[English]
EVIDENCE
[Recorded by Electronic Apparatus]
Tuesday, March 20, 2001
• 1538
[English]
The Chair (Mr. John Williams (St. Albert, Canadian Alliance)): Good afternoon, ladies and gentlemen.
Before we start our meeting I would like to recognize in the audience this afternoon Monsieur Guy Breton,
[Translation]
the Auditor General of Quebec; Mr. Gilles Bédard, Assistant to the Auditor General; and Ms. Doris Paradis, also Assistant to the Auditor General of Quebec.
[English]
Today's order of the day, pursuant to Standing Order 108(3)(e), is consideration of chapter 11, “Human Resources Development Canada—Grants and Contributions”, of the October 2000 report of the Auditor General of Canada.
Our witnesses today: from the Office of the Auditor General of Canada, Mr. Denis Desautels, the Auditor General of Canada; Ms. Maria Barrados, Assistant Auditor General; and Mr. Henno Moenting, principal of the audit operations department; and from Human Resources Development Canada, Ms. Claire Morris, deputy minister; Mr. Alan Winberg, assistant deputy minister, financial and administrative; and Mr. Hy Braiter, senior assistant deputy minister of service delivery.
Mr. Denis Desautels, we'll turn it over to you for your opening statement.
Mr. L. Denis Desautels (Auditor General of Canada): Thank you, Mr. Chairman.
My colleagues and I are pleased to have this opportunity to meet with the committee to discuss our audit of the management of grants and contributions at Human Resources Development Canada. As you know, we reported the results of that audit in chapter 11 of our October 2000 report.
• 1540
I'll keep my comments this afternoon relatively brief,
Mr. Chairman, as this subject has received a lot of
attention already, including at our meeting with your
committee on October 20, 2000.
As you will recall, the department released its internal audit of grants and contributions in January 2000. The audit generated public and parliamentary interest that in my experience was unprecedented. The department responded with a commitment to corrective action.
We set out to do two main things in our audit. First, we wanted to assess independently the nature and extent of the department's problems in managing grants and contribution programs in the period up to January 2000. Second, we wanted to determine whether the corrective action taken and planned by HRDC adequately addressed these problems.
We assessed the management and administration of four of about forty grant and contribution programs run by HRDC: the Transitional Jobs Fund and its successor the Canada Jobs Fund, Youth Internship Canada, Social Development and Partnerships, and the Sectoral Partnership Initiative.
Our findings apply to approximately $560 million in grant and contribution expenditures in the four audited programs. As much as possible, we did our work in the HRDC offices where the projects were managed.
In addition to examining project files, we spoke to managers, project officers, and some recipients. We also examined program design and the measurement and reporting of results of these programs. We selected samples from projects that had finished before January 2000. This allowed us to examine the full cycle of projects, from the proposal to the project's completion.
Another result of this strategy was that our findings relate to a period that preceded the corrective action taken by HRDC following its internal audit. In light of our findings, we assessed the corrective action taken and planned under the department's six-point action plan and other initiatives.
The main messages from our audit were quite straightforward. First, our findings confirmed and extended those of the internal audit. Second, we found that the department was making good progress in implementing corrective action. Third, the corrective action the department had taken and planned to take addressed the deficiencies we found. And finally, HRDC's management would need to sustain effort and attention to achieve the broad-base systemic changes required.
[Translation]
Mr. Chairman, let me expand a little on these points. I said that our findings confirmed and extended those of the internal audit. Although the specifics varied across the four programs, we found serious weaknesses in project selection and approval and in the financial management and control of approved projects. Many of the practices we saw were unacceptable, including informal written or oral arrangements with project sponsors to change the terms of contribution agreements, breaches of authority, payments made improperly, and inadequate monitoring of project finances or activities. In addition, we found weaknesses in the design of these programs and in the measurement and reporting of project and program results.
These shortcomings go well beyond administrative matters such as keeping proper files. The fundamentals of proper financial management were not being respected. The systems in the Department could identify the recipient of payments, but there were too many cases where the payments were for ineligible costs or where recipients should not have received the amounts of money that they did.
It may be of interest to your committee that current government practice limits the identification of overpayments to only those cases when a department can show that the sponsor did not fulfil its obligations under the contribution agreement. Where department officials ignore or fail to comply with the agreement, payments made inappropriately are not identified as overpayments and cannot be recovered. While we found many such cases of unacceptable administrative practices, it is important to say that we found no cases of fraud or malfeasance on the part of HRDC officials. We obviously know to whom the cheques were issued in the projects that we examined.
• 1545
[English]
In our audit we identified some files among our sample that raise questions about the appropriateness of some payments. The department initiated a review to determine whether money should be recovered from the sponsors of these projects. Mr. Chairman, with the exception of one case that is still under review, the department has now completed its review of these files and addressed our concerns.
We found in our audit that the department was making good progress in implementing corrective action. Early in 2000 it put in place a six-point action plan that included a series of actions to deal with the immediate problems identified by the internal audit, as well as longer-term and supporting actions. We found HRDC had generally respected its timetable for implementation. It had also planned and taken additional initiatives that complemented this six-point action plan.
We assessed the actions the department had taken and planned to take against the deficiencies we found in our audit, including deficiencies related to aspects of program design, the management and administration of grant and contribution programs, and the measurement and reporting of projects and program results. Although we concluded HRDC's actions and plans addressed the deficiencies we found, it was too early at that time to conclude that the department had changed fundamentally and permanently its day-to-day approach to the delivery of grants and contributions.
In our report we made six recommendations focused largely on maintaining the momentum toward corrective action and monitoring its effects. I believe there are some key things that are likely to prove particularly important in this regard. These include continuity in leadership, appropriate capacity, including a supporting culture of values and ethics at all levels, and effective internal controls, including sensible risk management, performance measurement, and a competent, respected internal audit.
[Translation]
The Standing Committee on Human Resources Development and the Status of Persons with Disabilities asked us to address how to balance the need for efficient and flexible program delivery with the need for sound financial management. In our view, there should be some basic controls in place no matter how small a grant or contribution may be. But in insisting on proper financial management, we do not envisage a system with excessive red tape. The Department's controls over the spending of public money should be directly related to the size of a project and the risks involved. For example, we would expect that the information needed and the time taken to assess a proposal for a straightforward project that involves a small contribution would be much less than a proposal for a large, complex project.
A fundamental part of dealing with the often-conflicting demands placed on public servants is ensuring that the capacity is in place to deliver the programs. We reported in October that HRDC had agreed with the Treasury Board Secretariat to carry out workload studies that had the potential to establish useful benchmarks for the delivery of grant and contribution programs. Mr. Chairman, you Committee may wish to inquire about the progress made in these studies.
[English]
We continue to be concerned about the management of grants and contributions. We will report the results of a government-wide audit of this issue in December 2001. At the same time, we will report on audits of specific grant and contribution programs in some individual departments and agencies, and on an early follow-up of progress being made by HRDC.
Mr. Chairman, there has already been a lot of debate on a number of specific aspects of the management of grants and contributions at HRDC. At this point, therefore, I would encourage your committee to pursue four matters with departmental officials. What progress has the department made in implementing corrective action? What assurance does it have that this action is having the required effect? What remains to be done? How well is the department succeeding in sustaining the required effort throughout the organization?
Mr. Chairman, this ends my opening remarks. My colleagues and I would be quite happy to answer the committee's questions. Thank you.
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The Chair: Thank you, Mr. Desautels.
Now we'll turn to Ms. Claire Morris, the Deputy Minister of HRDC, for her opening statement.
Ms. Claire Morris (Deputy Minister of Human Resources Development Canada): Thank you, Mr. Chairman.
I'm pleased to be here today, and I look forward to bringing the members of the committee up to date on the actions we've taken at Human Resources Development Canada. I too will try to keep my remarks brief so there is time for questions.
I should start by pointing out the obvious. The past year was a challenging one for Human Resources Development Canada, but I believe we're a much stronger department now than we were a year ago.
In January 2000 HRDC released an internal audit report on grants and contributions, which showed that administrative problems were extensive. As the Auditor General pointed out, many practices were not acceptable: proceeding without required approvals, relying on oral contracts, paying for ineligible expenses, and inadequate monitoring. We agreed that these practices were not acceptable and were serious deficiencies. That's why we moved to develop and implement a comprehensive action plan during 2000 and now continuing into 2001. We did it through a six-point action plan that has helped to get many basic elements of our work back on track. We did it by making fundamental changes, not just to how our grants and contributions programs operate, but to how the department itself operates.
That work isn't done, but I believe we're getting there. We can show progress and we can show how we've set the stage for more action. So let me do that now.
[Translation]
I should start with our work to implement the Action Plan, work that the AG and others tell us in on the right track. We have set out our activities and accomplishments in three progress reports so far and I am sure that you have seen them. So while I could list a long series of actions, I will highlight just a few key observations and accomplishments.
The AG told Parliament and Canadians that he endorsed the measures that we were taking and he said those measures should continue. As he pointed out, and I quote:
He went on to say:
PriceWaterhouseCoopers offered a separate and equally independent appraisal. Those consultants confirmed that we were doing what we said would do to meet the Action Plan commitments.
When you look at the specifics of the Action Plan, there are 38 sub-elements in total, of which 14 involve ongoing commitments. All 14 are on schedule. Of the other 24 sub-elements, 22 are complete. The two that are left deal with a review of our closed and dormant files and we are making progress there too.
[English]
To make sure we sustain our action plan improvements we've added rigorous performance monitoring through a quality assurance process. One of the major highlights of our efforts to date has been the contribution of an innovative performance tracking directorate. It reviews files to provide departmental managers with current data on how well we're doing in administering grants and contributions. The results of that tracking are quite encouraging. The most recent performance tracking directorate report is in our December 2000 progress report on the action plan. It found that we were sustaining “significant and measurable improvements in our management and administration of grants and contributions”.
To give a few examples, 99.1% of our files had an application for funding, up from 85.2% in the 1999 audit; 98.6% of our projects were approved by the properly delegated officer, up from 79.2% in the 1999 audit; 98.5% of our payments were signed off by the properly authorized officer, up from 70.9% in 1999; and 97.1% of our projects were monitored for compliance with the agreement, and that was up from 23.4% in 1999.
We still have a way to go, but we have come a long way.
• 1555
[Translation]
I want to turn now to our work above and beyond the Action Plan. That work complements our action Plan efforts in important ways. Much of it has been guided by input and advice from Parliamentarians, the Auditor General and our own lessons learned.
The AG raises five specific areas where his audit went beyond the scope of our internal audit. In each area, we are already taking action to address the issue.
The AG notes that we have difficulty translating general social policy purpose into operational terms. We have instituted the Program Management Initiative, which is undertaking a review of our program objectives, eligibility criteria and performance measures.
He says that we need to do a better job of managing for results. In addition to the Program Management Initiative, we are also focusing efforts to ensure that project outcomes and expectations are clearly reflected and understood in our contract agreements with sponsors.
He further notes that we should have better management and control of our projects. This is why we introduced a comprehensive Six-Point Action plan. This is also why we developed a Quality Assurance framework designed to detect and correct errors in administration as we deliver projects. In addition, our innovative Performance Tracking Directorate provides senior management with an ongoing department-wide assessment of how well we are doing in meeting expected standards of administration.
[English]
The Auditor General also points out that we need to do a better job of telling Canadians about our programs and how to apply for them. We are making this information available on our website and in our offices.
Finally, he notes that we need to provide adequate support, training, and tools for program delivery staff. We have, through internal reallocation, directed an additional $50 million in resources to improve program delivery support, and we are working with the Treasury Board Secretariat on a workload study. This is also a key part of the six-point action plan.
In addition, we've looked at our own corporate structures and have restructured the department to improve its management and accountability processes. For example, we've reorganized our former Human Resources Investment Branch in order to separate the management of programs delivered nationally from the management of programs delivered by our regional offices. Since last fall we've reviewed with the Treasury Board Secretariat how we deliver grant and contribution programs. We're looking at the appropriate balance between local, regional, and national delivery for these programs.
We're also working on how best to balance effective program delivery and sound financial controls. This is a comprehensive response to the Auditor General, and we've been working with the AG and his office all along.
[Translation]
In conclusion, we have done a lot in a little over a year. But I am not saying that we can rest and move on. So, let me conclude my remarks by sharing what I see as some important challenges that still lie ahead, for Human Resources Development Canada.
One of the most significant challenges for us is to avoid excessive red tape and yet ensure adequate financial controls. This is not an easy task and there are no simple answers. The challenge is to achieve the right balance between efficient and flexible program delivery and sound financial management. We want to achieve program delivery that meets the needs of the Canadians we serve as well as the sound financial management that Canadians expect.
[English]
There's no question in my mind that we have a much stronger department than we did before this started. We're more focused, and we are more capable of achieving results and holding ourselves accountable to you as parliamentarians and to all Canadians.
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We're not just administering grants and contribution
programs any more. We're actively managing them and
ensuring that we're doing the right things and doing
them right. We don't claim that our work is done, and
frankly I don't think it will ever be really complete
since our goal is the consistent achievement of a very
high set of standards. However, I can say that we are
continuing to take action and that we have the fullest
possible commitment to follow through. We are
determined to meet the expectations of Canadians and
parliamentarians.
We're confident that we're on the right track, and we believe we are on our way to achieving the difficult but essential balance between, on the one hand, the best possible service to the Canadians who look to us for programs and services and, on the other, the highest level of accountability to the Canadians who support those programs and services. Achieving that balance will allow us to continue to make a difference in the lives of communities and individual Canadians across the country.
Thank you, Mr. Chair.
The Chair: Thank you very much, Ms. Morris. That was a long five-minute opening statement.
Mr. Mayfield, you have eight minutes, please, and only eight minutes.
Mr. Philip Mayfield (Cariboo—Chilcotin, Canadian Alliance): Thank you, Mr. Chairman.
Thank you very much for your statement and for coming here.
It's a pleasure to greet you and your staff once again, Mr. Desautels, and I look forward to having maybe a short visit with you tomorrow as well.
Before I get to some other questions, there are a couple of things that came up in your statement, Ms. Morris. You give examples of some of the progress that's been made, and the first one is that 99.1% of our files had an application for funding, up from 85.2%. The question that crossed my mind is, why don't 100% have applications? Perhaps there's something I don't understand, but I have never quite figured out how there can be money going out when it hasn't even been applied for. There's likely a simple, logical reason for that, but I don't know what it is. Can you briefly tell me the answer to that?
Ms. Claire Morris: Yes, Mr. Chairman.
Essentially, the performance tracking directorate, which is where we drew these statistics from, takes a sample of files across the country—has done so at different periods in time and will continue to do so at different periods in time—to ensure that in fact we are moving very clearly to that 100%. I don't have the details, and I may ask Mr. Braiter to add to this.
Mr. Philip Mayfield: Perhaps you could just give me a scenario to illustrate how an application that has not been received can be approved so money will be dispersed. I don't understand that. Maybe I'm missing something.
Ms. Claire Morris: It might be a case, Mr. Chairman, of a letter on file that is not technically an application but where there has been an agreement. It might be a targeted wage subsidy. I'll perhaps ask Mr. Braiter to add a couple of other examples that might clarify it for you.
Mr. Hy Braiter (Senior Assistant Deputy Minister, Service Delivery, Human Resources Development Canada): First of all, our objective is to have 100%. The performance tracking system is an independent group that calls files at random from our local offices, brings them into headquarters, and then reviews them under the strictest of standards. The processes they use have been reviewed by the Auditor General and PricewaterhouseCoopers.
It is possible that the application is not on file when they bring the file in. It is possible that it is out because, for example, of a monitoring visit. It's also possible, as the deputy minister has mentioned, that instead of making a formal application they have written a letter or that they anticipate the continuation of a previous contract, so they don't think they need a brand new application.
What we were recognizing when we implemented the six-point action plan was that we owe the taxpayer proper documentation, proper evidence of everything. We're working towards 100%, and at the last sampling we took we were over 99%. For those few that didn't have what was required, we went back to the manager of that office, back to the region, and we went back to the individual officer to make sure that this would not happen again.
There will always be a fraction of a percent of cases where, when someone calls up a file at random, not everything happens to be sitting in the file.
Mr. Philip Mayfield: Does that mean that there could well be an application but that it is simply not in the file?
Mr. Hy Braiter: That could happen.
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Mr. Philip Mayfield: I'll just switch to the other end of it. The Auditor General made a recommendation that there needs to be a better job done of telling Canadians about your programs and how to apply. Since this issue first became famous across the country, there has been a noticeable attitude of gunshyness in some offices. I'm wondering what you have done to be sure that available programs are as well-known in some of the rural communities in British Columbia where you have offices as they are in the more urban centres. Is there really an effort to have an even distribution of this information? I wouldn't want to press the issue too hard from my point of view, but I have a sense that some of the staff are not as certain now as they were. Maybe you'd like to comment on that, on how much progress you've made with respect to this recommendation of the Auditor General of Canada.
Ms. Claire Morris: That was a very clear recommendation on the part of the Auditor General, and we worked hard. By the end of December we had a complete website that outlined each and every one of our grants and contributions programs. It lays out the name, the objective of the program, and the criteria for eligibility, and that's a website we will continue to build over time. Information is accessible and is being accessed effectively.
We also provided a kit to staff across the country so they could sit down with members of Parliament and provide them with the same information. This was because of one of the criticisms that was made, that we weren't providing information evenly across the country. Staff have been asked to meet with members of Parliament and make sure that everybody has the same information available.
Mr. Philip Mayfield: Now, it seems from the Audtor General's report that before he got involved, there were internal audits in your department and that there were recommendations made, yet it seems that those recommendations may not have been acted upon. Just thinking about the future, I just want to continue on that line. Why did it take so long? How do you explain that there were recommendations that were not acted upon? Can you please talk about that a bit.
Ms. Claire Morris: Mr. Chairman, I think the Auditor General in his report commented very comprehensively on the history of this department, which has only been a department for seven or eight years now. It faced some huge management challenges in the early years of its development and growth. Not only did five different pieces of other departments have to come together to create a new department, a major service delivery network had to be built across the country, a major program review—
Mr. Philip Mayfield: I guess the reason I asked the question stems from the fact that you're not going to have the Auditor General making these recommendations on a continuing basis. There has to be some kind of internal means of knowing what's going on. I'd like to know if, when the Auditor General looks at your books the next time for the next cycle, he's going to find that there has been progress made. Will he find that your department has somehow gotten the idea that your own auditors are giving you information that needs to be looked at and responded to in a timely manner? That's the focus of my question.
Ms. Claire Morris: Mr. Chairman, our audit was done in January of last year—or rather, the results were made public. When the Auditor General looked at the department several months later, he was able to indicate that yes, we were making progress and yes, we had identified the appropriate corrective action. The point he has made—and we agree totally—is that it is going to require ongoing, sustained commitment. I'm absolutely confident that we have put the necessary mechanisms in place inside the department to ensure that this will be an ongoing way of carrying on our programs.
Mr. Philip Mayfield: Thank you very much. I look forward to asking more questions later.
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The Chair: Thank you, Mr. Mayfield.
[Translation]
You have eight minutes, Mr. Perron.
Mr. Gilles-A. Perron (Rivière-des-Mille-Iles, BQ): Thank you, Mr. Chairman. Good afternoon, Mr. Desautels and Ms. Morris. My question is for Ms. Morris.
As part of its Six-Point Action Plan, the department undertook to review project files that were still active in 1998-1999 and 1999-2000 and that are now closed. Your Action Plan called for this review to be completed in the year 2000. Have these reviews in fact been completed? If so, what did you observe overall? Have you in fact identified overpayments that need to be recovered?
Ms. Claire Morris: Thank you very much, Mr. Chairman.
We are still completing our review of all closed files. The end is in sight. We expect the findings to be published in our fourth progress report which is slated to be released this spring.
This undertaking proved to be more complex than we had anticipated, partly because the files selected were complex. In some cases, the persons involved in the projects were no longer around. Therefore, we needed more time. We thought that we would be finished in January, but in actual fact, it will take us two or three months longer than we thought it would. The findings will be published in our next progress report.
Mr. Gilles Perron: Can you give us an overview of a few files?
Ms. Claire Morris: The work is not yet completed. A cross- section of 516 files was examined. I can give you some figures. For the moment, the amount of money involved is small. We have identified, through our review of closed files, overpayments in only .2 per cent of cases.
Mr. Gilles Perron: I hope that you won't arrive at a figure of $380 and change like the Prime Minister did.
Mr. Desautels, while conducting your internal audits, were you able to identify or observe cases of interference by politicians in certain files?
Mr. Denis Desautels: Mr. Chairman, in our report, we identify several cases of political involvement, whether it be a ministerial decision, or even a process that was not in compliance with a departmental policy. We list these cases in our report. If you refer to exhibit 11.9, you will find several such examples.
Mr. Gilles Perron: Thank you.
The Chair: Thank you very much, Mr. Perron.
[English]
Mr. Shepherd, please. Eight minutes.
Mr. Alex Shepherd (Durham, Lib.): I'd like to get a clearer idea of what the performance tracking directorate is and how it operates. Presumably there are audit procedures they undertake. Maybe you could outline some of that to me. Maybe you could tell me how large that group is within your department. Then there is the competency of the people who are there—where have you hired them from? I presume they have an accounting background of some kind.
Furthermore, you listed a bunch of areas you are happy with. Can you tell us some you are not too happy with?
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Ms. Claire Morris: I will ask Alan Winberg to speak to the details of the operation of the performance tracking directorate. It is a group that has been constituted with the necessary expertise to provide us with a bird's-eye view on a continuing basis of how well we're meeting the kinds of requirements we've set out with respect to how our files, grants, and contributions will be managed. I'm confident it will keep us on absolutely the right path, as we move to reach the 100% level Mr. Braiter described.
You asked what I might be less happy with. I think we have all the basic elements in place. It will be a long steady haul to make sure it is fully integrated into how the department operates on an ongoing basis. I don't think I have reason to be unhappy about how any of it is proceeding. There's perhaps a certain impatience where obviously we'd like to get to a state of perfection sooner than we may be able to.
Mr. Alex Shepherd: I'm alluding to the discipline that's involved. Presumably this group goes out and does some specific audit work and comes back with some results. It says some things are not adequate. Maybe you can follow through that for me.
Who then is in the position of taking corrective actions? Is there a follow-up routine within the department for corrective actions to be taken? How does all that work?
Ms. Claire Morris: Absolutely. Let me ask Mr. Winberg to walk you through the kind of process they use.
Mr. Alan Winberg (Assistant Deputy Minister, Financial and Administrative, Human Resources Development Canada): This is a brand-new group that is set up and situated within the finance and administrative sector of the department. It's separate from the program groups. We have developed a sampling methodology that is a rigorous financial audit process in which we pull a sample of files from all the various programs where contribution agreements are being conducted.
Then a rigorous checklist has been created against which the individuals, the professionals in this group, check specific files against compliance with the various program and financial requirements. In order to ensure we have an accurate checking going on when the files are received, they're done by two separate people in two separate parts of the performance tracking group. They each do an assessment of each file against each of the specific criteria.
We've broken up the process into the same types of activities as the internal audit we followed, as well as the audit work of the Auditor General, starting with the application, assessment of the application, production of the contract, undertaking of the monitoring, and evaluating at the end. Each of those is broken out as to what's to occur within the agreement.
Then each file is entered into a system that was developed to compute this, and on a continuous basis information is entered into this system. When an error is found or when there is an aspect of a file that is out of compliance, the officers who have done the review immediately contact the program people, either in the region where the file was being run or out of the headquarters branch where the file is being run, and they ask the person to look into that aspect of non-compliance.
If it's an issue where the person didn't know about it or the application isn't in the file, they go and are asked to correct that deficiency. It's a continuous undertaking of the audit and then feeding back the results so the same mistakes get corrected.
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The reports of the performance tracking group were
reviewed by the Auditor General, as was the sampling
methodology. In his report he pointed out that it was
an appropriate methodology.
He says at page 11-32:
That was for publication back in October. Since then we have issued a report in December. The methodology being used, the sampling methodology and the assessment methodology, is the methodology that was reviewed by the Auditor General, and it is being applied with rigour.
Mr. Alex Shepherd: You stated that when you find an error, it is corrected. Maybe I'm misunderstanding, but that would seem to fly in the face of the whole concept of sampling, because presumably you're saying, whoever made that error, or whatever group in your organization made that error, they're probably making the same error on a multiplicity of other files. So did I misunderstand you when you said they correct that error, or are they in fact.... Are you then expanding...?
Mr. Alan Winberg: It's a clearance process for the file review. This is a normal part of an audit or a tracking system like this. They receive the file, they find one or two aspects of non-compliance, they go and clear that with the people who produced the file.
Mr. Alex Shepherd: But you don't expand your sample once you discover—
Mr. Alan Winberg: No. Then that'll be tracked in the report. It will say they were out of compliance on that file for that aspect of the review.
In regard to generalizing the findings in the report of the directorate that was published with the December 19 progress report, there were four findings that were positive, that showed areas where compliance had significantly and measurably improved compared with the internal audit. Then there were another four areas where we were not meeting the level of compliance at the 90% rate. So specific areas for further improvement were identified. What happens in that case is that presentations are made by the director of this unit to the various program groups to explain to them the types of errors where they were finding this level of compliance had to improve. So there's a learning that goes on.
Also, the group is designed and set up to receive people on one-year assignments from the various program areas—I'm taking too long. The people come in for a one-year assignment, and they get fully trained on all the aspects of proper project management and contribution agreement management. So they've got the experience in this directorate, then they're back in the regions as a key source of advice to others on proper administrative and management procedure.
The Chair: Thank you, Mr. Winberg.
We're into the second round, so it'll be four minutes now. Mr. Pallister.
Mr. Brian Pallister (Portage—Lisgar, Canadian Alliance): Thank you, Mr. Chairman.
We don't hear any comments about an approval process, and I'm curious about that. When you talk about a performance tracking directorate, is it going to have under its auspices the responsibility of dealing with the screening of programs once the horse is out of the barn—too late to call, you know, close the gate? Is the process of dealing with the quality of the application itself going to change, or is that the same process?
Ms. Claire Morris: The whole point, Mr. Chairman, of the performance tracking directorate is to ensure that projects are being managed appropriately from start to finish, so that you do have the application, you do have the contribution agreement, wherever it gets approved, and to ensure that it's done appropriately, that you have the appropriate officers signing off, that you have the appropriate receipts coming in before payments are made. It's not designed to change the approval process. It's designed to monitor that in fact you are managing the matter according to the process for each one of those projects and programs.
Mr. Brian Pallister: Okay, thank you for that. So the approval process itself isn't going to change, just the way of dealing with follow-up and tracking, as fits the title of the responsibility. The approval process itself is not addressed in what you're referring to as a performance tracking function.
Ms. Claire Morris: Perhaps to use an example that might help clarify, if it's a targeted wage subsidy that can be approved by the officer, then it's to ensure that the officer has duly approved the targeted wage subsidy. If it's another kind of program that has to go to headquarters for approval, it's to ensure that it has gone to headquarters and does receive that approval. So it's not designed to change the process; it's designed to ensure that the process is managed appropriately.
• 1625
Mr. Brian Pallister: So the criteria for various programs will not change, the delivery mechanism for dealing with them won't change specifically, and the actual application process will remain the same. The criteria will still be evaluated by field officers in most cases—or will there be stiffer criteria for approval of programs now than there were in the past?
Ms. Claire Morris: To clarify again, the role of the performance tracking directorate is very specific, lodged in finance and administration, to make sure that all the proper financial controls and management controls are in place.
Mr. Brian Pallister: Right.
Ms. Claire Morris: The review you're referring to is one we've undertaken and we call the program management initiative, which is designed to review every one of our grant and contribution programs to ensure that the objectives are clear, the eligibility criteria are clear, the approval process is clear and appropriate, and to ensure that we know what the intended results are and how we will measure those results.
So that's another exercise that's going on, above and beyond the six-point action plan, a fundamental look at our programs.
Mr. Brian Pallister: To be clear, that's an exercise that's under way right now.
Ms. Claire Morris: Yes.
Mr. Brian Pallister: There are no specific changes you could announce today or refer to in respect of dealing with these things? There are, for example, well-publicized concerns about political influence upon the delivery of some programs. There's no specific action, dedicated action, or change in process, or anything to address that? There will still be the widespread perception, I suppose, unaddressed as of this date, that political influence could play a role in the criteria for programs being delivered.
Ms. Claire Morris: As you may recall, Mr. Chairman, that was one of the issues raised by this standing committee last year. The minister and the department, in their response to the standing committee, sought its advice with respect to the issue of the appropriate involvement of members of Parliament in the giving of advice or approval regarding these projects.
The Chair: Thank you, Mr. Pallister.
[Translation]
You have four minutes, Mr. Perron.
Mr. Gilles Perron: Sometimes, we're left with the impression that the criteria, standards and rules in the case of program X are not interpreted uniformly in various regions of Canada. It may be only an impression, but the feeling is nonetheless real. Some regions are more, or less, rigid than others.
Do you currently have in place a system to advise your people who work with these programs all day long as to how they should standardize program interpretation? Do you also have some way of verifying whether these individuals are interpreting or delivering programs in the same manner?
Ms. Claire Morris: Mr. Chairman, as I indicated in response to an earlier question, we weighed our decision to make program information available on the web very carefully.
Mr. Gilles Perron: I'm talking about your employees, the people who deliver the programs.
Ms. Claire Morris: I understand that, but let me assure you that the information imparted to Canadians is the same across the country, given that it is posted on our web site. Our employees have also been given information kits on our programs which they in turn share with their community and Member of Parliament.
We recognized that there was a problem. We accepted the comments and criticisms of the AG who claimed we did not deliver our information in a uniform manner. The department is making a continuing effort to ensure that all of our people receive the same information, delivered in the same way.
• 1630
Mr. Gilles Perron: I would assume that you have your own audit procedures in place. Am I correct?
Ms. Claire Morris: Yes, you are. We operate within our management framework. Ours is a very large department with 25,000 employees across the country. We work within this framework to ensure that information is properly disseminated and delivered in the same way to everyone. Written directive have been issued, as have policy interpretations. Operational files were developed for employees as our Action Plan was implemented. This work is ongoing in the department.
Mr. Gilles Perron: Thank you, Madam. Thank you as well, Mr. Chairman.
The Chair: Thank you very much.
[English]
Mr. Harb, please, for four minutes.
Mr. Mac Harb (Ottawa Centre, Lib.): Thank you very much, Ms. Morris.
Immediately after the crisis occurred, I arranged for a meeting of organizations and not-for-profit groups that deal with Human Resources Development Canada. I frankly wanted to know firsthand what some of the problems and challenges are. One thing that came out unanimously, from everyone who was attending, was that Human Resources does outstanding quality work and provides quality services in the community, but they don't talk much about it. Not everybody knows what you do; you don't talk enough about it.
The second thing that came out was that Human Resources personnel are very much overworked; the workload is horrendous. They felt that certainly there is a need to have a lot more resource officers, whether working on files or out in communities. That was pretty well unanimous.
Back in October, I think you had some sort of discussion with the Auditor General, as well as with Treasury Board, about doing a study of the workload that exists. I, and I'm sure my colleagues, would be interested in the outcome of that. As well, what are you planning to do to reach out in the community so that, as my colleague Mr. Mayfield has outlined, more people will know about the services that Human Resources offers in the community and the different programs that are available? Do you have any action plan in place?
Ms. Claire Morris: In regard to your first question, we did undertake to do a capacity study, as I mentioned in my remarks. One of the very early things we did was to make an internal reallocation of some $50 million so that in fact we could provide those resources out across the country that were needed to provide the kind of oversight, supervision, and advice that workers at the front line need in managing some of these programs.
So we made that internal reallocation and undertook the capacity exercise with Treasury Board. That won't be finished until a couple of months from now, probably May or June, but that's very much looking at what's needed across the country and in headquarters to deliver our vast range of programs. We will be reporting on that, not in this next progress report but in the subsequent one.
On the issue of information to communities, again I've mentioned putting up the website and all the information about our programs, and providing consistent information from our staff in terms of meeting with community members or with local members of Parliament to explain the programs we have available.
There are a number of initiatives that we would like to encourage in terms of some more local publicity—that's the word that comes to mind—of the kinds of projects we are involved in, being able to do things like open houses, where we invite the community in to see our work. The difficulty is having enough capacity to be able to do that, but it's one of the concerns we will be addressing as the peak of the workload starts to adjust a bit.
• 1635
The Chair: Thank you, Mr. Harb.
Mr. Mayfield.
Mr. Philip Mayfield: Thank you very much, Mr. Chair.
I'd like to ask the deputy minister a specific question about the internal audits again.
Can you describe what resources in your department are devoted to the internal audit? This seems to be a fairly significant issue as I read the report here, of knowing what's going on in your department. What resources are devoted to that?
Ms. Claire Morris: Again, the internal audit shop is in Mr. Winberg's division, and I'll get him to describe it to you in detail. But I do want to say that in addition to having a very competently staffed internal audit bureau that does a lot of work throughout the department, we also have an internal audit and evaluation committee, which is chaired by the associate deputy minister, so it is chaired at the highest levels of the organization. We have introduced significantly more vigour into the process.
Mr. Philip Mayfield: To clarify, with the associate deputy minister chairing that committee, does that mean that official is responsible for internal audits?
Ms. Claire Morris: The way the internal audit process works, the auditor completes the report on the particular program area under review. That audit comes to the internal audit and evaluation committee, on which most of the senior ADMs sit. The program ADM responsible for the program area on which the audit was done is responsible for preparing the management response and the corrective plan of action to deal with the findings of the audit.
Mr. Philip Mayfield: So that's the key person in the internal audit process. Is that correct?
Ms. Claire Morris: When the audit is completed, it has to be the program manager, the program ADM, who is responsible for ensuring that action is taken to correct the problems that have been identified. That's the whole purpose of internal audit.
Mr. Philip Mayfield: So it's not as though there's someone like the Auditor General of Canada who you can look to and say there's the person in HRDC who knows what's going on and directs the whole audit process. Is that what you're saying?
Ms. Claire Morris: No, I want to clarify the difference. Our director general of audit is responsible for the audit process, but he's not responsible for fixing the problems he identifies, much like the Auditor General isn't responsible for fixing ours—I am. It's the same principle that applies internally in the organization.
Mr. Philip Mayfield: Okay.
Ms. Claire Morris: Maybe Alan could add some detail about the unit.
Mr. Alan Winberg: I have a couple of points.
First, there are 35 professionals in the internal audit unit, undertaking the internal audit. In addition, there's a separate unit of five people that is set up within our finance and administrative service. They're called the internal control group. Part of their responsibility is to ensure that the findings of the audit are responded to by the manager, and then they systematically track the implementation of those recommendations. This is a change we made during the course of the past year.
Secondly, these reports go to the departmental audit and evaluation committee, at which a very rigorous process of follow-up has been instituted. Also, the Auditor General observes the meetings of our audit evaluation committee and can provide advice or comment on any of the issues raised.
Mr. Philip Mayfield: How does word get from the audit group to the deputy minister? Who is accountable to the deputy minister in that?
Ms. Claire Morris: Because the associate deputy minister chairs the audit and evaluation committee, and Mr. Winberg and Mr. Braiter are on the committee, a large part of my management team is on the committee, so there are not many issues that don't come to my attention.
Mr. Philip Mayfield: Many issues do not come to your attention?
Ms. Claire Morris: No, I said there are not many. Any audit that requires departmental action will come to my attention.
Mr. Philip Mayfield: Okay.
The next question is—
The Chair: Just a second. The Auditor General has a point to make.
• 1640
Mr. Philip Mayfield: I'm sorry, I thought you were cutting me off.
The Chair: No.
Mr. Denis Desautels: Mr. Chairman, I'm quite happy Mr. Mayfield is raising the issue of internal auditing, because it's a subject this committee is interested in beyond just the Department of Human Resources Development.
If I may, I think it's quite important that within an organization there be such a thing as a what you might call an audit committee that oversees the level of activity done by the internal audit group. I think that raises the profile of internal auditing within the organization. If you have an active committee, then you have a better chance of seeing the recommendations of the internal auditors implemented a lot faster than has been the case before now, as you noted in your earlier intervention. So I think it's important to raise the profile of internal auditing through this kind of high-profile committee.
At the same time, of course, you have to respect certain principles of internal auditing, and make sure the internal auditors do have sufficient independence to actually choose, over time, what they audit and how they report that. I think Treasury Board has recently issued a new policy on internal auditing across government that this committee wants to discuss in the very near future. I think what's being done at HRDC is quite consistent with this new policy, and hopefully it will, over time, result in the right issues being looked at on the one hand, and, on the other hand, the recommendations of the internal auditors being implemented a lot more quickly than they have in the past.
The Chair: Do you have a final question?
Mr. Philip Mayfield: Yes.
Picking up on where you left off, I think you've described yourself as the one who, once the problem is identified, is responsible for seeing that it's dealt with. The last question I want to ask before the chairman takes it away from me is, does the deputy minister indeed follow up to make sure the recommendations of the internal auditors are complied with, are followed through? Is there a sense of real motivation that you're going to get on this?
Ms. Claire Morris: Absolutely, Mr. Chairman. I think the kind of action that we've taken subsequent to our internal audit last January—which the Auditor General did comment on when he did his audit—is proof of the kind of action we have taken and will take with respect to any internal audit.
Mr. Philip Mayfield: And that's your responsibility as the deputy minister?
Ms. Claire Morris: Yes, it is.
Mr. Philip Mayfield: Okay, that's what I wanted to ask. Thank you.
The Chair: Thank you, Mr. Mayfield.
Mr. Bertrand, please.
[Translation]
Mr. Robert Bertrand (Pontiac—Gatineau—Labelle, Lib.): Thank you very much, Mr. Chairman. My question is for Ms. Morris.
When the tracking group discovers an overpayment—I know you talked about this earlier—what happens to the file?
Ms. Claire Morris: It is standard procedure for the project sponsor to be advised that an overpayment has been identified. The method of repayment is then negotiated.
Mr. Robert Bertrand: What happens—and I'm throwing this out there—if expenses have indeed been incurred, but that unfortunately, certain supporting documents are missing?
Ms. Claire Morris: We also give the project sponsor time to produce these documents. I should have made it clear that if a project file is still active, we have ways of withholding contributions still owing. There is no need to identify an overpayment as such. We simply withhold a portion of future contributions. However, if a project file is closed, then arrangements are made to recover the overpayment. If the sponsor cannot produce the supporting documents, we have no choice but to take action to recover the funds.
Mr. Robert Bertrand: Suppose the statistics in the report that is scheduled to be released in two or three months...
• 1645
Ms. Claire Morris: Statistics on closed project files.
Mr. Robert Bertrand: Strictly those files that are closed?
Ms. Claire Morris: The report to be released deals only with closed files.
Mr. Robert Bertrand: I may be mistaken, and I hope I am. Perhaps overpayments made in the vast majority of cases, but in most instances, there must be a valid reason for it. I'm trying to think what this reason could possibly be. I would assume that out of 100 cases, in at least 50, the overpayment can be justified. Are these figures off?
Ms. Claire Morris: No. Certainly there are cases where the overpayment can be justified. Generally speaking, however, sponsors should be able to provide supporting documents to justify the overpayment.
Mr. Robert Bertrand: I have one final brief question.
Of all of the files that you reviewed, what was the largest overpayment identified? In the vast majority of cases, what reason was cited most often for the overpayment?
Ms. Claire Morris: Most often, overpayments occur because contract clauses or requirements were not respected. The following example is perhaps the best illustration I can give you. If a sponsor made a commitment to create a certain number of jobs and could not follow through, whereas the contribution he received was a function of the promised number, then he ends up with an overpayment.
Mr. Robert Bertrand: If the sponsor requests funds to create 30 jobs, but ultimately only creates 15, even though he knows that in two or three months, when circumstances evolve, he will create all the promised jobs, is this something you take into consideration when deciding that an overpayment has occurred?
Ms. Claire Morris: Yes, we do take this into consideration. In order to meet requirements and expectations, we need to amend the contract and acknowledge that although our contract with the sponsor runs until May, he will not be able to create these jobs until September. The contract terms must be amended accordingly. I admit that this is one area in which the AG identified some shortcomings. In some instances, arrangements were made to give the project sponsor a three-month extension, but the terms of the contract were not amended.
Mr. Robert Bertrand: That's a very good reason for having...
The Chair: Thank you very much, Mr. Bertrand.
[English]
Mr. Pallister, please.
Mr. Brian Pallister: Going back to the start of the thing, as long as there's a public perception that there's political favouritism in the delivery of some of your programs, do you see a concern for the legitimate aspects of the vast majority of your programs? Do you accept the point that this is an issue of contention that should be addressed?
Ms. Claire Morris: As I indicated earlier, Mr. Chairman, it was an issue that was raised on several occasions at the Standing Committee on Human Resources Development. I think it's fair to say there was a variety of opinions expressed about what the legitimate role was for members of Parliament to play in programs in which there is some political involvement.
Mr. Brian Pallister: With due respect, I'm just asking you for your view. I'm asking you if you see it as a concern that should be addressed.
Ms. Claire Morris: In turning it back to the committee, I think the minister has asked for advice.
Mr. Brian Pallister: What's your take on the advice you received? You're reporting to me a summary of the advice you received, but what was your take on it? Do you see it as a concern to be addressed?
Ms. Claire Morris: I think it's a legitimate question to be addressed.
• 1650
Mr. Brian Pallister: Isn't the approval process an internal control? I want to make sure I'm using my language properly because you mentioned earlier the urgency of addressing issues of internal control and talked about dedicating $50 million, I believe, to that task of improving internal control. Isn't the approval process itself, the start of the program, part of internal control? I just want to be clear on that.
Ms. Claire Morris: Let me separate it out, and let's perhaps use the transitional job fund as an example of a program which, as you know, has been terminated, and its successor is also closed as of the minister's announcement last summer.
That was a program where, as a very conscious, deliberate feature of the program design, members of Parliament across the country in all ridings would be consulted on the value of that particular project to their community. That was done out of a recognition that members of Parliament know their communities well and know which projects can have a beneficial influence on their community. I believe that's a history—
The Chair: I wonder if I could interject there. Mr. Pallister is new, but I don't recall being consulted. Were you consulted, Mr. Mayfield? You were? Okay.
Mr. Philip Mayfield: At one point I was told the project wouldn't go forward unless I gave my approval.
The Chair: The reason I interjected, Mr. Pallister, is because you weren't in the previous Parliament at the time. My apologies for interjecting.
Mr. Brian Pallister: I have a basic understanding of the fact that MPs were involved in determining which projects went ahead. I understand there must have been other criteria as well at work—
Ms. Claire Morris: Absolutely. That's only one piece of the entire process, provincial concurrence.
Mr. Brian Pallister: Some people would argue that bizarre projects came forward anyway, in spite of the advice of MPs. What I'm asking is, do you not see any changes forthcoming? You've talked about a review. I think my concern is that, as long as there is a public questioning—quite legitimately supported by facts, I think—of the criteria or the validity of programs at entry point, then all the questions about evaluation will be secondary in the minds of many Canadians, and they will pay short shrift to programs which may be very worthwhile and no doubt are in most cases. This is why I'm asking to what degree are these issues going to be addressed. I'd like not just a summary of advice you've received, but what, besides a specific review or discussion, is planned?
Ms. Claire Morris: I think to be absolutely clear, we are talking about the full range of grants and contributions programs. The Transitional Jobs Fund and Canada Jobs Fund, neither of which exists any more, had a clear role for the member of Parliament. The only other program where there is involvement is the summer student employment program. I understand there's a very long tradition of that. Obviously none of the other programs—the grants to the agencies for the disabled, the grants to a variety of voluntary sector organizations, all of our statutory programs—does either. It's not a major issue, in our view.
Mr. Brian Pallister: It's not a problem now. I just want you to say that: it's not a problem any more.
Ms. Claire Morris: I'm saying that the program in which the major involvement existed is no longer one of our programs.
Mr. Brian Pallister: Right.
The Chair: Okay. Mr. Murphy, please.
Mr. Shawn Murphy (Hillsborough, Lib.): My first question is to the deputy. Madam Deputy, when the government embarks on a new program, such as the Transitional Jobs Fund, is there a document prepared, or a policy statement that parliamentarians can get their hands on, that sets out the policy objectives, what is attempted to be accomplished, the goals, and the results as time goes on so that when you're in a hearing like this you can look back three or four years after the fact to see whether you're on or off track? Without getting into the actual details of every grant or every contribution, can you see whether or not the whole program is totally off the rails or you're accomplishing what you intended to accomplish in the department? Is there such a document that the parliamentarians and the public can access?
• 1655
Ms. Claire Morris: Well, let me try to answer that, Mr. Chairman, in a couple of different ways.
First, it's my understanding, as I recall, that last year we provided the Standing Committee on Human Resources with all of the material that was made available to the public and to the parliamentarians at the time the Transitional Jobs Fund was introduced. And we're going back now to 1996.
We did hear and accepted that there were legitimate criticisms that the information wasn't necessarily uniformly distributed across the country or uniformly interpreted across the country, and that's why we moved in the direction, as I said earlier, of putting that basic program information up on a website so that it's available to every single Canadian and providing the same information in kits that have gone to members of Parliament.
We are in the process of working with the Treasury Board, and by December 2002 Treasury Board will have reviewed the terms and conditions for every single one of our grants and contributions programs. In order to get to that point, we have to be able to articulate very clearly the objective of each program, the eligibility criteria, the results anticipated, and how you measure those results. We have a huge range of grants and contributions programs, so it's a large exercise, and at the end of the day that will all be publicly available.
Mr. Shawn Murphy: Okay. My second question is to the auditor. This audit, which got a lot of public publicity, started a year and a half ago. I believe it was in January 2000. Your initial report, Mr. Auditor, detailed a lot of examples where proper administrative or financial procedures weren't followed.
My question to you is in general terms. I realize auditors don't like talking in general terms, but by and large, do you feel the problems are behind us now?
Mr. Denis Desautels: Mr. Chairman, this report that we produced is a continuation of a longer episode. When you refer to January 2000, this was basically around the time when the internal audit was made public, and that generated a lot of the discussion. Our audit started some time after that, and of course we reported in October.
Where does that leave us at this point in time? We've reported, I think in a fairly clear way, that the department is making good progress, is sticking to its plans, and if they stick to their plans eventually they will wrestle the beast, so to speak.
We cannot say at this point in time that this is the case. We have indicated to the committee that we are planning to go back to do a follow-up for reporting back to Parliament in December 2001 as part of a series of chapters, in fact, on other grants and contribution programs.
So we will be coming back to that issue later in 2001, and I think we should be able to start seeing at that stage how far down the road we are in terms of dealing with the issue.
If I recall correctly, the department, when it tabled its six-point plan in early 2000, had a three-year schedule for full implementation of its six-point program. So a three-year implementation will take you into early 2003 or late 2002.
• 1700
So that's where we are in terms of being in a
situation where these procedures are regular, rather
than one-shot efforts to deal with a crisis. I believe
we're looking at some time towards the end of 2002
before it's completely done.
I won't be around to do that, but our office will want
to look at it again at that point, and will hopefully
bring as much closure as it can to this whole episode.
Mr. Shawn Murphy: Thank you, Mr. Chair.
The Chair: Thank you, Mr. Murphy.
Mr. Mayfield, please.
Mr. Philip Mayfield: Thank you very much.
Mr. Chairman, last time I began by asking the deputy minister to describe the resources of the internal audits. In the Auditor General's report, paragraph 11-25, he mentions that as part of the cutbacks started in 1995, internal audit resources were reduced from 54 full-time-equivalent staff in 1994-1995 to 33 in 1999-2000.
Deputy Minister, if my memory serves me, I think you mentioned there are 35 now.
Ms. Claire Morris: Yes.
Mr. Philip Mayfield: With the size of the cutbacks there, I'm wondering if you have the resources you need to adequately fulfil the internal audit requirements. I'm certainly not suggesting you should have more, but I'm asking whether this is an adequate resource for you.
Ms. Claire Morris: This is an issue that Treasury Board is actively discussing as part of its new internal audit policy. There is a very legitimate concern that audit resources have been depleted. But there's a corresponding concern for balance: you can add auditors, but you also need to add the resources to manage programs correctly. You want to get the balance right. That's why we made the commitment we did in terms of reallocating our internal resources and getting them out into our offices.
I suspect we will see an increase in those resources over the next two or three years.
Mr. Philip Mayfield: You've alluded to my next question. The Auditor General also advised that there needs to be a fundamental change in the attitude of departmental staff toward internal controls. Do you agree with that statement? If you do agree, what are you planning to do to effect this change? What initiatives are in progress?
Ms. Claire Morris: Yes, we do agree with the Auditor General's observations.
I want to go back to the point made earlier. In our department, people pride themselves on delivering good services to the client and to the communities. They do so in exceptional ways.
Mr. Philip Mayfield: From a local point of view, I can agree with you. I thank you for that.
Ms. Claire Morris: Thank you.
The challenge we have is getting the balance right—making sure we still have that wonderful responsive service delivery to Canadians, but also the financial accountability I think Canadians are looking for.
So this is a road we're going to have to travel together, but I'm absolutely convinced we'll succeed. We've put a modern controllership program in our department, to which we've now exposed almost 800 people. Those people are getting this consistent controllership program, and learning how accountability goes side by side with quality service delivery.
We have to continue providing staff with that kind of support and training. But there's no doubt in my mind that our staff understand. We will get there as a department, and they respect that.
• 1705
Mr. Philip Mayfield: Can you assure the committee that every staff member understands the fundamental aspects of control in the same way?
Ms. Claire Morris: Last year we began exposing 3,000 people across the organization to the fundamentals of financial control and financial management. We have this two-day modern controllership program, which is being delivered across the whole department.
Again, we don't want the pendulum always swinging to control and not to service. The challenge is finding the balance between the two.
Mr. Philip Mayfield: Thank you very much.
The Chair: Thank you, Mr. Mayfield.
Mr. Shepherd.
Mr. Alex Shepherd: I have just a quick question to Mr. Desautels. Ms. Morris made the statement that some forms of overpayment are justifiable. Do you subscribe to that?
Mr. Denis Desautels: Well, Mr. Chairman, we've had a lot of discussions with the department on the question of overpayments. As I think I've said before, we have adopted a broader interpretation of “overpayment” than the department, and the government in general. I understand that overpayments can occur, and whenever they do an effort should be made immediately to correct the situation. If it cannot be corrected, then the overpayment should be recovered.
I remember conducting audits of the EI program, where you make decisions quickly because you want to provide speed of service. It's only afterwards, when you do your post-audit, that you determine if there's been an overpayment. As far as I'm concerned, your obligation at that point is to see that the situation is corrected. If there is indeed a true overpayment at the end of the day, it should be recovered.
Mr. Alex Shepherd: Why—to justify them?
Mr. Denis Desautels: Mr. Chairman, I don't think we can really justify an overpayment. By its very definition, an overpayment means that something has gone wrong. So I understand that they happen, but I think you have an obligation to take corrective action.
Mr. Alex Shepherd: Okay.
The Chair: Thank you, Mr. Shepherd.
[Translation]
Go ahead, Mr. Bertrand.
Mr. Robert Bertrand: Thank you very much, Mr. Chairman.
[English]
Ms. Morris, community groups have expressed their concern that the government will inevitably react by leaning more toward red tape than to effective service. Can you comment on the impact the last year has had on community groups across the country?
Ms. Claire Morris: It hasn't been an easy time for community groups. We are meeting with them on a regular basis to explain the requirements, and to try to identify their major difficulties in meeting those requirements. You understand that a lot of the community groups we deal with don't necessarily have a sophisticated administrative infrastructure, so ensuring that they can meet all our reporting requirements is sometimes difficult.
It's a problem we've shared with the Auditor General, and we've discussed how we can achieve the right kind of balance. Our partners have had a lot of patience with us. We're working to develop a system in which our requirements match the value of the investment. If we're talking about a relatively small project, then the accountability requirements ought to be commensurate. Similarly, if we have a large investment in a large project, then the requirements will be that much more sophisticated.
We're working actively with them. It wouldn't be truthful to say they're all totally happy today, but we will get there.
• 1710
Mr. Robert Bertrand: Have you noticed percentage-wise fewer demands or more demands as compared to last year? Are there more applications coming in now?
Ms. Claire Morris: We found applications have been much slower making their way through the process. I don't think there has been a significant change in the volume. They've been much slower getting through the mill, and that has been frustrating for the community groups.
The Chair: Thank you, Mr. Bertrand.
Mr. Pallister, please.
Mr. Brian Pallister: As part of your six-point action plan, you were planning on reviewing the closed files from the 1998-1999 and 1999-2000 fiscal years. Can you give us an update or progress report? Is that review completed?
Ms. Claire Morris: That's the review I referred to earlier of the dormant files. We have drawn a sample of some 561 files that are in the process of being reviewed. We're a little behind schedule. We expect to be able to report on them in our spring progress report, and we'll be doing so.
Mr. Brian Pallister: Have you identified any overpayments at this point in time?
Ms. Claire Morris: We've indicated a small amount to date. We're not completed. Approximately $430,000, which I mentioned earlier, represents 0.2% of the total value of the files looked at.
Mr. Brian Pallister: For the Auditor General, your comments—I can't find them here—were that a fundamental change in the attitude of staff was needed. What do you attribute the previous attitude to?
Mr. Denis Desautels: Mr. Chairman, I think the previous attitude was due in large part to some confusion and mixed signals. To make it a little clearer, there was a lot of pressure on people to provide fast service to the clientele of HRDC. There was not enough emphasis put on still respecting some basic rules and some of the requirements of the Financial Administration Act, so there was an imbalance that developed over a number of years. There was indeed some confusion as to how you should balance the past service while respecting minimum standards of administration.
The Chair: Thank you, Mr. Pallister.
You have a short question, Mr. Mayfield?
Mr. Philip Mayfield: I do. Thank you, Mr. Chairman, and then I'd like to turn it over and listen to your questions.
As things were sorting themselves out in the critical period, there were partnerships. Some of those partnerships had oral agreements and some of those oral agreements were backed up with letters.
We talk about overpayments. In fact in some of those partnerships the partners spent their money, but HRDC money that had been promised did not come through. The money was spent by the local community group, but the HRDC money never came through and the project kind of failed.
What responsibility does the department have in situations like that, where there was an understanding, an agreement, but it never came to completion?
Ms. Claire Morris: Mr. Chairman, the Auditor General referred to this in his report. In those cases where we did make verbal commitments to sponsors, where we perhaps didn't amend the formal agreement in the way we should have but we did make a commitment to the sponsor, then we were obliged to honour that and we did. I think that's the discussion we've been having about what constitutes an overpayment. If a commitment had been made by our people, we did honour it.
Mr. Philip Mayfield: Thank you, Mr. Chairman.
The Chair: Thank you, Mr. Mayfield.
There was quite an indictment by the Auditor General, Ms. Morris. I note in your own comments you basically talk about your significant and measurable improvements. You give the examples from 23% up to 97% monitored for compliance, and so on. We're certainly glad to see there has been significant improvement and dismayed to find out how bad things were beforehand.
• 1715
How long have you been the Deputy Minister of HRDC?
Ms. Claire Morris: Since mid-February 1999.
The Chair: In 1999 the Auditor General reported on the TAGS program that there was little assurance of the contributions being used for their intended purpose. When you arrived there was a 1998 internal audit report on TAGS indicating serious deficiencies. And then with the 1999 report—of course everybody is fully aware of that—I'm concerned about lack of action on that issue.
With the Strong report coming out with at-risk pay, are you receiving at-risk pay?
Ms. Claire Morris: First, Mr. Chairman, perhaps I could clarify in terms of the timing of the audit.
It was in fact the 1998 audit of the Atlantic groundfish strategy that led to the identification of the need to do the broader audit on grants and contributions. So it was initiated at that time in 1998. It came to fruition the next year. That's just to clarify the timelines.
On the issue of pay at risk...no.
The Chair: Thank you.
I look at the table on exhibit 11.11 of the Auditor General's report, on page 11-49. If there was ever an example of March madness, I think that is it, where in the month of March the expenditures went up almost ten times the monthly going expenditures. People say that March madness is nothing to be that concerned about, but how would you justify that in the month of March every year—or two years in a row—the expenditure multiplies by ten?
Ms. Claire Morris: Mr. Chairman, most frequently that would depend on the nature of the project being funded. Very often—and I'm not suggesting this is necessarily the way it should be—people are cautious up until the third quarter, until they can really assess what the pressures are going to be. Then when things look reasonably stable, there will be the payments made before the end of the fiscal year.
The Chair: So it's dry season until the last quarter and then the floodgates open.
Mr. Desautels, did you find any March madness scenarios when you were doing the audit?
Mr. Denis Desautels: I'll ask Mr. Moenting to respond to that, Mr. Chairman.
Mr. Henno Moenting (Principal, Audit Operations, Office of the Auditor General of Canada): I think the basic reason is correct, that managers are necessarily cautious. They get a lot of applications in. If they approve them all when they receive them, then the money is gone well before the end of the year.
The Chair: But surely then—
Mr. Henno Moenting: What we found was that this pattern occurred, Mr. Chairman, in other programs as well. Exhibit 11.17, for example, shows pretty much the same thing occurring in the case of the Youth Internship Canada program.
The Chair: But I thought that we were approving programs according to criteria, not according to the attitude of we've got some money to spend, so let's blow it. Worthwhile projects coming in the spring and summer would be denied. They're not going to wait for six or nine months. They're going to think they didn't get the money. So this is really March madness, isn't it?
Mr. Henno Moenting: I think that's something the department should address, Mr. Chairman.
The Chair: Why would you deny a legitimate application in June, July, and August, but approve that—or be even more lenient—in January, February, and March?
Ms. Claire Morris: Mr. Chairman, let me suggest—I'll ask Alan Winberg to give you a little more detail on that—there are any number of reasons. I've given you one—
The Chair: Yes.
Ms. Claire Morris: —as to why payments might be made at the end of the fiscal year. I know managers are very cautious about the money that's allocated to them.
The Chair: But my point, Ms. Morris, is that when they're cautious they're likely denying legitimate applications. When they're not cautious they're saying this meets the criteria, so let it go. But I would have thought that applications were based on merit: if they don't meet the criteria, they're denied; if they do meet the criteria, they are funded. Ten times in the month of March seems rather hard to justify.
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Mr. Alan Winberg: The two charts we're looking at are about payments, not about the acceptance or non-acceptance of an application.
The Chair: I appreciate that.
Mr. Alan Winberg: The most common reason why there is additional expenditure in the fourth quarter, or during the month of March the way it shows on this, is that agreements that are signed during the course of the year are made to terminate on March 31; that's when the final payments get made simply as a matter of convenience and good management within the accounting systems of the government in which the funds are made available until March 31.
Even if they're entering into a project that they expect will take nine months to complete, they may make it a twelve-month project, and have the project end on March 31. And the final accounting for the project would take place and be charged against March.
The Chair: That's a stretch of my imagination, Mr. Winberg, because the way these files were being monitored, I'm not exactly sure.
Ms. Barrados, you want to make a comment.
Ms. Maria Barrados (Assistant Auditor General of Canada): I want to add a comment.
We put these charts in the report to indicate some of the concerns we had about how the department was managing these projects and their approach to financial management. As noted throughout the text, when we looked at the particular projects we had difficulties we raised with how they were making their payments, how they were putting in the cashflows for the projects. They were often not there. We would expect that these things are in place and then a regular payment pattern occurs.
What this says is that there were weaknesses in financial management. I think the department recognizes that, and these things we would expect to see corrected.
I would expect in some circumstances you could see things at year-end if projects end at year-end, but not this kind of peaking.
The Chair: On a different issue, Mr. Desautels, the government's had a longstanding policy that grants aren't to be audited. Based on what we have seen here earlier and the number of police investigations that emanated from this audit and so on, do you think the government should be changing their policy to ensure that governments have the right, not necessarily to audit all grants, because old age security is a grant and so on, but to...?
I read in the paper today that there's a grant of $1.3 million going to book publishers because the returns from Chapters Books are going to stress the cashflow of the book publishers, so the government's now saying $1.3 million.
On a general basis and as a general comment, don't you think the government should reserve to itself the right to audit grants?
Mr. Denis Desautels: Mr. Chairman, I think we have to distinguish between grants and contributions. I think it's a technical distinction.
The Chair: And I did say “grants”.
Mr. Denis Desautels: Right, and what we're talking about in this chapter are really contributions.
I think we agree that the government should reserve the right to audit contributions. It's its right to lay out the conditions of the contributions, so it would be quite legitimate for the government to maintain that right.
In terms of grants, some grants sometimes can be pretty big. When they get to that size where you have a problem, or some concern that you would want to maybe audit the grant, I think you should stop calling it a grant and you should call it a contribution and lay out more specific, more stringent terms and conditions.
The Chair: Okay.
Bells are ringing.
We'll have a quick wrap-up comment by you, Mr. Desautels, and we will adjourn the meeting.
Mr. Denis Desautels: Thank you, Mr. Chairman.
I think we're satisfied, Mr. Chairman, that there is a process in place in the department and certain timelines around that process to eventually bring closure to this particular episode. That is, at some time down the road the extraordinary effort that's been shown in the last year will indeed become more routine and it will be part of the regular work of the department. We discussed that a little earlier.
We're satisfied there's been good progress made, but it will take some time yet before it's all done. We're looking at possibly a couple of more years before the six-point plan is in fact completely implemented.
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There are major issues still left to be dealt with, in
terms of capacity, changing how the work is done,
general changes in systems and processes. I think that
what's been done has basically made sure that no
problems occur, but I think there may be some
fundamental changes that still have to work their way
through the system.
So there is some important work to be done, including on risk management. Our office will come back to the committee, or to Parliament, later in 2001 with a follow-up review or audit, and I feel that the office should probably come back again when the whole six-point action plan has been completely implemented. This would be perhaps a couple of years after that.
The issues we've discussed, Mr. Chairman, also extend beyond HRDC, so the office will be conducting a government-wide review of grants and contributions and therefore sweep in a number of other departments. That will be coming back to the House later in 2001. I hope that all of this will help. I think the problems at HRDC have been well noted by people in other departments.
The Chair: I think so, yes.
Mr. Denis Desautels: I think it's raised the level of rigour in other departments as well. I think when the office comes back with those audits later in 2001, it will be an opportunity to take stock of how far the improvement has gone and how far they still have to go.
Thank you.
The Chair: Thank you very much, Mr. Desautels.
At 3:30 p.m. on Thursday, March 22, 2001, we shall be considering the report of the subcommittee on international financial reporting guidelines and standards for the public sector. In the meantime, this meeting stands adjourned.
