Tuesday, June 1, 2021

The Standing Committee on Audit and Oversight has the honour to present its

FOURTH REPORT

Your committee, which is authorized by the Senate to supervise and report on the Senate’s internal and external audits and related matters, and which was authorized by the Senate on December 1, 2020, to report on issues relating to the nomination of its external members, now presents an interim report which contains certain recommendations.

Background

Following the tabling of the Report of the Auditor General of Canada to the Senate of Canada — Senators’ Expenses in the Senate in June 2015, the Standing Committee on Internal Economy, Budgets and Administration (CIBA) mandated its Subcommittee on Senate Estimates to review the recommendations in the Auditor General’s report. One key recommendation from the Auditor General’s report was to propose the creation of an independent oversight body to review senators’ expenses.

Following this review, the subcommittee presented its 5th report to CIBA in October 2017, in which the subcommittee concluded that the creation of a standing committee under the Rules of the Senate (Rules) as an oversight body to review not just senators’ expenses but all Senate expenditures, would be the best option to address oversight over Senate expenses. Most audit functions in the Senate have typically been managed by CIBA or one of its subcommittees, pursuant to provisions in the Senate Administrative Rules (SARs). For that reason, the subcommittee report also recommended that there be no cross-membership between CIBA and that of the proposed standing committee on audit and oversight, and that CIBA be instructed to propose necessary changes to the SARs in relation to the creation of an audit and oversight committee to ensure its “ability to act independently and to interpret sections [of] the SARS relating to its work.”

In its 21st report to the Senate in November 2017, CIBA recommended that the Standing Committee on Rules, Procedures, and Rights of Parliament (the Rules Committee) develop and propose amendments to the Rules to establish a Standing Committee on Audit and Oversight. The subcommittee’s 5th report was included as an appendix to CIBA’s 21st report to the Senate, which was adopted by the Senate on March 27, 2018. The Rules Committee subsequently considered these issues and presented its 10th report to the Senate in November 2018, proposing amendments to the Rulesto create a Standing Committee on Audit and Oversight. However, the Rules Committee report was not adopted by the Senate prior to the dissolution of Parliament in September 2019. Both reports recognized the need to ensure that the work of an audit and oversight committee be permitted to continue through an intersessional period.

On October 1, 2020, the Senate adopted a motion to amend the Rules to create the Standing Committee on Audit and Oversight (AOVS). Included in those changes was a mandate for the committee which authorizes various audit functions for the committee to undertake “for the purposes of integrity, independence, transparency, and accountability.” The Senate appointed the first three senators to the committee on November 5, 2020, and the committee held its first meeting on November 25, 2020. Since that time, informal discussions have taken place about the respective audit mandates of both AOVS and CIBA, however the Senate must appoint two external members to AOVS before the committee can meet to pursue its full mandate.

The Senate’s Right to Manage its Internal Affairs

In proposing the creation of an audit and oversight committee for the Senate, the Subcommittee on Senate Estimates took note in its 5th report to CIBA of the need to also consider

the constitutional role of the Senate as one of the three components of the Parliament of Canada. A clear hallmark of a legislative body is its capacity to regulate itself independently from outside interference. The Senate is a legislative institution and not a federal department or a crown agency. Any recommendations related to an oversight body must be consistent with the rights and privileges of Parliament to regulate its affairs to ensure its independence.

It is a well understood principle that the Senate as a parliamentary body has exclusive control to regulate its own internal affairs, particularly with respect to its debates, agenda and proceedings. This principle is emphasized in the first edition of Senate Procedure in Practice, at page 226, which states:

The right of a house to regulate and control its proceedings free from any external interference is paramount to the proper functioning and independence of Parliament.

It is by virtue of this fundamental power that the Senate has established its fundamental governance documents (notably the Rules, but also the Ethics and Conflict of Interest Code for Senators (the Code) and the SARs), amends them, and modifies their effect as required by adopting orders respecting its proceedings and internal affairs.

Your committee believes that its mandate to supervise, review and report on the Senate’s internal and external audits, action plans and financial statements, as stated in rule 12-7(17), is one that focuses on the internal operations of the institution and that its study and actions therefore play an important role in the Senate’s right to self-governance.

Intersessional Authority on Audit and Oversight

Most standing Senate committees can only operate during a session of Parliament, which ends upon dissolution or prorogation. When prorogation or dissolution occurs, most Senate committees, in practical terms, cease to exist: the chairs and deputy chairs cease to hold office, committees no longer have members, and all work before the committee stops. In the current context for AOVS, a prorogation or dissolution would have the same effect on the committee. Under the current Rules and practice, the committee could not resume its work until senators and external members are appointed to the committee by the Senate in a new session.

There are two Senate committees that are affected differently by a prorogation or a dissolution. One of these committees is CIBA, which continues to operate under the intersessional authority provisions of the Parliament of Canada Act (PoCA). Subsection 19.1(2) of PoCA provides for CIBA’s continuation beyond prorogation or dissolution, until new members are named in the new session, while subsection 19.3 of PoCA authorizes CIBA to act on all financial and administrative matters that pertain to the Senate. Although PoCA does not provide a comprehensive set of procedural rules for CIBA to follow, it is well established by subsection 19.1(4) of PoCA that the rules, direction and control of the Senate continue to apply during intersessional periods, which allows CIBA to continue to act during those periods in regards to the on-going operations of the Senate. It should be noted that included in the management functions as set out by the SARs, CIBA is also responsible for ensuring that regular audits of Senate expenses take place. CIBA is also empowered by the SARs to prepare financial statements for the Senate and to retain the services of independent auditors to conduct audits of the Senate and its accounts. By virtue of the intersessional authority granted under PoCA, these functions can continue uninterrupted by a prorogation or dissolution for CIBA and its subcommittees.

In addition to CIBA, the members of the Standing Committee on Ethics and Conflict of Interest for Senators (CONF) at the end of a parliamentary session become an Intersessional Authority of Ethics and Conflict of Interest for Senators (CONF-IA), pursuant to sections 38 to 40 of the Code. The CONF-IA is neither a standing nor a special committee as understood by the Rules. The CONF-IA may consider matters related to the Code, but its powers are limited. It cannot, for example, present or table a report in the Senate, which forms an important part of the standing committee’s mandate (only CONF, as a standing committee of the Senate, has the power to report to the Senate). Nevertheless, the CONF-IA can continue some of the standing committee’s work, which relates to the Senate’s ethics and conflict of interest regime.

One of the key recommendations contained in the 5th report from the Subcommittee on Senate Estimates, was to propose that any audit and oversight committee that is created should engage in “proper meeting management” which would require that it “should meet regularly and keep proper records of decisions”. The subcommittee further proposed that the committee “should also have the ability to meet when needed without restrictions such as during an intersession”. The report further stated that the scope of the committee’s audit and oversight role should ensure continuous access to the organization’s governing authority, management and all auditors (internal and external).

The report also made the following recommendation, which was subsequently included in the 21st report of CIBA which was adopted by the Senate in March 2017:

That consultations be undertaken by the leadership of all caucuses and recognized groups in the Senate to propose amendments to the Parliament of Canada Act to provide intersessional authority to the Standing Committee on Audit and Oversight, once the new committee is established and has begun its work. A delay in receiving this intersessional authority should not prevent the committee from beginning its work.

A similar recommendation was included in the 10th report of the Rules Committee in relation to the creation an audit committee. To date amendments to PoCA to provide an intersessional authority to the committee have not been formally proposed in the Senate, although consultations have occurred.

Your committee is of the view that the inherent unpredictability about the duration of the current parliamentary session should not, as far as possible, interrupt its work. As stated in rule 12-7(17) of the Rules, the mandate of the committee requires it to retain the services of internal and external auditors and to supervise the Senate’s internal and external audit function, in addition to reviewing action plans, quarterly reports and financial statements. These important roles and responsibilities require that the committee meet regularly and periodically to monitor and review the financial operations of the Senate throughout the fiscal year as mandated by the Senate, as these operations continue irrespective of any interruption to the parliamentary session.

Accordingly, your committee believes that the Senate could allow most of the work of the committee to continue, first by creating an appropriate internal structure that would operate during an intersessional period, as a necessary function to manage the on-going internal business of the Senate, and second by modifying some of its existing governance relating to audits, as a function of managing the internal business of the Senate. Your committee also believes that the Senate could establish an internal structure in a way similar to that used to establish the Intersessional Authority on Ethics and Conflict of Interest for Senators, whose authority emanates from the Code, which was adopted by the Senate as a report of the Rules Committee and came into effect in 2005.

Your committee therefore proposes that the Senate establish a similar structure called the Intersessional Authority on Audit and Oversight, composed of the members of AOVS at the end of the parliamentary session, with a mandate to maintain and continue some of the standing committee’s audit functions as set out in rule 12-7(17). With respect to the external members, the Rules outline the process by which they are to be appointed to the committee but are silent on the tenure of the external members. Under normal circumstances, once appointed by the Senate, their membership would expire upon prorogation or dissolution, as it would for any senator appointed to a committee, in the absence of a legislative provision to extend their membership (as is the case for senators who are members of CIBA). Senators remain senators during a prorogation or dissolution, however the external members would not have any status once the committee ceases operation in an intersession. Your committee believes that if the senators on AOVS are permitted to continue their work as an intersessional authority, the external members should also be permitted to continue their work alongside senators as members of that same intersessional authority, with the necessary modifications to account for their unique relationship to the Senate.

In the next section, your committee will propose some corresponding changes which we believe will further clarify the mandate of the Intersessional Authority on Audit and Oversight, until permanent changes to the SARs, Rules or other mechanisms — such as legislative changes — have addressed the issue of overlapping mandates between CIBA and AOVS and the status of the external members of AOVS.

RECOMMENDATION 1:

Your committee recommends that the Senate adopt the following measures:

That, during the intersessional period following the end of the second session of the Forty-third Parliament, and until the members of a successor committee to the Standing Committee on Audit and Oversight (AOVS) are appointed by the Senate, there shall be an intersessional authority known as the Intersessional Authority on Audit and Oversight;

That:

a)the Intersessional Authority on Audit and Oversight be composed of the senators and external members of Standing Committee on Audit and Oversight who are members at the end of the current parliamentary session; and

b)the internal and external auditors retained by the Senate carry out their duties and functions under the general direction of the Intersessional Authority on Audit and Oversight; and

That, subject to the rules, direction and control of the Senate, the Intersessional Authority on Audit and Oversight carry out such other of the committee’s duties and functions as the committee gives to it by resolution and in accordance with the mandate of the committee pursuant to rule 12-7(17); and

That the committee’s power under rule 12-9(3) to review the in camera proceedings of other Senate committees be understood as not applying to the Intersessional Authority on Audit and Oversight during an intersessional period.

Senate Administrative Rules and CIBA’s audit functions

As mentioned earlier, until to the Senate’s creation of AOVS, audit functions in the Senate have been managed by CIBA or one of its subcommittees, as a part of their overall administration and management responsibilities, pursuant to the SARs. Conversely, AOVS was created to be an oversight body that would review Senate expenditures, while remaining arms-length and independent from the day-to-day administration and management of the institution. Although it will be up to AOVS to determine for itself the exact nature of its activities and future business once it is fully constituted, rule 12-7(17) clearly states the committee’s mandate and primary responsibilities. It is also clear from the changes to the Rules that were adopted by the Senate that it is intended that AOVS have a significant level of independence from CIBA, as reflected by the fact that a senator cannot simultaneously be member of both committees (rule 12-3(4)) and that the chair of CIBA and the chair of AOVS cannot be members of the same recognized party or recognized parliamentary group (rule 12-13(3)).

Despite these clear delineations, there currently appears to be an overlap in the audit functions, since they have been attributed to both AOVS (through the Rules) and CIBA (through PoCA, the Rules and the SARs). None of the Senate’s governance documents are prescriptive in terms of how these audit and oversight functions are to be conducted by either committee. Your committee believes that some mechanism must be found to allow the members of AOVS to continue their audit and oversight functions independently of CIBA through an intersessional period.

Your committee believes that this can be accomplished in the short term if the Senate were to direct CIBA to use its residual powers to delegate the supervision and oversight of the Senate’s audit functions to the members of the Intersessional Authority on Audit and Oversight. This could be followed by the eventual development of amendments to the SARs to further clarify and separate these functions. Accordingly, we recommend that the Senate direct CIBA to implement the following measures: (1) to delegate their current audit responsibilities under the SARs to the members of the Intersessional Authority on Audit and Oversight; and (2) to instruct CIBA to develop the necessary amendments to the SARs so that in the future, AOVS (and its intersessional authority) is able to fulfil its mandate, as set out in the Rules, independently of CIBA.

RECOMMENDATION 2:

Your committee recommends:

That, once the external members of the Standing Committee on Audit and Oversight have been appointed, the Senate direct the Standing Committee on Internal Economy, Budgets and Administration (CIBA) to delegate, by a recorded decision, CIBA’s audit and oversight functions, under subsection 2(2) of chapter 2:02 and subsection 5 of chapter 3:04 of the Senate Administrative Rules (SARs), to the members of the Intersessional Authority on Audit and Oversight, as an interim measure for the intersessional period following the end of the second session of the Forty-third Parliament; and

That, for greater certainty, the audit functions delegated to the Intersessional Authority on Audit an Oversight include the authority to

1.supervise the Senate’s internal and external audit activities;

2.review and approve audit plans, reports and recommendations regarding internal and external audit functions, including internal and external auditor reports;

3.review the Senate Administration’s action plans and ensure that they adequately address the recommendations and findings arising from internal and external audits, and that the action plans have been effectively implemented;

4.review the Quarterly Financial Reports and audited Financial Statements;

5.retain the services of and oversee the work of the external auditors and internal auditors; and

6.commit and certify expenses related to the payment of internal auditors, from the funds set aside for the annual operations of the Standing Committee on Audit and Oversight, notwithstanding subsection 2(1)(c), but subject to subsections 7 and 8 of chapter 3:05 of the SARs; and

7.commit and certify expenses related to the remuneration or reimbursement of permissible expenses for the external members, from the funds set aside for the annual operations of the Standing Committee on Audit and Oversight, subject to subsections 7 and 8 of chapter 3:05 of the SARs; and

That, the Senate direct CIBA to develop and propose consequential amendments to the SARs as required, to ensure that in the future, the Standing Committee on Audit and Oversight has the ability to act independently and to interpret those sections of the SARs that relate to its mandate, as set out in rule 12-7(17).

Respectfully submitted,