PACP Committee Report

HOUSE OF COMMONS OTTAWA, CANADA K1A 0A6

38^th Parliament, 1^st Session

The Standing Committee on Public Accounts has the honour to present its

SEVENTH REPORT

Pursuant to Standing Order 108(3)(g), the Committee has considered the Report on Plans and Priorities 2004, and the Report on Performance for the period ending 31 March 2004 of the Office of Auditor General of Canada and has agreed to report the following:

INTRODUCTION

The Main Estimates for fiscal year 2004-05 were initially tabled on 24 February 2004. Parliament, however, was prorogued prior to 31 May 2004, the deadline set for committees to report back to the House of Commons on the Estimates referred to them. As a result, the Main Estimates for 2004-05 were reintroduced in October 2004. The Government set a new deadline of 30 November for Committees to review the Estimates and report their conclusions back to the House.

The Standing Committee on Public Accounts has traditionally been a strong advocate of parliamentary review of departmental Estimates and has consistently held hearings and reported on the Estimates that are referred to it, those of the Office of the Auditor General of Canada. Accordingly, the Committee met with Mrs. Sheila Fraser, Auditor General of Canada, on 18 November 2004 to review the Estimates for her Office for 2004-05. Mrs. Fraser was accompanied by Mr. John Wiersema, Deputy Auditor General, Mr. Richard Smith, Assistant Auditor General, and Ms. Mary Clennett, Comptroller.

At that meeting, the Committee reviewed and approved the Estimates of the Office of the Auditor General for 2004-05 and reported them back to the House in its 4^th Report, tabled 22 November 2004. As part of its review of the Estimates, the Committee also took into consideration the 2004 Report on Plans and Priorities of the Office of the Auditor General and its Performance Report for the period ending 31 March 2004. As a consequence of its review, the Committee is convinced that the work of the Office remains crucial to the better management and performance of government, and that it provides excellent value for money. . This conclusion, however, serves to further reinforce several concerns that have unfortunately now become long-standing. These concerns involve the status of permanent funding for the operations of the Office, how and with whom that funding is established, and the implementation by the government of recommendations stemming from performance audits.

FUNDING THE OFFICE OF THE AUDITOR GENERAL

The Auditor General of Canada has extensive responsibilities in areas of vital importance to the government, Parliament, and people of Canada. The Office audits 70 federal departments, 40 Crown corporations, 10 departmental corporations, and 60 other entities. In addition, the Office has other duties which embrace organizations outside the scope of the federal government. These include audits of three Canadian territorial governments, the United Nations Educational, Scientific and Cultural Organization (UNESCO) and the International Civil Aviation Organization (ICAO).

The work done by the Office is widely recognized as yielding considerable value to a broad range of entities and individuals. Government departments, agencies, and Crown corporations receive the benefit of an objective external assessment performed by highly professional auditors. The recommendations of the Auditor General offer the opportunity to improve management practices and reduce costs – provided that the recommendations are accepted and properly implemented. Parliament and cabinet, meanwhile, are given insights on how programs and activities they have initiated are being delivered – and can be delivered better. And Canadians as a whole are able to better determine how their taxes are spent, how they could be spent more effectively and efficiently – and are given the assurance that the actions of departments and agencies are being monitored by an independent, credible external entity.

Over the years, the Office has worked diligently to strengthen its audit practices and to ensure that it remains non-partisan and focused on the delivery of government policy and not on policy itself. The result has been to endow the Office with the trust of Parliament and Canadians who recognize it as a source of reliable and thoroughly researched information, a truly remarkable achievement given the diverse audience for the Auditor General’s reports. This credibility is further enhanced by the international demand for the Office’s audit services and the 2003 peer review conducted by other national audit offices.

It is therefore very difficult to understand why, given the undisputed credibility and utility of the Office of the Auditor General two long-standing issues involving the funding of the Office have remained unresolved.

Concerns about the level of funding available to the Office were first brought to the Committee’s attention over four years ago. In his opening remarks at the Committee’s meeting of 2 May 2000 to discuss his Estimates, former Auditor General Denis Desautels testified that:

During the past year—and for the upcoming year—we have had to make some tough choices on what to audit, based on our available funds... We are becoming concerned that our current level of funding may not be sufficient to provide the level of service expected by Parliament in the medium and longer terms. We are currently reviewing our funding base and discussing its appropriateness with the Treasury Board Secretariat ^[1].

Approximately one year later, Mr. Desautels’ successor as Auditor General, Sheila Fraser, informed the Committee that the “Office now has significantly fewer resources available for value-for-money auditing than we did a decade ago.” ^[2] She testified that the Office had approached Treasury Board with a request for a permanent increase to its base budget. Rather than grant a permanent increase, Treasury Board provided a temporary one on condition that the Office work with Treasury Board Secretariat to develop a more appropriate funding mechanism by Fall 2002.

The target date for a new mechanism was not met. Treasury Board extended temporary funding through to fiscal year 2004-05 and provided additional funding for new work. With this temporary arrangement about to expire, the Office again approached Treasury Board Secretariat seeking $11.5 million in additional funding and a resolution of the funding mechanism by 31 December 2004. By the time the Committee met with the Auditor General on 18 November, neither request had been answered as a result of bureaucratic delay. The Committee is aware that the audit work of the Office must be planned in advance and that such planning is difficult in an atmosphere of uncertainty surrounding the availability of resources.

Subsequent to its meeting with the Auditor General, the request for an extension was granted. None-the-less, this problem should not have arisen, nor should it have been left so close to the commencement of a new fiscal year to resolve. Accordingly, the Committee strongly recommends:

RECOMMENDATION No. 1

That Treasury Board provide a permanent increase to the base budget of the Office of the Auditor General of Canada by an amount that enables the Office to fully perform all duties assigned to it by statute or as are required by Parliament, and that this increase be confirmed far enough in advance of the 2006-07 fiscal year so as to allow the Office to adequately plan its future audit agenda.

Discussions regarding a new funding mechanism have been prolonged far beyond what could be considered a reasonable time limit. Former Auditor General Denis Desautels brought this issue to Parliament’s attention four years ago when he wrote that:

At present, the Office's budget is negotiated with officials of the Treasury Board. Although this has not yet done any harm, I believe it is an uncomfortable arrangement. It could lead to unwarranted pressure on the Office and result in the withholding of necessary funds ^[3].

Mr. Desautels offered a solution. He pointed out that

The United Kingdom has a better system of funding that sets the audit office's budget by recommendation of an all-party committee of members of Parliament to the government. This puts the budgetary decision where it rightly belongs - with the members of Parliament to whom the Auditor General is responsible - rather than with public servants ^[4].

In June 2001, the Committee responded by recommending, in its 8^th Report (37^th Parliament, 1^st Session), that the funding arrangements for the Office of the Auditor General be reviewed by a standing committee of the House of Commons. The Government responded that the funding arrangements were subject to ongoing consultations between the Office of the Auditor General and Treasury Board Secretariat.

The Committee was therefore dismayed to learn, at its meeting in November 2004, that these consultations were still ongoing with no end in sight. The current Auditor General’s statement that the existing funding arrangement “is not sufficiently independent to ensure that our budget is appropriate for meeting Parliament’s expectations” (7:1540) was of profound concern to the Committee, as it should be for all parliamentarians and, indeed, for all Canadians. This matter must be brought to a satisfactory conclusion and soon. The Committee therefore also strongly recommends:

RECOMMENDATION No. 2

That a new funding mechanism be established for the Office of the Auditor General, prior to the end of October 2005, that safeguards the independence of the Office and ensures that it will be able to meet the expectations of Parliament.

Due to its longstanding and profound interest in this issue, the Committee also recommends:

RECOMMENDATION No. 3

That the new funding mechanism be referred to the House of Commons Standing Committee on Public Accounts for review and comment before the end of calendar year 2005 leaving sufficient time prior to its implementation for the Committee’s views to be taken into account and incorporated if warranted.

IMPLEMENTATION OF THE AUDITOR GENERAL'S RECOMMENDATIONS

The extent to which the Auditor General’s recommendations have been fully implemented is also of longstanding concern to the Committee. As it reviews the Reports of the Auditor General, the Committee pays close attention to the actions she recommends be taken in order to correct shortcomings in the management and delivery of programs and activities. These recommendations, which departments and agencies largely accept, have won the Committee’s firm endorsement; it expects that departmental commitments to implement these solutions will be honoured fully.

It is therefore troubling to learn, year after year, that the percentage of recommendations fully implemented has never risen above 50% since 2001 ^[5]. While the Committee acknowledges that changing circumstances may justify some of this variance between what departments have committed to do and what they have done, it cannot explain what amounts to a very poor response. It bears repeating: these are recommendations which the departments – who have the right to refuse to accept them – have agreed to themselves.

The Auditor General’s Office is currently examining this issue in order to discover why this implementation rate is low and what can be done to improve it. Nevertheless, it is not the Auditor General’s responsibility to ensure that her recommendations are fully implemented – it is the government’s. The Auditor General can, and does, regularly review her recommendations to ensure that they are free of ambiguity and are feasible. Her Office can, and does, do all it can to facilitate implementation. But at the end of the day it can only recommend. Having taken this carefully into consideration, the Committee recommends:

RECOMMENDATION No. 4

That Treasury Board Secretariat conduct a thorough review of departmental responses to recommendations made by the Auditor General of Canada in order to determine the reasons for the low levels of uptake and to ensure that departments fulfil commitments made in response to audit findings.

RECOMMENDATION No. 5

That Treasury Board Secretariat report the results of this review and the actions it plans to take as a consequence to the Standing Committee on Public Accounts no later than 31 December 2005.

CONCLUSION

The Committee, having reviewed the performance and plans of the Office of the Auditor General, is pleased to report that Parliament, Canadians, and their government receive enormous value from the work of the Office. Canada is fortunate to have a highly professional national audit office capable of performing and delivering timely audit services that can draw attention to problems and propose constructive solutions. It is without doubt that the work of the Office has saved government and the taxpayer that support it considerable sums of money, and has contributed to more efficient and effective government administration.

At the same time, the Committee is concerned that serious issues – absence of stable, appropriate funding, lack of a suitable funding mechanism, and the failure to fully implement corrective measures – pose a real threat to the effectiveness of the Office and its continuing ability to deliver value for taxpayers’ dollars. Furthermore, transparency and accountability are cornerstones of Canada’s democratic system – to the extent that the Office is a guarantor of the health of these two elements, its future is intimately tied with that of our democracy. Provided that these issues can be resolved and not be left to linger on indefinitely, Parliament and Canadians will be able to profit from the work of this highly regarded and vital institution.

Pursuant to Standing Order 109, the Committee requests that the government table a comprehensive response to this report.

A copy of the relevant Minutes of Proceedings (Meetings Nos. 7 and 17) is tabled.

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