Proceedings of the Standing Senate Committee on
National Finance

Issue 4 - Evidence - Meeting of December 1, 2004


OTTAWA, Wednesday, December 1, 2004

The Standing Senate Committee on National Finance met this day at 6:20 p.m. to examine the Main Estimates laid before Parliament for the fiscal year ending March 31, 2005.

Senator Donald H. Oliver (Chairman) in the Chair.

[English]

The Chairman: This eighth meeting of the Standing Senate Committee on National Finance is called to order. I remind you that this committee's field of interest is government spending, either directly through the Estimates or indirectly through bills.

[Translation]

On Wednesday, October 20 2004, the committee was authorized to study and to report on projected expenditures contained in the supplementary estimates for the fiscal year ending March 31, 2005.

[English]

Our witness tonight is certainly no stranger to this committee. In fact, we have taken her up on her offer to return. This evening, as part of our continuing study on the Main Estimates, we will be hearing again from the Auditor General, Ms. Fraser. Ms. Fraser is joined tonight by Mr. Wiersema, the Deputy Auditor General.

Other than our general interest in the Main Estimates and in the office of the Auditor General, one of the areas this committee would like to examine is the federal government's practice of creating foundations and endowment funds to achieve specific policy objectives.

[Translation]

We are very pleased that Ms. Fraser agreed to appear before the committee this evening.

[English]

Before turning to our witnesses this evening, I would like to briefly introduce our members. New members of our committee are the Honourable Sharon Carstairs and Senator Downe from Prince Edward Island. Our vice chairman is Senator Day. Senator Murray is from Ontario; Senator Comeau is from Nova Scotia and Senator Harb is from Ontario.

Please proceed.

Ms. Sheila Fraser, Auditor General, Office of the Auditor General of Canada: We are very pleased to be here and would like to thank you for this opportunity to discuss our 2003-04 performance report and our 2004-05 report on plans and priorities.

I have provided members with copies of these reports and I have also provided copies of a very recent information package that we have produced containing some basic facts about our office. There are more fact sheets to come. In the new year, all parliamentarians will receive a complete set of those fact sheets.

My opening remarks tonight will cover three main areas: who we are and what we do; our funding, and our accountability. I understand that the committee may also wish to continue our November 3 discussion of the accountability of foundations. To assist committee members, I have attached a copy of my opening statement for that appearance before this committee, as well as an excerpt from the Public Accounts of Canada. In that context, I am pleased to inform you that we will be revising the Report on Parliamentary Committee Review of the Estimates Documents to take full account of the role of the Senate and its committees, as requested by the committee.

Let me turn to the question of who we are and what we do. We are an independent audit office that serves Parliament, and it is those two key features of our mandate that make us different from government departments and agencies. We are independent of those whom we audit, and we report directly to Parliament.

[Translation]

We provide objective information, advice, and assurance to assist Parliament in its work related to the authorization and oversight of government spending and operations.

The six main components of our work provide answers to a number of important questions, beginning with performance audits of departments and agencies. We ask whether programs are well managed. Were they run economically and efficiently, and with due regard to their environmental effects? Does the government have the means to measure their effectiveness? We conduct about 30 performance audits each year. I have appended a list of planned performance audits to my statement.

Second, we audit the financial statements of the Government of Canada, and we ask whether the government is presenting fairly its overall financial information. We also conduct the financial audits of Crown corporations, territories, and other entities. Is their financial information presented fairly, and are they complying with their legislative authorities? We conduct some 100 of these audits each year.

We conduct special examinations of Crown corporations. Do their systems and practices provide reasonable assurance that assets are safeguarded, resources are managed economically and efficiently, and operations are carried out effectively? We perform about 45 of these special exams over a five-year cycle.

We also conduct environmental and sustainable development monitoring activities. Are departments meeting the objectives and implementing the plans set out in their sustainable development strategies? Are ministers responding as required to environmental petitions? Last, we conduct assessments of three agency performance reports. Are agencies — Canada Revenue Agency, Canada Food Inspection Agency, and Parks Canada — presenting their performance information fairly and in a reliable way?

[English]

We do all of this work with a budget, that includes Main Estimates and Supplementary Estimates, of $75.7 million for 2004-05 and a staff equivalent to 580 full-time employees. This is comparable with our 2003-04 parliamentary appropriations and is, in my view, sufficient to enable us to fulfil our mandate to serve Parliament.

For some time we have been discussing with the Treasury Board secretariat how our budget is established. I believe that an appropriate funding level must be determined in an objective manner that is not influenced by those whom we audit. The existing process for determining our funding level is not sufficiently independent and impartial to ensure that our budget is appropriate for meeting Parliament's expectations. At present, like almost all federal departments and agencies, we negotiate our budget with representatives of the Treasury Board secretariat. As a matter of principle, I believe that this situation should be corrected so that there is no possibility of influence, real or perceived.

The issue in my view is how to establish a balance between the independence of the Auditor General and the rightful challenge to our expenditure of public funds. In 2001, the Treasury Board ministers directed the secretariat to consult with us to reach an agreement on a new funding process by the fall of 2002. We have proposed three alternative mechanisms to increase the independence of the funding process for my office while maintaining and strengthening — I would hope — our accountability.

First, there is the United Kingdom model that involves an all-party commission examining the audit offices estimates and making a recommendation to the House of Commons. A second model is that used for the Senate's ethics officer and the Ethics Commissioner whereby the Speakers of the Senate and of the House respectively examine the estimates. They then transmit their recommendation to the President of the Treasury Board who presents these estimates to the House of Commons as part of the overall Estimates.

Finally, there is a third model that we have called ``the blue ribbon panel,'' which would be appointed by the Speakers of the House and of the Senate and by the President of Treasury Board to examine the estimates and make a recommendation to Treasury Board.

While the discussions with the Treasury Board secretariat have yet to bear fruit, the president has also stated that he shares our interest in resolving the funding mechanism issue expeditiously. I would be pleased to discuss these proposals with the committee at its convenience.

The Chairman: He was here two days ago and said that very thing.

[Translation]

The Treasury Board Secretariat has rightly noted that decisions about an appropriate funding mechanism should be made in the context of the office's accountability regime.

Mr. Chairman, the quality of all our work is of utmost importance to us. We adhere strictly to professional auditing standards and best practices. And I believe that the existing accountability regime is strong and sufficiently robust to support an independent funding mechanism.

Like other government departments, the office submits annual spending estimates and an annual performance report to Parliament. The Public Accounts Committee calls on us to explain our estimates and our management practices. Each year, an external auditor appointed by the Treasury Board audits our financial statements. The audit report is submitted to the Treasury Board and included in our annual performance report.

The office is also subject to scrutiny by the Public Service Commission, the Official Languages Commission, the Privacy Commission, and the Canadian Human Rights Commission.

The institutes of chartered accountants of Ontario, British Columbia, Alberta and Nova Scotia, and the Ordre des comptables agréés du Québec conduct reviews of the office's practices to provide assurance that we meet professional standards in the conduct of our financial audit work.

Finally, the office has voluntarily subjected itself to external reviews of the quality of our audits. In 1999, the review was conducted by a major accounting firm, and it addressed our financial audits.

In 2003-2004, our performance-audit practice was reviewed by an international team of legislative auditors led by the United Kingdom's National Audit Office. In both cases, our quality management system was found to be suitably designed and operating effectively.

In other words, the external reviewers concluded that parliamentarians can rely on our work to examine the government's performance and to hold it to account. I have provided copies of the report of the peer review of our performance audit practice in the information kit.

Mr. Chair, all this information is made public, and is discussed with the Public Accounts Committee. We would be pleased to discuss it with your committee as well.

[English]

What does all this information tell us about how we are doing as an office? Our performance report addresses that question. It includes an introductory section and performance highlights on pages 1 to 5. Using a number of key indicators, it highlights our performance for the year.

Let me draw your attention to three of those indicators. In 2002, we surveyed a sample of members of Parliament and senators on their expectations for, and reactions to, the work of the office. We are using the results of this survey to measure how well we serve Parliament and to improve our operations. We are constantly seeking better ways to help Parliament to do its work. I am pleased that parliamentarians view us as a credible source of information about government operations.

As members of the committee will know, my office plays a vital role in safeguarding and fostering accountable, well managed and environmentally responsible government. We do this not only by reporting on problems but also by making sound suggestions for improvement.

Departments do respond to our recommendations. By the end of 2003, 45 per cent of our 1999 performance audit recommendations had been fully implemented by departments, and another 16 per cent had been substantially implemented. We are using this four year time frame because it provides a good measure of a department's success in fully implementing our recommendations within a reasonable period of time.

We are working to improve the percentage of recommendations that are fully implemented by departments. The international peer review that I mentioned earlier suggested that our recommendations should be more specific and action-oriented. To that end, we are working on a new approach to developing and writing our recommendations.

Mr. Chairman, we survey the organizations that we audit to obtain their perceptions of our performance. The majority of those organizations believe that our work does add value. For 2003, chief financial officers and audit committees found that 75 per cent of our annual financial audits were good or very good at contributing value to their organization. For our performance audit practice, the comparable figure is 47 per cent.

There is no difference, however, in the percentage of organizations that plan to act on our recommendations for improvement. In fact, more than 75 per cent act on recommendations for both annual financial audits and performance audits.

It is clear from our survey work that performance audits did not score as well as annual financial audits. This is not surprising given the different questions that the two types of audits address. Nevertheless, we are working to better understand these differences, and where organizations have made suggestions for improvement, we are acting on them.

Finally, Mr. Chair, I would point out that both our report on plans and priorities and our performance report go to some length to describe the office's management practices, including human resources management, comptrollership and internal audit and our plans for strengthening those practices. We would be pleased to discuss any of these subjects with the committee.

In conclusion, I would like to say that overall it has been a challenging and rewarding year for the office. We look forward to continuing to serve Parliament by contributing to well-managed and accountable government.

I thank you, Mr. Chair, and honourable senators, for this opportunity to discuss our budget and our operations. We look forward to working with you in the future on issues of interest to the committee.

That concludes my opening remarks. We would be pleased to answer any questions that committee members might have.

The Chairman: Thank you very much for that most excellent overview. Before turning to Senator Comeau for the first question, one of the things that interests me is the Crown corporations. When you were talking about the types of audits that you do for different departments and so on, you said two things: You said that you can do financial audits of Crown corporations, territories and other entities, and you can also do special examinations of Crown corporations. I wonder if you could tell us the difference, and when do you decide to do a full financial audit and when just a special examination? What does a special examination entail in?

Ms. Fraser: We do the audits of about 40 to 45 Crown corporations, including the CBC, VIA Rail, the Export Development Corporation and Farm Credit Canada. Those would be the larger ones. We also do Canada Mortgage and Housing Corporation and CDIC. The list can go on and on. We do an annual financial audit, which is the typical financial audit that I think most people would be familiar with, be it the private or the public sector. It would be the same as in the private sector. We issue an audit opinion on the financial statements of those Crown corporations every year.

Special exams are required under law to be conducted every five years. Not all Crown corporations are subject to special exams, but for those Crown corporations where we are the auditors, we conduct special examinations once every five years. It is basically to give assurance that there are no significant deficiencies in the systems and practices of the particular Crown corporations. It is a very extensive audit that is carried out. The scope of it is much broader than financial. In fact, we are now focusing very much on governance practices, risk management, values and ethics and strategic planning. We would look at those areas.

There is a very strong involvement of the board of directors and the audit committees. We report to the board of directors. Some Crown corporations had, in the past, voluntarily made this public, but you may recall in the last budget of the government that there was mention that Crown corporations would now be required to table special exam reports in Parliament and to make them public on their websites. Most are doing so now.

Senator Day: Would you be able to provide to us, Madam Fraser, the check list or the parameters of your special examination, or direct us to where we could get that?

Ms. Fraser: I would be glad to do that. It is specific to each one, so we determine for each Crown corporation the areas for examination, and then we develop the criteria. The criteria is specific for each Crown corporation but I would certainly be glad to provide the generic material we have, and perhaps, refer you to certain of the larger ones, which have made their reports public recently. You can see the kinds of criteria we use and the type of report. It is a very long report that covers each one of the areas that we have examined with areas of recommendation for improvement.

Senator Day: Have you a legal basis for your authority in developing the criteria?

Ms. Fraser: All we have is the legal requirement that we have to opine upon the deficiencies in systems and practices to safeguard assets. That is actually within the Financial Administration Act. I would be glad to provide that excerpt.

Senator Day: Thank you.

Senator Comeau: Thank you for appearing before us, Ms. Fraser. My questions will concern mostly the foundations. I would like to refer to you a statement made by the federal government stating that establishing the Auditor General of Canada as the auditor for the foundations could undermine the independence of the foundations, reduce their operational flexibility and organizational effectiveness and, thereby, reduce their usefulness in achieving the government's policy objectives. It says that the federal government made that statement. It is a direct quote.

Would you care to express your opinion on that?

Senator Murray: If you will not, we will.

Ms. Fraser: As I am sure senators will have guessed, I obviously do not agree with that statement. I do not, quite frankly, see how having the Auditor General of Canada audit the foundations would in any way affect their efficiency and their operations.

In fact, there was a hearing in the other place of the Government Operations Committee that had a panel, actually, of all major foundations, and put that question to them. They certainly did not seem to be quite as passionate about the choice of the auditor as that statement might seem to indicate.

I go back to the basic fact that these foundations have had very large transfers of public money. There should be an appropriate accountability mechanism. We are really recommending that there should be a broader scope of audit than simply an annual financial audit. There should be a report on systems and practices, whether they meeting public sector values, how are these things being managed and are they achieving the results for which Parliament has given them this money? I really believe it should be Parliament's auditor that does that work.

Senator Comeau: If you were to be the auditor of the foundations, would you look at such things as how directors are appointed; what the operational requirements are for such appointments, and so on?

Ms. Fraser: We could. We are currently doing an audit on Crown corporation governance in the broader sense. We have done an audit in the past in which we looked at the appointment process and some good practices out there. It could certainly be possible to look at how that process works for foundations as well.

Senator Comeau: It would certainly be helpful to parliamentarians, since we supposedly vote the funds that do establish those foundations. It would be nice to know who starts spending the money and, in some cases, not spending the money. My understanding is that there is still over $7 billion sitting there, collecting interest.

I do not know if the directors who sit on these boards are still collecting their directors' fees. It is kind of difficult to find out if they are, and if there is nothing moving the money. My understanding is that two of the major foundations, the Innovation and Millennium, still do not have a business plan. Would you know about that?

Ms. Fraser: I do not know. I am afraid I do not have that information.

Senator Comeau: These are the kinds of questions to which parliamentarians have a hard time finding the answers, given that we do not have access to any information of that kind. Once a foundation is created, as I understand it, it then takes on a life of its own. It becomes a self-administering kind of beast, if I can use the word?

Ms. Fraser: I must admit I am not completely familiar with all of the mechanisms, but it is my understanding that the federal government would appoint a significant number of the directors to these foundations.

Senator Comeau: Then one would assume that they would seek other, like-minded directors?

Ms. Fraser: I am really not that familiar with how it works. I think in some foundations there may be positions from certain sectors. I am not very familiar with that, I am afraid.

Senator Comeau: We are talking some pretty hefty sums here, are we not? I forget the numbers.

Ms. Fraser: We have an excerpt in the Public Accounts. The total funding that has been transferred is over $9 billion.

Senator Comeau: It is not peanuts.

Ms. Fraser: There is $7.7 billion in the bank accounts.

Senator Comeau: I think you made the statement in your April 2002 report that the foundations do not meet the essential requirements for accountability to Parliament. These are public funds, and these foundations do not meet essential requirements for accountability to Parliament. That is —

Ms. Fraser: We did make that statement in 2002. I can tell committee member that, since then, the government has announced a number of changes and requirements for foundations. We are currently conducting a follow-up audit that we will be tabling in February to see if those announcements have actually been implemented and what changes have actually occurred since our last audit.

Senator Comeau: Earlier on, you were explaining how you would like the funding mechanism for the Auditor General to work, to make it such that you could not be seen to be in a position where you could be influenced. We are seeing with the foundations exactly the type of trouble that you wish to avoid with your funding. We are seeing it right here. There is no way to really know whether these foundations are accountable, or how they are effectively spending public money. In a way, they are set up in such a way that questions can be asked, but there are no answers that we can be sure of.

Ms. Fraser: The committee always has the option of inviting the foundations for a hearing. That has occurred in other committees. That is available.

There are more documents that are to be tabled in Parliament. These are some of the changes that have been brought in, and we well be looking to see if they have actually been implemented.

One concern that we have, in addition to the audit concerns, is that if government strategies change, there is no mechanism to be able to influence those foundations. The funds are given under a funding agreement to do certain things, and they are to continue doing that. If a strategy were to change and the government thought we should do it in a different way, there is no mechanism to be able to influence that.

Senator Comeau: I want to pursue this briefly. I am not convinced that it is not possible. Some of the foundations are creatures of legislation. Given that they are creatures of legislation, we can, as Parliament, change the legislation, can we not?

We are in the process of doing that currently. In Parliament, at this point, we are breaking a promise. I will use the census example. We are breaking a promise of the past, and we are saying we can do it because we are Parliament. If we decide to change legislation, we can, can we not?

Ms. Fraser: Obviously, you can change legislation. I would ask more of a legal question. Can you do it retroactively? When funds have been given under a funding agreement that says ``Do activity X,'' can you come in and retroactively change that?

Senator Comeau: That is a good question.

Ms. Fraser: I am not sure about that. The funds have all flowed out. If they were funds that were to be committed over a period of time, Parliament has a mechanism to change that, but now the funds have gone.

Senator Comeau: What about the rest of the foundations, those that are not created under legislation but under the Canada Business Corporations Act?

Ms. Fraser: I believe there are only three that have been created under legislation. The majority have been created under the Canada Business Corporations Act as non-profit organizations.

Senator Comeau: Would you need to seek legal advice as to what would happen if Parliament were to start changing these foundations?

Ms. Fraser: Government takes the position that these are independent organizations. The funds have flowed under a funding agreement. At such time there are mechanisms in the funding agreement if there is an obvious breach of that funding agreement, but if there is a change in direction, that would not be a breach in a funding agreement.

Senator Comeau: As a parliamentarian, I do not take great comfort in inviting a foundation to come before us if our own auditor, the auditor of Parliament, cannot provide the kinds of legal opinions that we depend on as parliamentarians. Obviously, we have to depend on the auditors appointed by the foundations in order to be able to assess the opinions established in those statements.

Ms. Fraser: The audit regime in the foundations is strictly an audit of the financial statements. It is not the broad scope audit that is done on other government activities.

Senator Harb: I came here with a couple of questions on the foundations, but frankly, after I heard the Auditor General's presentation, I changed my mind completely. I think her presentation was dead on. I am a bit concerned. I want to ask the Auditor General for a comment.

Looking at the way Treasury Board now deals with the Auditor General's office, on an annual basis, they have an external auditor who looks at your department, and they have an audit that is provided to them. As well, you have the Public Service Commission that looks at your operation on a regular basis. Further, the Institute of Chartered Accountants of Ontario, British Columbia, Alberta, Nova Scotia, and Ordre des comptables agréés du Québec also review your operation. On top of that, you go out and ask for an external audit to check on the quality of work that you do.

You just submitted an extremely valuable report on the international peer review, where you had a team from the supreme audit institutions of United Kingdom, France, Norway and the Netherlands who have examined the value- for-money practice of your office, and as part of that team there were two representatives from the United States. With the permission of the chair, I would like to put for the record the finding of it, which was signed by the review leader from the National Audit Office of the United Kingdom on behalf of the review team.

Point No. 7 on the first page of the summary report: ``That we also assessed the extent to which the value-for-money audit practices operate effectively to produce independent, objective and supportable information that members of Parliament can rely on to examine the government performance and hold it to account,'' and Point No. 8 says, ``We found that as of December 31, 2003, the office's,'' that is, your office, ``value-for-money audit practice was suitably designed and operating effectively to achieve its objectives.''

With all of this, are you telling us that the Treasury Board still nickels and dimes you, seriously?

Ms. Fraser: We are really proud of this peer review. This is the first time that this kind of international peer review has been done by a team, and we proposed that to our colleagues internationally. They showed interest in it, and in fact we are now leading a peer review of the team of six countries, and we are reviewing the GAO, or the Government Accountability Office of the U.S. Norway, Netherlands and Sweden are also interested. It is a practice, and we were the first, and we are proud to have been the first in doing this. We tell everyone else that audit is good, so we have to do it to ourselves, too.

The real issue with the Treasury Board secretariat is to have an independent process. There are, as I mentioned, different models. We have looked to the other provinces and to other countries to see how that is done. The U.K. uses a commission. There is, of course, the Senate ethics commissioner now who has another model.

The Chairman: Of the three that you talked about, do you have a preference for one of the three?

Ms. Fraser: I have actually indicated to the President of the Treasury Board that I would go for the moment with the blue ribbon panel, because it does not require legislative change.

The Chairman: How many people?

Ms. Fraser: Three people, one appointed by each speaker and one by the president, who could then rightfully give us the challenge and then issue a report to the board, perhaps to Parliamentary committees, on the level of funding and the appropriateness of the funding for the office. It would not require any legislative change and the process would still follow as is, except instead of the secretariat trying to do the challenge function, which we think is inappropriate because we are auditing them, there would be an independent panel.

I said to the president that I think we should do this as a pilot project, or identify it as a pilot project, try it for a year or two, and then assess if it is working. On the other hand, if we immediately move to legislation, we might find that that is perhaps not the best model. Let us experiment a little with it. If it does not work, there are other models we can look at. There are ways to involve parliamentarians in the review of the Estimate in hearings such as this, and a challenge function to us as well. I would go that way. It seems to me perhaps the simplest mechanism for the moment. We could try it and see whether or not it works.

Senator Harb: I suppose what you are saying is that there is just so much on the table now in terms of work that you must perform. I know that you must come up with at least three to four reports on an annual basis. You also have other specific requests that come from governments or outside sources that you must conduct. You must also do follow-up on other work that you have done in the past. To give you an example, you need to do a follow-up on your report of 2002 on the foundation and the endowment funds. I am not sure whether you have done it yet or not. That is one example. You also must go and see whether or not departments have done and conducted their work.

You are saying, ``Look, with the kind of resources I have at hand, I cannot do the job effectively. I cannot really meet the objectives as set out by parliament through legislation unless you give me the resources.''

For this year, has the issue been resolved, and if not, what is the difference in terms of what you want and what they have offered you?

Ms. Fraser: The issue on the funding was that in our estimates, in our budget of $72 million, $11.5 million is temporary. It was brought in as temporary funding, and the large part of it was linked to the Treasury Board decision in 2001 that we would get an extra $8 million, and at the same time the secretariat was directed to work with us to find a funding mechanism. Each year, that funding has been extended on a temporary basis, year after year, and somehow there is a link with this independent funding mechanism.

For the current year, we are fine, and the $11.5 million was put into our reference level, and we do have that money. The issue came up for the reference levels for next year. The Treasury Board secretariat did not process our application to have that funding extended. Effectively, our funding has dropped from $72 million to $61 million for next year. I tried to get that resolved and was not successful. I then brought that to the committee in the other House to say, ``If our funding is cut by $11 million, I cannot fulfil my mandate.''

I have received assurances that that matter has been addressed and the funding will be in place for next year, but it is still on a temporary basis. That is why I am attempting to have the government focus on resolving the funding problem. I need to have some stability, going forward, and know what our level of funding is and how we can plan our work.

We like to plan our work 3 years out. It takes us 18 months to do an audit. I cannot have a variation of 15 per cent in my budget, quite frankly. We would like to get this funding mechanism in place and thus have our funding resolved so that we can cease being subjected to this temporary renewal process, year after year.

Senator Harb: You do much fantastic work on the international scene. You audit some of the UN agencies as well as other organizations internationally. You charge a fee for that.

When you do audits of Crown corporations or government departments, is there an option there? Perhaps you could bill them whenever you find a problem? Is this something that the Treasury Board or the government should entertain? Do we need to change the legislation in order that you could do such a thing?

Ms. Fraser: Senator Harb is correct that we do two international audits — two audits of agencies of the United Nations. We audit UNESCO and the International Civil Aviation Authority. For those two audits, we charge fees. We must go through a competitive process in order to be named as auditors in those instances.

I think Senator Harb heard me say this in the past: I came from a world where I had to negotiate and charge fees. I would hope that I would not have to go back there.

Our other work, be it Crown corporations, government audits, the territories, is all funded through our appropriations from Parliament, which then gives us the ability to do the extent of the work that we believe is necessary, and is not dependent on the resources that the organization is willing to give us. Actually, it gives more independence to the office. The office can do the work and continue on to whatever extent it feels necessary without having to go back and negotiate with the organization that it is auditing.

The system that we have now is appropriate, but I still think there should be that independent challenge function that is brought in to give assurances to parliamentarians that our funds are being spent wisely and in the most effective manner.

The Chairman: You need the ``blue ribbon panel'' in place soon because, from what we have heard from a number of other witnesses who have come before this committee, there are substantive changes being made in the restructuring of the public service involving the audit, comptroller and many other functions.

One of the things that I can foresee is that your job will become bigger. You will need, perhaps, more personnel and a greater budget. The sooner you can get that independent ``blue ribbon panel,'' the better, in order for you to do your job. Do you want to comment on that statement?

Ms. Fraser: I agree. There have already been announcements by government. For example, it has been announced that all the financial statements of departments and agencies will be audited within five years. If that were to come true, it would be a significant level of effort.

The Chairman: An increased workload?

Ms. Fraser: There are other things that are being discussed. It is possible that the mandate could be changed, yes.

Senator Murray: I presume that it is international work that has brought you the $1 million in 2003-04 and $800,000 in 2004-05?

Ms. Fraser: That is correct.

Senator Murray: It is listed as ``non-respendable revenue,'' and it is subtracted from your total costs. What do you mean by ``non-respendable revenue?'' It goes to your bottom line or to the Consolidated Revenue Fund, the CRF?

Ms. Fraser: No, it goes to the CRF. We have to make a submission to have it brought back.

Senator Murray: As you said, most of the foundations have been created by the Canada Business Corporations Act and as such, as Professor Peter Aucoin pointed out in an article he did in Canadian Public Administration about a year ago, they cannot even be correctly described as arm's length agencies. They are out there. They are essentially private organizations spending public money.

To give them credit, some of them have volunteered to come to tell us of the great work they are doing. I do not doubt that they are doing great work. I do not think it is any part of our ambition to see them subject to political direction or interference or anything like that, but we are talking about a great deal of money by organizations that are carrying out a public mandate.

We should make a list of what the minimum requirements are that we expect from these organizations in respect to their accountability to Parliament. The minimum is that our Auditor General does their audit. Second, they should be required — and some of them have resisted this — to table an annual report through a minister in Parliament. After that, we should consider whether they ought to be subject to the Official Languages Act, the Access to Information Act, the Privacy Act and all the rest of it.

What am I missing here in terms of minimum requirements for parliamentary oversight of these organizations?

Ms. Fraser: One other issue that we have had is the ability for ministerial direction if circumstances should change — not in the sense of day-to-day, but if the government strategy on innovation changed and you said, ``We no longer want to fund these kind of projects. We want to do something different,'' there is currently no ability to intervene. Quite frankly, if things go wrong, there is no ability to intervene. If there is a breach of the funding agreement, which is extreme, there should be some ability for ministerial oversight and intervention.

Senator Murray: This committee also made a report with some recommendations on this subject some time ago. Perhaps we should have a longer discussion with the president of the Treasury Board or someone about what is happening here.

Do you agree with me that if Parliament decided that any one of these organizations that had been set up under the Canada Business Corporations Act should now be audited by the Auditor General, we could do so?

Ms. Fraser: I think that there are mechanisms to do it. There would have to be a direction. It is my understanding, though, with some of those foundations that the way in which their legislation is set up would actually preclude their naming the Auditor General because it must be a firm from the private sector. However, I am sure there are ways to do it.

Your first point was correct: I do not want people to ever interpret our comments on this subject as casting aspersions on these foundations. They are very good people doing very good things. However, we are concerned about the accountability given the large sums of money. Parliament should know about the good things that they are doing, but the accountability mechanism should be more robust.

Senator Murray: Once their annual report is tabled, we are halfway home. A committee of this place or of the other place can simply ask them to come and discuss their activities.

You helpfully sent to the chairman on November 18 a letter drawing to our attention a number of issues that you had raised in fairly recent reports. I do not want to go through them at length. However, one point I would make, looking at some of these matters, is that while your primary relationship in the Senate is to this committee, there are other Senate committees that should be interested. There are matters such as non-residents being subject to Canadian income tax and international transactions of Canadian residents and foreign affiliates and all that sort of thing. This is subject matter that we in this committee do not normally get into. It would be a good idea not just to leave it to the government to act or not act, as it sees fit, but to try to draw these things to the attention of, say, the Standing Senate Committee on Banking, Trade and Commerce, that routinely gets into these matters.

Ms. Fraser: Whenever we have a report, we have written to the other committees. I am not sure if we have written to the Banking Committee on these issues as well.

Senator Murray: For example, money-laundering would be the Legal Committee.

Ms. Fraser: I know we brought money-laundering to the attention of the Banking Committee as well.

Senator Murray: All the items interested me but there is one I wanted to raise before I conclude, and it has to do with health care.

Ms. Fraser: Is it the drug benefit programs, perhaps?

Senator Murray: No, it is not drug benefits; it is national leadership on health care. In 1999 and then in 2002, you observed that Health Canada did not know the extent to which the provinces and territories were in compliance with the Canada Health Act, et cetera.

Ms. Fraser: Yes.

Senator Murray: I went back this afternoon and looked up the 2002 report. You mentioned the difficulty of separating out the health transfer from the social transfer. The government has now, for other reasons — perhaps also guided by your report — broken it out. There is a separate health transfer to provinces.

Ms. Fraser: There is still what is called the CHST, which is a block. There is a separate transfer for health.

Senator Murray: There is now a separate health transfer as a result of the meeting last month, or in September, so there will be a Canada health transfer and a Canada social transfer. I do not know if you have had a chance to think about this: the Canada Social Transfer would include what used to be the Canada Assistance Plan, social services and post-secondary education. Do you not think it would be a good idea to separate out the post-secondary education component of that transfer?

Ms. Fraser: I am being whispered at: ``policy, policy,'' but I would think if we made that comment on health, yes, there should be at least a notional indication of how much is going to post-secondary education.

Senator Murray: I will not go into it now. I will not say that I am dubious about what you had to say about trying to get some accountability from the provinces on the health matter, but I am. Realistically, if you expect them truly to account to the federal government, I think you will be waiting a long time.

Ms. Fraser: That is actually an issue that we have started to address, because much of the funding goes through joint federal-provincial programs.

Senator Murray: I am talking about the health transfer now.

Ms. Fraser: That is true even of the health transfer. Should there not be some accountability back to the Parliament of Canada on large sums of money? I agree with you that it is a difficult area. We are starting to grapple with what could be doable in this situation. Obviously, the provinces will not be accountable in that old sense but perhaps there could be public information that is made available, or a different mechanism that could be thought of to give information to the Parliament of Canada on very large sums of money.

Senator Murray: You referred in the 2002 report to a federal-provincial agreement of 2000 concerning reporting on wait times and so on. That has been supplemented in the last six weeks or so by the 2004 accord. Basically, the provinces say that they are responsible to their electors that they are running the health system.

Ms. Fraser: I agree. I guess the question is whether there should be accountability back to the federal Parliament.

Senator Murray: Other than those federal-provincial agreements and mechanisms that are set up, I would not expect much more. Perhaps we can return to this subject later.

Ms. Fraser: It is a philosophical question as to how you deal with accountability in that sort of arrangement.

The Chairman: Ms. Fraser, earlier you indicated that you are doing a bit of a follow-up report on your 2002 report on foundations, and it should be out in a few months. If it is not already included in that follow-up report, could you put something in to provide an assessment of the steps undertaken by the federal government in its February 2003 budget to enhance the accountability and transparency of foundations and endowment funds so that we could know about it?

Ms. Fraser: That report, our audit, will be coming in mid-February 2005. Those issues are included in the scope of that audit.

The Chairman: Would it include an assessment of what additional measures you think should be undertaken by the federal government to be satisfactory to your office?

Ms. Fraser: Yes.

Senator Carstairs: I am always somewhat amused about so-called ``parliamentary accountability'' when it has been my experience that, given the opportunity, parliamentarians often do not choose to take that accountability function very seriously.

A number of foundations have indeed reported to Parliament and yet, if you look at the numbers of those foundations who appear before a parliamentary committee, they are minimal. We then ask: Where are the parliamentarians acting in an accountable fashion? Do you share that concern?

Ms. Fraser: The senator is putting me in a somewhat difficult position here. I think, though, that you are correct in saying that accountability lays responsibilities on all parties in an accountability relationship.

We have been somewhat critical in the other place, for example, of reviews of estimates that waned quite seriously. That is an important part of the accountability function. Yes, I think there are responsibilities and duties on all parties in an accountability relationship to make it work well.

Senator Carstairs: As you know, the elected chamber I was in was provincial. Anyone who has had any experience with provincial chambers knows that hours and hours are spent taking an individual departmental budget and examining, line by line by line, exactly the kind of expenditures that are made. One year, the Minister of Health in Manitoba was grilled for 52 hours as to how his money was spent.

We do not seem to do that kind of thing at the federal level. It concerns me that that type of evaluation is not done. Yet, at the same time, those very same politicians are complaining about the fact that people are not accountable. It gives me a concern.

In terms of the foundations, I would take quite a different position from my colleague opposite, because I think one of their very great strengths is the fact that they have the money and that that money cannot be clawed back by a government with a whole different philosophy. I am thinking particularly of the Millennium Scholarship Foundation. There is a great deal of money there. It is supposed to be a scholarship foundation for young people that goes on in perpetuity. What happens if at some stage we have a government that does not put the same value on education? If it were not established in a foundation form, presumably that government could claw that money back and spend it in an entirely different way.

I only look to British Columbia. We had that discussion with Senator Murray where at one point it could be proven that no post-secondary education money was being spent by the Province of British Columbia. The only money that government was spending was the exact amount of money it was receiving from the federal government.

I would like a comment on whether you think there is strength in a foundation having money that is gifted to it, if you will, in order to maintain some programs in perpetuity?

Ms. Fraser: I have two comments. First, I really believe that in order for programs to be successful over a longer term, they should have stability of funding. I am not necessarily convinced that it all must be paid out in advance of need, but there should be stability of funding, which would lead me to say that I think departments and agencies should have much greater stability of funding.

We have seen such cases with large projects within government. For example, the government-on-line project, the secure channel, which is a major project, had funding for only one or two years. Government preaches the benefits of doing this with relation to the foundations and yet does not apply it to its own departments. There is a bit of an inconsistency there.

Perhaps the political scientists could talk better than I, but there is the whole question, too, about taking away the prerogative of future parliaments on decisions. I would raise that issue. I am sure the senators are better able to discuss that than I, but if there is a change in government, if it does have a new philosophy, should it not be able to enact that new philosophy or new direction?

Senator Carstairs: I should like to look at one other area and that is the requirement with respect to your own funding, which I believe you have addressed very well. I would like to know a bit more about the United Kingdom model. You say it involves an all-party commission examining the office estimates. How does that commission get established? I will tell you where I am coming from, because my only objection to the other two is that, quite frankly, the Speaker of the Senate is not a speaker like the House of Commons Speaker. For example, our Internal Economy Committee is not chaired by the Speaker of the Senate. We think of our Speaker as being one of us, not someone who is elected. Therefore, I have some problems with the Speaker choosing who would be a member of this particular panel. I would rather it be the Senate that would do the choosing, for example. That is why I would like to know how the United Kingdom model differs from the blue ribbon panel.

Ms. Fraser: The commission is an all-party commission. It includes the chairman of the Public Accounts Committee, the leader of the House of Commons and seven other members of the House, appointed by the House, none of whom are ministers of the Crown.

Senator Murray: None of whom are Lords, either. The Lords do not have a look in, if I understand.

Ms. Fraser: The commission examines the estimates that are prepared by the national audit office and lays it before the House of Commons with any modifications that it sees fit. The Audit Act directs the commission to take into account any advice given by the Public Accounts Committee and the Treasury, which would be our Department of Finance.

Senator Carstairs: I must say that I do not like that model either, on the basis of your description. I would like a modified, third model which is certainly a blue ribbon panel. I would like to see it appointed by the House and the Senate, rather than the Speaker of both of the chambers.

Ms. Fraser: That is interesting.

The Chairman: That is a good point.

Senator Murray: The blue ribbon panel would be a blue ribbon panel of non-parliamentarians, one assumes?

Ms. Fraser: Yes, that is right.

Senator Murray: You are prepared to subject yourself to that? Do you not think it is parliamentarians who appreciate you the most?

Ms. Fraser: Or not.

Senator Murray: There are two or three of us, whether from the Senate or House, who are in a better position to make that judgment.

Ms. Fraser: Nothing would preclude a member being on that panel.

Senator Downe: I will start where Senator Carstairs finished. I preferred the United Kingdom model. Now having heard the description, I have some concerns. I suspect the government would be somewhat reluctant in respect of the blue ribbon panel, given the experience they have had with judges' salaries, which was done that way: Two each appointed someone and two appointed the chair. There has been a host of criticism about the recommendations.

I share the view that the involvement of parliamentarians would probably be in everyone's best interest, and perhaps some refinement of what they have in the United Kingdom would serve to that end.

I share your view on the problem you have with Treasury Board on the independence of your funding. I want to inquire about your views in some other areas where your independence might be called into question.

Do you have any concerns about copies of your audit reports being given to the government well in advance so that they can prepare a response before you table them in Parliament?

Ms. Fraser: It is our practice, and it is viewed as best practice, in legislative audit to share our drafts of reports with the departments. It is almost a necessary step in our audits because we ensure with the departments that we understand the situation, that the facts are correct and, at the end of our audit, we ask the deputy minister to sign off that the facts in the report are correct. We also allow them to give us comments on tone. If they believe that certain paragraphs are phrased in a way that would lead to a misunderstanding or a misinterpretation of what we are actually trying to say, we will work with the department on that.

As part of our reports we have a response from the department. We ask them to respond to each one of the recommendations we make, if they are in agreement or not, and if they are planning to take any action. That makes for a better report. It would be unfortunate if we did the audit in isolation of that exchange with the department and then we started to quibble about facts. It would be counterproductive to the whole process.

We do share the drafts with the departments, then we finalize it, and once the report is finalized, I do offer to meet the minister concerned to brief him or her on the report, which would be in the days just immediately before tabling.

The Chairman: You said that it may take up to 18 months for you to do a complete audit. I am interested to know how much time is spent in this process of meeting with the departments and letting them see your recommendation? Are you talking about a week, two weeks or a month?

Ms. Fraser: We give them an initial draft and we give them six weeks to come back to confirm facts and give us comments. We then finalize what we call the deputy minister draft and give them two weeks to deal with that. You can understand in some very large departments, such as National Defence, they could have many people working on an audit to verify facts. We do work with them on project reports as we are going through the audit as well.

Senator Downe: To be clear, after the facts are checked and the deputy minister signs off, you then sit down you with the minister to review the final draft?

Ms. Fraser: No. Once the deputy minister has signed off, it goes to print.

Senator Downe: Do you send a copy of the final printout to the department?

Ms. Fraser: The final copy would be the deputy minister draft that we send out.

Senator Downe: I am sorry, I am not clear on that. The facts are checked and the deputy minister signs it off. Does the department get another copy of the report after that?

Ms. Fraser: No.

Senator Downe: They do not see the report again after the deputy minister signs off?

Ms. Fraser: That is correct. There could be changes. They would be minor in nature, probably editorial.

Senator Downe: Other than the deputy minister receiving the copy that he or she signed off on, you give no copies to any other parliamentarians prior to tabling it?

Ms. Fraser: I give no other copies.

Senator Downe: So the government has a copy in advance, but parliamentarians do not until you table it?

Ms. Fraser: The government has copies, including ministers, I presume, through their departmental briefings and through their own process. We would share a copy of the drafts with the Privy Council.

The Chairman: And with Treasury Board?

Ms. Fraser: We share a copy of the drafts with Treasury Board. We also brief the Leader of the Government in the Senate, usually the day before tabling.

Senator Carstairs: Yes.

Ms. Fraser: As Senator Carstairs will know.

Senator Downe: Do you brief the opposition or anyone else the day before tabling?

Ms. Fraser: No.

Senator Downe: That goes back to my question: Do you have any area of concern about that independence?

Ms. Fraser: No. The process with the departments is correct and appropriate and is a necessary element. Briefing the minister immediately before tabling is good as well because ministers often hear a different story from their departments than they might hear from us. They are the ones who are responsible. If we are trying to promote change, we can sometimes get that change by telling the minister our perception of issues and what the facts actually are, rather than the briefings that may have come up through the departments. The ministers are ultimately responsible for what goes on in their departments.

Senator Downe: The other area of independence that would be of some concern would be the appointment of the Auditor General. As I recall — and correct me if I am wrong — the term is for 10 years but it is not renewable?

Ms. Fraser: That is correct.

Senator Downe: There are other positions in government, for example the Chief Electoral Officer, that are served for a set time. When I say ``set time,'' I think the Chief Electoral Officer is appointed for 18 years. Are you concerned that 10 years is too restrictive?

Ms. Fraser: Actually, I think 10 is appropriate. I think longer than that would be too long. I think it should be a minimum of seven, at least seven. I think 10 years is fine. I also believe it should not be a renewable position.

I do not know if you are aware of the appointment process, but there is a process to the selection of the Auditor General. There is a search committee that is chaired by the President of the Institute of Chartered Accountants that brings forward names to a committee that then does the interviews. That committee is chaired by the President of the Treasury Board, and then that committee makes a recommendation to the Prime Minister. At this point, it is a nomination by the Prime Minister. In my case, there were public announcements or advertisements in the newspapers if people wanted to apply, and there was consultation with the opposition parties.

Senator Downe: I have one or two other questions on foundations. I have heard this evening how the foundations are doing very good work. How do we know that? Some of them do not have business plans, and not only are they not independent but also, according to the figures I have here, some of them are not even spending half of the money that they have received. Some of these foundations have been there since 1993, I understand, and they have received over $9 billion. They still have over $7 billion, and they have earned interest of $1.7 billion — not million, billion. I do not think they were created to generate interest; they were created to give out grants and stimulate activity in certain areas. Do you have a concern that the surplus has been underestimated by $7 billion because the money has been transferred to foundations and agencies?

Ms. Fraser: Let me go back to the point I was raising earlier. I did not want the concerns raised about accountability to lead one to the conclusion there are big issues — for example, mismanagement or management issues — in these foundations. I would not want people to make that link and I know that may have been done in certain cases.

Obviously, I do not know how well they are doing, and I do not think many parliamentarians actually know how well they are doing. However, I think there are some very outstanding Canadians on these boards and I would not want anyone to think that the concerns we are raising are triggered by any particular issue of management problems within any of these foundations. That is not the case. It is more a question of accountability to Parliament.

On the table that we had in the public accounts, the first foundations were set up around 1997. That was the Foundation for Innovation. Under the government's accounting policy, which was largely based on cash, once those transfers were made or there was a commitment to make those transfers — that is, a formal agreement in place — the amount was booked as an expense. Yes, I have raised that in another matter in the public accounts. We have been raising that now for four or five years anyway, just saying, ``I question if the accounting treatment is really the best one and that, when those accounting rules were set up, you would record a transfer when the cash went out the door. It was also at the same time that there were rules that you paid as you go. You did not prefund large amounts of money like this.''

The Public Sector Accounting Board, which sets the accounting standards in government, has two projects under way which will resolve some of this issue. One is on the whole question of entities that should be included in the government's public accounts and the notion of control, and that ``control'' is not simply a legal definition of ``control,'' or of a majority of board members but is, in substance, controlled. That is, do you actually direct the operations of the organization? If so, then you should include them in your reporting entity. We are looking at these foundations to see if some of them would not meet that definition and should not be included in the government's public accounts.

The second one is on the question of transfers. Should you be expensing the transfer when it is paid out, or can you have an asset, such as a prefunding, and you would recognize it when the foundation itself transfers the money out to the people who are ultimately destined to receive these funds? Those two accounting projects are under way right now, and I would hope that there would be standards out within the next year. We will have to see what effect that might have on these statements.

Senator Day: Thank you very much for coming here tonight. I have a few points. Most of my questions go to clarification and understanding.

First, can you tell me about the Canadian Comprehensive Auditing Foundation?

Ms. Fraser: That foundation was set up in the 1970s by the Auditor General at the time, James MacDonnell. That organization helped to develop guidance and to do research on issues of interest to the public sector. For example, in the last few years there has been a very large initiative on performance reporting: For example, what would be some of the guidelines and principles around performance reporting? They have had conferences on this subject. They have had discussions with government, with the private sector and with legislators. We provide a fair bit of the funding to this foundation; provincial auditors do as well. They also receive funding from the private sector and from various governments. It is really a private/public sector research organization.

Senator Day: In the Main Estimates, the transfer of $380,000 is the funding to which you just referred that you transferred to that foundation so that they can perform their good work?

Ms. Fraser: That is correct.

Senator Day: So that I am clear, in the Supplementary (A) Estimates, it looks as if you did not use all of your funds last year, and you are asking for permission to transfer forward into this year about $3 billion. Is that correct? Would that be possible?

Mr. John Wiersema, Deputy Auditor General, Office of the Auditor General of Canada: That, Mr. Chairman, is the routine carry-forward provision that all departments and agencies of governments are entitled to, where we can carry forward up to 5 per cent of our operating budget. That has been lapsed from the previous year. That is our application for that routine carry-forward.

Senator Day: You are bringing forward that $3 billion from the previous fiscal year? You are asking for permission to do that?

Mr.Wiersema: It is up to $3 million.

Senator Day: Millions and billions.

Mr.Wiersema: Yes, Mr. Chairman, it is a $3 million carry forward.

Senator Day: We made that mistake when we had the President of the Treasury Board before us as well. Maybe you could ask them why they put it at the top of these Main Estimates in thousands of dollars and then on the same page you will see that they add three zeros. They do not shorten it up in the same way. Sometimes it is in thousands; sometimes in millions. Is there a reason for that? Is that a generally accepted accounting principle?

Ms. Fraser: I would suspect there is no rational reason behind that. They have a project under way on the whole presentation of estimates and how to make them clearer.

The Chairman: Yes, they do.

Ms. Fraser: I would encourage them to be doing that because it is not an easy process.

Senator Day: It is not. That brings me to my next question. We have heard from the Treasury Board secretariat that they are entering into a review of their Main Estimate presentation of documents and the process. You had made mention that you would be participating in that. We too have been invited to participate in that process. Do you see how we might be able to participate together, or will we work in silos here?

Ms. Fraser: I would certainly hope that we would all work together on this. If we all work separately, we might all end up in different places. They do have a resource that just came in to the secretariat this week that we know well, and that will be leading this project. I would hope there would be a way to bring everyone together.

Senator Day: Do you have any specifics on the process yet?

Ms. Fraser: I have no specifics. To my knowledge, the resource just started this week. He will need to scope out what he wants to do and how he is planning to do it.

Senator Day: We will look forward to working with you on that.

Ms. Fraser: Thank you.

Senator Day: Regarding the point raised by my colleague Senator Downe about when the deputy minister signs off on your review, I note when you do your report, in different coloured ink at the bottom, you have something to the effect that the department agrees with this report, that it will implement all these things and agrees with our recommendation. When does that comment come?

Ms. Fraser: That would be at the time the deputy minister signs off. If you go into the detailed report, you will see that the departments give much longer responses to each one of the recommendations and often have a very long response at the end. In the summary at the beginning, we just indicate if they have agreed or not. That is our summary of their response. They give quite an elaborate response to each one of the recommendations, usually.

Senator Day: That elaborate response is done before they sign off. They have a chance to review the report and say, ``Yes, we agree,'' or ``We do not agree, and this is why we do not agree,'' and so forth. They do all of that before they sign off and give it to you to publish and report to us?

Ms. Fraser: The draft, if you will, goes through all that review process. Then we finalize the draft. We give that to the deputy minister. We ask the deputy minister to send us back a letter confirming the facts and giving us their response.

Senator Day: Regarding the audits that you do, first, is ``performance audit'' synonymous with ``value-for-money audit?''

Ms. Fraser: Yes.

Senator Day: It is the same thing?

Ms. Fraser: It is the same thing. We changed the name after the peer review, because performance audit is the international term, and we think it better depicts what we actually do than perhaps value-for-money, which seems to imply we do some evaluation role, which we do not do.

Senator Day: Did all of the participants in this international value-for-money audit practice, as it was then referred to, do a performance or a value-for-money audit in their own countries as well?

Ms. Fraser: They do, though the legislative mandates can be quite different. Great Britain is very much like us, but France is a court system. It is legally based, and it is called the ``court of accounts.'' In fact, in the French system, a civil servant is personally responsible for an invoice, for example, until a court relieves him of that responsibility. The court can impose sanctions, convict people and impose fines. It is a legalistic system as compared to our system.

Senator Day: Presumably they would have a financial audit by people trained in financial matters, and then they would have the legal people doing performance audit that deals with corporate structure, governance and that kind of thing? They are two different groups.

Ms. Fraser: They are the same group. More lawyers are in their system than in ours, but they would conduct audit work like we do, bring it to the court and then have the departments come in and answer to the courts. It is a very different process than ours. They pay a lot more attention to compliance with authorities. They are very focused on authorities, so they would do performance audits but perhaps not quite in the same way as we would.

Senator Day: What about the other countries involved, for example, Netherlands?

Ms. Fraser: Netherlands is much like us. Even though they call it a court, it is very much like us. What is interesting in the Netherlands is that there are three Auditors General, and they are former politicians. They are named, I would almost say, by the major parties, so that there is a bit of a political balance, if you will, before the reports go out.

The Chairman: I like our system better.

Ms. Fraser: Norway is the same. The Auditor General of Norway was, in fact, the former Minister of Fisheries. The systems are very different throughout the world.

The Chairman: Do they have auditing training or accounting training?

Ms. Fraser: No.

Senator Day: Maybe we could evolve into that. What I am trying to get to here is that there seems to me to be two different types of activities that your group at the Auditor General's office is performing here. Your description in France highlights that a bit.

How long has it been that the Canadian Auditor General has been involved in the performance value-for-money audits as opposed to what accountants used to do, which is look after financial audits?

Ms. Fraser: You are right that the traditional role of auditors was to look at the financial statements and the financial transactions. During the 1960s, the Auditor General started to report on what he called at the time ``non- productive payments'' in the Public Accounts of Canada. That evolved, and the Auditor General Act was changed in 1977 to give the value-for-money mandate, so we have been doing that kind of work since then.

The act was again modified in 1995 to create the position of the Commissioner of the Environment and Sustainable Development, which is part of the office, and we audit the sustainable development strategies of the departments. We receive what are called ``petitions,'' but they are not petitions in the way that we would usually think of them from the public. Johanne Gélinas, who is the commissioner, has a group of largely environmental experts who do one report a year, mostly on environmental issues. Fisheries was included in the last one. We have done pesticide management. We have looked at the Great Lakes. There have been a variety of issues that we have looked at.

Senator Day: Those were environmental-type audits?

Ms. Fraser: Yes.

Senator Day: Is that group covered within your budget?

Ms. Fraser: Yes.

Senator Day: Is it $73 million?

Ms. Fraser: They are included.

Senator Day: How many are in your department?

Ms. Fraser: There are 580 people.

Senator Day: Roughly, how many of those would do what I would describe as the traditional financial auditing?

Ms. Fraser: If you look at our performance report, you will see half of our work is on the financial side.

Senator Day: That is helpful.

Ms. Fraser: Half is performance and half is everything else, but that is largely the financial audits, the special examinations and the assessments of the three agencies.

Senator Day: Would the special examinations be primarily a performance audit?

Ms. Fraser: Yes.

Senator Day: It looked to me as though they are primarily performance audits. You have systems in place, governance issues and all that kind of thing.

Ms. Fraser: Yes.

Senator Day: Are about half or maybe a little more into the performance activity and reviewing aspect?

Ms. Fraser: That is right.

Senator Day: It seems to me that the work is different. Do you have business administration people, public administration people and lawyers? In your department, of those 600 people, half might be that kind of person?

Ms. Fraser: Many people are surprised that of the 600 people, only 200 have professional accounting designations. To be a member of the professional staff of the office, staff must have professional accounting designations, for example, a CA, CMA, CGA or a master's degree.

We have people who have environmental science and public administration degrees. We have lawyers, economists, IT specialists, engineers and human resource professionals. We had a doctor on staff for a short time who helped us with the drug benefit programs. It is a diversified group in order to be able to do these performance audits.

Senator Day: You have teams of people, depending on what you are looking at, I suppose. You would put in a different team of people with different expertise, depending on the material?

Ms. Fraser: That is right.

Senator Carstairs: We are engaged in this matter in another committee. In terms of the 580 people that you employ, do you know how many are visible minorities?

Ms. Fraser: Yes, I do have the figures with me in our performance report, I believe.

The Chairman: Are the 580 employees in one building or are they spread out in many different buildings and locations?

Ms. Fraser: Most of our staff are here in Ottawa. We are in one location at 240 Sparks Street. We also have offices in Halifax, Montreal, Edmonton and Vancouver. Halifax looks after our East Coast work, Montreal is largely Crown corporation work, Edmonton does the audit of the Northwest Territories and Vancouver does work on the West Coast as well as the Yukon.

I will have to send that information on employment figures to the committee.

Senator Downe: Of the 580 employees, how many are based outside the National Capital Region?

Ms. Fraser: There are probably 100 or less. The regional offices tend to be quite small. Most of our work is in Ottawa. I would be glad to send you the exact numbers.

Senator Downe: That is close enough.

Senator Day: I have a couple of points for clarification. Earlier I believe you said that in the selection committee for your position, the Institute of Chartered Accountants is involved.

Ms. Fraser: Yes, the President of the Institute of Chartered Accountants leads a search committee. I believe there is representation from across the country on that search committee. They bring forward names of potential candidates for the position. Those names are then submitted to a selection committee, chaired by the President of the Treasury Board.

Senator Day: Is the makeup of the search committee that hires the selection committee not reflective of the more traditional financial audit role?

Ms. Fraser: Probably, but I think it says in our act that the Auditor General has to be a qualified accountant, and the Auditor General does have to sign off on the financial statements. The person would have to be a chartered accountant. Under current legislation and practice rights, a chartered accountant has to sign the financial statements.

Senator Day: Of the 600 professionals and masters level people, you have 200 that are professional accountants?

Ms. Fraser: They are not necessarily chartered accountants.

Senator Day: They could be certified management accountants, et cetera. I would like to know what you might be doing in respect of the following: I have read your comments recently and they are repeated in the November report. I agree that when the Auditor General comes forward with a report, there is the danger of painting the entire public service with the same brush, especially when the report is on a rather limited activity in a small part of a large public service.

You also made the point that sometimes the government might overreact by creating more rules or doing away with a program that simply needed a little fixing. The unfortunate result of your report might be an overreaction by the government. What are you doing to mitigate the reactions to your reports, which obviously have a pretty profound and sometimes not terribly desirable result?

Ms. Fraser: Yes, I indicated in the introduction to the November report that there are two unintended consequences of any audit, in fact. It could also be applied to internal audits as well. The first is that findings become generalized unfairly to the broad public service when it is an isolated case or an isolated audit scope. We try to take great care when presenting the findings of those kinds of audits to say that they should not be generalized. If you go back to some of the more highly visible audits we have had, we have been careful to say that when presenting the findings, and to caution the media, in particular, not to generalize this to all. I certainly do that at speaking engagements as well. I am not sure that we can do much more than that.

On the question of controls, the issue is that when there are findings, at times the government tends to impose or may impose more controls, or people may become much more reluctant to take reasonable risk in managing programs. I will use the example of the Grants and Contributions Programs in HRDC. There was an audit that everyone is familiar with, an internal audit and an Auditor General's report. We had a follow-up to that audit in 2002. In that audit we said that we believe government had overcorrected and that there were too many controls impeding the efficiency and effectiveness of the program.

I see some of it now, in many ways, in that there are many requirements. We have had many discussions with non- profit organizations, in particular, who talk about the level of controls and documentation. Many of them are finding it extremely burdensome and costly. I have been trying to get this project going in my office to see what we could propose that would be more efficient, would meet accountability requirements but would actually relieve some of that burden. I would like us to undertake that project in conjunction with government over the next year or two to try to present a different model that would still meet basic accountability and good management practices but would not be quite so oppressive on bureaucrats and on the organizations that are receiving this funding.

The Chairman: The President of the Treasury Board suggested that they are looking at a number of these new ways now by using the internet more so there would not be such an enormous paper burden once people started to file on the internet. It would be faster, cheaper and not such a big burden. They are certainly looking at it.

Ms. Fraser: There are certainly ways to do it. It is, perhaps, a human reaction when there has been strong criticism of management issues, that everyone hunkers down a bit and overcorrects. I thought it important that the Auditor General make that comment and to say that when we come out with these findings we are not proposing that there be more rules and procedures put in place. In general, we said in many cases that the rules were fine but often they were not respected.

Senator Day: I think you are going beyond human error on these issues. It was not a human error issue. It was a reaction to the media and the public's perception of the Auditor General's report. That is what you were talking about. I agreed with you on the points and I wonder what we can do to mitigate. You mentioned some points and I think we have to continue to think about that matter.

Ms. Fraser: If I might, Mr. Chairman, we do have the information on employment equity. I will ask Mr. Wiersema to give that information to the senators.

Mr.Wiersema: I apologize for not putting my hand on this more quickly. As of March 31, 2004, we had 585 employees, 321 of them — one, in particular — were woman, which was 54.9 per cent of our office staff and the representation that we think we should have is 52.1 per cent, so we are better than on target on that one.

With respect to Aboriginal peoples, we had 9. They are 1.5 per cent of our office as opposed to the workforce availability of 1.9 per cent. For persons with disabilities, we had 20, which is 3.4 per cent as opposed to workforce availability of 3.6, so we are close there. With respect to persons of a visible minority, we had 47, or 8 per cent of our office, as opposed to workforce availability of 10.6 per cent.

The Chairman: That is better than the general public.

Mr. Wiersema: We are not doing too badly. When we break it down by level in the office in terms of the management grouping and the professional categories and so on, we have bigger gaps there but, office-wise, we are doing reasonably well.

The Chairman: Would you mind sending us the detailed breakdown? We do not need it now. If you could send that, it would be fine.

Before returning to Senator Comeau I would like to ask a general question, again going back to this blue ribbon panel. If you were to have the office of the Auditor General's budget being determined independently, which is the thing that you really want, independent of Treasury Board, how would you handle requests for contingency funds and carry forward provisions and so on? If this blue ribbon panel says, ``This is it!'' and suddenly you need contingency funds, how would you handle that? Would you bring them back again?

Ms. Fraser: Yes. I think we would have to go back to them again to explain why we needed additional funding.

The one advantage we saw with the blue ribbon panel is that it would be put into the process as it exists now. We would have to make a submission to the Treasury Board and we would go through the normal process. We do plan for contingencies, but should something happen that is quite extraordinary — and I have a hard time imagining what that would be at times — we would get additional mandates given to us. New organizations are created, but we do not automatically go back and ask for funding each time that happens. We sort of wait for a period of time.

The Chairman: You put it into next year's budget?

Ms. Fraser: We could wait two or three years and then say that we need to go back and ask for a step-up in our funding. When we take on new work, it is not just a question of getting the funding; you also need to have the people, and it takes us a while to build up. We will often displace work if we get particular requests that come in. However, it would still have to go through the panel.

The Chairman: There is no way that you outsource your work, is there?

Ms. Fraser: We do a bit, but not a lot. If ever we came to the state of having all the departments and agencies produce audited financial statements, obviously we would have to outsource.

Mr. Wiersema: I would point out, though, that we spend approximately $6 million a year of our $70 million dollar — and some — appropriation on professional services contracts to contract in for specialized expertise, or to help us manage workload peaks.

The Chairman: To do the kind of performance that you do, you need all kinds of specialized people, from medical people to doctors, lawyers and engineers. We understand that. From time to time you would have to supplement your in-house staff.

Ms. Fraser: That is right. We have to bring in specialized expertise. For every audit that we do, we have what we call an advisory group and we bring in people who are familiar with the area to help us determine the scope of our audit, to ensure that we are looking at the right issues and to help us as well review the findings. We hope that on some of those groups we will have people with very different points of view, so that we get the conflict at the beginning and thus that we can understand where we should be focusing our audit effort. We usually have three to four advisors on every one of the audits that we conduct.

Senator Downe: On the question that the chairman raised, I noticed on your contracts for less than $25,000, 100 per cent of them are non-competitive contracts. I believe there are 425 that you are looking at. How many of those 425 went to the same people or the same companies? Could you send me that information?

Mr. Wiersema: In accordance with the new disclosure requirements from the Treasury Board on contracting, we have posted on our website all contracts, I believe, which exceed $10,000.

Senator Downe: It used to be $25,000. Now it is reduced to $15,000.

Ms. Fraser: The limit for non-competitive contracts is $25,000, but there is a disclosure requirement now that all contracts over $10,000 should be posted on the Web. We have a policy, though, within the office that no contractor can receive more than $75,000 in a year unless there is an exception, which I would have to sign. In the current year I know I signed one for legal expertise. You might guess in what context. Other than that, I have not signed any contracts. I can certainly give you that information.

Senator Downe: The numbers I am looking at are for the 2003-04 fiscal year. As I said, there were 425 contracts that were non-competitive.

On the contracts over $25,000 that you had to call competition on, a little less than 6 per cent of those were non- competitive. Was there a certain expertise that you required?

Ms. Fraser: I believe it was one contract that was given. I thought we had given the explanation. It was one contract. It was for someone who had been working with us to help us take another look at the way the executive committee functioned, and he also is someone who knows the office well and chairs our internal audit committee. It went over the $25,000 because of that. I think it was that one or it may have been the computer.

Mr. Wiersema: It is on page 42 of our departmental performance report. We ordered one contract for $42,000 on a non-competitive basis for review of the office of strategic governance to a contractor who was uniquely qualified to do this work. That is the contract that the Auditor General referred to.

Senator Comeau: Are you familiar with the legislation that is now before the Senate, Bill C-21, that has to do with the non-profit corporations act and whether this act might make foundations subject to reporting under this act?

Ms. Fraser: No, I am not, I am afraid. My staff might know about it.

Senator Comeau: I will be reading through it to see whether it might make the foundation subject to such reporting.

Ms. Fraser: We will look through it as well.

The Chairman: That concludes our questioning tonight. We want to thank you both very much for coming forward. Your evidence and information have been very informative and useful in relation to our ongoing study. We hope that you will be back again soon.

Ms. Fraser: Thank you, senator. I look forward to coming back.

The committee adjourned.