Proceedings of the Standing Committee on
Rules, Procedures and the Rights of Parliament
Issue 15 - Evidence - October 30, 2018
OTTAWA, Tuesday, October 30, 2018
The Standing Committee on Rules, Procedures and the Rights of Parliament met this day at 9:35 a.m. to develop and propose amendments to the Rules of the Senate to establish the Standing Committee on Audit and Oversight.
Senator Serge Joyal (Deputy Chair) in the chair.
[Translation]
The Deputy Chair: Honourable senators, welcome to this meeting of the Standing Committee on Rules, Procedures and the Rights of Parliament. This morning, we are pleased to continue our consideration of the twenty-first report of the Standing Committee on Internal Economy, Budgets and Administration, adopted on March 27. Pursuant to the report, the Rules Committee is to review the Rules of the Senate to address the recommendation of the Standing Committee on Internal Economy, Budgets and Administration to establish a committee to oversee senators’ expenses.
Before we go any further, I would ask the senators to introduce themselves since this morning’s meeting is public.
[English]
Senator Sinclair: Good morning. Senator Murray Sinclair from Manitoba.
Senator Greene: Stephen Greene from Nova Scotia.
[Translation]
Senator Massicotte: Paul Massicotte from Quebec.
[English]
Senator Woo: Yuen Pau Woo, British Columbia.
Senator Seidman: Judith Seidman, Montreal, Quebec.
Senator Batters: Denise Batters, Saskatchewan.
[Translation]
The Deputy Chair: Thank you, senators. We are delighted to have with us today our colleague Senator Lucie Moncion, a member of the Standing Committee on Internal Economy, Budgets and Administration, and, more importantly, a member of the subcommittee that studied the recommendation to create an external audit committee tasked with reviewing senators’ spending based on the Senate Administrative Rules and certifying them accordingly.
[English]
Senator Moncion, it is my pleasure to welcome you this morning. We will be listening to you carefully — you know the procedure — and after that, the members of the committee will feel free to ask you questions or make comments. The floor is yours, Senator Moncion.
[Translation]
Hon. Lucie Moncion: I will give the first half of my statement in English and the other half in French.
[English]
Thank you, members of the committee, for inviting me to attend your meeting today. I am a member of the National Finance Committee, and we have meetings at the same time as your committee. That has made it difficult for me to attend your meetings because of the issues and subjects we were studying at the National Finance Committee.
Just for your information and to put a little bit of context around why I’m a witness here today, I hold the designation of Chartered Director and am a member of the Canadian Institute of Corporate Directors. For the last few years before coming to the Senate, I structured governance, human resources and audit committees in over 15 organizations. I acted as chair and vice chair on a number of different organizations, boards and committees — for example, Nippissing University, Collège Boréal, Direction Ontario, Groupe Média TFO,Co-operatives and Mutuals Canada and many others.
The golden rule for members of any board or committee: nose in, fingers out. Why? There are responsibilities and liabilities that are associated to the position of a board member that are very much different from those of staff.
I’ll go back briefly to the twenty-first report, the establishment of a standing committee, which will meet more often than quarterly. When we were talking about establishing the audit committee, we were talking about having meetings more often than quarterly to consider the proceedings of in-camera information of other committees; to oversee the expenses and travel of senators; to examine all matters on its own initiative, with autonomy and powers superseding those of Internal Economy, allowing audit committee members to act independently and to interpret SARs; sit between sessions; and hire the external auditor.
I mentioned in my speech in the Senate that I would find it extremely detrimental to authorize the establishment of an audit and oversight committee to which we would entrust such a mandate because this committee would be entirely controlled by senators; have powers and responsibilities that are far exceeding an audit committee’s mandate and role, which is out of the scope of the best practices for an audit committee; would be decision-making when it should be advisory; and provide comments and recommendations to the Internal Economy Committee.
I will provide some observations that the committee can discuss when studying the establishment of the audit committee.
Observation No. 1: The Senate still has a considerable deficit of credibility and legitimacy with the Canadian public. The public needs to trust that expenses are monitored, controlled and audited.
Observation No. 2: The Senate, as a self-governing body, does not preclude the inclusion of outside independent oversight. It would bring legitimacy to the Senate’s willingness to bring more transparency to the way we spend taxpayers’ money.
Observation No. 3: The Auditor General’s recommendation 52 states that the oversight of senators’ expenses should be performed by a body, the majority of whose membership, including its chair, is independent of the Senate.
Observation No. 4: This committee should comprise of financially literate members of the public and members of CIBA, and operate under CIBA. It will help with governance issues by providing an independent and informed point of view on financial-related matters. It will provide independent thinking and become a watchdog for financial mismanagement.
Observation No. 5: The Australian Parliament created an independent parliamentary expenses authority in 2017. The U.K. created an audit committee, and they have two external members, one being the chairperson.
Observation No. 6: Newfoundland and Labrador had similar issues with members’ of Parliament spending and created an audit committee working under the Commission of Internal Economy with financially literate members from the public.
Observation No. 7: Some of our Senate colleagues are reluctant to implement changes that could affect their parliamentary privileges.
Observation No. 8: We have to demonstrate that we welcome the scrutiny of outside professionals, that we are responding to the needs of our constituents and that we can address our credibility deficit.
What we are trying to do here is strengthen the responsible management of public funds and accountability, avoiding conflict of interest or the appearance of conflict of interest.
[Translation]
There are a few ways to do that. I will be discussing two possible options for your consideration.
Option number one is to create an oversight committee made up solely of external members and exclusively mandated to audit and oversee senators’ expenses and travel.
The creation of such a committee would ensure full transparency. In addition, the integrity of operations would satisfy a more modern definition of independence and ensure compliance with policies, procedures and rules governing senators’ spending. This committee would be supported by an external firm tasked with the internal audit of senators’ expenses and travel. The committee would not infringe upon the rights and privileges of Parliament to regulate its affairs to ensure its independence in overseeing other affairs related to its functioning. This option addresses the recommendations of the Auditor General as well as senators’ concerns about the independence and transparency of operations.
Option number two is to create an audit committee responsible for all auditing activities, in addition to oversight of senators’ expenses and travel. The committee would be made up mostly of external members and could include senators from the Standing Committee on Internal Economy, Budgets and Administration.
This option, too, would allow for full transparency and the integrity of operations, while satisfying a more modern definition of independence and ensuring compliance with policies, procedures and rules. The committee would be entrusted with the full audit mandate. It would be supported by an external firm charged with the internal audit of senators’ expenses and travel and another external firm charged with the audit of financial statements.
I am familiar with the work that an audit committee does, but I’d like to focus on the internal audit function performed by an external firm. One of the problems we’ve had since the Auditor General’s report came out is the lack of follow-up or oversight in terms of senators’ spending. I believe the last time the exercise was performed was in 2013, with the report being tabled in 2016.
By having an external firm perform the internal audit, we preserve our independence. In other words, no internal staff member can be influenced in the exercise of an internal audit. People from an outside firm with no attachment to the institution that is the Senate would be doing the work. They are in a position to scrutinize spending and supporting documents with total independence. That way, the work would be performed with full transparency on the Senate’s part.
Lastly, I’d like to comment on the existing structure in the federal government across all departments. Each one is required to establish an independent departmental audit committee, or DAC, whose membership includes individuals from outside the federal public service. The key areas of responsibility of DAC members are to review values and ethics; assess risk management; establish a management control framework; ensure an internal audit function; audit external assurance providers; follow up on management action plans, financial statements and Public Accounts of Canada reporting; and ensure accountability reporting for their respective departments. Independent members of the DAC submit an annual report that summarizes the results of the committee’s reviews of areas of responsibility; provides an independent assessment and makes recommendations, as needed, on the capacity, independence and performance of the internal audit function; and expresses views in the annual report that are entirely those of the independent members, notwithstanding any assistance given by departmental officials in the preparation of the annual report.
Thank you for inviting me to appear before the committee. I would be glad to answer any questions you have.
The Deputy Chair: Thank you very much, Senator Moncion. We will now move into questions.
Senator Massicotte: I’m standing in for Senator Dalphond today. I had a quick look at the transcripts from the previous meetings as I try to understand all this. The debate has been going on for two years now, and when I read the comments, the issue seems to revolve around whether or not to create an independent committee. What’s the purpose? It is clear that we have a real problem in terms of what we want to achieve. Having senators approve other senators’ expenses doesn’t really work. We need the opinion of an independent expert. What exactly are we looking for? What kinds of expenses are we talking about? Some think publishing expenses provides enough transparency. Others think an independent external opinion is needed to confirm that spending complies with Senate rules and policies. There’s some disagreement here. Some believe that we need the opinion of independent experts, to confirm that the money was spent properly, meaning, in accordance with the rules, that the rules were reviewed and that the expenses were audited to satisfaction.
In your view, what opinion are we seeking? I see three options, but what will be covered? What opinion will the experts provide?
Senator Moncion: Thank you for your question. It’s a long one, but I took notes.
As far as the purpose of the audit committee goes, the auditor provides an independent opinion of what they audit, as would an outside auditor.
Senator Massicotte: What will the opinion say? What will the opinion indicate?
Senator Moncion: It will depend on the findings. You had some concern about the rules. An independent auditor can provide an opinion on whether the rules in place are appropriate and stringent enough. If they are too vague, the auditor could find that such and such a rule could be interpreted in a number of ways. That means external auditors doing an internal audit can provide opinions that could lead to a better framework for auditing work. What are they going to audit? The committee determining exactly what should be audited would establish the internal audit mandate.
Senator Massicotte: I want to make sure I understand this. You would like an independent expert to confirm that spending was reviewed, that the policies were followed in incurring the expenses, that the rules and policies were reviewed and deemed to be reasonable and appropriate, and that the values were reviewed. The opinion would indicate that the auditor was satisfied and that everything was as it should be, or, in the opposite circumstance, the auditor would note any exceptions. Do I understand that correctly?
Senator Moncion: In addition to that, there would be the audits of the various senators.
Senator Massicotte: Done by the independent expert. You refer a lot to senators’ expenses, but not to the Senate’s expenses. So the review would be limited to senators’ expenses. Is that right?
Senator Moncion: For the internal audit, yes. That mandate could be broadened. The work that was done for the twenty-first report was consistent with what the Auditor General had proposed in terms of analysis.
I’m going to propose both eventually, but keep in mind that an external auditor is also auditing the Senate’s financial statements and making sure, at the end of the year, that everything was done in accordance with the rules. The external auditor, then, also plays a role when it comes to reviewing internal controls and all that. A broad internal audit mandate would allow for the review of the policies, framework and expenses.
Senator Massicotte: I’m trying to understand the mandate we want to give. I participated in external audits for years, and I can tell you that the external auditors looking at the financial statements do not pay any heed to whether all the rules were followed. They fulfill their mandate by performing an internal audit. They issue a clear opinion: The financial statements faithfully represent the financial position of the institution and only that.
My second question —
Senator Moncion: May I respond to that? I would add that the external auditor does a sampling.
Senator Massicotte: If we define the opinion we are looking for, we have to answer some questions. Were all expenses audited, as the former Auditor General did, and are we satisfied with the review? Do we authorize the auditor to perform a statistical sampling, which is a well-established science, in order to then issue an opinion? The auditor couldn’t say that all of the expenses were audited and deemed to be compliant. All the auditor could say was whether or not they were satisfied that the expenses were incurred in accordance with the rules based on a statistical sampling.
The auditor wouldn’t be reviewing every single expense. Rather, they would be doing a sampling based on scientific probabilities and we would have to be comfortable with the opinion issued. Is that correct?
Senator Moncion: Not necessarily. When the internal audit mandate is being established is the time to set out all the details and the exact areas where the internal auditor is to do an in-depth review.
If I look at the work, I’m currently looking at all the policies in place, all the follow-up done by administrative staff who handle senators’ expenses and all the supporting documents they request, all of that. A significant amount of follow-up is done on that end, with staff making sure that expense claims are consistent with the policies. The internal auditor would come in and we would identify what, over a period of three years —
Senator Massicotte: But I —
Senator Moncion: You didn’t let me finish. I realize that there are many other ideas.
Further to the internal audit mandate, you could ask for all senators’ expenses to be audited over a period of three years, say. You could then provide a basic sample, and the work would be done using that sample. When the internal auditors come in, they start with a basic sample. They look at so many cases, and if those cases reveal things that aren’t consistent with policy, they expand their sample size. If, after that, they identify more issues, they expand their sample again.
Consequently, it wouldn’t be productive to have the internal auditor review every expense. However, the work would be done in an independent manner, would cover a large chunk of the information and would give the public reasonable assurance that what’s done within the Senate is done properly.
Senator Massicotte: From reading the transcripts, I get the sense that if our committee were to decide on the mandate, the opinion being sought, the answers would be very easy. We could determine whether an independent expert committee was needed to review every single expense or whether we could rely on an external auditor, which would be my recommendation, and whether a statistical sampling would be acceptable. That would establish exactly the opinion we were looking for.
That is not the same as in the United Kingdom or Australia, where they opted for wholly independent models, in which the professionals report directly to them. It’s onerous and costs between $3 million and $12 million.
I think we should accept a sample-based approach and a more generic opinion from the external auditors. What’s the value of having an internal auditor with an internal reporting structure?
[English]
The Deputy Chair: You will remember, Senator Moncion, that when we had the audit by the Auditor General of Canada that covered two years, it cost $28 million because it went through each and every expense of senators — 10 cents for a phone call or 75 cents for a stamp. At the end, it cost the taxpayer $28 million. I wonder if we could keep in mind, as Senator Massicotte mentioned, the cost of integrating into the system permanent expenses that would reach an amount of money that goes far beyond the overall budget of each senator. I think there is an element of balance in all of this that needs to be considered, as Senator Massicotte mentioned. I think this is a point you have not covered, namely, the cost of all this. We’re trying, of course, to make sure that everyone spends the money according to policies and rules and that we have the proof that the money has been well spent. However, if we are overdoing that, we are not reaching the objective we’re trying to achieve. That is an important element that I think Senator Massicotte is trying to explain, and the implications of it.
Senator Moncion: I completely agree with you. When I was speaking of having an external auditor doing the internal audit, there is a cost associated with the internal audit, but it is not going to be $28 million. You will not be spending that much money for a budget that is under $110 million. The cost of this work by an external auditor doing an internal audit is not going to cost $28 million or $29 million; it is going to cost much less. The mandate that is given to that group will be clear, and it will be priced accordingly. So, yes, it is a question of balance.
The other aspect is that if this internal audit is done by someone independent, the Auditor General will have no reason to come back to the Senate to do the kind of research that he did in 2013.
Senator Seidman: Thank you very much for your presentation, Senator Moncion.
I wouldn’t mind following up on the discussion we were just having, following on from Senator Massicotte’s question and now Senator Joyal’s point, although I do have another couple of other questions too.
I don’t think anyone thought at the outset that the cost of the Auditor General’s study would be $28 million. We never expected that. Also, fully understanding and being aware of the history of all this, as well as the sensibilities and the issues of transparency around Senate expenses, the fact is, the subcommittee recommendations say:
That following the creation of the Standing Committee on Audit and Oversight, appropriate resources be allocated for an internal audit function;
But how does one determine what those “appropriate resources” are, and who determines what those appropriate resources are? That would be my first question. One would hope that we would have a responsible allocation of resources and wouldn’t be into disproportionate spending.
We did not have what we currently do at the time of the Auditor General’s report, and that is quarterly reports by every single senator, online, of all of their spending, so that anyone can monitor the way we spend our money as senators. By the way, that is only 4.8 per cent of the total Senate budget. That leads to my next question: Why wouldn’t this audit function include oversight of all Senate expenses, like committees and things of that sort? One has asked questions about how committees spend their money, so I would like to understand why the recommendation wouldn’t be to include all Senate expenditures.
I have a third question. In your talk about an external auditor, did I understand correctly — maybe I didn’t, but you could explain more — would the external auditor be more interested in protecting himself or herself and their own personal liabilities in doing their work?
Senator Moncion: Thank you for the questions.
Regarding the first question about the internal audit function, the responsible allocation of funds and disproportionate aspect of the function: If you have an internal audit function, you have an individual who is doing this work within the Senate. This person cannot work in isolation; this person works with others and is part of staff, even if that person has a specific job to do. The question of independence can be an issue when you have someone who is doing the internal audit and is part of the staff, even if that person has a specific responsibility.
You have a salary cost associated to that function. There is sick leave and everything that goes with a job like this one.
The recommendation of going outside is so that it is done by people who are trained and who have their qualifications to do internal audits. When you set the plan for the internal audit, there are costs associated. That is where you look for value for money: How much are they going to do, and how much are they going to cost?
When I look at the cost of doing the external audit for the Senate, it’s less than $30,000. I look at doing an internal audit, and that would be something that would be, in my view, less than $75,000 a year, which might be a lot. It depends. Then again, it would depend on how far we want the internal audit to be done.
That’s your first question.
On the second question about the oversight of all the Senate expenses, 70 per cent of the Senate budget is salaries, so salaries are already monitored. You have 30 per cent of the budget that is Senate expenses. Senators’ expenses are about 4.8, so you have about $5 million that are going toward the senators’ expenses. When you’re looking at the scope and the costs associated to just that, you cannot just go for 4.8 million. It’s a lot of money, but then it’s little when you look at the size of our budget.
Looking at all the committees’ expenses is not a problem. You can add that to the work that can be done by the external auditor when he’s doing his internal audit. It won’t cost that much, and you will have the same samples and the same opinion at the end of the day.
When you’re looking at personal liability, one of the things that you do get from the external auditor is their reputation when they do work. There’s a cost to that reputation for them, and if they do work for the Senate, there are also the reputation and insurance associated with the opinions they provide and the fact they can be liable for providing false or incorrect information.
Senator Seidman: On this last point, my concern would be whether there is a conflict of interest in an external auditor’s concern for their owner personal liability and doing the work with considerable understanding and regard for the Senate’s role and a senator’s role. I say there could be potential conflict of interest in that particular role, especially of an external auditor.
Senator Moncion: I have to mention that the external auditor doing the audit for the financial statements and the external auditor doing the internal audit would be two different groups; they would not be from the same firm. That’s the first thing.
When we receive information coming from auditors, they provide their independent statement, and that’s very important. It’s the first thing that they present when they come to us, so the problem of conflict of interest will not arise unless they have a connection with a senator as a member of the family or something like that. That’s how the conflict of interest would come.
I have a difficult time seeing the connection where there would be a conflict of interest for an independent, external firm in either internal or external audit.
Senator Seidman: I think some of the arguments that came forward during and following the Auditor General’s report was that he did not clearly understand the role of senators. As a result, he may have misunderstood and misinterpreted certain expenditures of senators, for example, in their regions. My concern would be that a similar kind of thing could happen with an external auditor, where they would become quite concerned about their personal liability if a misinterpretation of the role of a senator would be seen.
Senator Moncion: Again, I don’t see the conflict of interest. What I see, though, is the clarity or not of the different rules, policies and procedures that we have in place. Most of the opinions would be coming from this clarity or non-clarity of the rules, looking at expenses and working them with the policies and procedures that are in place.
Senator Seidman: We’re obviously doing political work here, and one would say there’s always room for politics to interfere. How do you ultimately account for that with an external auditor?
Senator Moncion: Again, when the external auditor comes in and does an internal audit, he will question these things, and he might bring forward comments or recommendations associated with the findings. When he finds things and the recommendation is that this is unclear, his recommendation will be to clarify. So in this context, it would be or could be clarified, or we might decide this is not going to work and we’re going to clarify the rules so that recommendation doesn’t come up again and it’s dealt with; not hidden, but dealt with.
Senator Sinclair: I want to thank Senator Seidman for raising the issue of conflict of interest. I understand the point now, but clearly it would seem to me there is also a more realistic issue of conflict of interest of senators auditing senators, and that concerns me too. I’m trying to figure out the balance between external auditors, who have no understanding of how this place operates, and having an internal process where senators can engage in back room discussions with themselves and collude in a decision-making process that may be unfair to others.
As background to that, I’m particularly struck by the fact that, looking at the auditing process that the Senate went through in 2013 and subsequently, when you look at the very same set of facts, you get a different decision from the Auditor General than you do from Justice Binnie and his report, and even from the trial judge in the Duffy case. They were commenting upon, in some cases, the very same spending decision. I’m curious about how one finds balance for that. Is it necessary for the Senate to issue clarifying rules or rules of interpretation that must be followed by auditors when they are auditing Senate expenses?
Senator Moncion: The first comment that you made was that external auditors don’t understand how this place works. I don’t completely agree with you because, when they are doing external audits, they’re looking at numbers. They’re looking at expenses. They’re comparing or using the expenditures — I’ll have to answer in French, if you don’t mind, because it’s going to be easier for me in French.
[Translation]
An external auditor performs an audit based on the rules in place. You mentioned that the judge had his interpretation of the facts. If I remember correctly, the judge mentioned that the Senate’s rules were not clear and needed to be clarified. The external auditor looks at the rules in place and makes sure that expenses were incurred in accordance with the rules. Even when the rules aren’t clear, they still form the basis for the audit performed by the external auditor. That’s where the role of a judge and that of an external auditor differ in relation to the rules.
If the rules aren’t clear, our role, in the Senate, is to clarify them and create an easy-to-follow framework, so that a judge, an auditor or a senator applying the rules all interpret them the same way.
I don’t know whether that answers your question. To my mind, the clearer the rules are, the easier it is for everyone to interpret them consistently. In the previous case, I think the rules were unclear and open to several interpretations. In fact, they were also interpreted differently by journalists.
[English]
Senator Sinclair: As a trial judge, I can assure you that all rules are open to interpretation. It’s very rare that you can find a rule that is so absolutely clear that no one can argue with what it means.
The concern I have really relates to comments by the trial judge in the Duffy case who pointed out that the rules certainly needed to be clarified. He also pointed to the fact that the rules themselves had come to be interpreted by the senators in a certain way so that practices had evolved and there seemed to be a consensus among the senators that certain things could be done or approved or done in certain ways, and that those practices should be reconsidered because they formed the basis of his trial decision. He said it may have looked, on the face of it, that it didn’t comply with the rules, but because of the practice in the Senate that certain expenditures be allowed, the accused in that case was entitled to proceed as he did.
To what extent do auditors look at the rules of behaviour, the practices of the individuals who are involved, if we’re talking about senators’ expenses? If it’s commonly agreed among senators that a certain expense meets a rule, even though on its face, it might not, how is that dealt with by auditors?
Senator Moncion: I would say that he would be dealing with a recommendation coming to the Senate as to the clarification of the rule. That’s how they would do it. Now, would they do it? That’s another question or another matter in itself. But when they look at the rules, interpret the rules and when they do their audit, they speak to staff. They do not speak to senators unless the audit is specifically done with the intent of getting the senators’ point of view here. But when they do it, they’re away, and they should not know whose expenses they’re working on.
That’s the other independence that should be associated with the work they do. If there is a list of 30 senators that they are going to be auditing, it should not be said that this is Senator Moncion’s expenses. It should be these are for one senator, this is senator No. 1 or No. 35, these are the expenses and look at them. There should be an independence there. When they are looking at the sampling, they can also see patterns of ways that the expenses are being done. They can come up with things that might be odd to them, or it might be the practice but it might not be the best practice, and the recommendation you would be receiving would be a best practice recommendation.
Senator Gold: I appreciate the concern about the knowledge of an external auditor vis-à-vis the culture and practices. I lean towards independence, and that’s for transparency.
I want to ask a question drawing on an analogy from another study we are doing in this committee. This goes to Senator Sinclair’s question earlier. What if the Senate were to promulgate interpretation documents or rules saying, “We think a senator’s job involves X and Y and, therefore, these kinds of expenditures.” They’re not rules; they’re our interpretations of the rules. That would help Canadians understand how we see ourselves and help senators know that they are at least following our own best practices. Would an auditor look at that as an internal, non-legislated policy interpretation? Would that help an auditor better understand how we see our roles and how we see the appropriate expenditure of public monies? Would that help bridge the gap between the “ignorance” of an external auditor and the specific culture and practices of the Senate? Is that something an auditor would do? Would that be helpful to us?
[Translation]
Senator Moncion: The thing to keep in mind when considering an external auditor’s role is that they are mandated to look at the numbers and issue an opinion on the quality of the financial statements in question. An external auditor has to interpret them in accordance with the rules in place.
The role of a senator is documented somewhere. We have rules regarding the activities we can and can’t participate in and the responsibilities we are supposed to fulfill. That information is known, then. What an external auditor may not know are the specifics of everything we do as senators, but they can examine the rules, while trying to interpret them as little as possible, to be able to issue an opinion based on the documented rules in force.
Senator Gold: However, we must ask the following question. While interpreting the rules, would an auditor take into consideration an interpretation document or only the rules?
Senator Moncion: I’m not an auditor. I’ve never been an auditor. An auditor would probably be able to answer this question. There’s the numbers aspect and common sense aspect. I don’t know how much value can be given to an analysis conducted by an external auditor. An external auditor must take an outside look at the Senate’s accounting practices. As senators, we only submit expenses. We don’t do the Senate’s accounting. We don’t write the cheques or deposit the money. All this work is done within the Senate administration. We must understand how money is spent according to the rules in place.
There’s the whole issue of the segregation of duties. This brings me to the work of the audit committee. If the committee specifically reviews the senators’ expenses, then its hands will be on the work. The committee must be “nose in” but “fingers out,” since we mustn’t manipulate the financial statements.
When I was the president and CEO of a financial institution, I never had any passwords to access the computer system. I never touched the banking system because I wanted to stay completely out of it and to be cleared in the event of a problem. However, I did conduct checks, but I couldn’t enter any transactions. I couldn’t write any cheques. It was totally separate from my responsibilities. I see my role as a senator in the same way. I must ensure that things are done properly, but that I’m keeping my hands off the work.
This is where I see the issue with senators looking at the work of other senators. Not only are we nose in, but we also have our fingers on the paperwork to see what’s happening. We should have more of a monitoring role, rather than a role involving active participation in this task.
This doesn’t exempt us from the responsibility to ensure that the accounting work is done correctly and that everything is done properly. We’re responsible for checking the work. If the accounting work isn’t done properly, we’ll take responsibility as public people. We’ll be maligned, and not the employees who may have done their job poorly. Because the people who work in the Senate administration do an excellent job.
[English]
Senator Massicotte: If I could answer Senator Sinclair: If you remember, Senator Joyal was very much involved in the external audit, the Auditor General. There was a misunderstanding of the role of senators. Most of the dispute arose from the fact that they did not appreciate that senators have a role in the community — not only to represent the community here, but vice versa. That is why there is a document defining the mission that is before the Senate and up for approval. That’s an important document, because it will let anyone know what the mission is. Paragraph 3 is a paragraph that Senator Joyal wrote, making it clear that expenses related to our representation in the community are also eligible. I think it’s important to clarify that.
Relative to the Rules, since the judgment, two summers ago, around 12 of us spent two or three months going through the Rules all over again to try to resolve the issue of lack of clarity. I think we did a pretty good job. It is never 100 per cent right. Within the Rules, there are examples, and you have clarification of Rules. I think you’ve gone a long way to make it clear, with examples, given the spirit of what is intended to be a proper expense.
Senator Batters: Thank you very much for being here, Senator Moncion. You were appointed to the Senate in late 2016?
Senator Moncion: Yes.
Senator Batters: As Senator Joyal indicated earlier, some of us sitting at this table went through the entire Auditor General —
Senator Moncion: I’m glad I didn’t.
Senator Batters: Yes, because I can tell you that the Auditor General left no stone unturned. I was interested to hear you indicate, when you were speaking with Senator Sinclair, that in your view, the proper method of an auditor handling these kinds of things is to almost do it in a blind way, to not know who they are dealing with and which particular expenses. In the Auditor General’s report, he certainly didn’t take that approach. In fact, the Auditor General and his senior staff met with each senator and senator’s staff. What do you think about that, in light of your comments?
Senator Moncion: His role was very different from an external auditor’s role. He was appointed by the government to do that job.
Senator Batters: It was actually by the Senate. The Senate invited him in.
Senator Moncion: I think it was a good thing that it was by choice that the Senate decided they wanted that work done.
The roles are very different.
Senator Batters: Should auditors know, when they’re auditing — these external auditors we’re speaking about — which caucus or parliamentary group a senator belongs to? Would that be appropriate information for them to have?
Senator Moncion: It should be irrelevant to the work that is being done unless there is a problem. We usually provide the names of the people, but it could be done completely independently. It should not be done because someone is a Liberal or a Conservative or independent. It should look at numbers and the expenditures that have been made. That’s where you keep the personal bias that can be put into an audit. I’m not sure that an auditor has a personal bias when he’s doing an audit. They should not, and that’s their declaration when you start working with them.
Senator Batters: Right. In the Auditor General’s report, a major portion — about half of the senators’ expenses that he found to be improper — were later found to be proper, according to Mr. Justice Binnie, who looked at it in considerable detail. So auditors, I guess, aren’t just looking at the numbers, as you described to Senator Sinclair, but they’re actually looking at whether those numbers conform to rules, and their understanding of the rules can have a significant impact on that. Would you agree?
Senator Moncion: I agree. However, as I said before, I think the Rules were very much clarified after the Auditor General’s report came in, and I think the scope or the permissitivity associated with the Rules was scoped down. I find now that the framework that we are working within is very workable. Also, we can corroborate almost everything we spend, because the Rules are clearer.
Senator Batters: Many of us found the Rules to be pretty clear before, but maybe we will agree to disagree on that.
For the last several years, we in the Senate have worked hard to improve transparency and accountability, particularly in light of the Auditor General’s report, and leading up to that as well. For quite some time, senators have been disclosing all travel and hospitality expenses online. We in the Conservatives caucus have been doing it for four years, actually. More recently, we’ve totally revamped the Senate website so the detailed information can be available to the public for travel, hospitality and contracts. That’s all available online and available to be viewed publicly, for all senators. Don’t you find that major move of transparency and accountability has provided significant clarity in this area of senators’ expenses?
Senator Moncion: Absolutely. When I first looked at the twenty-first report and was looking at having the audit committee independent of Internal Economy, I was against the idea because I was saying that we are providing all the information. Now, looking back, because we are always fixing problems that are from the past, not from going forward, because of the situation and the credibility deficiency that is with the Senate, the fact that we have that information and can go beyond that in the transparency toward the public — I have no problem with it anymore. But it took me a while to get to that point.
Senator Batters: You were stating earlier that you thought some of the rules had been clarified post-Auditor General’s report, or that there have been improvements made since that. Given that, does that cause you to reflect on any of the recommendations he made in this particular section of his report and to think that maybe some of those recommendations he made are not as required as they might have been at the time?
Senator Moncion: Again, I wasn’t there. I’ve read the report — and this is from memory — but I think one of the problems was associated with where a senator has his or her main residence and where he or she lives most of the time. So your main residence might be in a province, but you don’t go very often. That was one of the issues associated with expenses being claimed but the senator would live in a city more often than going home. It was a problem with many of the senators. A lot of explanations needed to be provided. That’s where leniency came, because of understanding how things were working.
Going back to your question, there was an evolution that came from all that information. We’ve put rules in place that are okay today, that are easily followed and that can be easily explained. It’s probably the portion of explanations that were associated with these comments — because what happened with the Auditor General’s report is that everybody was accused and there was very little explanation provided. You start having to justify why.
[Translation]
That’s when you appeared to have done something wrong. However, this wasn’t the case. That said, since then, rules have been implemented to deal with all these potential errors.
[English]
Senator Batters: Unfortunately, many in the public never got past that unfortunate misperception of culpability —
Senator Moncion: I completely agree.
Senator Batters: — when, in fact, some people were completely cleared after that, with more detailed study.
In your professional capacity prior to being a senator, with any of the organizations you worked with and for previously, did you have any experience with the Auditor General of Canada?
Senator Moncion: No.
Senator Batters: Thank you.
The Deputy Chair: Before the second round, I may ask you a certain number of comments to some proposals, senator.
In the Conflict of Interest Code, there is a provision that allows the Senate Ethics Officer to ask the Standing Committee on Ethics for a directive on interpretation of rules is. Of course, the committee has the capacity to meet and determine what should be the right interpretation of the rules so that the Senate Ethics Officer is in a better position to perform his or her duties.
Would you consider that such could be a way for the audit committee to request from, for instance, CIBA, the Internal Economy Committee, an interpretation of the rules — to seek a directive from CIBA on the interpretation of the rules? That would avoid a situation whereby the audit committee would think in one way, the Internal Economy Committee would interpret the rules differently, and thereby arrive at the result where there is a discrepancy between what is expected and what is the reality of the day-to-day practice, as you say, of the administration.
We have that in the Conflict of Interest Code, and I can testify that it works. It happened, I should say — I’ll try to recollect and not propose a figure that would not be right — at least five or six times that the SEO has asked the committee for a directive of interpretation.
It seems to me that it is a way to bridge the gap that could be created between interpretation by the audit committee and the reality of the rule — how it is perceived and the context in which it was adopted. It is not always clear, as Senator Sinclair would say, what the intent of Parliament was when it adopted the rule. The courts regularly look into parliamentary debates, testimonies, experts and witnesses to try to identify the scope of the intent of Parliament. Would you consider that could be a way for the audit committee to come to terms with the issue that, as Senator Seidman and other senators around the table, pointed out?
Senator Sinclair: To intercede for a moment, you might want to correct something you said, senator. The Senate Ethics Officer does not ask the Ethics Committee for an interpretation of the Rules. As I understand it, it’s the Senate Ethics Officer’s right to ask the Ethics Committee for an interpretation of the Code of Conduct of the Senate. That’s just so you’re not misled here.
Senator Moncion: That was going to be my question.
[Translation]
With regard to conflicts of interest, are senators’ expenses part of the Conflict of Interest Code?
[English]
The Deputy Chair: No, that’s not my question.
[Translation]
Senator Moncion: You’re talking about the interpretation of the rules. The commissioner could interpret the rules. However, if the rules for expenses aren’t followed, is it a matter of conflict of interest or non-compliance with the rules? Does this issue fall under the code of ethics because a senator isn’t following the rules?
[English]
The Deputy Chair: It could, in certain circumstances, but normally, as you know, expenses are under the purview of the Internal Economy Committee to determine if an expense has been incurred without proper justification or in misinterpretation of the rule and what the sanction is that could be attached to it. I don’t think in the administrative rules of Internal Economy there is a set of very precise sanctions. The senator in question might be requested to reimburse, for instance, and put a better system of oversight into place in his or her office, something like that. But there is no specific “offence” that is specifically sanctioned in the administrative rules if a senator is found wanting in terms of expenses, unless there are those circumstances that would justify an allegation of improper conduct, and then that could be reviewed by the Senate Ethics Officer.
But that’s not specifically my question, as you know. It was essentially to bridge the gap between the responsibility of the audit committee to interpret the rules and how the rules should be interpreted. Who would determine, at the end, who is right? That’s why I feel that if there is a doubt within the audit committee about the interpretation of the scope of a rule, then they could seek a directive of interpretation from CIBA. That’s essentially my proposal, to try to find a way to address that situation that senators around the table have identified.
Senator Moncion: It could, and it’s something that would have to be discussed among your committee to bring that recommendation forward.
The Deputy Chair: Thank you.
My other question is in relation to one of the examples that you mentioned in your presentation. You have given the example of Newfoundland. You have given the example of the U.K. Could you expand more on the situation in the U.K. and how it is dealt with? As I understand the situation in the U.K., the majority of the audit committee are members of the house, and there are two members, I think, that are from the outside. Are those members covered by parliamentary privilege? And how do you reconcile the fact that you have members of Parliament or lords who are covered by the privilege and outside members who might not be covered by privilege because they’re not parliamentarians?
Senator Moncion: In my study, I did not go that far in looking at the U.K. model. I know that there are two internal and two external, and they ask that these people are completely independent from the House of Lords. But other than that, I haven’t looked into it at all.
The Deputy Chair: I think maybe we could ask the Library of Parliament to look into that because it’s an important point. If we were to consider that model, we would have to understand the implications in terms of the exercise of parliamentary privilege. We enjoy the same privileges as the Parliament of Westminster, and we would certainly want to look into that specific issue. It could be asked of us by any senator who would want to know the implications of the exercise of parliamentary privilege in relation to the privilege of exercising oversight over our own affairs. I would want to have some information provided by the Library of Parliament in relation to that.
Senator Moncion: The common denominator for the U.K., Australia, Newfoundland and Labrador and the Senate was all related to expenses and finding ways of putting a system in place to have a better monitoring system. I think, at the end of the day, these models are fairly new, maybe not the one in Newfoundland and Labrador, but they are a work-in-progress, and they will see how this works as we move along. The common denominator was expenses and maybe lack of accountability associated with that.
Senator Massicotte: If I can clarify exactly what you are recommending, it is basically that the purpose of this exercise is to tell Canadians that the money is well spent. That’s the objective. I understand it correctly. You use the words “external auditor” and “internal auditor.” In my definition, internal auditor is an employee of the organization. If you look anywhere else in the world, that’s what it is. An external audit is an auditor who is external to the organization. You use the words “internal auditor” because, in your head, you have a certain definition of what their mandate should be. They will do whatever the mandate is. They get paid a certain sum. You tell them what you want, and they’ll give you an opinion based on that. Depending on what you want, it costs more or less, so the mandate is a key issue. You’re saying that we shouldn’t be pulling external auditors — using my definition — to do testing of expenses that will provide an opinion to a committee who is comprised of a majority of external independent people. Is that correct?
Senator Moncion: To clarify a thing or two, external auditors specialize in internal audits.
[Translation]
Accounting training on internal audits is provided with specialists in the field. These people are designated as internal auditors. They work for firms that perform external audits, but also internal audits. When these external audit firms send a person to perform an internal audit, the person has the academic and professional skills and qualifications to perform the work.
Senator Massicotte: I don’t want to enter into the debate on the mandate. I’m not convinced that the internal audit work is necessary to develop the opinion we’re seeking. Someone else must make the decision. The majority of the committee is independent. The auditor is also independent.
Senator Moncion: Yes.
Senator Massicotte: Both external and internal auditors are independent and accountable directly to the committee.
Senator Moncion: Exactly.
Senator Massicotte: The audit is done after the fact.
Senator Moncion: Always.
Senator Massicotte: Unlike in the United Kingdom or Australia, expenses are approved before they’re incurred. Here, it’s typically after the fact.
Senator Moncion: Yes. Currently, all our expenses are approved by the employees who are—
Senator Massicotte: The audit is performed externally.
Senator Moncion: Always.
Senator Massicotte: Internal employees aren’t worth much if they report to someone internally?
Senator Moncion: Yes, if internal employees report to an internal committee. Their work has value because they still have their integrity as employees. However, public opinion won’t be the same if it’s done completely externally. When there’s an outside opinion on our financial statements, people rarely challenge the opinion. It would be the same thing with an external auditor who performs an internal audit.
Senator Massicotte: I’m not convinced that the internal audit fulfills the mandate that we’re seeking from an expert who ensures that expenses don’t get out of control and so on. Why would we need a committee on audit and oversight? We’re creating a committee with people from the outside and providing only one mandate because the credibility comes from the independent expert. It’s the independent expert’s opinion that matters. Because the committee’s opinion is much less important. Why do we need to create this type of committee? Why don’t we give this mandate only to the Standing Committee on Internal Economy, Budgets and Administration? It’s clear. Everyone participates in it. The Senate approves the mandate? Why add to the bureaucracy?
Senator Moncion: To prevent certain recommendations in an external audit report from being withdrawn. This ensures that the work hasn’t been manipulated since people from the outside will perform the work.
Senator Massicotte: If we hired one of the four groups in the world that has great deal of expertise in this area, it would never agree to express an opinion that was expressed by someone else—
Senator Moncion: How do you explain the Enron affair?
Senator Massicotte: I’m not talking about Enron. In that case, the auditors made a error. The were sued. They didn’t do their work. I’m 99 per cent sure that they’re doing their job properly and that there isn’t any lawsuit.
Senator Moncion: That’s right.
Senator Massicotte: The mandate and opinion we’re seeking are the key components. If the opinion is satisfactory, why create another committee?
Senator Moncion: By creating a committee with people from the outside, we can ensure that the work submitted hasn’t been manipulated. I think that we already have this assurance.
Senator Massicotte: In terms of the financial statements, all auditors of consultations...No committee is created just to oversee and give the mandate. The company gives the mandate and the public believes it. With regard to the financial statements, no committee is hiring...I don’t know who we’re hiring.
Senator Moncion: KPMG.
Senator Massicotte: KPMG is very credible and professional. It gives an opinion on the financial statements. There’s no need to worry that someone may change their opinion.
Senator Moncion: No, but KPMG currently reports to the Standing Committee on Internal Economy, Budgets and Administration.
Senator Massicotte: Does this work?
Senator Moncion: Yes, but we’re talking about creating a completely independent committee.
Senator Massicotte: Why is it necessary to create this committee?
Senator Moncion: We need to ask Senator Wells and the group that he recommended—
Senator Massicotte: You don’t see why?
Senator Moncion: My first recommendation concerns only the internal audit, which would fall under the responsibility of a committee that would conduct a review with people from the outside. That’s my current recommendation. However, if we decide to create an external audit committee, we must also add the internal audit mandate.
[English]
Senator Sinclair: I have to admit that there is a lot of dancing on heads of pins here. I want to be sure that we keep in mind what this committee has been asked to do. What this committee has been asked to do is to look into the question of rule changes necessitated by the report — and this is a CIBA report — that called for the creation of a subcommittee on audit —
Senator Moncion: Not a subcommittee; a standing committee.
Senator Sinclair: Sorry, a standing committee on audit, yes — and the question of whether the rule changes should incorporate membership on that standing committee from outside of the Senate.
The two of you, and others, have been talking about the question of an external auditor. That, to me, is a totally separate issue. Whether or not an external auditor should be hired or internal audit staff should be mandated to do this is a totally separate question from whether or not there should be external members on a standing committee. I want to maintain that separation in thinking, because that gets into all sorts of issues that I don’t want to go to.
The question is, to go back to a point that I think Senator Massicotte was trying to make: Why do we need a standing committee for auditing senators’ expenses?
Senator Moncion: For transparency purposes, complete transparency with the public, having external members looking into it.
Senator Sinclair: Okay. So your belief is that in order for it to be effective in terms of transparency, it needs to have external membership on it?
Senator Moncion: No. It’s for credibility issues.
Senator Sinclair: Okay. So in order for it to be credible in its transparency, it needs to have external membership on it?
Senator Moncion: I would say no, but because of the reputation of the Senate, I would say it would give to members of the public the information and the assurance that they’re looking for.
Coming back to your comments, I was answering your questions, but if you go back to my two recommendations, there is one to create the audit and oversight for senators’ expenses only, with external membership. If we don’t go there, then it could be a complete audit committee with external members. It goes back to the twenty-first report, but the twenty-first report was asking for a standing committee, with no external oversight.
Senator Sinclair: Thank you.
The Deputy Chair: I have two points, Senator Moncion.
I would like to read the section of the Conflict of Interest Code to which I was referring, which is section 37(2):
The Committee may, after consultation with the Senate Ethics Officer, give general directives to the Senate Ethics Officer concerning the interpretation, application and administration of the Code, but not concerning its interpretation and application as it relates to an individual Senator’s particular circumstances.
That’s the section of the code I was referring to, which may be the subject of our own reflection along the line.
The other point I want to make — which, in my opinion, is very important — is that the Auditor General’s audit of the Senate was a forensic audit; it was not a performance audit. I remember very well that I stood up in the Senate one day and I asked specifically the question: Were we the subject of a forensic audit — when I say “we,” all the senators covered by those two years of auditing — or was it a performance audit? We never got a clear answer, but in practical terms it was a forensic audit.
I think it should be made clear in the mandate of the committee what kind of audit is to be performed. In my opinion, when you move to a forensic audit, it’s because at first sight, once you have looked into the books, you realize that there is a need for a forensic audit. If you start with the principle that it is always a forensic audit, then we are in a different ball game than the one you were talking about this morning. That’s what I want to put to you this morning.
[Translation]
Senator Moncion: Thank you for the clarification, because a forensic audit is very different from an ordinary audit. If the Auditor General’s mandate was to perform a forensic audit, then he had the right to conduct a more thorough review. If he started his work without the mandate to perform a general audit, that’s one thing. However, if he was given the mandate to perform a forensic audit, that’s a completely different task.
[English]
The Deputy Chair: I think we should make clear in our report what kind of auditing we are involved in and what kind of system we are putting into place to integrate general auditing or performance auditing according to the normal rules that are followed by the profession. That seems to me to be a key point to establish. Thank you.
Honourable senators, I’m looking at the clock, and I realize that we have completed our sitting this morning. Of course, I am standing in for our colleague Senator Housakos. I expect that, at our next sitting, Senator Housakos will be in the chair, or that I might pass on the gavel to Senator Sinclair, who is also deputy chair of this committee. Thank you, honourable senators.
(The committee adjourned.)