Skip to main content
EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 16, 1995

.1530

[Translation]

The Chairman: Good afternoon and welcome. Today, we will consider the first periodic report of the Auditor General. Our witnesses are Mr. Desautels and Mr. Dubois from the Auditor General's Office.

Mr. Desautels, I believe you don't have an opening statement today. I was told that you would just say a few words instead. Please go ahead.

Mr. Denis L. Desautels (Auditor General of Canada): Thank you, Mr. Chairman. I have a very few brief remarks, and then we will be available to answer any questions you may have.

Indeed, we are here to talk about the latest report we published on May 11, and about the priority letter we sent you that same day.

Today, we would like to go over those suggested priority subjects with your Committee and then to answer your questions on those suggestions or any other matter contained in our report.

As you mentioned, I am accompanied by Mr. Raymond Dubois, who is the Deputy Auditor General. Since your questions may touch any aspect of the report, we have a number of individuals who were involved in the actual audit work available in the room to help us with additional details if that is required.

Now, just before we get into the substance of our suggested priority subjects from this report, I would like to say a few words about our chapter on Ethics and Fraud Awareness in Government (chapter 1). You may recall from last week's media coverage of our May report, chapter 1 received a fair amount of attention. In fact, you may be led into thinking it is a matter of some urgency. And yet it does not appear on our list of suggested priorities.

[English]

My message to the committee today is that it is indeed a significant issue and it does warrant attention by government, but I don't think it's a matter that needs to be taken up immediately by your committee.

Other developments currently at work may have an impact on the question of ethics and fraud awareness in government, and on the timing of any action given to this issue by your committee. Among other things, they include the recently proposed special joint committee to develop a code of conduct for parliamentarians and the debate surrounding the passage of Bill C-43, which talks about the lobbyist registration.

This is, as we can all note, a very important but sensitive issue. It would seem to me to be best if our recommendations, especially those with respect to a framework for ethics in government, could be reviewed in early fall with the benefit of the discussions to which I have just referred.

I can now turn to the three chapters that we suggested as priority items for your committee's consideration and make just a few comments on each, including our rationale for suggesting they be considered by your committee on a priority basis.

The first of those three is chapter 2, which deals with Environment Canada and the management of hazardous waste. This chapter deals with federal-provincial programs for the remediation of contaminated sites, and also the program for the management of PCBs. These programs are terminating or have terminated, but the clean-up objectives are far from being totally achieved. Indeed, a lot of work remains to be done.

Among the messages in our chapter was the need to deal with that remaining work, and also the financial implications for the federal government of completing or going on with that remaining work. Those financial implications relate to the government's own sites, and those alone are quite considerable, but there could be financial implications stemming from other sites, known quite often as orphan sites, where indeed you also have to determine whose responsibility it is ultimately for cleaning up those contaminated sites. So there are some significant outstanding items that are, by most opinions, quite urgent.

.1535

[Translation]

Chapter 3 deals with the management of radioactive waste. The chapter is a summary of initiatives taken by the federal government in this area. We indicate that considerable amounts have already been spent on research, but that no permanent solutions have been implemented yet.

These are important problems or challenges the government faces, because there are federal disposal sites for highly radioactive waste. The government's Crown corporations also dispose of low-level radioactive waste. So the government has to find a permanent disposal solution in both cases. This is also a problem for Canada's nuclear industry as a whole.

The chapter goes on to discuss the financial consequences and the disclosure of these consequences in the Public Accounts or in public government papers.

Finally, chapter 6 deals with federal transport subsidies. This is also a current issue. The subsidy programs in question are scheduled to end in July and August of 1995. Chapter 6 gives a very useful description of these programs and explains the context in which these transport subsidy programs operate.

The report talks about some risks associated with eliminating these subsidies; however, we want to impress upon you that the situation is changing quite fast. There might be sudden changes which might make it necessary for your Committee to hold hearings, and other committees may also study the issue.

Incidentally, I must say that in my opinion chapter 6 is a good illustration of the value of a periodic report because it lets us give you information on a timely basis on a program like this one where major changes are occurring.

[English]

In conclusion, Mr Chairman, I think all eight chapters in this first periodic report generated some degree of interest, either by members of Parliament, in the public, or in the media. In my view, all eight chapters deal with significant issues, but some of those significant issues can wait until the fall to be taken up by your committee. In fact, I realize that most of these eight chapters may have to wait until the fall, given your committee's rather tight schedule between now and the summer recess.

[Translation]

Thank you, Mr. Chairman.

The Chairman: Mr. Desautels, your next periodic report is scheduled to be published at the end of September. When do you intend to produce it? I know it's still a long time from now, but...

Mr. Desautels: Mr. Chairman, it's not that far away, so we are getting ready. At this point, we intend to table it, based on the parliamentary calendar, during the first week of October.

The Chairman: Perfect. You mentioned chapters 2, 3 and 6. You said they were priority chapters. Do you mean that since we've studied chapter 1, you recommend that we now move on to chapter 2, and so on?

.1540

Mr. Desautels: No, Mr. Chairman, we did not try to insist more on one chapter than on another. We simply ordered them chronologically for now, but we believe that of those eight chapters, these three might be a priority.

The Chairman: Thank you. You have 10 minutes.

Mr. Laurin (Joliette): Mr. Auditor General, in chapter 1 of your report, you say you surveyed 329 public servants on ethics within government by asking hypothetical questions. I must admit that the results of your study are sometimes astounding.

Here are two examples taken from the report. Thirty percent of public servants believe it would be appropriate to hire a brother-in-law on a untendered contract worth $20,000 or less. This is section 1.52 of your report. A little further on, you say that 60% of public servants and 47% of senior managers ``would not act when the matter involved a questionable sole-source contract apparently requested by a senior manager or the minister.'' This is in sections 1.59 and 1.60.

What astounds me, Mr. Auditor General, is that you nevertheless conclude that there is a good sense of ethics within the Public Service. That's what you said.

However, I think you are using thinly-veiled means to protect the government so that the situation doesn't look too serious. Statistics like these, especially when they are included in a special report, indicate that the situation is indeed serious. However, the wording of your report seems to play down the situation.

I'd like you to tell us what kind of comparison you made to conclude that this 30% figure is acceptable and that it represents a solid ethical base. How did you get to a conclusion on the definition of a solid base? At what point does the perception, or the philosophy, of public administration become negative, if 30% isn't a high enough figure? I'd like to hear what you think about this, Mr. Auditor General.

Mr. Desautels: Mr. Chairman, I believe it's ultimately a question of judgement. Our conclusions were based on all the statistics we compiled, or on the answers we received in our poll. Of course, there are some worrisome statistics within the study as a whole, and that's why we said there were some vulnerable ethical sectors within government today.

I'd like to draw your attention to Exhibit 1.1 on page 1-11 of the English version, where it says that 93% of public servants who were assessed believed that their programs are administered ethically. Given the kind of poll it was, 93% is a significant number. Then it says that 90% of public servants believe that their immediate supervisors are ethical. In my opinion, these are numbers that speak for themselves and which justify our conclusions. That's why we say there is a relatively solid ethical base, but that there are vulnerable sectors. That's what we have to focus on.

.1545

After analyzing the responses, we unfortunately concluded that public servants need more information about ethics so that when they come across unethical behaviour, they are better prepared to deal with the situation.

Mr. Laurin: Mr. Auditor General in terms of the statistics you referred to on page 1-11, it is true that the figures are higher when people are asked what they think of their own situation or work of that of their superior. Most public servants believe that in fact their superiors are ethical. But when they are asked to respond to hypothetical situations, it's different. More people would be less strict and more lax. When they are asked about their actual situation, it's as if they were afraid to denounce it. But when they are asked if they're doing something, they say no. Does their boss do it? They say no. Ninety-three percent of public servants believe that they do a good job. However, when they are put before a hypothetical situation, 60% said they would not intervene if their superior awarded a questionable contract to a sole-source supplier and 40% of senior managers said they would not intervene in a similar situation.

That's a contradiction. People say different things depending on whether they are asked about a real or a hypothetical situation. Doesn't that worry you? Doesn't that prove that public servants are afraid to denounce their situation? It seems obvious that they are afraid of reprisals. Isn't that, in your opinion, a contradiction?

Mr. Desautels: I don't think there is such a contradiction. The positive answers I mentioned were given to us by public servants of their own free will who were not afraid of repercussions. Therefore, I believe that the results indicated in Exhibit 1.1 are very representative. We made sure that the answers were representative.

If the answers to hypothetical questions were more negative or worrisome, we must ask ourselves why. In some cases, it seems that people were afraid - I'm thinking of a specific case - of denouncing a situation. Some people don't know what to do when they are asked to do something by their manager but which they don't agree with. You talked about people being afraid of denouncing a situation. In my opinion, that's where the problem lies. And that's why we have to educate public servants so they know how to react in sticky situations.

It's possible to interpret those figures in many ways, but when you look at the results, you have to ask yourself whether the glass is half empty or half full.

I believe our analysis, which was based on certain facts, has shown that there is a solid base, but that there are some sectors which need to be addressed.

I would like to say one last thing to Mr. Laurin. Great Britain has just published a study on the same subject. It came out at about the same time our report did and reaches similar conclusions. I hope I can get a copy of it soon.

Mr. Laurin: Those are our ancestors.

Mr. Desautels: I don't know if that's relevant. But their report concluded that on the whole, there was a relatively solid base, but that certain specific areas were cause for concern.

.1550

Mr. Laurin: Mr. Desautels, do you really think that drawing up a code of ethics and sending it to ministers and senior officials will be enough to change the mentality in the Public Service? It is somewhat out of this world to believe that the simple existence of a code of ethics and its distribution can change mentalities. Do you sincerely believe that this is the right tool to solve the problem?

Mr. Desautels: Mr. Chairman, I'm not in the habit of putting forth academic arguments that are off the wall. That is not one of my fortes. I believe that a framework in itself cannot be efficient as long as other elements are not in place.

When we talk about a framework, we also have to talk about standards that are clear and well-known, as well as leadership on the part of all people involved in the system. If there is leadership and these values are promoted by everyone, the framework could work. I strongly believe that it is extremely important to train certain groups of public servants who are most likely to face difficult situations. In my opinion, that is part of the framework we're suggesting: timely training of public servants so that they can react to difficult situations. The framework could also include certain mechanisms that public servants could use when they are truly in a difficult situation. For example, an advisor in each large department could help them resolve an ethical or conscience problem that they could be facing.

There is a host of ideas and we have done a bit of research on them. In the private sector, for example, large companies have implemented such frameworks and are rather satisfied with them. We did not just piece this together. We did a bit of research to see if it existed elsewhere and how it worked, and we think that it could work at the federal level.

[English]

Mr. Williams (St. Albert): Mr. Desautels, this is the first report you've had outside of your annual report. How comfortable are you with this new format? Do you find it's an improvement?

Mr. Desautels: I think with the very short experience we've had so far with periodic reporting, this first report it is indeed a move in the right direction. I can give you a number of reasons for saying so. For one thing, this smaller report is much easier for everybody to digest, particularly the members of Parliament who have to deal with it.

As I said earlier, I think all of the issues that were mentioned in this report have been noted or taken up by somebody in one form or another. A think a number of issues got lost in the larger report. So from that perspective, I think it's an easier document to handle, and therefore we can deal with it more effectively.

I also think it's a move in the right direction because we can report faster to you on certain issues. In certain cases it may not matter tremendously, but in other issues it is quite important.

In this particular report, as I mentioned, there is a chapter on transportation subsidies, which is an issue that is being discussed right now. I think there is another committee interested in this particular chapter right now, so I think timeliness is proving to be a factor.

.1555

I'm sure that in other reports in future years there may actually be even more urgent things where timeliness will be a greater factor. So far I'm very positive about the results, and I hope in due course we'll all be asking ourselves why we didn't do this sooner.

Mr. Williams: I certainly hope it all works out well too. I appreciate the point you made that it's not information overload for one day of the year, when we're scrambling and it gets out of date and so on.

On the list of priorities you recommended the public accounts committee take into consideration when determining its agenda, you didn't mention OSFI, the Office of the Superintendent of Financial Institutions. Would you care to say why?

Mr. Desautels: I don't think it's black or white. It's an important subject that could very well merit your attention sooner rather than later. I guess there are a couple of reasons that made us push it off a little bit.

First, a white paper has been tabled by the Department of Finance very recently on that issue. I don't know very well at this stage what that white paper will lead to, but it's evidence of the government's intention to do certain things in that area.

The other factor we have to consider is the possible interest in this chapter by another committee. The Standing Committee on Finance may have an even more direct interest in this chapter. Whether or not you both want to look at it is something for you to decide.

I think those are two reasons why we felt we could leave it off this list at this point, but as I said, it's not black or white.

Mr. Williams: You recommended we look at the federal transportation subsidies, the WGTA and the Atlantic region freight assistance program, both of which are being phased out this year. You raised some points of serious concern.

I remember with the Atlantic program, the costs of non-arm's length transportation seemed to be escalating at a much higher rate than arm's length transportation. If we were to take a look at this particular chapter, bearing in mind that it's being phased out by the end of July or August, would we have time to do anything about it before it disappeared or would it simply be a hindsight situation?

Mr. Desautels: I think if you were to look at it now, certain assurances could be given to you by those responsible for the wind-up of those programs, and you could react to those commitments or assurances. This kind of discussion at an early stage between the committee and those responsible for the wind-up of those programs might make everybody more conscious of the issues or risks around the wind-up of the program.

Mind you, there are other issues that will have a greater lasting value coming out of those chapters, so I tend to think it would be useful to get at this one as quickly as possible. Certainly, if you don't look at it now it will probably be less likely to be worth your while to look at it in the fall when it will probably be really after the fact.

.1600

Mr. Williams: So in your opinion there is an opportunity to have an influence on policy before it's wound down, and therefore, to hopefully save the government some money through being able to tighten up the procedures?

Mr. Desautels: Yes. I think so.

Mr. Williams: On the environment -

The Chairman: Mr. Williams, one final question.

Mr. Williams: Okay, I'll pass at the moment, Mr. Chairman. I'm not going to start a new subject.

Thank you.

The Chairman: Any questions? Mr. Paradis.

[Translation]

Mr. Paradis (Brome - Missisquoi): Could knowing the Auditor General's stand help increase employees' ethics and fraud awareness? Could an annual declaration...

I am looking for concrete ways of increasing ethics and fraud awareness among senior officials and officials, and I'm referring to your first volume. For example, we could have employees sign an annual declaration reminding them of guidelines governing conflicts of interest, ethics, etc., for which the principles are included in volume 1. Do you think that there could be other methods, other means?

When you publish a report, like you did last week, we realize that there is a certain amount of awareness everywhere. Media coverage is such that at present, senior officials on the whole are aware of these issues.

If we have to come back every year and remind someone that accepting a weekend in a chalet would not be right... Do you think that methods like signing an annual declaration or even an attestation stating that a person has acquainted himself with conflict of interest guidelines could help people to deal with this situation better?

Mr. Desautels: Mr. Chairman, I think that periodically reminding all public servants of the principles of the code that govern Public Service employees could be of some value. What shape should it take? Would it be a simple reminder or a reminder requiring a written confirmation from each individual? We could discuss what would be the most advantageous.

If I may, Mr. Chairman, I would like to invite Mr. Gilmore, who is accompanying me, to explain how things are done at present. When an employee starts in the Public Service, we ask him to familiarize himself with the code and state that he knows what it contains. Mr. Gilmore could tell you how often the employee is reminded of these things.

[English]

The Chairman: Mr. Gilmore, can you give us your complete name and your title?

Mr. Alan R. Gilmore (Principal, Audit Operations Branch, Office of the Auditor General of Canada): My name is Alan Gilmore and I'm a principal with the audit operations branch.

When an employee is hired in the public service, they're given a copy of the code and they're asked to read it and sign that they've read it. Along with the code goes a requirement that there be a declaration of assets or activities that might pose a conflict of interest. If the employee feels that there are - and there's a list of examples provided - then the employee is supposed to fill out the declaration. That usually goes to the personnel people and the Department of Human Resources people in the area where typically there's a person who is identified as the resource person for conflicts of interest. But that only happens once, when you're hired. It's also supposed to happen when you change jobs, and usually does, but not completely.

.1605

[Translation]

Mr. Paradis: Point 1.64, on page 1-19 of the English version of the report, talks about prohibition of contingency fees for obtaining contracts. It also mentions a method used to ensure that companies certify that they have not hired a lobbyist whose payment depends on the client winning the contract.

The same thing also exists on the government side, and that brings me back to more or less the same question: Wouldn't it be a good idea for people to acquaint themselves with this type of document and guidelines when they are hired?

Wouldn't the annual review conducted by the personnel office in other areas, whether it be health care or something else, be a good time to refresh people's memories by reminding them to sign to certify that they have received a copy of the document in question? This would be quite simple, but it would ensure that each year, people's awareness would be increased.

Mr. Desautels: As I said earlier, there is some value to periodically reminding employees of their obligations in that respect. I'm quite familiar with this concept. When I was in the private sector, I had to make that kind of declaration each year. This is not a concept that is completely new to us.

Regarding the Public Service, the concept has some merit. We would have to be selective. I'm not sure that I would go that far. I am not sure that I would say it should apply to everyone each year. That would be an exaggeration and could be costly to administer. We could identify cases where it would apply, either exceptions or when a person changes jobs, as Mr. Gilmore explained, or every three to five years. That could help solidify awareness of all of these notions and remind people that they must make sure they examine their own situation and check that they are not out of line.

Mr. Paradis: I'm new to this. I have not been elected and sitting here for very long. I hear certain things and I would like to mention them to you.

The fiscal year ended on March 31, 1995. People have told me that as March 31 approaches, when budgets in various departments have not been used up completely, people in some areas place orders to ensure that the entire budget for the year ending March 31 is spent. This is to ensure that the following year, they will receive at least as much money as they did the previous year. It seems that buying more goods for a department at the end of the fiscal year is a well-known practice in some areas.

In your opinion, is this part of the ethics issue?

Mr. Desautels: In the past, we've examined the phenomena of spending by March 31 that you were describing, without however linking it to the ethics issue we are discussing today.

We must always be aware of this phenomena of unrestrained spending by March 31. Some measures have been taken over the past three years that make it less necessary to spend everything before March 31.

For example, it is now possible to carry a certain percentage of the budget forward to the next year, specifically to encourage people not to indiscriminately spend everything before March 31. This is still a current issue, but we don't have an answer to your question. Perhaps we could have linked it to the ethics issue that we're discussing today, but we did not do so.

.1610

Mr. Laurin: Mr. Auditor General, do you think that whistle-blower protection legislation and making the ethics advisor accountable to the House would be an efficient way of making the government more transparent? There are two elements: legislation to protect whistle-blowers from the abuse of their superiors and making the ethics advisor accountable to the House, and not to the Prime Minister, as is currently the case.

Mr. Desautels: Mr. Chairman, as regards the first aspect of the question, the merit of having whistle-blower protection legislation, we said in our report that it is important to examine various mechanisms that could be used to help people get out of a difficult situation they may find themselves in.

It exists in certain areas. For example, Ontario passed that kind of legislation and it is also used in the United States. It already exists. So we are being pressed here to pass that type of legislation.

I think it's a tool of last resort. I would prefer relying on other tools. For example, I would put a lot of emphasis on training and sensitizing people, and when that didn't work, I would count on the presence of an ethics advisor or a similar individual within the various organizations who could help solve the problems inside the department or another organization.

Parliamentarians are in fact free to adopt legislation as they see fit, but I would not necessarily recommend immediately passing legislation like you are suggesting, even if I do feel that it is part of the issues that must be examined.

Concerning your second question as to whom the ethics advisor should report, I would prefer not answering it. In my opinion, this is a political issue for the time being and the members of Parliament must debate it among themselves. I know this is a current issue, but I do not want to interfere in this type of parliamentary debate.

Mr. Laurin: But administratively speaking, do you not think that it would be complicated for a judge to be his own judge? Doesn't this type of strategic position seem weak to you? If I had to judge my boss's actions, I would have to pass judgement and keep my job at the same time. Is that not one of the principles you verified as Auditor General? I'm not asking you to pass judgment on the current situation, but simply to consider this generally, based on the terms you usually use.

Mr. Desautels: I think that at present, this is strictly a political debate. Mr. Laurin's hypothetical question is interesting, but I think it is up to you, as parliamentarians, to determine what type of structure you want to set up for yourselves in that respect.

.1615

[English]

The Chairman: Before we go to Mr. Williams, Mr. Shepherd has a point of order.

Mr. Shepherd (Durham): I just wanted to draw the chair's attention to the fact that the Auditor General declined. They answered the first question, and the second question was basically the same.

The Chairman: Okay.

Mr. Williams, you have five minutes.

Mr. Williams: Reviewing the chapters, Mr. Desautels, you highlighted some important problems we have in the country regarding the legacy of hazardous waste. In fact, you've pointed that out as being one of the areas you think we should be looking at.

I think the minister introduced a policy last week, and I'm thinking it might have been a little bit ad hoc. Do we have the capacity to get this environment situation, the PCBs and the other problems we have, under control in Canada in the near future?

Mr. Desautels: Mr. Chairman, environmental questions in and of themselves are quite complicated from a technological point of view. There are serious and difficult challenges, and I would not be one to say that we have the solution to 100% of the environmental problems we're facing. But certainly we have a good capacity to solve technically the majority of the problems we're facing.

The question is of a different order as far as I'm concerned. For instance, there is a problem with the inventory of problems that have to be resolved. The inventory of contaminated sites, for instance, isn't up to date and complete, but that's not beyond our capacity to do. I think we can make sure it's up to date.

Mr. Williams: I was surprised to find out that such a large number of sites fall within the federal jurisdiction; I would have thought that most of these things were provincial in nature. Are these federal sites that we have been managing on our own therefore our responsibility to clean up? Where is the federal jurisdiction on the PCBs coming from?

Mr. Desautels: Well, the federal government is responsible for a number of its own contaminated sites. It is the owner itself of a certain number of PCB products and the various departments have some kind of contingent liability, if you wish, for cleaning up those sites.

As you know, last year we mentioned the problems that National Defence has to face. National Defence alone -

Mr. Williams: So these are all federal jurisdictional areas that need to be cleaned up. It has nothing to do with environmental problems outside, in the private sector; that's presumably a provincial jurisdiction. Is that right?

Mr. Desautels: Well, you have some of each. Putting things in the right context, we feel the federal government has perhaps up to about a $2 billion liability to clean up its own sites.

Mr. Williams: That's the point, its own sites.

Mr. Desautels: But in addition to its own sites, of course, there are sites that belong to others where people have not been necessarily that much in a hurry to clean them up, and there are other sites where the owners cannot be traced any more.

Mr. Williams: But aren't these under provincial jurisdiction?

Mr. Desautels: I think there is a question of sharing the responsibility for most of these with other levels of government. Until very recently, the federal government had a program in which it shared with provinces the cost of cleaning up some of these sites that did not belong to the federal government as an incentive to get them cleaned up sooner. But that program has now come to an end, so the responsibility for cleaning those up will have to fall totally on the owners or the provincial governments.

.1620

Mr. Williams: We've heard much about the interprovincial shipment of PCBs and hazardous waste. I know, for example, of the debate in the province of Alberta saying why bring it to them if the problem was created in Ontario - or wherever else.

Because the federal government has jurisdiction right across the country, from coast to coast, is it reasonable for it to be able to transship PCBs and other hazardous wastes to other provinces, or should we respect their desires that it be cleaned up in the province where it's created?

Mr. Desautels: In our report we underline the difficulties of finding sites where PCBs can be destroyed. We also underline the cost and the other dangers of transporting PCBs from one part of the country to another.

I think these are real difficulties. There isn't an easy solution to those.

Personally, I believe all of this is being done quite willingly by the various participants who accept PCBs for destruction.

If you wish, I could ask Mr. Cluskey to tell us a bit more about how this is taking place and under what kind of arrangement PCBs are being shipped to Alberta, for instance, for destruction.

The Chairman: Wayne Cluskey, you're principal....

Mr. Wayne Cluskey (Principal, Audit Operations Branch, Office of the Auditor General): With the audit operations branch, specifically responsible for the audit of Environment Canada.

With respect to the PCBs, any dangerous goods going through provinces are covered by a federal act, the Transportation of Dangerous Goods Act, so that act would come into play. I'm not familiar with the details of it, but it would certainly cover any transportation.

The only permanent facility in Canada for the destruction of PCBs is at Swan Hills, Alberta. We understand that just recently that facility, in the interest of earning more money, has expressed an interest in destroying federal PCBs - I guess perhaps others too, but certainly the PCBs. The Minister of the Environment herself announced last week that they're pursuing this quite diligently.

Of course the residents of Kenora, Ontario might feel rather strongly about PCBs travelling through Kenora on trucks, because they had a spill in 1985.

So there's a long way to go before we'll actually see the movement. It depends on the reaction of people in the province, the provincial governments themselves, and so on. But I know of nothing that actually prevents the transportation of those goods.

Mr. Shepherd: Maybe I could get back to the question of the Western Grain Transportation Act and the cancellation of some of those programs. You have mentioned here the risk associated with program termination. Could you elaborate on the financial risk to the Government of Canada through the termination process?

Mr. Desautels: In the chapter, the risks that we describe relate more to the Atlantic package, for one reason: the subsidies paid for the Atlantic region, to a certain extent, are between a carrier and a shipper that are not dealing at arm's length. In those cases, the National Transportation Agency accepts the claims that are made and on which the subsidies are calculated, without challenging the amount actually claimed or on which the claim is based.

.1625

There is therefore a greater risk in terms of the Atlantic region program on that particular issue, and so we feel it's important that the National Transportation Agency, which receives the claims for subsidies and pays out the subsidies, be fairly vigilant in the closing months of that program and ensure in fact that the amounts that are paid are all reasonable.

As far as the western grain transportation is concerned, I think the problem is slightly different. If you're more interested in the western grain, I could ask Mr. McRoberts to come and elaborate on that.

Mr. Shepherd: Well, maybe we could continue on the Atlantic one at this time. Has overpayment been experienced in the past?

Mr. Desautels: Mr. Chairman, could I ask Mr. McRoberts to come and help me with this one?

The Chairman: Okay.

Mr. Hugh McRoberts (Principal, Audit Operations Branch, Office of the Auditor General): My name is Hugh McRoberts. I'm a principal in audit operations, responsible for transportation matters.

On the Atlantic freight rates program, while we were unable to identify cases in part because the NTA itself has not established any benchmarks one can really look at, we did identify a set of circumstances that we felt posed a significant risk of problems - the combination of the narrowing of the agency's jurisdiction to make determinations of non-arm's length relationships, coupled with the deregulation of rates in the late 1980s. At that point, if you look at the chapter, you will see that there's a fairly sharp escalation in the proportion of subsidy then paid into non-arm's length shipper-carrier relationships.

That, linked to an agency doing the paying that is of the belief that it has no jurisdiction under the program regulations to challenge the freight charges submitted to it for subsidy, all added up to us to a situation of very high risk and one that we recommended should be dealt with, at the very least, in the program termination stage.

Mr. Shepherd: How would you suggest that this committee could effectively examine that, in view of the regulatory environment you've defined. In the way they have set this up, the government doesn't have a lot to say about how these are arrived at.

Mr. McRoberts: We have recommended that the agency...in fact, we have observed as part of our chapter that under the circumstances we would have expected that the agency would have gone to the Department of Transport and the Minister of Transport and would have requested authority to assess the reasonableness of rates. They did not.

Nonetheless, we felt that in the program termination stage it was appropriate, and we have recommended that the National Transportation Agency should communicate with the Minister of Transport and should request a clear authority to satisfy itself as to the reasonableness of the freight charges submitted to it before paying the claims.

.1630

In response, the agency has agreed with our recommendation and has stated that the chairman of the agency has in fact written to the Minister of Transportation asking for such authority.

Mr. Shepherd: Is there any logical reason why there should not be such an authority in place in the first place?

Mr. McRoberts: Not that I'm aware.

Mr. Shepherd: I'm going on history. Did it have the authority at one time?

Mr. McRoberts: We know that up until 1988, while most of the freight charges for trucking, throughout Canada in fact, were provincially regulated - and this is true in particular in Atlantic Canada - there were a few types of trucking in Atlantic Canada that were unregulated during the pre-deregulation period. The agency at that time appeared in fact to have procedures in its program control for questioning the reasonableness of those rates.

Mr. Shepherd: Did they exercise that at that time?

Mr. McRoberts: We found some evidence that they had done so, yes.

Mr. Shepherd: Was there evidence of errors?

Mr. McRoberts: We have been told there were instances where they encountered errors. Because of course the records were very old, we did not see any documentation of that.

[Translation]

Mr. Laurin: I would like to come back to the issue of hazardous wastes. The Auditor has stated that he doubts the government will be able to reach its hazardous waste treatment goals. Could the Auditor tell us what these allegations are based upon? Is it because he wasn't able to ascertain that there exists a plan which would enable the government to reach its objectives in this area? What leads you to say that this wouldn't be possible?

Mr. Desautels: In the chapter dealing with hazardous wastes, what we say is that the programs that were put in place to finance the clean-up of contaminated sites were for the most part due to expire and that, for the time being, there seems to be no plan to replace them. That doesn't necessarily mean that it shouldn't happen, but we stress the magnitude of the task and the lack of mechanisms to carry it out.

Mr. Laurin: What do you mean by lack of mechanisms? Is it that there are no contracts? That no contracts are being given out?

Mr. Desautels: There is a lack of various types of mechanisms. We for example mention the fact that the sites inventory is incomplete. This leads to faulty estimates of clean-up costs and there doesn't seem to be, in the immediate, any plans for replacing the remediation programs that had been set up for this purpose and that up until now have been financing part of the clean-up.

As an example, each department could put in a request for money under a fund, if I may use that term, within Environment Canada, which would help pay for the clean-up of sites under its jurisdiction.

.1635

As of now, this funding will no longer be available, which means that the Department will have to find the necessary funds for contaminated sites clean-ups within their own budget.

That doesn't mean to say that there's nothing we can do. It means that we must call into play new mechanisms or new ways of going about them in order to reach our objectives.

Mr. Laurin: When your report was tabled, the Minister told the House that he had ordered the Department to eliminate PCBs by the year 1996 and that it was imperative that this order be executed. Do you believe that the Minister's promise was a realistic one, given what you have seen?

Mr. Desautels: I will ask Mr. Cluskey to help me answer your question. I don't believe it will be possible for us to eliminate all PCBs between now and the year 1996, because there are still some that are in use and that will be put into storage while awaiting storage and destruction. So PCBs will therefore still be around for a few more years. I will ask Mr. Cluskey to complete my answer.

[English]

Mr. Cluskey : As the minister said in the House, they are pursuing, with the Government of Alberta, the use of the Swan Hills instruction site. We saw nothing that would physically prevent them from shipping it. I think there are a little over 5,000 tonnes of federal PCBs. It's really a question of getting them out there.

As the minister herself announced, the decision to pursue this was a possible option at the time we were doing our audit. We say that in the report. She noted last week that the actual government decision to pursue, as I said earlier, very diligently the use of the Swan Hills facility was made subsequent to work we'd done and subsequent to the printing, if not the actual tabling, of our report. So again there's nothing preventing the possibility. It's just a physical question of being able to get them up there.

[Translation]

Mr. Laurin: Do you believe the government has the necessary funds to finance such an operation?

Mr. Desautels: For the PCBs?

Mr. Laurin: Yes.

[English]

Mr. Cluskey: No, we couldn't answer that because the actual program itself has ended. One of the criticisms we make is that they need to look and decide exactly what is going to be done. I can only say again what the minister did. We did not pursue whether they had the funds because at the time, no...but presumably they would find the funds. But that's out of our hands and our ability to comment on at this time.

Mr. Williams: I'm not sure I have too many more questions to ask, Mr. Chairman.

I found Mr. McRoberts' statements on the transportation in the Atlantic region interesting. It seems we have an agency down there that had a mandate they didn't bother to exercise to any great degree. If they had exercised their mandate within the powers that they have been given, perhaps the pay-outs and the subsidies would have been less than they were.

Is that a correct assessment, Mr. Desautels?

Mr. Desautels: Mr. Chairman, I think that over the years there may have been subsidies paid in non-arm's length relationships that would be bigger than what need to have been paid or what is the equivalent being paid in the situations where your shippers and carriers were dealing at arm's length.

It's difficult to quantify that, but one of the main messages in our chapter is that the amount devoted to subsidies in non-arm's length relationships has gone up a lot faster than the other. You can draw your own conclusions from that, I hope.

.1640

Mr. Williams: If we find that the agency will now have the power, or always had the power, to make the investigation into transportation costs, do they have the authority to go back and retroactively adjust?

Mr. Desautels: I'm not sure what the answer is to that. I don't believe so. I believe what has been paid out in subsidy is in fact, for all intents and purposes, paid out.

Mr. McRoberts might confirm my answer or amplify.

Mr. McRoberts: Our understanding is that the agency does not believe it has the authority to go back and make recoveries of that type.

Mr. Williams: You pointed out to the agency that they had the authority to question these subsidies in the first place, which they didn't realize until you pointed it out. Is that right?

Mr. McRoberts: No. The agency continues to be of the view that it does not have the authority to question the subsidies, at least according to my knowledge of the agency's position today. The words we put in italics following paragraph 6.150 is the agency's position, as I understand it today. The agency does not have the authority to control rates. These are their words:

Since then, as the agency indicated in its response to our second recommendation on the program, the agency has written to the Department of Transportation asking for a clear authority to challenge rates. That is, as I understand it, where the matter now stands.

Mr. Williams: I notice you used two words; one was that the agency didn't have the authority to ``control'', and they're asking authority to ``challenge'' - control, challenge. In a deregulated environment, I can understand that they don't have the authority to control rates. But surely if we're paying out a subsidy in a non-arm's length environment, it would seem rather strange that the agency didn't have the authority to challenge or didn't seek the authority to challenge the subsidy applications submitted to them. Are they just strictly a paying agent, like Canada Pension Plan, or where it's a strict payment of 20% of the bill regardless of what the bill is? Do you feel there's been a lack of appreciation of their responsibility over the years?

Mr. McRoberts: That is certainly our observation, inasmuch as we would have expected that in the circumstances, were the agency uncertain about its authority, particularly in a deregulated environment, it would have gone to the department and would have sought the authority to challenge the amounts submitted to it for subsidy. As we note, the agency did not do that, and indeed, when it did approach the department - this is paragraph 6.151 - the agency sought authority to stop collecting information on rates entirely.

Mr. Williams: Mr. McRoberts, in your opinion, does the agency, if it has clarified that it has the authority to challenge these rights, and in fact does challenge these rights...is there anything retroactive in the legislation that gives them authority to go back and say, wait a minute, we have overpaid you here, perhaps we should get some money back?

Mr. McRoberts: Our understanding is that apart from a common-law authority there would be no specific authority in the legislation that would permit them to make that type of recovery.

.1645

Ms Whelan (Essex - Windsor): I don't want to pick up on the exact same topic, but I did want to mention that I thought the summary of the Western Grain Transportation Act program was a little misleading. On page 15, I think 6.51, where you discuss replacing the Crow act.... If you read the summary, you wouldn't ever realize the Western Grain Transportation Act replaced the Crow rate, and I think that's a bit misleading to the general public.

I would also assume a lot of changes that have taken place in government are based on previous Auditor General reports.

You make reference to the Western Grain Transportation Act in the 1987 report. I haven't read it as closely as I'd like to, but on the Atlantic region freight assistance program I find some of the statements quite shocking. I'm wondering what has happened to your recommendations in the past.

Mr. McRoberts: We expressed some concern the 1987 report, although we didn't make a recommendation at the time, about the non-arm's length situation and the possibilities that might arise for transfer of pricing. However, again it's important in the context of 1987 to realize that at that point we were still dealing in a largely regulated rate environment. So whether you were operating at arm's length or not at arm's length as a common carrier in the select territory at that time, the rates were being regulated by provincial bodies, by and large. So the problem then was not as serious.

The principal recommendation we made on ARFA in 1987 was for a program evaluation and a review of administrative procedures. The program evaluation, as you will note, was done by the department in 1993-94.

Ms Whelan: So you're telling me it took seven years to do the program evaluation?

Mr. McRoberts: Yes.

Ms Whelan: I find that hard to believe. Was any reference made to the fact that that hadn't been done between 1987 and today, or is this the first we hear about it? I understand the Auditor General has a large responsibility. I'm just wondering; this comes up over and over again. We talk about follow-up. We talk about recommendations.

I find that a long time, especially when you look at the chart you produced on 6-31. To me it's pretty glaring. There are some pretty obvious problems there. I'm just wondering what kind of follow-up measures you have within your own department - you're supposed to be the watchdog of the government - to keep watching.

Mr. McRoberts: To the best of my knowledge, this was not followed up on.

Ms Whelan: I want to make a comment, Mr. Chairman. I find the fact that the interim report is going to be much easier and much better and will probably allow both the Auditor General and ourselves to have a better hands-on on what's happening...and I'm sure we'll go into this chapter in more detail. I'll alert my western and Atlantic colleagues to the fact that they should be reading it.

[Translation]

Mr. Laurin: Mr. Chairman, I would like to ask two questions. The first one is the following: out of a total of $145 million - the total funds provided for the National Contaminated Sites Remediation Program, which ends this year, the federal government has only spent $86 million. The rest of the money has been re-routed and used for other purposes, to fill in holes here and there without Parliament being informed.

Could the Auditor General give us details on the funds that have been diverted within Environment Canada and could you tell us what, in his view, this will cost future generations?

Mr. Desautels: I will ask Mr. Cluskey to answer your question. I don't think it is necessarily a matter of diverted funds, but rather of...

Mr. Laurin: Funds have been diverted in order to use them for other purposes, for ``contingencies''.

Mr. Desautels: Mr. Cluskey will answer your question.

.1650

[English]

Mr. Cluskey: We looked at this issue very closely, and it's very complex in terms of the nature of the agreements between the provinces and so on. We're still looking at it from a legal point of view. At the moment, given the complexity and what we've found out so far, we probably will not be able to report in a black and white way that the funds were diverted in any way contrary to the regulations or requirements of Parliament.

There's no question that the department made managerial decisions to use these funds elsewhere, but we did not and have not at this point in time established that they did so without proper authority.

[Translation]

Mr. Laurin: I presume, as a result, you cannot say what that might cost future generations.

Mr. Desautels: Given all the information in that chapter, we are starting to get an idea of how much work still has to be done.

I do not know if I fully understood Mr. Laurin's question. I recognize that not spending all the funds provided is a problem in itself, but even that would not have been enough to solve all the problems with site clean-ups.

We are getting a much clearer picture of the work ahead of us. It is not yet complete, but we're starting to get an idea of the scope of the remaining work. The accountability is not entirely clear either, but at least the overall scope of the work is taking shape.

Mr. Laurin: In chapter 8 of your report, Mr. Auditor General, you say that since 1993, diplomats can receive non-accountable payment for vacation travel based on their return tickets to Ottawa.

Is that still in effect or has it stopped?

Mr. Desautels: Mr. Chairman, I would like more clarification.

Mr. Laurin: I am referring to page 8-14 of the English version. There is a part showing the FSD50 measure cost $8.4 million. That measure is the Foreign Service Vacation Travel Assistance. Does that measure still exist? Is it used in the same way as in 1993?

Mr. Desautels: The directives described in the report that Mr. Laurin is referring to are currently in effect.

Mr. Laurin: I asked that question in the House this afternoon, and the Minister answered that that problem did exist in the past, but that the matter had been settled, that the practice had been abolished.

Mr. Desautels: I would ask Mr. Laurin to clarify his question, because there is often confusion between the Foreign Service Directives and the problem with airline tickets that had been identified a few years ago.

In that chapter, we indicate that the problem had been identified a few years ago and had resulted in reimbursements of approximately $500,000. We say it is now time to turn the page and move on.

Our comments on directives 45 and 50 are still valid, but that is not the same thing as the problem with airline tickets being cashed in, which had caused a scandal a few years ago.

Mr. Laurin: But the measure still exists and tickets can still be exchanged. The measure is somewhat different, but you can still use that money to pay for your vacations while you are abroad.

Mr. Desautels: The directives described in chapters 45 and 50 are still in effect.

Mr. Paradis: Mr. Chairman, I would like to quickly go back to the Federal Transportation Subsidies. Let me first give you some context.

.1655

The program was audited in 1987 and on page 6-36 of the English version it says:

A little further on, on page 6-36 of the English version, it says:

What strikes me here is the distinction between subprogram and general program. It would appear the general program forbids that practice, whereas the subprograms do not. Is that correct?

A little further, on page 6-40 of the English version, you give the example of a case where a shipper was paying its affiliated carrier 200% more than its non-affiliated carriers. I quote:

In the next paragraph, it says the Agency's Legal Services have never been asked to provide advice on whether those carriers were entitled to those subsidies according to the regulations, programs and subprograms.

You do not say anything about that later on in your recommendations. Shouldn't the Justice Department determine whether those people were entitled to the subsidies?

Mr. Desautels: That is an excellent question, Mr. Chairman. I think Mr. McRoberts answered part of it. Thus far, we have not gone back to try to change the amounts claimed.

There is no longer much point in seeking legal advice since the program ends this summer. Had it continued indefinitely, it would have been more important to clarify that situation.

Perhaps Mr. McRoberts can answer your question.

Mr. McRoberts: I think the Auditor General gave a thorough answer.

Mr. Paradis: At some point, there was a regulation forbidding subsidies for non-arm's length shipper-carriers. On page 6-36 of the English version, under 6.135, you say:

Further on, on that same page, it says:

A little further on, you say Legal Services had not been consulted and apparently the office had not wanted to do so either.

Shouldn't Legal Services still be consulted to see whether those people were entitled to those subsidies?

.1700

Even though the program was terminated, if there are people who benefited from it, they no doubt got fairly large sums of money: they were either entitled to it or not. If Legal Services conclude they were not entitled to it, you can still terminate a program and collect the money.

[English]

Mr. McRoberts: You have stumbled on one of the complexities of the problem and a difficulty that is posed for the NTA as well in administering it. There are three sub-programs.

The largest of these is the intra-regional program and it is only the intra-regional program that contains the prohibition on paying the subsidy to non-arm's length shipper-carrier pairs. The problem is, as reported in paragraph 6.137, that in 1984 the courts looked at the way in which this provision was worded and very much restricted the basis upon which the commission could find that a shipper-carrier pair was prohibited from participation in the program under the provisions of paragraph 2(2)(h), which we refer to in paragraph 6.135.

The other components to the program, smaller components - the basic westbound and what are called the selective westbound components of the program, which account for about 40% of program payments - do not contain such a restrictive statement. The instances that were looked at in the study we refer to in paragraph 6.153, the National Transportation Agency study, were, if my recall is correct, all involved in the westbound program, so the prohibition based on arm's length didn't apply.

The agency looked into the matter further, as we report in the remainder of the paragraph, and satisfied itself that the rates were reasonable, and hence that there was no need to involve their legal services. It is also perhaps worth mentioning, just by way of a point of clarification, that because the National Transportation Agency is a quasi-judicial body, it maintains its own legal services and does not use the legal services of the department of justice. So there's a separation there as well.

Mr. Shepherd: We're learning all about some interesting things in the Atlantic provinces here. Can you give me an example - just explain to me what it is that we're looking for - of how, theoretically, somebody would pad one of these claims? Would I show significantly more transportation mileage than in fact occurred? Would that be a logical...? You use the word ``inflate'', I believe, in here. How would somebody successfully inflate one of these claims?

Mr. McRoberts: It would be basically through transfer pricing. There would be no need to do anything fraudulent. Consider a situation where a carrier is a wholly owned subsidiary of a shipper. The carrier simply establishes a rate, a very high rate, for its services, for which it then bills the shipper. The shipper in fact pays that to the carrier, a perfectly valid claim under the rules the program has created. It's submitted and paid. At year-end, when the shipper and carrier reckon up with all of the proceeds arriving into a single pocket, in essence the transportation charge levied by the carrier to the shipper simply disappears on the consolidation of funds.

.1705

Mr. Shepherd: Obviously the audit function must simply be comparing those rates with conventional rates that exist in arm's length transactions occurring at the same time.

Mr. McRoberts: That would be one way in which one might identify instances that would be of concern.

Mr. Shepherd: Did you do any of that analysis?

Mr. McRoberts: We attempted to with some of the information that was available to us, but because of the limited information on the claim forms, we concluded that we were unable to do so at a level that allowed us to really reach firm conclusions.

Mr. Shepherd: However, there is some degree of evidence that these rates are 100%, 200%, of market rates.

Mr. McRoberts: Well, they're certainly higher than market rates. The agency's own study found one instance - we cite this in paragraph 6.152 - where the shipper was paying its affiliated carrier 200% more than non-affiliated carriers to ship the same commodity.

More broadly, what we were able to do was for a small group of non-arm's length carriers - this is exhibit 6.15 - we were able to track the rates they had filed with the agency from 1989 through 1992. We used that to create an index. Basically, we indexed them to 100 in 1989 and then we plotted that against the Atlantic Canada trucking price index, which is a broad index showing the general rate of increase of trucking prices in Atlantic Canada for the same period.

As you can see, the rates for the non-arm's length carriers were rising very, very much more quickly than were rates in Atlantic Canada in general. That again is not conclusive. There are possible alternative explanations. But all of this adds up, in our view, to a situation where there is evidence of a very considerable risk.

Mr. Shepherd: How much money is at risk?

Mr. McRoberts: We really cannot estimate that.

Mr. Shepherd: If of the total amount of subsidy that was there, 25% of it is overstated, how much money would that be?

Mr. McRoberts: That would be $25 million. In round numbers the subsidy is $100 million a year.

[Translation]

I would like to thank Mr. Desautels and his team for coming to answer our questions.

Mr. Williams, Mr. Telegdi and

[English]

Mr. Shepherd, can you stay here for the meeting of the subcommittee?

We will adjourn. Thank you.

;