[Recorded by Electronic Apparatus]
Tuesday, April 23, 1996
.1110 
[Translation]
The Chair: Welcome to the committee.
[English]
We're very fortunate today to have Mr. Bill Radburn, assistant auditor general, and Mr. Grant Wilson, principal, audit operations, and we're very keen to hear your insight, as you are chief inspectors of the public purse and I know you have wisdom to report to us today.
We'll proceed with your presentation.
Mr. Bill Radburn (Assistant Auditor General, Audit Operations, Office of the Auditor General of Canada): Madam Chair, thank you.
I have a brief opening statement that Grant Wilson and I will review. Basically we'll be touching upon the points you have in the handout and the slide material you have in the handout, with your permission, Madam Chair.
We are both pleased to be here to discuss the observations arising from the study reported as chapter 10 in the 1995 report of the Auditor General of Canada. The office's primary role is to serve Parliament. I mention this to emphasize the independent nature of our audits and studies.
We do this work to provide Parliament with objective information, advice, and assurance. Pursuant to the Standing Orders of the House of Commons, our reports are referred to the public accounts committee, but we welcome requests for information from other parliamentary committees, such as the government operations committee.
Today we'd like to provide you with the results of our recent study of crown corporations reported to Parliament under the Auditor General Act. It should be noted that this chapter actually consolidates the results of audit work we carry out on crown corporations under a different piece of legislation, the Financial Administration Act.
I will provide you with an overview of the crown corporations study, in particular the accountability framework for crown corporations and the results of our special examinations of crown corporations. Grant Wilson will also deal with two issues the committee may want to address; namely the performance reporting and planning, and governance.
With respect to the accountability framework, federal crown corporations are defined in part X of the Financial Administration Act as those corporations of which government holds 100% of the ownership interest. As of our reporting date last October, there were 48 parent crown corporations. There are a number of other entities used by government to deliver public policy objectives that are not crown corporations. These include other corporations of which the government holds 100% of the ownership, but these are referred to as departmental corporations, such as the Atomic Energy Control Board.
There are also four mixed and three joint enterprises of which the government holds less than 100% ownership. An example would be the North Portage Development Corporation. Of course there are other institutional forms, such as special operating agencies like the Passport Office and local authorities like the harbour commissions.
I should point out that this chapter does not address any of those other entities; it deals only with crown corporations governed by part X.
It should also be noted that, in our 1991 and 1995 reports, we noted the desirability for many of the provisions of part X of the Financial Administration Act, such as those related to management responsibility, accountability, and audit, to be applied to corporations that are exempt from the act.
Exempt corporations, such as the Canadian Wheat Board, the National Arts Centre, and the International Development Research Centre, carry out important commercial functions as well as public policy objectives and generally receive sizeable parliamentary appropriations. However, they are not subject to the corporate plan process, to reporting on performance, or to the requirement for periodic special examinations.
We continue to recommend that the status of all exempt crown corporations be clarified and, to the extent possible, brought into line with other crown corporations.
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The Financial Administration Act was amended in 1984 to establish an improved framework of control and accountability for crown corporations. We are of the view that the regime established by the act provides a means for corporations to act with an appropriate degree of independence, while at the same time providing for appropriate accountability to the board, to government and to Parliament.
The key features of the framework include planning and performance reporting provisions, a fairly rigorous audit regime, and a clear portrayal of rules and responsibilities.
From 1989 to 1995 we have reported five times to Parliament on accountability issues for crown corporations. We concluded in 1995 that a much improved situation exists today to that which prevailed prior to 1984 and that the framework for accountability, in our view, is a sound one. That is not to say that certain problems continue to persist.
With respect to special examination results, our study of crown corporation issues outlined the accountability framework governing parent federal crown corporations set out in part X of the Financial Administration Act and reported the results of 31 special examinations that our office had conducted over a five-year period.
Special examinations are a form of value-for-money audit that provide an objective and independent opinion to the board of directors of the crown corporation. In most cases - but not all - the audit report may also be transmitted by the auditor beyond the board to the responsible minister and even to Parliament, although referral to Parliament is rare.
The special examination report provides an opinion on whether there is reasonable assurance, in relation to the criteria used, that corporation assets are safeguarded and controlled, financial human and physical resources are managed economically and efficiently, and operations are carried out effectively.
All parent crown corporations listed in schedule III of the Financial Administration Act are subject to special examinations. Our office is the appointed auditor of many but not all crown corporations. The Financial Administration Act names the Auditor General as the auditor or joint auditor for those corporations that use public funds regularly and have a significant public policy role; for example, the Canada Mortgage and Housing Corporation, the Export Development Corporation, the Farm Credit Corporation, the Business Development Bank of Canada, or those that form a significant component of overall government activity. This structure enables the Auditor General to provide Parliament with an overview of the combined results of corporate issues and audits that we have conducted.
Although no individual special examination report warranted being brought to the attention of Parliament during this recent five-year cycle, collectively the second five-year cycle of special examinations raised concerns. In 80% of the active crown corporations we examined, one or more significant deficiencies were reported. Of greatest overall concern is that all these corporations had one or more deficiencies related to either corporate and strategic planning or performance measurement and reporting, or both.
With your permission, I will now call upon my colleague, Grant Wilson, to comment on the other two issues.
Mr. Grant Wilson (Principal, Audit Operations, Office of the Auditor General of Canada): Thank you, Madam Chairman. These types of deficiencies that Bill Radburn mentioned in performance reporting and planning have serious implications, because they indicate that many crown corporations are not able to conform to the key features of the accountability framework.
Many of these corporations do not have, for example, well articulated visions, values and goals; many do not have clearly expressed strategies to achieve their vision and mission; many do not know the extent to which they have achieved their objectives or they do not report adequately on these objectives and strategies to Parliament and government.
Without clear interpretations of mandates, measurable objectives, or adequate strategic planning to enable objectives to be met, the first part of the performance puzzle cannot be provided to Parliament. Further, where performance achieved in relation to objectives is neither measured nor reported, Parliament is less able to hold corporations accountable for their results.
We have suggested a number of ways to address these problems in our chapter. The process and structure called governance, used to direct and manage the affairs of the corporation with the objective of enhancing its value, can help address the problems, but it is only one step. Management, the board, government and Parliament all have to take a more active role in improving accountability and addressing the effectiveness issues identified.
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For instance, boards of directors can seek to clarify and interpret mandates in order to provide strategic direction to the corporation and provide corporate plans that clearly allow an assessment of performance. Boards of directors and management can explore the development of performance measures that would provide a meaningful indication of public policy results.
Government, through cabinet, Treasury Board and responsible ministers, can consider clarifying the extent of authority it delegates to the boards, distinguishing outcomes from delivery of public policy objectives from outcomes of business activities.
Parliament, through its committees, can consider helping corporations to clarify mandates when needed and review and use plans and performance information tabled by the minister.
This committee, Madam Chair, has taken a major step toward that end by considering this chapter in calling before it corporations for which it is responsible to question their performance, such as Canada Mortgage and Housing, Canada Post and the Mint. The committee may very well wish to consider recommending other committees take the same step.
Other steps include actions already commenced. For example, in 1993 the Auditor General initiated, as announced in the chapter reported in that year, an award for excellence in annual reporting by crown corporations to encourage better reporting through the provision of recognition for and examples of good performance reporting. I believe you have been provided a copy of the brochure relating to this award.
The Treasury Board, for example, has also indicated that in its consideration of corporate plans, it will place special emphasis on performance information. The crown corporations and privatization sectors of Treasury Board Secretariat and Finance are in the process presently of developing additional guidelines for corporate governance in crown corporations.
Finally, and this is not all, the office is considering what it can do to assist crown corporations in the development or expansion of performance indicators specific to each corporation.
Mr. Radburn: In conclusion, Madam Chair, while progress has been made in achieving improved accountability that was contemplated in amending the Financial Administration Act in 1984, our study identified suggestions to accelerate or improve accountability for crown corporations, especially in the area of performance measurement and reporting.
We would be pleased to answer any questions related to the study, Madam Chair.
The Chair: Thank you for a very thoughtful presentation. It's very helpful.
You mention in your presentation that in 80% of all crown corporations there are two major deficiencies common to most corporations: one, a deficiency in corporate and strategic planning; and a deficiency in performing measurement or reporting.
Since this committee - and I'm confident that I'm speaking on behalf of all our members - wants to be helpful in rectifying any deficiencies, in what way could this committee assist you to get your message to Parliament, the government and crown corporations to address and rectify some of these deficiencies?
Mr. Radburn: Madam Chair, in our study, particularly in exhibit 10.5, we've outlined the fact that there are many players in the chain of accountability, including Parliament, government, the boards of directors and management. With respect to Parliament and its committees, such as this one, we're suggesting that assistance might be provided in your meetings with your crown corporations by exploring the clarity of the objectives and discussing with them the best measures that could be used to have them report to you whether or not those objectives are being met.
This seems to be a problem that we have found, as we have indicated in the report, in most of the corporations. The fact that it is so prevalent through most of the corporations I think is an indication of how difficult it is to do exactly what the act requires.
The Chair: Without putting you on the spot here, would a report from this committee be helpful, and have you identified legislative changes that are needed?
Mr. Radburn: We think a lot can be done within the existing provisions of the Financial Administration Act. That is not to say that an act that took effect in 1984 couldn't be reviewed now in the light of current circumstances. There might be areas for improvement, but we believe the areas identified in exhibit 10.5 are ones that could be addressed without requiring legislative change.
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The Chair: Thank you very much for the clarification.
[Translation]
Mr. Fillion.
Mr. Fillion (Chicoutimi): Thank you for your presentation. I'd like to take a look at the document you distributed just now. I'm looking at page 2: Overview of Crown Corporations. The Crown corporations are being divided into groups. We knew that there were 48 Crown corporations, and it seems that these are now being divided into three categories: financially dependent, self-sufficient and exempt.
I would like you to give us a brief profile of each of these categories.
[English]
Mr. Radburn: Perhaps a question of clarification. I'm not sure of the information you would like us to provide with respect to an overview. Is it the names of the corporations that you'd like to be advised of?
[Translation]
Mr. Fillion: Could you explain the term ``financially dependent''? Does it mean that 100% of these corporations' appropriations come from government, hence none from the private sector? And what is meant by the terms ``self-sufficient'' and ``exempt''? I would like you to explain the distinction between those three categories.
[English]
Mr. Radburn: The financially dependent corporations are those entities that require, usually for their operations or capital, parliamentary appropriations in order to continue to exist.
In recent years a number of the corporations have been given a mandate to become self-sufficient so that they no longer will require parliamentary appropriations, and some are struggling to be able to achieve that. This category of 28, at least as at October, were still in some way dependent on either operating appropriations or capital appropriations on a regular basis.
The category ``self-sufficient'' encompasses those that over time generally do not require parliamentary appropriations, neither operating nor capital. We see entities in the past in this category. Generally they're the ones that have been subject over recent years to privatization or commercialization. We've seen the recent privatization of CN, and earlier Air Canada and Petro-Canada. A number of those corporations would be former examples of those that were deemed to be self-sufficient, and indeed these have been privatized.
The exempt corporations include the Bank of Canada, the Wheat Board and a number of the cultural corporations. When the Financial Administration Act was being introduced, originally the intention was that it be an omnibus piece of legislation covering all crown corporations. However, at the time that it was going through first and second readings back in 1984, a number of the cultural corporations took exception to some of the provisions that they felt would allow the government to interfere with their cultural activities. At that time a number were identified and exempted from the provisions of part X of the Financial Administration Act.
We can discuss the impact of that if there is a further question on that.
That is an overview sketch of the three categories of crown corporations. Is that the kind of answer you had in mind, sir?
[Translation]
Mr. Fillion: That answers my question. So as I understand, the Auditor General has a right to examine Crown corporations in the first two categories. This is how you were able to generate the chapter 10 report. But audits are a little more difficult with exempt Crown corporations, I believe. What advantages do exempt Crown corporations have in comparison with those in the other two categories? You named two exempt Crown corporations, but there are seven. Could you give us the names of the other five?
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[English]
Mr. Radburn: I'll deal with the first question in terms of the technicalities.
For the corporations identified in part I of schedule III, the office is auditor or joint auditor. The Auditor General is joint auditor or auditor unless the office waives the appointment.
With respect to those being self-sufficient, they're listed in part II of schedule III and the office is eligible to be auditor, but it's not mandatory that we be auditor.
One example would be the Mint. Where they are scheduled under part II of schedule III, we are eligible to be auditor. At the time when they were rescheduled, they had a desire that we continue to be auditors, and they have named us as auditors in their own enabling legislation. So we are auditors of the Mint not as much through the Financial Administration Act as through their own enabling legislation.
For those that are self-sufficient, we are of the view that, as they move from being dependent to less dependent to self-sufficient, there is less of a need for the office to be involved as auditor.
With respect to the exempt ones, you asked what advantages they may have over the others that are subject to part X. I'm not sure I would use the word ``advantage'', but there are certain mechanisms in the Financial Administration Act that are not applicable to them, such as the corporate planning process. It is my understanding that while the exempt corporations prepare plans, it is not required that they be approved; they don't go through an approval process.
I think also that some of the audit provisions are not mandatory, although I must point out that a number of the corporations that have been exempted have voluntarily had value-for-money audits conducted.
Grant, would you care to comment further?
Mr. Wilson: The third question was about the names of the exempt corporations. They are the Bank of Canada, the Canada Council, the Canadian Broadcasting Corporation, the Canadian Film Development Corporation, the Canadian Wheat Board, the International Development Research Centre, and the National Arts Centre. Those are the seven that are listed in the Financial Administration Act as being exempt from part X.
[Translation]
Mr. Fillion: I'm still on the same table. Do the total assets - $85 billion - include the cost of financing and borrowing? Is this going to add to the government's debt, or is this calculation totally separate? Is this included in the federal debt?
Have these corporations applied the same workforce adjustment directives and downsizing implemented in the federal public service as a whole?
[English]
Mr. Radburn: With respect to the debt, the corporations have assets and these are financed either through government investment or from borrowing from the government or from third parties.
The Government of Canada accounts for its investments in crown corporations and reflects that on the financial statements of Canada under an account called loans, investments and advances. So in some way, yes, it does affect the assets and operations of the government as a whole - not as directly as if these activities were carried out by a department, but there is some impact.
With respect to employees, I believe the thrust of your question was if the crown corporations generally are reviewing the efficiency of their operations and taking steps, as other parts of government are doing, to reduce numbers of staff and so on. The answer from the corporations I have dealt with is that they are all going through that review, which includes reorganization, reducing staff, and re-examining their operations in order to become more efficient in what they're doing. This applies, as you would read in the newspapers, to one of the corporations that is exempt, the Canadian Broadcasting Corporation.
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This applies, as you would read in the newspapers, to one of the corporations that is exempt, the Canadian Broadcasting Corporation. So I think virtually all of the corporations and other forms of government entity are all going through the same kinds of reassessment and re-examination of their activities.
Mr. Wilson: I would just like to raise one other matter. Each year the President of Treasury Board prepares and tables in the House an annual report to Parliament on crown corporations and other interests of Canada. In this report, there is a great deal of information on the overall activities of crown corporations. Included is a chart indicating that the crown corporation employment levels have decreased significantly over the past five years, from approximately 128,000 in 1990-91 to around 115,000 in total.
[Translation]
Mr. Fillion: Could you please specify whether assets include the debt?
[English]
Mr. Radburn: The assets are financed with debt and equity. The debt is included.
[Translation]
Mr. Fillion: Since the debt is included in these corporations' assets, can you determine what percentage of the debt is being financed by the government, and thus what percentage is being financed by third parties? Is that information in your document?
[English]
Mr. Radburn: We have the figures, Madam Chair. I would refer members to exhibit 10.7 in our chapter on page 10-20. It shows the proportion of debt to equity. It shows that over time an increasing amount of the assets are being financed from debt rather than government investment.
Mr. Wilson: Furthermore, in the President of Treasury Board's report on page 27 of the 1995 annual report, which I don't believe you have but you have access to, there is an indication of the financing.
The Chair: Excuse me. Just for clarification, is the document you're referring to called the ``Annual Report to Parliament on Crown Corporations and other Corporate Interests of Canada''?
Mr. Wilson: Yes. In that report, there is an indication of the changes in net borrowings from the private sector. The information is probably not sufficient to answer the question of the total percent of public versus private, but it can be gleaned from the annual reports of the corporations, as well as this document.
The Chair: Mr. Gilmour, you have ten minutes.
Mr. Gilmour (Comox - Alberni): It would be most helpful if we could get an expansion of this list. There are 48 corporations in the three categories of financial dependants, self-sufficient, and exempt. Could we get a list of each corporation in each category? The assets are listed, so could you list the assets? Also, the total for the budgetary funding is shown as $4.6 billion. Could you list the funding? That would be most helpful for the committee.
Mr. Radburn: As Mr. Wilson indicated, this information is detailed in the President of the Treasury Board's report, which comes out annually. This is one of the features of the control and accountability framework that didn't exist before 1984. This became a requirement as part X of the Financial Administration Act.
There's very good information in here that previously wasn't available. We'd be happy to make this available to members.
Mr. Gilmour: I'd like to go back to my colleague's point on the seven exempted corporations. How accountable are these corporations if they're able to hold back? It gives me a great deal of discomfort.
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Mr. Radburn: The exempt corporations still prepare annual financial statements, and excerpts from them are provided. They still have these statements audited, but the corporate planning process doesn't receive an approval process that the others have to undergo. They're also not required to undergo a special examination once every five years.
As I pointed out, some have voluntarily chosen to have a value-for-money audit done. But in our view, generally, if we are having omnibus legislation to cover all crown corporations, when you have some that are exempt it is awkward. I think the preference is to have one framework governing all crown corporations, and that's not quite where we are at this point.
Mr. Gilmour: I tend to agree. I see no reason, for example, why the Wheat Board should be exempted.
Who made the decision? Was that a cabinet decision? What level did these exempt corporations come from?
Mr. Radburn: My recollection is that in the bill that was put forward by the government of the day, the Bank of Canada and the Wheat Board were identified as being exempt. The cultural corporations we listed a moment back came in as a result of going from first reading to second reading - as a result of the public debate. I believe the Bank of Canada and the Wheat Board were listed originally as being exempt.
Mr. Gilmour: I have a private member's bill on access to information because I just don't see why a crown corporation should be exempt from access to information, considering it's public money. I think this is just the tip of the iceberg to where we're going.
I think I'll take a breather now and pass to my colleagues, Madam Chair.
The Chair: Mr. Bryden.
Mr. Bryden (Hamilton - Wentworth): I'm very interested in the exempted crown corporations as well. I haven't had occasion to examine the annual reports of the International Development Research Centre. A lot of money is going in and out of there, but I can't make head nor tail of what is actually going on. Has the Auditor General ever examined the International Development Research Centre in detail? Have you ever looked at it for its management as well as its...?
Mr. Radburn: This is one of the organizations that, although exempt, asked us to do a value-for-money audit several years ago. We did one and reported back to the IDRC board. In answer to your question, we have had access to and have done work in that corporation.
Mr. Bryden: Is that result available to me? Can I see it?
Mr. Radburn: We do not have it here. I suggest the member ask the corporation for that report.
Mr. Bryden: But it is a matter of public record.
Mr. Radburn: We did the report at the request of the corporation and we reported it to the corporation. I don't see any reason...
Mr. Bryden: This comes right back to my colleague's point. This is a crown corporation, so surely any assessment done by the Auditor General's office, or anyone else for that matter, ought to be a matter of public record.
Mr. Radburn: The provisions of the Financial Administration Act aren't worded that way. For example, for those corporations listed in part II of schedule III - those tending to be more self-sufficient - the special examination report is to go to the board only. Therefore, whoever is the examiner, whether it's ourselves or a private sector firm -
Mr. Bryden: Who orders those?
Mr. Radburn: The special examination results can only be reported to the board and cannot be made public, unless the entity itself chooses to do so.
Mr. Bryden: This is something we as a committee could look to reforming. We could change that. This is something we should be considering.
Mr. Radburn: If it is the wish of this committee or other committees, it would probably require a change in legislation.
Mr. Bryden: That's what I need to know.
Mr. Wilson: There were some reasons given for the reports of the auditor on special examinations to go to the board, and not necessarily directly to Parliament.
The primary reason was that the board and management were in the best position to address the issues raised by the auditor. For that reason, there was a provision that would allow the auditor to report to the minister or to Parliament on those schedule III-I corporations, only when it was felt that they were of sufficient significance to bring Parliament into the issue. In fact, this has only ever happened twice since 1984. So it has happened, but it's a very rare occasion.
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Mr. Bryden: I'm struggling with the whole concept of how I, as a member of Parliament, or a member of this committee for that matter, get early warning that something may be wrong in a crown corporation like the IDRC. Reports go forward that I'm not allowed to see. Annual reports are produced, which I invite my colleagues to look at, but you won't be able to understand where $100 million went.
But tell me, on another line of questioning, can I get the salaries of the board of directors and the executives of the IDRC, for example? Is this for the public record?
Mr. Radburn: It is not, to my knowledge, for the public record. You would have to ask the corporation, and that would be the same even for those corporations governed by part X. This information is not public.
Mr. Bryden: Well, if I can get the Prime Minister's salary, why can't I get a salary for a crown corporation executive or a director of a board of directors?
Mr. Radburn: If that's something felt to be important, it would probably require a change in legislation.
Mr. Bryden: Again, we come to this. Would you be surprised if I told you that just last week a director of Canada Post informed me he felt totally powerless and shut out of any reasonable information on the operation of that corporation? Would this surprise you at all?
Mr. Radburn: Madam Chair, I have been involved for a long time in crown corporations. No, it does not surprise me.
Mr. Bryden: Thank you for this reply.
I've noted with great interest your point about the board of directors. Can you give me any sort of direction on how we can give power to the board of directors? Very clearly, whether you're talking about crown corporations or charities, for example, which is an area I'm very interested in, often you have a case where a board of directors sits and yet the directors have no guarantee they're getting honest or candid information from the executive staff. How do we address this problem?
Mr. Radburn: Several comments might be made. I think one deals with the appointment process and the quality of the board members. We have commented on this in several reports, both in terms of the timeliness of the appointments and maybe a role for the board in terms of succession planning. They could identify suitable members and put that forward, even though the choice of board member is not with the board or management.
The other side, I guess, is that often these things are a matter of personality and the way in which the chief executive officer and the team choose to manage. Some choose to manage in one way and maybe aren't as cooperative or open with board members as others. You have a range of ways of operating, and I think a large part of it is attributable to the personalities involved.
Mr. Bryden: In other words, we could eliminate some boards of directors and no one would notice. Is this what you're saying?
Mr. Radburn: I would not say that. The requirements are that there be boards. I must admit candidly that, yes, in my experience some boards have been captives of management. I wouldn't go so far as to say if you changed the personalities involved it would not change.
Mr. Bryden: If I may continue, Madam Chairman, what this committee has to do and what it really has to look at - you've suggested it in your presentation - is the major problem here of where management is emanating from. It sometimes may come from the board of directors, but I suspect very strongly that probably it's not coming from there in most instances.
Do you really see the committees doing this? I just don't know how to tackle the problem.
Mr. Radburn: This is one of the things we have consistently stated in our reports. This is about the third or fourth report where we have pointed out the need for improvement in information from corporations with respect to their performance. I think there is a strong role for boards of directors and senior management to work in this area, and as auditors we are pointing that out sort of as a push.
I think there's a pull effect, which would also assist in this endeavour. It may very well come from members of this committee and the corporations they're responsible for, raising questions such as what are your objectives and how do you know that you're meeting your objectives, and to pursue a line that assists in getting performance information that has more in terms of quantity and is better in terms of quality.
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Mr. Bryden: I have one last question. Is perhaps part of the problem with the boards of directors the fact that they're political appointees? Is that a flaw? Should we be looking at some other regime to bring to that board of directors, something that takes it out of the realm of patronage? Well, I don't like to use the term patronage because it's not a particularly good word, but what you do get is a bunch of amateurs in there on a cyclical basis. Is that where the problem is?
Mr. Radburn: I don't know how comfortable I feel about answering the question in the way in which you've raised it.
Over recent years I've witnessed an improvement in the quality of board members. Partisan issues tended not to get developed to any great extent from what I could see. The quality of board members I've witnessed has been much improved, even in recent years. They are much more questioning and less willing to accept management's answer that they don't have the information or won't provide it. I've seen an improvement in the quality of the operations at the board level.
Through our report, we're trying to push that a bit further in terms of focusing it on better performance information.
Mr. Wilson: I would just like to mention that in 1993, as I believe Bill Radburn mentioned, we recommended that the board establish profiles for membership. Also in 1995 we surveyed the crown corporation boards to see if in fact they had established these memberships, and to a large extent they had not. Only very few had.
We believe fairly strongly that if there were board profiles in terms of the expertise required for boards specific to that corporation, that would assist in selecting the most appropriate individuals for those positions. We also believe that the Privy Council Office is very supportive of that recommendation and they encourage boards to provide them with profiles, but so far it hasn't been an overwhelming success.
Mr. Bryden: Do members of the boards of directors of these exempt corporations and the other corporations have the same access to the company's books and information that management enjoys? In other words, can the board of directors demand certain information in order to make their decisions? Do they have full access to salaries and everything?
Mr. Radburn: That is our understanding.
Mr. Bryden: Thank you.
The Chair: Mr. Fillion has agreed to let you go ahead of him, Mr. Gilmour. I understand you have to leave because of time constraints.
Mr. Gilmour: Thank you. It's just a short question.
My background is big business. I spent 25 years with MacMillan Bloedel, which at one point was the biggest company in British Columbia. It was accountable to the shareholders. At the annual meeting any shareholder could get up and ask a question of the board and of the CEO. To whom are the crown corporations accountable?
Mr. Radburn: In terms of the provisions of the Financial Administration Act, ultimately they are accountable to Parliament. The question then is how accountable they are and to what extent they are accountable.
Mr. Gilmour: Well, this is what we're getting into. They're accountable to Parliament, but from what I understand Parliament can't get the answers. We're parliamentarians, yet we cannot get the answers to these questions. That doesn't fit. Perhaps there's an error in my thinking or an error in the level we command or in the information that's flowing.
Mr. Radburn: I think this committee, like other parliamentary committees, has the opportunity to call corporations to ask whatever questions it feels are appropriate. That's exactly what you intend to do. Maybe that's where the accountability comes in.
I believe that over the years more and better information has been provided to Parliament through the President of the Treasury Board's report and through the annual reports of the individual corporations. There's lots of information there, but maybe not enough and maybe not of the type you want. Maybe the way to do it is to call those corporations to attend hearings and ask questions.
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Mr. Wilson: I believe there are two key documents that are provided to Parliament and that assist in the accountability. The first is the corporate plan summary, which is the summary of the corporate plan that the government approves for each corporation. That is tabled in Parliament and available to this committee. The second is the annual report, which is also tabled.
As we've raised in a number of chapters before, those plans and documents aren't quite up to snuff. They're not as good as they could be, and perhaps that's part of the reason you feel you're not able to hold corporations to account, because they don't report adequately on the extent to which they achieve their objectives. They may not even have clarified their objectives in sufficient fashion so that you know what they have to do to be successful and so on.
So those are some of the things. We're saying that the reporting structure appears to meet the needs of parliamentarians, but it's the quality of those reports that is perhaps still lacking.
Thank you, Madam Chair.
The Chair: Mr. Fillion.
[Translation]
Mr. Fillion: I am finding this very difficult. We are getting very few answers to relevant questions asked by committee members. We are not making much headway. Our committee is acting in good faith and should have answers to its questions.
The Chair: I do think the witnesses are providing answers, except there is a gap there and it's up to us to...
Mr. Fillion: That's exactly what my question is about. We want to see where the gap really is. We are wondering whether Crown corporation boards should be disclosing the names of directors. Auditors do not provide that information, and it's information that they should have.
In some seven, eight or nine paragraphs of your brief, you tell us how the problems detected can be solved. Your paragraphs begin with words like: ``boards of directors could seek to... Government through Cabinet could consider doing this...'' Who is actually going to do something? It seems that everyone is shifting problems onto someone else's shoulders. If the board of directors doesn't take action, well, Parliament may. Who is going to have the leadership role in actually addressing issues?
As far as internal audits are concerned, you have put your finger right on the problem. You have discovered through surveys of Crown corporations that very few of them have applied your recommendations. Shouldn't the Auditor General therefore go before Parliament and draw attention to these deficiencies?
[English]
The Chair: Mr. Radburn, before you answer, you're witnessing some of the frustration that committee members feel in having access to information and in how desperately we are in need of your advice and guidance on how we can rectify some of these inadequacies.
Mr. Radburn: Madam Chair, I must admit that I share some of the frustrations in that in our report in 1990, 1991, 1993, and again in the report that we're talking about today, we have pointed out to Parliament and to government the fact that performance information is weak and that the requirements of the act have not been met as appropriately as we thought they should be. So we have been bringing to Parliament's attention, as our mandate requires us to do, an area of weakness, and we have had suggestions as to where we think the players can play a stronger role.
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We have no mandate to enforce the recommendations or suggestions we make, so the frustration is that we say the same things in a number of reports year after year, and the progress, while it is taking place, is taking place relatively slowly. In the exhibit this year we have laid out all the players and the kinds of things, given their role, they might undertake to improve the situation.
Mr. Wilson: I would just mention that one of the reasons we use the verb ``could'' so frequently is that it is our view that in the crown corporation world the responsibilities are shared with all the players. For example, it is very clear who has responsibility for the operations and affairs of the corporation. That is the board of directors. It's also clear that the CEO has a responsibility. It's clear too that the government has a responsibility and Parliament reviews and considers reports of crown corporations and holds crown corporations accountable.
The difficulty comes in when one of those in the accountability chain doesn't do everything it should. For example, if crown corporations provide government with a corporate plan that has unclear objectives, why is government not rejecting those? If the corporation in its corporate plan is providing to Parliament summaries and annual reports information you don't believe is adequate, why isn't Parliament demanding more and better information? It's that kind of thing.
We're saying each party can do a bit more. This committee has taken a big step, because we normally haven't had committees considering the annual reports, corporate plan summaries, call a corporation before them to talk about performance reporting, performance measurement, success, and those types of things. That's the reason we use all the ``coulds''. We think it doesn't rest in one place but in a number of places, all of which could help to improve accountability overall.
Mr. Radburn: I might add one more comment as a bit of evidence of the frustration we exhibit. We thought we would turn it around a bit and instead of reporting the weaknesses we would try to identify those that are improving their reporting. So two years ago we started the Auditor General's award for excellence in annual reporting. We've gone through two of those annual processes. We thought instead of always penalizing the bad ones we might as well recognize the good ones. We thought that might help the situation. So we introduced that award process two years ago. We think it's starting to have an impact and improving the reporting.
[Translation]
Mr. Fillion: I understand the audit work you are doing through reports tabled by the Auditor General. However, a report like this one is more of a comprehensive study on a series of activities, in this case on a series of Crown corporations.
You are the auditor for some two or three corporations that come under this committee. If I remember correctly, they are the Canada Mortgage and Housing Corporation, the Royal Canadian Mint and Canada Post. When you have found deficiencies in a Crown corporation you have audited, have you disclosed these deficiencies to Parliament? Have you prepared a separate report in such cases, or are these deficiencies set out in comprehensive reports covering all corporations? It doesn't really matter which corporation you choose, but has this ever happened?
[English]
Mr. Radburn: We have two mandates. One is to do an annual audit of those corporations where we're the appointed auditor. As auditor, then, once every five years we carry out a value-for-money audit. In this last cycle we're reporting on in this chapter there have been no cases where we deemed it appropriate to bring the matters in that corporation to the attention of Parliament, in those cases where we are allowed under the act to do so.
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In the last cycle of special examinations there were two cases where, through the provisions of the Financial Administration Act, we felt the matters were of such importance that they should be brought to Parliament's attention, and we did that. The way the Financial Administration Act allows us to do that is through the corporation's annual report.
So for special examination, there have been two cases in the first cycle where we have reported to Parliament and this time none where we deemed it was necessary.
Under the annual audit, from time to time we do have reservations of opinion on the financial statements, and that's a regular feature. We do report those through our audit report to the minister. The audit reports are contained in this public document.
So there are cases, under both the annual audit and the special examination, where we report them to Parliament.
The Chair: Merci. Mr. Jackson.
Mr. Jackson (Bruce - Grey): Madam Chair, I sometimes wonder who audits the Auditor General's office, but we won't go into that. I'm sure they have some mechanism.
One of the things, a general observation, is that we want to find out how these corporations are operating. There must be some kind of terms of reference, and in terms of accountability and good management, I would assume that every organization in these modern times would want to be transparent and get their jobs done.
So my first question would be, are the mechanisms that set up these organizations outdated and do they need change by us?
The second question is, if that's not the fact, if in fact there are enough mechanisms here for checks and balances, reporting through the minister or the head of a crown corporation, how would it best be done by us in order to make sure we get rid of the frustration?
I don't think it is fair for us, or the Auditor General's office, or anybody else, to go in and make observations about things without getting the other side. Sometimes it's easy to criticize, but people do have good points. We want to see the good points; we want to see the bad points. Of course, if the organization does not function, then it has to be changed. But to me, this idea of going around and around and making all these accusations is not the best way to do it.
Let's look at the legislation. If the legislation covers all the angles, let's use the legislation to get the answers we want; if it does not, let's change it.
Mr. Radburn: Madam Chair, we have reviewed and reported on the framework, and we have found it to be sound. Therefore, in my view, I do not think it is outdated. In the scale of things, it is fairly recent - 1984. A thorough review had taken place at that time.
With respect to its implementation as compared with the framework itself, we continue to point out areas where there can be improvement in the implementation.
About improved performance information, we're saying, and have been saying for a while, that we think it's important - and the act has wording that supports it - that corporations should publicly report the extent to which they've met their objectives. That's a personal view. If corporations did report the extent to which they've met their objectives and that report was made public, you would be able to judge whether you're satisfied with the actual performance. That may point you to re-examining objectives and so on.
But the general thrust, I think, is you have the opportunity to call those corporations you're responsible for to appear before this committee and ask the questions you feel are appropriate. I think that's probably where accountability takes place. We do audit reports; we give you information. It's up to the corporations to show and discuss their side of things. Maybe this is the proper forum for that. Quite frankly, that has not happened to any great extent in the past on any of the parliamentary committees.
Mr. Wilson: There may be one other aspect to that question; that is, whether you would believe there was any need to change legislation specific to corporations. Are their mandates outdated and so on? We don't comment on that, except to the extent that we've indicated that government has from time to time brought forward amendments to legislation.
An example we gave is the Canada Mortgage and Housing Corporation and the Export Development Corporation, both pieces of legislation to reconsider their mandate to try to assist the corporation in making it clearer what Parliament's expectations of those corporations were.
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The greater understanding is of the mandate, the more likely it is that the objectives will be clearer and so on. I believe that's been the case over the past few years. As there's been greater need to clarify the mandate, that has happened.
Mr. Jackson: In the accountability - and I don't know how this operates - it must be very frustrating for a minister. I suspect that the crown corporation is set up for some national good or for some specific purpose and is actually governed by a president or a chairperson or what have you.
How is that reporting done through the political system process? Somebody is a minister responsible for the corporation. What's the routine? How does the minister get an answer to a question about the corporation that, let's say, has been asked in the House by an elected member?
Mr. Radburn: I'm not sure I've been exposed to that enough to be able to answer in a general way, but the ministers usually have assistants who would be in touch with the corporation and pose the question and get an answer. That would probably be done by telephone. That happens.
Mr. Jackson: So in effect the minister is asked a question and then maybe he gets a written response within a certain specified time. He wouldn't necessarily know how the corporation operates.
Mr. Radburn: I'm not sure the two are connected as much as you suggest.
The minister of course gets the annual report of the corporation. The audited financial statements are directed to the minister, and the annual report is, and they're tabled. The minister has a role in approving the corporate plan and a corporate plan summary. So the minister is made aware of certain information and presumably can have access to whatever further information the minister feels is appropriate.
Mr. Jackson: I would suggest that there is a frustration by members of this committee, in particular in the dynamics, which are that the committee changes quite often. Maybe there should be a routine - in the same way as we have the minister come and the Auditor General come - in that the chairman of the crown corporation would come here and answer these questions. We're sort of going around in circles here and not getting to the meat of the thing.
The Chair: Mr. Harvard.
Mr. Harvard (Winnipeg St. James): Mr. Radburn, as I understand it, no crown corporation escapes audits, be it exempt from the Financial Administration Act or not. So if you take a couple of corporations, say the Wheat Board on one hand, which is exempt from the act, and let's say another corporation, such as AECL, which comes under the act, both are audited. They are audited by different sources, but both are audited.
There's always risk in generalizing, but, in your estimation, what would be the glaring differences between the two audits? What would we fail to know about the Wheat Board that we might catch about AECL through the Financial Administration Act?
Mr. Radburn: That's a good question.
I think our position is that for the government organizations that are playing an important public policy role there probably is an advantage in having Parliament's auditor involved directly.
One of the differences is that our office tends to have Parliament in mind. We serve Parliament. I'm not sure that that same degree of attention or knowledge or experience is there with private sector firms.
Mr. Wilson: I would add that one of the most significant differences is that, to my knowledge, in the case of the Wheat Board a value-for-money audit has not been carried out at any time in the past, whereas with Atomic Energy corporation there is a periodic special examination once every five years. So that has occurred at least twice in the past ten years.
Mr. Harvard: In your opinion, would this value-for-money audit that you're talking about be the big difference?
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Mr. Radburn: I think it's deeper than just the audit perspective, although that's our area. I think it really has to do with the corporate planning process, where corporations are required to set out their intentions, their plans, the financial consequences of those plans, and go through an approval process. It's not that they don't set out a plan; it's that it's not subject to an approval process and the corporate plan summary is not made public. I think those differences are equal to if not more important than just the audit side.
Mr. Harvard: I have another question. It really has to do with what you might call the responsibilities of governance and the rules of governance under our political system.
Mr. Radburn, in the current swirl of populism and other fanciful notions, there are some people who believe that boards of directors of government agencies should be popularly elected as opposed to being appointed by the government of the day. Take, for example, again, the Wheat Board. The Wheat Board is to serve, in the main, prairie farmers, the producers. There are some people who believe that instead of having the directors of the board appointed by the government, they should be elected directly by the farmers. This raises a whole series of questions about the responsibility of the government: how government, for example, in the case of the Wheat Board, could guarantee sales, and so on.
From what you know, could something like that even meet the terms or the rules of governance, as we understand them to be?
Mr. Radburn: That's a difficult question to answer. You've raised some issues with respect to the Wheat Board, and I'd prefer to answer maybe in a more general way rather than specific to an entity.
I think if there is will among all the players in the chain of accountability, the things you want to happen will happen. I think when you determine what your objectives are, how you will know whether they are met, and everyone is cooperative, it will happen. All I'm saying is it could happen in a number of different ways.
The government of the day that introduced the framework that exists now has said - and the current words say - the government wishes to play a major role in the appointment of boards. That should work. If someone changes it so that someone else should have a major say in who the board members are, I presume that could work too, if there's goodwill and qualified people are involved.
So I think some of the processes are more form than substantive. What we're pushing a bit more on is that the proof of the pudding is in the kind of report we get on performance. That's particularly complex for public sector entities because there's always a mixture of the commercial with the public policy role. That's why we're pushing it: to have more information on whether or not, and the extent to which, they have fulfilled their public policy role.
Mr. Wilson: I would like to add a point. The legislation today is fairly clear about who is responsible for what: the crown corporation is accountable through the minister to Parliament and the board of directors is responsible for the operations of the corporation. If you were to have the board elected, would the elected board be accountable to Parliament? It's a question. I don't know what the answer would be, but at least today you know that government, accountable to Parliament, selects board members, who are responsible for operations. It's fairly clear who's accountable for what.
Mr. Harvard: In some cases, of course, the constituencies, if I can put it that way, of certain boards are more identifiable than others. I can understand someone, say, choosing the Wheat Board, because it's quite apparent that they serve, first and foremost, farmers. When it comes to the CBC, who would vote for the board of directors of the CBC? It's a more amorphous constituency.
I have only one more question. It has to do with the so-called special examinations. You said that in the last year or so you've reported to Parliament the results of a couple of the special examinations. I take it then that there is a range of special examinations. They're done, but they're just not reported publicly. Is that how it works?
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Mr. Radburn: The requirements of the act are that the special examination reports - they're value-for-money types of audits - are first and foremost reported to the board. For those corporations that are more dependent on public funding - they're listed in part I of schedule III - the special examination report may be reported beyond the board to the minister and also beyond the board and the minister to Parliament. The way that would be done would be through the annual report of the corporation itself.
Mr. Harvard: You're saying that some of them don't go all the way, so we never hear about some of them.
Mr. Radburn: Yes - probably most, unless the corporation chooses to make the report public, as several corporations have voluntarily done.
Mr. Harvard: When a special examination is triggered, is it usually triggered by some very serious concern that something is wrong?
Mr. Radburn: No.
Mr. Harvard: It's not necessarily a negative trigger, if I can put it that way.
Mr. Radburn: That's correct. It is a requirement of the act that a special examination be conducted once every five years. What triggers it is that we usually get close to the five-year deadline, and the board indicates that they're prepared to initiate it. As examiners, we meet with management to set out the timing and the mechanics of it. But it is a requirement if you're covered by part X. It's not triggered by negative events.
Mr. Wilson: I have a comment on the first question. On exhibit 10.10 of our chapter, we do have identified in the first cycle of special examinations the number of reports that were provided beyond the board through the minister and to Parliament. In fact, in the second cycle of special examinations, we have clearly reported more special exam reports to the minister than we did in the first cycle of special exams.
So I think while we're not suggesting that it's going to happen, since we've seen an increase in reports going to the minister, there is perhaps a possibility of reports being provided to Parliament in the third round if those same concerns are raised for a third time.
The Chair: Thank you, Mr. Harvard.
[Translation]
Mr. Fillion, the floor is yours.
Mr. Fillion: I have two questions regarding exhibit 10.10. Couldn't we boost reporting frequency so that parliamentarians are better informed? Are various committees responsible for different corporations? This committee is responsible for three corporations. Why couldn't our committee receive reports on those three corporations, particularly when information is limited to the board of directors? Could the committee not be provided with these reports?
[English]
Mr. Radburn: The answer is that if the committees wish to have that information, I think the way to obtain it would be to request the corporations to appear and to present that information. As an office, we would probably support those kinds of meetings taking place.
[Translation]
Mr. Fillion: That's the answer I expected. But your brief says: ``Parliament through its committees can'' etc.
I am perfectly ready to accept what you say in your brief, provided that we can have some information on these corporations, even if we don't have a comprehensive profile, before they appear. It seems to me that if these corporations have been examined by the Auditor General, we should have the Auditor General's information, as well as an overview of the deficiencies and strengths determined.
We wouldn't waste time in clarifying their mandates and objectives. We would have enough knowledge to ask the right questions when the corporations appear before us.
Could you provide us with these reports on corporations you have examined and audited? The reports have of course been sent to the corporation's board of directors, or to the responsible minister. Could our committee have the reports on the three corporations for which we are responsible: the Canada Mortgage and Housing Corporation, the Royal Canadian Mint and Canada Post.
[English]
Mr. Radburn: I support the member in terms of wishing to have that information. For our annual audits, that information is public and it's available. For the special examinations, I'm afraid the provisions of the Financial Administration Act require us to report to the board. Those circumstances where we would report beyond the board are quite specific.
My suggestion might be to ask the individual corporations to provide that information. We would be willing to work with the research assistants in whatever way we can to help the committee, but I don't think we can report these special examinations to parliamentary committees unless the legislation is altered to allow us to do that.
Mr. Wilson: I would just like to add that there have been a number of corporations that have made their special examinations public, including the Canadian Broadcasting Corporation, the National Capital Commission, the Canadian Museum of Nature, and so on. So some corporations are already providing this, making it public. Other corporations either have not been asked or are not making it public for various reasons.
[Translation]
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The Chair: Mr. Fillion, do you have any further questions?
Mr. Fillion: I would like to thank my friends opposite for the information. I would like us to add the three corporations for which we are responsible to our list of witnesses, so that we can take this morning's exercise further.
The Chair: Thank you, Mr. Fillion.
[English]
I believe Mr. Bryden has a few follow-up questions.
Mr. Radburn: Madam Chair, I just have a comment. We were asked whether we had information that we could provide to you about any of the three corporations you're responsible for. I would bring to your attention - and this is public, which is why I can bring it to your attention - the 1994 report of the Canada Mortgage and Housing Corporation. They have reported the following, and I'm quoting from their annual report:
- CMHC's second Special Examination came to a very successful conclusion in 1994 with the
Auditor General of Canada informing CMHC's Board of Directors that there were no
significant deficiencies in the corporation's systems and practices.
Some hon. members: Oh, oh!
The Chair: You've added a moment of gaiety here.
Mr. Bryden.
Mr. Bryden: I'm willing to be accountable at my level of Parliament for these crown corporations, but both of you were saying that the boards of directors have access to the results of these special examinations. They have access to all the company's internal documents. Yet it would appear to me that I, who exist at the next level of accountability, do not have access to the same information they have.
Am I to understand that I am required to be accountable, to be knowledgeable, to pass these corporations, and yet I am denied the same information that a lower level of accountability has? Does the board of directors have information that I can't have?
Mr. Radburn: That is correct. In fact, the special examination report is directed to the board, so it's not that they have access to it; it is a report to them. That is the way in which the framework is set out.
Mr. Bryden: Let me be very clear here. You have said yourselves that there's an expectation for this committee to be more accountable or to require accountability from these organizations, and yet you explained to me that I can't get the answers to the questions that I might like to pose. Is that correct?
Mr. Radburn: I think the way in which you get the answers is to have those corporations appear before you and ask the questions of them. They have the information.
Mr. Bryden: Yes, but is there anything that requires them to give me that information? Do they not have the ability to hide behind the Privacy Act and the Access to Information Act?
Mr. Radburn: I think a crown corporation would think very carefully before denying a parliamentary committee information that it seeks.
Mr. Bryden: But they can do it, can't they? They don't have to disclose.
Mr. Radburn: I think even in the Financial Administration Act there are provisions where commercially confidential information can be withheld.
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Mr. Bryden: What I'm trying to get at is that there seems to be a problem here. It's a problem of information flow. It's a problem of my being guaranteed that I'm finding out what is going on in these corporations. Obviously the annual reports are deficient in many instances. I want to know that if I get these witnesses from these crown corporations, as suggested by Mr. Pilon, they actually have to answer the questions. If I ask for salaries or if I ask for special examination, do they or do they not, in your expertise, have to answer those questions if I pose them in this committee?
Mr. Radburn: I don't think I could answer that as directly as you would like me to. I don't know. There may be some parliamentary rules I'm not aware of that come into play, but I think this is the place to ask the questions.
Mr. Bryden: So it's a question... Maybe I could put it to you, Madam Chair. We should examine exactly what the powers of the committee are in demanding testimony from witnesses. I'll move on to another quick point, Madam Chair.
I'm very sensitive about the difficulties that the Minister of Defence and the Minister of Health found themselves in, in connection with the Krever commission and the Somalian inquiry, which dealt with whether or not government officials destroyed documents.
Is there anything in the legislation that guarantees that a board of directors of one of these corporations of which we speak is getting honest information, all the information, or all relevant information from the executive branch? How do we know they're not destroying documents?
Mr. Radburn: I wouldn't be able to answer that question, Madam Chair.
Mr. Bryden: Doesn't this point out a deficiency in the operation? If I understand existing legislation correctly - and I hope you'll check this for me - there are no sanctions applicable to executive officers of crown corporations if they choose not to be candid or to deliberately, for that matter, misinform their board of directors. Is there a link that guarantees honesty from those down the line? We've seen very recently some reason to think that there may be problems with honesty.
Mr. Radburn: Madam Chair, my answer is that in several of our reports we have pointed out that there are neither incentives nor sanctions. Most legislation tends to set out what should be done without going further to say that if it is not done, this shall happen, or that if it is done and done well, this is the reward or incentive. So to my knowledge, there are no incentives other than goodwill and wishing to manage well.
Mr. Bryden: It's not incentives that I'm after; it's punishment for people who do not deliver to the responsible officials, be it the board of directors or this committee, proper, complete, and honest information. What I would ask of you then is to examine that problem and make a suggestion to this committee about what type of legislative instrument, if you will, we can put in place or consider for guaranteeing that the functionaries involved are dealing honestly with the next level of accountability.
Mr. Radburn: We will take note of your request, but I'm not sure that you could ever get the guarantee you would want that people will behave in the way they should.
Mr. Bryden: As I said, punishment is kind of a useful thing.
The Chair: On that punitive note, I'd like to thank you very much for your tolerance level at all the questions that were thrust on you. You've certainly inspired us for our next meeting. I understand the Canada Mortgage and Housing Corporation will be appearing before us next week.
As you can see, you've inspired a lot of questions around this table, and we don't want to deter you unduly from your duties. So I wonder if we could reserve the right to send you some questions in writing and have you respond in kind. That would be very much appreciated.
Mr. Radburn: We would be pleased to, Madam Chair.
The Chair: Thank you very much on behalf of all committee members. Please come again. This is a committee that always leaves an open invitation to its guests.
Mr. Radburn: Thank you.
The Chair: This meeting is adjourned.