quality products and impacts in our audits as we have in the past, but with these reduced dollars.

If you'll turn to page 31, I'll try to get through to the end of this. At the top of the page there is something we started a few years ago. This compares our forecast of what we thought we were going to spend at the end of last year, for that fiscal year, by standard object - the same standard objects described in all government departments - compared to the estimates we are asking for this year.

Lastly, please turn to page 33. This is page 34 in French, as Mr. Desautels just pointed out. We've talked before about full-time equivalent staff. We've talked about the full-time equivalence of 535. But we do use contractors, Mr. Chairman. And what this is an attempt to do is to take the hours we thought we were going to have to contract for next year and convert these to full-time equivalents - in this case it's 34 full-time equivalents - giving us a total complement of 569.

The last page I'll ask you to turn to is page 35, which is page 37 in the French version.Mr. Chairman, we're very proud of what we display on pages 35 through 41. It shows in detail, on a fully loaded basis, where that $62 million I talked about back in exhibit 8 was spent during our fiscal year 1994-95. It describes this by product and by activity area.

Thank you, Mr. Chairman. I hope that was useful. I'd like to now turn it back to Mr. Desautels.

[Translation]

Mr. Desautels: Mr. Chairman, let me take a few minutes to briefly summarize our audit plans for the next year.

Obviously there is a mandatory level of audit work that we must conduct every year. This work includes audits of the summary financial statements of the federal government and the governments of the Yukon and the Northwest Territories. In addition, we audit the financial statements of federal parent Crown corporations, departmental corporations as well as other federal entities to which I have been appointed auditor. We also conduct other annual audits as requested by order-in-council.

Special examinations of Crown corporations are also required to be carried out at least once every five years through the Financial Administration Act. Work on the second cycle of special examinations is nearing completion and we are actively planning the third cycle. Value-for-money reports of departments and agencies are scheduled to be tabled in May, September and November of 1996. We have provided you with a handout that shows in summary form the list of areas we plan to include in these upcoming reports.

Exhibit 5 on page 10 of our Estimates summarizes the areas the Office is addressing as audit issues. These include stewardship reporting, efficiency, productivity and cost effectiveness, revenue collection, public service renewal, environmental protection and sustainable development, information technology and competitiveness. We welcome a healthy discussion of the issues to audit.

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[English]

April 1 marked the mid-point of my ten-year term as Auditor General, and looking ahead to the year 2001 my priorities for the next five years could be summarized as follows.

First, I want to contribute to improving the government's financial condition, and I believe our office has a key role to play on this front by finding savings in government operations through our audits. Improving the effectiveness of revenue collection is another example of that. In this regard our audits of national revenue alone have identified a number of areas where we believe substantial additional revenues can be or should have been collected.

As a result of an observation on the resource allowance provision of the Income Tax Act, Parliament was informed of a loss of revenue amounting to at least $1.2 billion. If action had been taken more quickly to clarify the law in this complex area, a considerable portion of this amount could have been saved. The government is now moving to stem future leakage in this area.

We also want to contribute to improving the way government accounts for its stewardship of financial and other resources. We believe there is a need for better reporting of results by departments and crown corporations. In addition, we want to influence the quality of financial management in the federal government and contribute to other necessary changes in the public service. This is still much needed, and it includes tracking the best practices in public administration and publishing selected studies to stimulate action.

With the help of this committee we also want to ensure that our findings and recommendations are well communicated and contribute to the renewal of the public service.

[Translation]

Finally, when I leave Office in 2001, I want the function of Commissioner of the Environment and Sustainable Development to be fully implemented and functioning in a most credible manner.

Overall, the role of government is changing. This in turn affects our audit scope and methodology. Our Office will continue to adapt and provide this committee and Parliament with high-quality information about government operations.

Thank you, Mr. Chairman. We are now ready for your questions.

The Chairman: Thank you, Auditor General. Before we begin the first round of questions, I have a quick question to ask you.

First, I think the committee - I wouldn't want to speak on behalf of my colleagues - acknowledges that you have self-imposed, without the government requiring you to, the moral obligation to control your spending, that is to voluntarily make cuts. No one has ordered you to cut. The tables on your spending for 1988 up until now that Mr. Warme tabled, are very clear.

However, I would like to go back to the table that is in your book, exhibit 9, page 14, entitled ``Numbers of full-time equivalents by category''. Perhaps I am speaking as a former member of the Standing Committee on Human Resources Development, but I would like you to explain why for management, you provide 179 people on a total of 535 to the management category for the 1996-1997 Estimates.

Could you send the committee, if my colleagues are interested in this... That is, do we have a situation in your Office where there are as many chiefs as there are indians, Mr. Desautels? Is the level of management comparable to levels in the private sector, where organizations are streamlining?

Are there many levels between the lowest position and that of Auditor General? Let me give you my reaction. It says there are 179 managers out of 535 employees. That is quite a high number. Could you provide the clerk with organization charts that clearly show that you have a standard or acceptable number of managers compared to the private sector?

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Mr. Desautels: I could provide you with other information through your clerk, but before doing so, I would like to try to give you some explanation, if you don't mind.

The overall structure of our Office is very good compared to that of professional offices. When we compare our organization to legal or accounting firms in the public sector, the proportion of office staff versus number of associates is very comparable. We even made comparisons with statistics published in magazines such as The Bottom Line, which show that our ratio of managers is essentially comparable to that of major professional firms.

It may be misleading, however, when people talk about management categories, and that might taint your view of things. Under the government's current classification system, you have to put some positions in the management category if you are to recognize some skills or special qualifications. But those people are not managers per say; they are recognized specialists.

You see the same thing in other government departments, such as the Justice Department. Its structure is similar to ours, and the employees must be paid according to their skill level. That has an impact on the number of people in so called management positions but who do not carry out major management functions.

The Chairman: Thank you, Mr. Desautels. I now give the floor to Mr. Brien.

Mr. Brien (Témiscamingue): At the end of your brief, Mr. Desautels, there is a list of topics you will be reporting on this year and next year. I do not know how you choose your topics or priorities, but I wonder if it is really necessary or mandatory that you inform the government so far in advance of the matters you plan to review. If departments know so far ahead of time what areas you will be scrutinizing, won't that hamper your departmental audits?

Mr. Desautels: Mr. Chairman, apart from the reports for May 1996, the reports announced in appendix I for 1996 and 1997 are what we call ``planned'' reports for those two years, for specific periods. I used the term ``planned'' because we want to have some flexibility. They have what we have planned, we are working on them right now, but at any given time we want to be able to add new topics or even postpone the dates for some of the topics and move up the dates for some of the others.

The purpose of this announcement is partly to inform the committee and perhaps to get its reaction to whether the topics we have chosen will meet their concerns or whether there are other concerns that do not appear on our list. One of the reasons we published this list was to be able to discuss it with the committee.

It is important to note that we do not feel the list bit tied to this list. If we had to change our mind for any given reason, we would do so.

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Mr. Brien: In the 5th paragraph, you say you are actively involved in the selection process for the new Commissioner of the environment. Who has the final word on the appointment? Will it be made by Cabinet?

M. Desautels: The commissioner of the environment is appointed by the Auditor General.

Mr. Brien: So you will make the appointment.

A little further, you talked about the effectiveness of your work. Last year, I noticed there was less public interest or less media coverage of the Auditor's report. In fact, the reports are often more general and contain comments on various styles of management or administration. They also tend to have fewer targeted and specific examples, fewer denunciations. Was that deliberate? Is it just a coincidence? Is it due to the fact that public funds are now so well managed or is it due to a change of focus on your part?

Mr. Desautels: When talking about media coverage of our report, you have to bear one particular point in mind: publishing more than one report per year means that each of them will attract less media attention. Each of the three reports will not create the same stir as just one annual report.

We have, nonetheless, assessed the entire media coverage for the year. If you add the total media coverage for our three reports, you can see that it is significantly higher than the coverage we had with just one report in 1994, for example.

As for the style of our report, as far as I know, it has not changed very much over the past few years. I would even go as far as saying that our reports are similar to those prepared by my predecessors. It is true that we do not dig up as many horror stories as in the past. That often attracts attention, but sometimes detracts from even greater problems.

We think the style we developed over the past few years is far more useful and productive in the long run. I think Parliament is being well informed of the situation. Moreover, our reports have been well receive by Parliament and have helped cause some change within government. So based on the analysis of the results we have had in the past few years, I would say that overall, things are progressing very well.

Mr. Brien: So if I follow what you are saying, you will continue providing fewer specific examples to avoid drawing attention away from things you find essential.

Mr. Desautels: We provided more examples than people think, or, it seems, notice. I could quote you a few chapters on that. On a number of occasions over the past two years, we spoke with Correctional Services Canada. In the chapters dealing with that, we provide a number of good examples of successful projects or ones where problems arose.

In our chapters on regional development, even if we had wanted to stick to the real issues, we did provide several examples to help readers understand. So I will stand behind what we did.

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Perhaps we didn't highlight as many horror stories, which some people might want, but we did provide enough examples to show what we want to emphasize and explain in the chapter.

Mr. Brien: You spoke about your priorities for the next five years. In one of your recent reports, you said you would like the government to focus more on debt indicators when discussing public finances, rather than on the size of the deficit.

However, when you do this kind of exercise, you do not make suggestions. You just encourage debate by saying that should be looked into and it may fall under the purview of Parliament or other authorities. Do you not think it would be good for you to provide advice or indicate some avenues the government might consider?

Do you intend to come back to this matter? It seems that we're on the way to settling the deficit problem. The next debate on public finance will deal with the level of debt we can allow ourselves. Do you intend to commit yourself further on this matter during the the next few years?

Mr. Desautels: I intend to address public financial administration every year, in one way or another.

To come back to the essence of Mr. Brien's question, I'd say that the size of the deficit or the choices made in the context of a budget are political choices and I don't intend to comment on them.

The comments, recommendations and advices that I intend to make or give will have to do with the quality of the information provided for a parliamentary debate, the public debate on public finance.

You quite rightly emphasized the significance given to financial indicators. Yes, we intend to come back to this matter. We are even helping the Canadian Institute of Chartered Accountants which is, at the present time, developing a series of financial indicators for governments.

It's a subject we care about and which we intend to return to.

Mr. Brien: Thank you.

[English]

The Chairman: Mr. Williams.

Mr. Williams (St. Albert): Thank you, Mr. Chairman.

Good afternoon, Mr. Desautels, and welcome to the committee to answer questions on your estimates for next year. First let me commend you for the first half of your mandate. I look forward to another successful five years as you complete the rest of your ten-year appointment.

Mr. Desautels: Thank you.

Mr. Williams: I would also like you to commend your staff on my behalf, and I'm sure on behalf of all the Reform Party and I hope on behalf of all the parliamentarians here, for the excellent work your department does in producing these reports that demonstrate that there's a great need for your office to continue on. You always seem to find the areas that need to be addressed and bring them to the attention of this committee. Please convey my appreciation to the staff.

Mr. Desautels: I will.

Mr. Williams: You mentioned that you're going to be hiring an environmental auditor, and that the responsibility falls on your shoulders; it's not an Order in Council appointment. I'm concerned about the potential conflict of interest between an environmental auditor and a value-for-money auditor when the environmental policy clashes with the lowest cost. How do you intend to reconcile that within your office?

I know it's a difficult question, but I'm sure you must have given it some thought and I'd like a few comments from you on that area.

Mr. Desautels: I'll try to answer that question as succinctly as I can.

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Let me say first that what we're talking about here is more regarding environment and sustainable development rather than environment alone. Having said that, it means that under sustainable development we have to take a holistic approach to these issues, meaning we have to consider environmental issues at the same time as we're considering issues of economy, efficiency, and effectiveness.

The reason that parliamentarians have asked us to take on that role as opposed to creating another organization to do it separately is so that we may be able to reconcile, within the same organization, all of these notions and truly implement the principles of sustainable development. I hope that clarifies that issue to a certain extent, but it's something we will have to manage quite carefully too. There could obviously be some pressures, but by having it all within our office and reporting to me, I think I'll be in a better position to make sure that all this is well coordinated.

Mr. Williams: Okay, thank you. I certainly wish you well, because I do think you're going to have a rather difficult task of trying to balance the two situations until they become an integrated part of our decision making process. We're not there yet.

We tend to think of environment as a secondary - not a secondary, but a.... When we look at a project.... After we've examined a project, we take a look at the environmental impact as an outside force on the issue at hand rather than an integral part of the decision making process. Until we get comfortable with that new type of thinking, I think we're going to have a little concern, but I know you will tackle it with the skill you have demonstrated so far.

On the new multi-reports every year - about three reports every year - you mentioned that you're encouraged. One of the issues I have wondered about is, while the public accounts committee picks up some numbers - as many of the issues that you raise as possible, because we can't pick up them all - how do you find that the various government departments should be responding to the issues and concerns you have raised? It seems to me that in some areas of your report, if the public accounts committee doesn't pick up the issue, it falls away. You pick it up a couple of years later in your follow-up report.

But if the government department is not concerned about the issues you raise, there is no real impetus or way in which we can force them to respond to the particular concerns raised in your report. I was just wondering if you had any comments to make along the lines that once you table your report the department may, if it so desires, ignore your concerns. If we don't pick it up in this committee, it continues to be ignored. Your follow-up later on can report that nothing has been done, and a department may continue just by ignoring everything that's in your report. What comments do you have for this committee as to how we can proceed to deal with that issue?

Mr. Desautels: Mr. Chairman, I'd like to make a couple of comments on that. I appreciate the fact that the committee cannot review all of the chapters we produce or all of the reports we produce. It's almost impossible. However, one thing that helps is that some of the other standing committees, on occasion, have chosen to call us and review some of our work. So I guess your committee can get some assistance from other committees on that score.

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The fact that some departments may not be called to appear in front of your committee does not mean automatically, though, that they will relax and do nothing about the problems that we've raised. I think the threat of being called is in itself a deterrent or an incentive to actually do something about the problems we've raised. As long as there is a possibility that these departments could be called by your committee, I think we will see some action taken, but not automatically everything.

Finally, I would add that your committee, in the past, has communicated with all departments before the summer recess in asking them for some kind of report back to you as to what they've done on our reports. I believe this was very healthy and I would hope that your committee would continue to do that again this summer.

I think the combination of these things - your committee asking for reports, other standing committees showing an interest, and the possibility that anyone might be called at any time - will work towards some improvement or some action in implementation.

Mr. Williams: I'm looking at number 58 on page 19 of your estimates, again talking about the follow-ups to your audits. In your follow-ups, you found that 23% of your recommendations have been fully implemented and that satisfactory progress has been made in an additional 41% of cases. You further explain that in exhibits 12 and 13.

When I look at 12 and 13, there's a fairly significant number of recommendations about where, in your opinion, progress is not satisfactory or the entity disagrees with your recommendations. It concerns me that we are finding that the Auditor General of Canada is making specific recommendations that are being ignored by entities you have audited. Do you have any comments to make as to how we can ensure that the money invested in your work is brought to fruition in virtually all cases rather than leaving that third hanging out there unanswered?

Mr. Desautels: First, let me say that with regard to exhibit 12 in particular, you'll notice that in part the figures vary according to a factor of time. If you look at the 1989 column, you'll see much more satisfactory results than in the 1993 column. The explanation for that is the time factor: the more time elapses, the more you'll see progress being made on our various recommendations.

Obviously, I would agree with you that it's disappointing to see some of our recommendations not being accepted and implemented and others being accepted and implemented rather slowly. I would wish this could be improved, and I will repeat again that part of the answer to that we saw in 1995 when this committee was quite demanding and quite clear in its reports to the various departments in asking for action within a certain timeframe. I was very impressed, very pleased, by the types of reports this committee put out in 1995 and the results this achieved. If we were able to do that every year, I would hope that these statistics would improve.

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Mr. Williams: I have one final question, Mr. Chairman.

The Chairman: Mr. Williams, your time is finished. We will come back on a five-minute round. I move to Mr. Crawford.

Mr. Crawford (Kent): I congratulate you on five years of a very successful program. I know you're looking forward to the next five.

Unfortunately, on the downsizing by 10% I do not congratulate you. Other branches of government I'd like to see cut by 50%, but yours I would like to see increased. I worry in the short term whether you can attain your objectives. In the long term it has me worried even more. The job that you and your department are doing to keep us abreast of how far wrong we go is needed.

Further to your downsizing program, what were the terms and conditions of the program? Also, how many people have you hired back on contract and how many have you kept to keep a continuing memory bank?

I do congratulate your office, and I am sincere when I say I would sooner see yours increased than decreased.

Mr. Desautels: Mr. Chairman, I appreciate Mr. Crawford's kind words and even his admonition to me that our budget should not have been decreased.

Let me be quite clear. When it comes to our downsizing program, I felt it was important that our office not only appear to but actually do its part as an effort in the improvement of the government's overall finances. I think it was also important in terms of our own credibility vis-à-vis the organizations we examine and criticize. We should be able to take some of the pain that they have taken.

You are absolutely right when you say that as everybody else downsizes, certain risks increase. One might argue then that you need more audit, which is the last stop, if you wish, in the whole process. I was trying to explain that we volunteered to participate in the overall program so that we could maintain our credibility vis-à-vis the people we audit and criticize year in and year out.

I would like Mr. Warme to answer Mr. Crawford's questions on the terms and conditions of the downsizing and the possible loss of corporate memory.

Mr. Warme: The terms of our office's program virtually mirrored in most respects those of the rest of the Treasury Board; they were the employers of the rest of the public service.

Basically the terms were that you had to have 5 years of pensionable service and 10 years of public service employment. We had a program in two parts, the first for employees 55 years of age and older and the second for employees aged 50 to 54. The package we provided to these individuals was 26 weeks' salary plus up to 20 weeks' pay, depending on when you retired, your age and your years of service. Any non-discounted pension was offered to those employees who were under 60. For ages 55 and older 28 individuals were involved, and 29 individuals aged 50 to 55, making up the 57. I think Mr. Desautels' note says 56, but there was one who left late in the year, totalling 57. That was our total program.

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As to whether or not we have brought anybody back on contract, there is one very small contract that is very recent. The reason it's very recent is that we insisted in all cases that no one be hired during the 41 weeks that were paid as part of the termination benefit. This individual was deemed essential by the senior people in our office, and he has a very small contract for a very short period of time to do a specific job that we felt no one else could do. I guess we could have gotten someone from outside, but it would be three to four times the price.

We have also abated his contract rate. What I mean by that is that we have subtracted the pension this individual has received from the rate we would normally pay him. So it's a very small rate.

Mr. Desautels has asked me to comment on whether or not it has affected our corporate memory. Obviously the answer to that is yes. You can't lose 59 people, particularly a great many at the senior level, without losing corporate memory. Mr. Desautels and particularly Mr. Dubois in audit operations are struggling with that issue at the present time, as to how one can replace that.

Mr. Crawford: Something that worried me was the memory and what you're losing there. I hope over the next few years I'm proven wrong in worrying about being understaffed to do a proper job.

The Chairman: Mr. Telegdi.

Mr. Telegdi (Waterloo): Mr. Desautels, we have heard some different viewpoints expressed. The question is, are there too many chiefs and not enough Indians? Are we having enough media impact?

[Technical Difficulty]

I was quite impressed with point 28, where you say you believe your office has a key role to play in improving the government's fiscal position. When I look at the report and at the full-time equivalent staff and the number of contract positions, I personally wouldn't know if you're a hundred too many or a hundred too few. I have absolutely no idea. It seems to me that at some point in time the committee should perhaps examine, outside of your good offices, what value for money we receive. Perhaps a recommendation will come back that for every Auditor General personnel you have working, you're saving so much money or there is a point of diminishing returns.

I think I posed to you before my question about auditing the Auditor General. I know there have been some publications written by Donald Savoie from the University of Moncton and Sharon Sutherland from Carleton University. I'm sure you must be familiar with them. They are involved in public administration. What I would like to know from your office is what kind of audits you are aware of that have been done on offices similar to yours in other jurisdictions of government, other countries, and perhaps other provinces. I'm sure you'd be the first one to advocate that we have some kind of an audit of the auditors.

Mr. Desautels: Mr. Telegdi posed a couple of questions in addition to the last question on who audits the Auditor General. One of those questions was regarding the right level of staff for our office. It's obviously a difficult question for anyone to answer who is not that close to the activities of our office or the kind of work we do.

All I can tell you, Mr. Telegdi, is that I believe our organization is a very productive organization. The amount of things we put out in the course of a year, plus the support we give to parliamentary committees, is going up continuously. From the feedback that I have received, I believe it is being appreciated in terms of its quality and its relevance. Whether we have 535 people or 550 people, I think our objective is to be as productive as possible and as supportive to parliamentarians as we can be. I feel quite pleased with what we've been able to do in the last while.

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Coming back to Mr. Telegdi's main question of who audits the Auditor General, let me first say that our organization is subject to quite a number of audits and other accountability mechanisms, and I could go through those in a lot of detail. I believe we've had these discussions before, but what I can say is that on the whole, I believe our organization is more accountable than the vast majority of government departments. I say this because of the total visibility of our work, the public challenge to which our work is submitted all the time, and other mechanisms that are in place.

Now, which other national audit offices...? What is the practice elsewhere? When you look around the world, Mr. Telegdi, there are very, very few cases in which a national audit office has been subject to an audit of its own, other than the normal mechanisms that are provided similar to ours here. The one case where this has been done is in the United States - and that in the last couple of years - where there was a review done of the general accounting office. The only other case that I know of in which there was a peer review was in Hong Kong, also done within the last couple of years.

Different audit offices will, on their own, get outsiders to come in to look at specific aspects of their work. We've done that. We've had Price Waterhouse and KPMG Peat Marwick Thorne come in to actually assess the quality of some of our work. The NAO in the U.K. has also done the same thing with a large firm of public accountants.

So it's not a widespread practice to have the type of review that was done at the GAO. In that sense, the GAO experience is quite unique. It's more prevalent to see national audit offices on their own inviting firms of experts to advise them on specific aspects of their operation. We've done that and, as I've said, other organizations have done something similar.

Mr. Telegdi: Are you familiar with -

The Chairman: We'll come back to you during the five-minute rounds, Mr. Telegdi.

[Translation]

As Mr. Brien doesn't have any questions, I give the floor to Mr. Williams.

[English]

Mr. Williams: Thank you, Mr. Chairman. I have a couple of questions.

Like Mr. Crawford, Mr. Desautels, I'm concerned about the shrinking of your budget, because I see your office as more of an investment rather than a cost. Due to the work that your office has done, we have been able to save significant amounts of money. Unfortunately, we've also brought to light significant wastages that we haven't been able to resolve.

For example, I think of a resource allowance. We just recently wrote a cheque to Imperial Oil for $832 million, or whatever The Financial Post said it was. And as another example, just a few weeks ago we found out the National Transportation Agency would require $1 million to hire a forensic accountant to try to devise an audit system, because their accounting methodology was either so out of date or so out of touch with reality that they couldn't even maintain an audit program for themselves.

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Through your work these issues have to be brought forward. I think also of DND, where their management is absolutely decades behind modern management thinking. That type of thing has to be brought out. If you're going to be focusing on smaller issues, will these broad issues that can cost us every bit as much money be brought to the fore in your subsequent reports?

Mr. Desautels: Mr. Chairman, as I tried to explain earlier, it will obviously be more difficult for us in the future to do some of the more comprehensive reviews that we have done in the past, and that's just part of reality. We will have to be more selective in some subject areas in terms of what we look into. At the end of the day there may be a bit of a price to pay, of course, and we'll try to minimize that price as best we can.

In my presentation I gave as an example the work we did on the science and technology area. In 1994, we did three thorough chapters on that whole area. We gave it a really good look. I think that work was well received by different people, not just parliamentarians but people in the field as well. It's producing good results so far, but this will be more difficult for us to do, there's no doubt.

Mr. Williams: Thank you. I'm appreciative of the fact that you have been leading by cutting your budget voluntarily, but in subsequent years I might be critical if you come in with too many reductions.

The government is changing its policy and we're now seeing such things as privatization of the air traffic industry under NAV CAN. We're seeing the government's intention to move Revenue Canada into some new hybrid of a crown corporation involving federal and provincial governments. We're going to see that in the meat inspection business as well, I understand. Where does your office sit with regard to these new hybrid organizations that are not really privatized but are somewhat arm's length removed from government? Do you have the authority to go and audit these types of organizations?

Mr. Desautels: At this point we do not know what our role will be vis-à-vis these new delivery mechanisms. They have been mentioned in budget speeches and in other government declarations, but except for NAV CAN, the structure of these new organizations is not yet defined. If a particular operation is indeed privatized and is really privatized, I suppose we will have no role in that organization in the future.

Mr. Williams: Does that apply to NAV CAN?

Mr. Desautels: That would seem to be the case with what I know of NAV CAN at this point, but we still want to see the conditions under which NAV CAN will finance itself and whether in fact the source of financing is coming directly or indirectly from the government. If it's a true privatization, obviously it's not likely that we would have a role in it in the future.

When it comes to the revenue commission you refer to or the food inspection organization, I think those are different propositions altogether. I believe that in both cases they have to be not only concerned about the audit regime these organizations will be subject to but the overall accountability regime for these organizations from the perspective of a parliamentarian, in particular.

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So we don't know enough at this point about these organizations to be able to answer your question more definitely than I just did.

The Chairman: Mr. Telegdi, you have five minutes.

Mr. Telegdi: I would love to find out what's the best staffing ratio for the best value for money. I guess maybe we'll look at this at some future date.

I wonder to what extent your office monitors the media to respond to issues raised in those media relating to government waste or possible fraud or rate bumping, as the case might be.

Mr. Desautels: Mr. Chairman, in terms of planning our work, we monitor all kinds of sources of information and the media is one of those sources. We try to gather whatever information and intelligence we can on the issues that are current and that could be of concern in terms of making up our own plan. So yes, we do monitor the media quite closely.

Mr. Telegdi: I alerted your office of a television program, Market Place, broadcast November 28, where we had an officer of the Royal Canadian Mounted Police saying the government is being defrauded, if you will. I haven't heard anything from your office in that regard outside of a letter from you saying if there is fraud call the police. This becomes somewhat difficult for myself as a member of Parliament to relate to. Now the chairman has possession of the tape and he will be reviewing it.

It seems to me there are investigative reporters out there who do numerous programs in the print media and the television media. Perhaps you could utilize some of their investigation, and the areas of fraud or waste they identified, as something like a preliminary inquiry you can build on. Obviously, I'm not necessarily sure how they get their sources, but the fact of the matter is they identify areas of concerns.

In cases where their areas of concern are valid, use the report and try to make sure it comes some to some kind of conclusion. In areas where their point is not valid, you would be serving a useful purpose saying the matter was looked into and it is not valid.

I'm wondering to what extent you could see the usefulness of utilizing those sources for follow-up to identify waste in government and to save government money.

Mr. Desautels: Mr. Chairman, we have in our office a small group of people who are specialists in what we call forensic auditing. I say a small group - there are about four or five people. At this time I think we are down to about four people. These people have developed some kind of ability to assess various leads or complaints or pieces of information we get in terms of their solidity and their meaning. They are, in fact, able to sort out what merits further investigation and what is more serious or less serious. So we do take everything that we are aware of quite seriously, but we have to sort things out between those that pass a certain test and are worth pursuing and those that are a bit more difficult or even not worth pursuing. So it's one of those areas where we obviously have to exercise our judgment and make a certain selection. But I want to tell you that we take all of these issues seriously; we have people dedicated only to that, as I said.

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Mr. Telegdi: Would you say you are understaffed in your forensic department?

Mr. Desautels: We would like to find a way to increase those resources by two or three more people, yes, but we don't think we need to double or triple the group, as such, and make it the prime purpose of our organization.

When questions of fraud reach a certain point and involve criminal elements, at that point we simply turn our evidence over to the RCMP and ask them to follow up. We're not a police force by any stretch of the imagination, and we don't intend to become one. Nevertheless, we feel we could strengthen our resources in that area somewhat.

Mr. Telegdi: Thank you.

[Translation]

The Chairman: I'd like to make a comment before giving the floor to my colleagues.

I'd like to go back to the matter of managers versus staff at the Auditor General's disposal. I don't want to start a war about this.

First of all, as I'm new to this committee, I don't know how the Auditor General's Office works, and this allows me to ask questions. It has often been noted, in some organizations, that there are cuts in administrative personnel rather than management. I'm happy to see that this isn't the case at the Auditor General's office.

I made my comment to see if you weren't in that situation where there is one chief per Indian, but I'm sure that everyone works and that you don't keep anybody who does nothing. I would like to correct some of Mr. Telegdi's words. I hope you won't be upset.

I's also like to come back to the very interesting matter brought up by Mr. Williams concerning follow-up. We can demand that departments report to us, but the matter has to do with the follow up. Given that you are now making periodic reports, wouldn't it be better to carry out the follow up every year instead of every two years? Perhaps you don't have enough personnel. If the follow up occurred every year, the departments would feel they were being watched a little more closely.

Mr. Desautels: There is some flexibility. We've already explained to the committee that we tended to carry out a follow up two years after making a report on a situation for the first time.

That's the general rule, but there are exceptions. Sometimes we do the follow up a year early, and other times we put it off for a year, depending on the changes carried out in these agencies. We can therefore move up or push back the date of the follow up. There is nothing forcing us to wait two years before doing it the first time or two other years before doing it a second time. In many cases, we don't wait that long.

.1650

You no doubt saw last year, and you will see it again this year, the type of follow up that we try to do with CIDA. I don't know if you've been following the CIDA case that we reported on in 1993. It was a very detailed report that touched on a whole series of problems. Last year, we issued a first follow up report on the 1993 audit, and we said we'd continue to follow up every year for three years. We therefore foresee a second follow up on CIDA in 1996 and a third in 1997.

All this shows that our way of doing things is quite flexible. I'd very much like to know what you think of it and that you tell us on occasion is you want a follow-up to be carried out more quickly in certain cases. In the case of CIDA, that is sort of what happened: the committee led us to believe that it wanted us to follow the matter quite closely. That is why the follow-ups were so close together.

The Chairman: Colleagues, any further questions?

[English]

Mr. Williams: I have one final one that follows through on what I was asking before.

In your report, Mr. Desautels, on items 23 and 24, you say that you ``Audit the financial statements of federal parent crown corporations, departmental corporations, as well as other federal entities to which I have been appointed auditor''. And you ``conduct annual audits as requested by Order in Council'', and then ``special examinations of crown corporations as required by the Financial Administration Act''.

Are you telling me that NAV CANADA seems to have fallen through a crack in the floor here and is exempted from scrutiny by your office, by parliamentarians? Who is going to holdNAV CANADA accountable if it's exempted from audit by the Auditor General of Canada? It is removed from parliamentarians because it's a not-for-profit organization, yet it's a cost-plus monopoly that is being created by the government. Who is going to be auditing NAV CANADA?

Mr. Desautels: I don't know at this point who will be auditing NAV CANADA. I don't think that decision has been made. But it's being set up as a non-profit organization, so to speak, managed by the transportation industry. In that sense, the model for NAV CANADA is not that different from the model followed for some of the airports that were transferred to local airport authorities.

Mr. Williams: They're not accountable to anybody either.

Mr. Desautels: There is a certain amount of dissatisfaction by different observers about the accountability framework that has been put in place. I hope this will be taken into account in setting up NAV CANADA, and I hope it will be taken into account in setting up further transfers of airports to local authorities.

Mr. Williams: Thank you, Mr. Chairman.

The Chairman: Mr. Grose.

Mr. Grose (Oshawa): Mr. Desautels, I'd like to tell you I haven't been on this committee all that long, and quite frankly in my wildest dreams I never thought I would be on the committee where all the marvellous stories came from. But apparently you had all the best horror stories before I got here, because I haven't heard any yet. Now that I'm here, I'm a little concerned about your budget cuts as well. I think that's the first time I've ever said that in two and a half years here.

I was here when we changed your terms of reference to three or four reports a year. Like a lot of things here, that seemed like a good idea at the time. I'm wondering whether we inadvertently raised your costs by bringing in the reports in smaller chunks.

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Mr. Desautels: I think the quick answer to that is no. I think moving to periodic reporting is in fact causing some additional expenditures in terms of printing costs. Obviously it's more expensive to produce three reports a year than one. But other than that, I would say that is compensated in part by some of the gains we can make in terms of our own efficiency because of periodic reporting.

Let me try to clarify that a little bit. The fact that we can report more rapidly - we have reporting dates coming up more frequently - in fact provides us with an additional incentive to get some of our reports completed faster in order to get them out even that much faster. In fact, when we only had the opportunity to report once a year, we may have had the opposite tendency of continuing the work and looking for more things because we had a few more months available before we had to report.

I think that so far periodic reporting - and my colleagues can help me out here a little bit on this if they can make this point a little clearer - has had a positive effect in terms of our own internal efficiency and the speed at which we do things.

Maybe Mr. McLaughlin might comment on that because that's his area of responsibility.

Mr. Michael J. McLaughlin (Assistant Auditor General, Office of the Auditor General of Canada): I think the first thing I'd like to say is that when faced with downsizing, it really focused our attention as to what it was that we could really do. And the effect that had was that, oh my gosh, we couldn't do very much because all that was so very important, and we had the one annual report to come forward with and all the material was leading up to that annual report.

However, once we got the opportunity for periodic reporting, I would like to characterize it as a confluence of events that allowed us to take advantage of some of the efficiencies that would not have been available with a single report. So going to multiple reports really gave us the impetus to get the efficiencies that we've seen in the office.

There is a point where you can go too far. I think what Mr. Desautels has been saying is that perhaps we're getting very close to that point, or very close to that line. Whether we've actually crossed it or not is a point that we could debate for some time. But I feel quite confident that the types of efficiencies we've brought in will allow us to provide the quality work that has been provided in the past and have the impact that the office desires to have on the government and the government expenditures.

Mr. Grose: Thank you. It would appear then that we actually did do something right. It's very encouraging.

Mr. Desautels: Mr. Chairman, I believe that moving to periodic reporting was a very positive step. I said at the time that in a few years we'll ask ourselves why we didn't do this much sooner.

An hon. member: Well, I wasn't here.

[Translation]

The Chairman: As the discussion has to do with downsizing, Mr. Desautels, I would refer you to a comment that Mr. Guy Breton, Quebec's Auditor General, made in Le Soleil in December of 1995, concerning new cuts. I'll quote from Le Soleil's article:

Do you agree with that, Mr. Desautels?

Mr. Desautels: I completely agree with the idea that there is a limit to cuts, naturally. You also have to recognize that when you cut certain government functions, particularly in certain monitoring operations throughout the government, the risks of error or slippage increase.

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The result of all this is an increased need for proper auditing. I therefore approve of the main part of Mr. Breton's remarks, published in Le Soleil. As to our situation, despite the cuts we've accepted, we continue to give you quality work.

As to quantity, we'll be a little more selective, but at the present time we can ensure the same work as in the past. Of course, there is a limit. If there were deeper cuts, we'd have to come back to this.

The Chairman: Every five years, you must carry out special examinations of Crown corporations. Are your audit reports confidential? Is it merely a matter of the Auditor General speaking to the board of directors? Canadian taxpayers don't have access to them, do they?

Mr. Desautels: That's exactly right. Crown corporations are dealt with in a special way by the system, and the special examination report that we produce are submitted to the board of directors. The Act stipulates that on occasion, when we deem it necessary, we can submit these reports, or part of these reports, to the minister responsible. The Act also provides that in specific cases, if we feel the situation is serious enough, we can report on these problems to Parliament, too.

This has occurred very rarely since the system was set up. On the other hand, we have reported quite regularly to ministers responsible for Crown corporations. We went further than the board of directors in those cases and we brought up problems to the ministers.

The Chairman: How is it possible that in December of 1995 and January of 1996, comments were made on your special examination report of the National Gallery of Canada? Are we to understand that Mrs. Shirley Thompson leaked the information to reporters from Southam News? I don't want to start a debate on a personal level concerning Ms. Thompson, but it seemed, to me, degrading for your institution. You are there to supervise the money spent on behalf of Canadian taxpayers.

I'd like to point out that neither Ms Thompson nor the journalist were entitled to mention that you are an accountant rather than an arts' specialist. I don't think you ever claimed to be an arts' specialist and you simply did your job. It looks to me like a certain kind of psychological blackmailing of the public. How do these leaks take place?

Mr. Desautels: I don't think there's any controversy here. A number of Crown Corporations, in spite of the provisions of the Act, choose to disclose the special examination reports that we produce. The National Gallery is not the only one to do so. The National Capital Commission did likewise along with the National Arts Centre and the CBC not so long ago. The CBC decided to make public the full special examination report. A number of Crown Corporations have made this decision and I should add that they are free to do so. In my view, it is healthy. When the reports are made public, those concerned are able to have access to them and to comment on them. The CBC case was the most striking we have seen.

The Chairman: What do you think of the comments made by Ms Thompson from the National Gallery?

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Mr. Desautels: I don't have much to say about Ms Thompson's comments. It's a relatively rare case. Our work is to examine a great many different specialized activities whether it be in National Defence or in a cultural agency like the CBC. In each case, we attempt to include in our team resource persons who have a good knowledge of the field and who can give us the credibility we require.

I should also add that in technical fields we are careful not to substitute our own judgement for that of the experts.

The Chairman: Mr. Desautels, do you think that the interest of Canadian taxpayers would be better served if all special examination reports were made public? Would that be a proof of greater transparency for taxpayers? Would that be of assistance to us when we ask for amendments?

Mr. Desautels: In many cases it would be very profitable. It would certainly be a good thing but I should warn you that certain Crown Corporations are in competition with other companies and this could cause some prejudice to their ability to conduct business in a competitive environment.

However, concerns of this type are far less important for corporations that work in a context where they have a monopoly or a very specialized function that is an extension of government. In many cases it could be a good thing but for some of the more commercially-oriented corporations there might be problems.

[English]

The Chairman: Other questions, colleagues? No.

[Translation]

Do you have any conclusions to draw, Mr. Desautels?

Mr. Desautels: No, not today. I've said all I have to say.

The Chairman: Thank you for your excellent cooperation.

The meeting is adjourned.

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