Proceedings of the Standing Senate Committee on
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.
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.
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.
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.
We are very pleased that Ms. Fraser agreed to appear before the committee this evening.
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
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.
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?
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.
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.
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
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
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
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
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
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
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
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 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
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
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
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
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
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
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
Ms. Fraser: That report, our audit, will be coming in mid-February 2005. Those issues are included in the scope of
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
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
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
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
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
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
Senator Day: Regarding the audits that you do, first, is ``performance audit'' synonymous with ``value-for-money
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
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
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
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
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
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
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.