Proceedings of the Standing Committee on
Internal Economy, Budgets and Administration
Issue No. 15 - Evidence - October 26, 2017
OTTAWA, Thursday, October 26, 2017
The Standing Committee on Internal Economy, Budgets and Administration met this day at 8:31 a.m., pursuant to rule 12-7(1), for consideration of financial and administrative matters; and in camera, pursuant to rule 12-7(1), for consideration of financial and administrative matters.
Senator Leo Housakos (Chair) in the chair.
The Chair: Good morning, colleagues; I call the meeting to order.
Before we get into the agenda, last week I was negligent in introducing to our new media relations person to Internal Economy. Though I think most of you have already met her, the Subcommittee on Communications has brought on board Alison Korn. Alison joined the organization in the last couple of weeks. Welcome on board.
Alison is the one who will be dealing with the press on behalf of Internal Economy and the Senate. Colleagues, if you ever have any questions, feel free to get in touch with her.
We’ll go right to item 1 on the agenda, which is the adoption of minutes of proceedings for the public portion of our meeting of October 19, 2017. Do I have anyone moving the adoption of the minutes?
Senator Campbell: So moved.
The Chair: All in favour? Carried.
The second item is the fifth report of the Audit Subcommittee, the audited financial statements. We have with us Senator Smith, Pascale Legault and Nathalie Charpentier of the Senate of Canada and Andrew Newman and Charly Thivierge-Lortie from KPMG. Who would like to take the floor first?
Senator Smith: Thank you, senator. Welcome to our guests. We’ve seen each other recently. I don’t think I have to introduce everyone again, so I’ll get right to it.
I’ll read the brief report the Audit Subcommittee submitted to CIBA on October 24. Following a detailed review on October 17, your Audit Subcommittee is pleased to recommend the approval of the audited financial statements for the year ending March 31, 2017.
[Translation]
At last week’s meeting the subcommittee reviewed three related documents, the financial statements, the highlights of the financial statements, and the report from the external auditor.
The financial statements for the year ending March 31, 2017, were certified unreservedly once again this year, as has been the case since the Senate began to publish its financial statements in 2008-09.
I want to point out that the statement of managerial responsibility regarding the financial statements clearly indicates that the integrity and objectivity of the information therein falls under the Senate administration management, and that these statements were prepared in compliance with Canadian accounting standards for the public sector.
[English]
The actual statements outline, in turn, the financial position of the Senate as of March 31, 2017, the operations for the fiscal year 2016-17, a summary of the changes in the surplus of the Senate and how the cash received from the Consolidated Revenue Fund was used within the Senate. The remaining pages include notes to describe and provide further detail on the amounts presented on the face of the financial statements.
A second document, referred to as “financial highlights,” was provided as a guide. The reader will find explanations on each page of the financial statements and, as well, the note disclosure.
Regarding expenditures, the guide provides an analysis of variations within budget and prior-year expenses. It should be noted that while the audited financial statements are made public, the “financial highlights” is an internal document.
The statement of financial position provides a picture at a point in time of all assets and liabilities of the Senate with the net of the two being presented as an accumulated surplus. The major drivers for the variances from prior years on the statement of financial position were an increase in tangible capital assets of $1.5 million due to our new integrated corporate system acquired to support the finance, procurement and materiel management.
The second-largest acquisition category relates to informatics software, which is mainly related to the Iris project and the Senate portal.
An increase in accounts payable is mainly due to timing. For instance, the payroll accrual includes eight additional business days just as a result of the cut-off for March 31. The rest of the variances are mainly due to timing of transactions and billing of invoices.
The total of expenses for the current year is $99.5 million. Of that amount, $20 million represents services provided by other federal departments and $1.5 million relates to amortization. Now, $77.9 million represents expenses subject to Senate spending authorities. Those last expenses have increased by $5.7 million in comparison to the prior year.
The major drivers for the variance were increased salaries and benefits expenses due to the increase in the average number of senators. The increase in the number of senators had a direct impact on many other expense categories, such as transportation, communications, equipment and supplies.
Total revenues for the year, excluding appropriations, have decreased significantly since the prior year. The revenue from the prior year was mainly related to the decision rendered by Justice Binnie in the context of the arbitration process. This arbitration process is not recurring this year.
The current-year revenues are mainly related to an adjusted base on some estimates of expenses for the previous year, which had been slightly overstated.
We had net costs of operations of $99.2 million, mainly funded from the appropriations but also funded through services provided without charges.
Finally, the net result is an annual surplus of $1.4 million, which represents 1.4 per cent of total expenses. The auditor conducted the audit in accordance with their audit plan. They did not identify any control deficiencies or misstatements requiring corrections.
I would like to take the opportunity to thank the external auditor for all of their due diligence in reviewing the documents to support their audit opinion.
Thank you very much.
Senator Tannas: I just had a couple of questions, and one as it relates to your audit fees.
I have to say, based on the audit plan and charges, we’re really getting value for money. Coming from business, these are not numbers that I’m used to seeing for something that has $100 million worth of transactions.
Is there something cursory about your work compared to other similar — there’s probably a better word — comparable institutions? With a cost of less than $30,000 for an audit of this organization, either corporations are overpaying or there’s something going on here that is different than I would be used to. That’s my first question.
Senator Tkachuk: Don’t give them any ideas. I thought it was really expensive.
Andrew Newman, Partner, Audit Leader, Public Sector Audit, KPMG: Thank you for the question, Senator Tannas. I was hoping for a motion on the floor, actually.
Regarding the fees, first I will guide the committee through the process that the Senate uses. The Senate does a competitive RFP every five to seven years on which the audit firms compete for this work. That is a good process to follow.
With regard to our fees of $27,000 for the regular audit, that is comparable to other organizations in the public sector. I know you are unique, certainly, but in the public sector. It’s really a function of the type of transactions and expenses that you have — $63 million of your $78 million that’s under Senate authority are salaries. Salaries are usually very easy to audit. There’s an expectation there, and I’ll come back to that point in 30 seconds or so.
As well, the services provided without charge of $21 million, $14.8 million of accommodation and $5 million of health and dental insurance plans, those services are provided by PWGSC and the Treasury Board. Those are provided numbers. They tell the Senate what those are worth. That’s easy to audit. You’re basically looking at a letter.
Senator Tannas, I think that’s part of the differential you see between here and a public company. With salaries, I did want to inform the committee that we had to do extra work due to the Phoenix system. That was $13,500, and that work related two-fold. As you know, the Auditor General had to do their work on the Phoenix system on a substantive basis. They picked somewhere in the range of 300 to 400 employees, I understand, of the whole government, approximately 18,000 paid transactions in total. Out of that selection, four employees of the Senate were selected by the Auditor General out of the main system.
Under agreement with the Auditor General, we performed that work for them at the Senate. We also increased that sample for our audit by eight more employees to 12 employees. It’s interesting to compare the work. The Auditor General just announced the results on Tuesday this week. Out of their sample, 62 per cent of the employees sampled had an error within the year; 56 per cent of the total population of employees had an error at the end of the year, i.e. only 6 per cent of the people who had an error was fully corrected by the end of the year, March 31.
For the Senate, out of your 12, five had an error within the year. All of them, every single one, was corrected by March 31. That’s an important statistic for this committee. It goes to the work that your finance administration team has done to make sure that your employees are paid the appropriate amount and that took roll-up-your-sleeves effort to get that done. I did want to get that on the floor. I apologize, Mr. Chair. I kind of went away from the fee question, but I wanted to use that opportunity to state that to this committee.
Senator Tannas: Thank you. I had one more question for Ms. Legault. We have now a $5 million accumulated surplus which, in my understanding, would be that we have our estimates, we collect the money from the central money pot, we hold it and then we don’t spend it but we keep it. Is that how we get an accumulated surplus?
Pascale Legault, Chief Financial Officer, Finance and Procurement Directorate, Senate of Canada: That is not exactly how we get the accumulated surplus because it’s not about a transfer of funds. The accumulated surplus is as a result of applying the accounting principles. So when you’re referring to a transfer of funds, we do receive appropriations, but anything that is not used is lapsed and that’s explained in note 3 of the financial statements. Those funds are returned to the central agencies.
So the Senate does not keep —
Senator Tannas: All that money. Say we need it and then we keep it.
Ms. Legault: Exactly. The appropriations are voted and what the Senate is not using is returned to the centre.
Senator Tannas: So with only one source of revenue, how do we get an accumulated surplus?
Ms. Legault: The accumulated surplus is as a result of basically applying the public sector accounting standards to determine the expenses throughout the year and on that, there are aspects such as amortization, for instance, where there’s no transfer of funds. It’s really about determining the overall expenses for the year.
When we apply these expenses against all sources of revenue for the year, the difference is what we would have as a surplus. Those accumulating over time are reported in the accumulated surplus.
Senator Tannas: So there’s no cash represented in this accumulated surplus?
Ms. Legault: No. This is not cash. It’s simply the result of the difference between expenses, not disbursements, against revenue over the years.
The Chair: Mr. Newman, you had something to add to this?
Mr. Newman: Yes. Thank you, senator. On the question of accumulated surplus, we get a lot in government organizations. On the very first day of accounting class you learn one equation, which is that assets equal liabilities plus equity or surplus. What that means is assets are funded either by liabilities or equity. Equity, in your case, is called accumulated surplus of the $4.9 million.
If you look at your balance sheet, on page 1, you do have $15.4 million of assets, $10 million of liabilities, accounts payable being most of it at $6.8 million, but also vacation and employee severance benefits of $3.5 million in total, leading to that $5 million surplus. Fundamentally, it relates to your capital assets. You have purchased those capital assets, which have not been amortized yet, the same as in business or not-for-profit organizations.
You kind of know it works because Ms. Legault mentioned that the surplus in the year was about $1.4 million and your accumulated surplus went up that amount. Your capital assets actually went up a similar amount, $1.5 million. Fundamentally, that surplus is funding your capital assets that you need to continue to do your work moving forward.
Senator Tannas: Thank you.
Senator Marshall: I have several questions. With the heritage assets, our inventory of that is done now. Is that a new note or was that note for the last year?
Ms. Legault: So capital assets —
Senator Marshall: No, not capital.
Ms. Legault: Heritage assets. This is not a new note. We introduced it last year. However, we have provided additional information. If we compare it to last year, we have provided a more detailed breakdown as a result of the interest in the question.
Senator Marshall: My understanding is that the inventory is complete now, is it?
Ms. Legault: The inventory has been done. We have our expert. I don’t know, Mr. Chair, if we can bring —
Senator Marshall: No, that’s fine. It was complete. Page 2 says the employer’s contribution to health plans has gone up about 10 per cent. Are the senators in there or is that just employees?
Ms. Legault: Those are all the staff from the Senate, including senators, who are entitled to receive health and dental benefits. So this would exclude students or anyone not allowed to receive this.
Senator Marshall: Why did it go up 10 per cent? Is it because we’re almost to our full complement of senators?
Ms. Legault: Yes, we have an increase from 2016 to 2017 in the number of senators. It went from 84 average senators last year to 92 senators this year, so that represents the increase in the number of senators, and also the number of staff supporting senators. It explains why it has increased.
There has been a slight increase also in the percentage being charged by Treasury Board Secretariat. It went from 8.7 per cent to 9.3 per cent. There’s no transfer of funds for this. They cover and they inform us of what the cost has been for our employees.
Senator Marshall: So the rates have gone up, okay.
My final comment would be relating to note 11 and the contingencies. Now, I realize the sensitivity of that note. So my question is, would the details with regard to that note have been shared with the Audit Subcommittee?
Ms. Legault: It was discussed.
Mr. Newman: Yes, it was discussed in the Audit Subcommittee, in both the regular session and in the in camera session with us and the members of that committee.
Senator Marshall: Okay. Mr. Chair, are we going to have an opportunity to speak with the auditors in the absence of staff?
The Chair: If the committee wishes, of course.
Senator Marshall: We should, yes.
The Chair: It has been the practice.
Senator Marshall: It’s been the practice. Thank you.
[Translation]
Senator Carignan: I am perusing this quickly, and I see no mention of the Phoenix pay system. Were any elements of uncertainty or non-compliance identified?
[English]
Ms. Legault: Is the question for us or for the auditor?
Senator Carignan: For everybody.
Ms. Legault: It has been mentioned by the auditor. A number of steps have been taken to increase the controls in the current year. Additional monitoring control — re performance — so management is satisfied that the amount being recorded for the payroll expense for the current year is adequate in the financial statements, and there was no need to provide additional information in terms of contingency or subsequent events related to Phoenix.
The Chair: Are there any other questions, colleagues?
Senator Batters: Thank you. With respect to note 1, at the Audit Subcommittee, I asked about that particular definition being provided of the authority and objectives. Sorry, I don’t have the note in front of me right now. I didn’t receive an answer about that, so I wondered if that was new or revised, what were the revisions, and why, in particular, that wording was chosen? I didn’t receive an answer, so I would like to know what it is.
Ms. Legault: Thank you, senator. We did follow up to ensure the official wording here came from an official source. It is coming directly from the modernization report with all the aspects of the roles of the Senate that were updated when additional information was provided in the proactive disclosure. To align with all the definitions that have been posted, we have updated the information in note 1 of the financial statements. We can provide you with the exact wording. It is coming from the modernization report.
Senator Batters: The Senate Modernization Committee report?
Ms. Legault: Yes.
Senator Batters: What about the last part of that? I don’t have the wording in front of me, but the last part of that phrase of note 1?
Ms. Legault: Yes. It’s coming from that report as well, along with the various roles that are provided in note 1.
Senator Batters: The part that starts out “with respect to Canada’s national interest”?
Ms. Legault: Yes.
Senator Batters: Was that the report of the committee, or was that something passed by the Senate? What is that particular report dealing with? Because they’ve had several reports, and they’re at different stages of the process.
Ms. Legault: I don’t have the report with me here, but we’ve used the same report that was used to determine — just stepping back. Basically during the year, when additional information was provided for hospitality proactive disclosure, it was required that additional information could be provided by the senators in terms of outcome. At that point, we received from the Modernization Committee the document to be used. It basically reflected these various roles, along with the information about the particular interests to Aboriginal people and underrepresented segments of the Canadian population.
We used the exact wording to align what we are showing on the proactive disclosure and what we have on the financial statements.
Senator Batters: I can understand why you listed those certain subheadings — legislative, investigative, those kinds of things — but I would personally like to see that particular modernization report. It’s not something I recall. I’d also like to know what stage it’s at — if it’s something that the committee has filed but not been considered by the Senate, et cetera.
Senator Tannas: If members of Internal Economy will recall — I’m not sure that this came from the Modernization Committee — but if you recall, there was a business plan presented by management. They were looking for something to explain, as most organizations would, some words that would explain the mission and purpose of the organization. I think that this is familiar from there. The modernization one is in report number 10, nature, and it has not been passed. That’s the mission statement that was developed by the committee that is recommended in the sitting of the Senate, and potentially it will be voted on next week but hasn’t been agreed to.
But when administration presented their business plan, we kind of said, “Okay, we’ll let this go by for now” so that they can get on with making their plans. That’s my recollection, but maybe I’m out to lunch. But I don’t think this particular description emanates for the Modernization Committee.
The Chair: So colleagues, at this point, with leave of the committee, I’ll suspend for a few minutes, and I’ll ask all staff and members of the executive to leave the room. We will meet with senators and auditors alone.
(The committee continued in camera.)
(The committee resumed in public.)
The Chair: Colleagues, the meeting is reconvened. We are still on Item No. 2. We’ve had a good discussion in camera with our auditors, as per practice. We will defer the adoption of the report to next week’s Internal Economy meeting. The auditors will bring back a number of suggestions to the Audit Subcommittee for consideration.
I need a motion to extend the Audit Subcommittee’s life for another week in order that Senator Smith and members of the Audit Subcommittee can conclude this business with KPMG. Moved by Senator Marwah. Thank you. All in favour? Carried.
Item 3 is the sixth report of the Audit Subcommittee, quarterly financial report.
Senator Smith: Thank you, Mr. Chair. I’d like to thank our members — Senators Campbell and Batters — for their work, and, of course, our staff who have done a good job.
I have the pleasure of tabling the quarterly financial report for the first quarter of 2017-18, ending June 30, 2017.
[Translation]
This report is prepared on a quarterly basis, and respects the format proposed by the Secretariat of Treasury Board. It is produced by management and is not subject to auditing. Its purpose is to provide timely information on the use of the authorities obtained through the main estimates. As was the case last year, there is no forecast for June 30, but the exercise was done for the second and third quarters.
[English]
If I can draw your attention to the financial table on page 4, the terms of the budgetary authorities for 2017-18, we have seen a net increase of $13.8 million, which amounts to 15 per cent over the prior year. This increase is mainly attributable to, first, the increase of $8.5 million to senators’ research and office expense budgets mainly to reflect the increase in the office budget due to an increase in the expected number of senators as well as an increase in the individual budget from $185,400 to $222,480; second, the increase in the expected average number of senators from 98 to 103 also had an impact of $1 million on sessional allowance and benefits. The increase in the number of senators has also had a direct impact on the travel budget of $1 million; third, new provisions were approved in the context of the 2017-18 Mains for Senate house officers and caucus expense budgets, representing an overall increase of $2.4 million. At approximately $18.8 million, the actual expenditures for the first quarter have increased by $1.7 million or 10 per cent in comparison to the same period last year.
As one could expect, the increase from 87 senators in the first quarter of last year to 99 senators in the current year’s quarter had a direct impact on personal costs. It accounts for $2 million of the overall increase, which is partially offset by a decrease in travel due to the reduction in committee travel spending for the first quarter.
[Translation]
In accordance with established practice, the quarterly report provides a list of the principal risks and uncertainties that could have financial repercussions. We are continuing to monitor the following files: Senate modernization, the Senate oversight body, the new Senate Office Management Policy, and the study on human resources and its possible repercussions on corporate systems as well as the funding of the plan and of the long-term vision.
[English]
If any of you have questions, we have Nathalie Charpentier and Pascale Legault with us. Hopefully we can answer everything you ask. Thank you.
The Chair: You’ve done such a great job, Larry, that there’s no line of questions; so that’s good.
Item 4, fourteenth report of the Subcommittee on Committee Budgets.
Senator Tannas: Honourable senators, I have the honour to present the fourteenth report of the Subcommittee on Committee Budgets, which includes recommended allocations for three committee budgets.
Before discussing those, I want to provide some context. For total funds available and budgeted in 2017-18, it was $2.382 million. We held back $500,000 for witness expenses here in Ottawa for various committee activities where witnesses come to Ottawa and we pay for their expenses, which leaves $1.882 million for the release to individual committee budgets for travel.
Thus far this year, the subcommittee has recommended, and you have approved, $1,150,496 of our $1,882 million annual budget for release to committee activities.
In this fiscal year to date, the subcommittee has approved 14 budget requests that includes funds for committee travel. We are pleased to report that, of the 14 requests, 11 of those committee trips have been completed, while the Finance Committee will be travelling in the month of November.
The subcommittee met yesterday to consider three budgets. First, we met with the chair of the Energy Committee, who presented a budget application that contained proposed expenditures for $2,200 for one activity, which was fact-finding in the Kanata and Nepean region. This is in relation to their study on transitioning to a low-carbon economy and included funds for 15 senators to travel by charter bus within the Ottawa area. Based on the information provided, the subcommittee recommends the release of funds for activity 1 in the amount of $2,200.
Second, we met with the chair and deputy chair of the Transport Committee, who presented a budget application which contained proposed expenditures of $47,145 for one activity, which was fact-finding in Michigan in the United States. This is in relation to their study on automated vehicles. This budget application included funds for eight senators to travel. Based on the information that was provided by the committee, this subcommittee recommends the release of funds for activity 1 in the amount of $47,145.
Finally, we met with the chair of the Human Rights Committee, who presented a budget application which contained proposed expenditures of $221,743 for three activities. Activity 1 includes public hearings and fact-finding in Kitchener, activity 2 comprises public hearings and fact-finding in Edmonton and activity 3 consists of public hearings and fact-finding in three locations in the Maritimes. This is in relation to their study on the human rights of prisoners. This budget application included funds for two senators and the chair and deputy chair’s staff to travel.
After reviewing their request, we recommend a partial release of funds for activity 1, which is fact-finding in Kitchener, in the amount of $52,862; and activity 3, which is the visit to the Maritimes, in the amount of $85,484.
The subcommittee recommends that we revisit the request for funds for activity 2, the trip to Edmonton, once the first two activities have been completed and in the context of the remaining funds that we have available to us at that time.
In making these recommendations, the subcommittee has calculated and submitted a reduction in the total allocation that was applied for in these two activities for the expenses related to the travel of two political staff to attend with the senators. This is in keeping with what has been our subcommittee’s posture with respect to the travel of political staff on committee trips.
In making this recommendation, we are suggesting that, while the Senate Office Management Policy, or SOMP, has changed to allow for the potential for political staff to travel with their senators, deputy chairs and chairs on trips, we don’t see the necessity in this particular case, and so it’s our committee’s recommendation that those amounts be reduced and that funds not be made available for that.
We have reminded and will continue to remind chairs and deputy chairs that they are able to have their staff accompany them out of their own parliamentary travel points and funds if they so wish.
Your subcommittee is therefore recommending the release of $187,691 today. Of the $1.882 million set aside, this would bring us to a total release to date of $1,338,187.
I note that of the total release, not including the Finance trips scheduled for November, committees have actually spent $340,000 of that released money. So in our estimate, we have roughly $800,000 of uncommitted funds remaining for travel through to the end of the fiscal year.
I’m happy to answer any questions.
Senator Marshall: I have a couple of questions and I think I know the answer. What’s in Ann Arbor, Michigan?
Senator Tannas: That is one of the research centres for these driverless cars.
Senator Marshall: That one is okay. And for Human Rights, what’s in Kitchener?
Senator Tannas: There’s a prison there.
Senator Marshall: You didn’t approve Edmonton.
Senator Tannas: We have done this with most committee requests where they have multiple trips over a long span. We’ve said, “Look, get your first two trips done and then let’s see what year we’re in.” There is some thought they may actually be in the next fiscal year by the time they get to that trip.
Senator Marshall: I noticed for Human Rights you didn’t approve the entire amount requested for each activity.
Senator Tannas: The amount was small. It was $9,000 related to political staff.
Senator Marshall: That’s what you were explaining earlier. Thank you.
The Chair: Colleagues, are we in favour of the motion as put forward by Senator Tannas?
Hon. Senators: Agreed.
The Chair: Adopted.
Item No. 5 on the agenda is the fifth report of the Subcommittee On Senate Estimates.
Senator Wells: Before I begin, I’d like to note the people on the subcommittee who were instrumental in this report, including the deputy chair, Senator Jaffer, as well as Senator Campbell, Senator Tannas, Senator Tkachuk, Senator Saint-Germain and Senator Cordy, as well as the staff who assisted: the clerk, Mr. Daniel Charbonneau, and Pascale Legault, Nathalie Charpentier, Mélisa Leclerc, Jocelyn St. Amour and Alison Korn.
Now I’ll get into the report.
The Subcommittee on Senate Estimates of the Standing Committee on Internal Economy, Budgets and Administration has the honour to present its fifth report.
On September 21, 2017, your subcommittee was given the following mandate by the Standing Committee on Internal Economy, Budgets and Administration: That notwithstanding the motion of the committee adopted on Thursday, March 10, 2016, to authorize the audit subcommittee to examine the recommendations contained in the report of the Auditor General of Canada on senators’ expenses, tabled in the Senate on June 9, 2015, relating to senators’ expenditures — that is the notion of independent oversight and role of the AG in the future — and the monitoring of senators’ expenditures, which are recommendations 51, 52, 53, 54, 55, 56 and 57, and any other related recommendations, the examination now be conducted by the Subcommittee on Senate estimates; that the study examine the Auditor General of Canada’s oversight recommendations; that the study consider industry best practices in establishing an audit mechanism and we have an appropriate structure; and finally, that the subcommittee report to the committee no later than October 26, 2017.
Colleagues, in June 2015, the report of the Auditor General of Canada of the Senate of Canada and senators’ expenses, 22 recommendations were made, seven of which dealt with the auditing and oversight. In short, the recommendations in paragraphs 51 to 57 prompt the Senate to create an independent oversight body whose membership is composed of non-senators, including the chair. The position of internal auditor should also be created, who shall report directly to the oversight body.
An oversight body could have the mandate to assist in interpreting the rules, policies and guidelines of expenses, the ability to review expenses, the authority to make final decisions on the legitimacy of expenses and to hire and terminate an internal auditor.
The oversight body should be open to the public, and all reports, minutes and decisions should also be published on the Senate’s website. It should have direct access to internal and external audit plans and have the power to request internal and external audits under its own authority.
Finally, the Auditor General of Canada should be given the role of external auditor for the Senate. After receiving its mandate from the Standing Committee on Internal Economy, Budgets and Administration, your subcommittee closely examined the recommendations and considered their applicability as part of an overall audit and oversight mechanism for the Senate.
The subcommittee agrees with some of the recommendations but finds others to be highly problematic. It agrees with the creation of an oversight body and an internal auditor. It also agrees that the oversight body should work in an open and transparent way with the necessary powers to adequately execute its mandate.
Under “Greater Transparency,” colleagues, even prior to the findings in the AG’s report, presented in 2015, the Senate had undertaken several initiatives to become more transparent and accountable. All expenses incurred by senators are proactively disclosed, each quarter, on the Senate’s website. All service contracts for senators are also published. There have been a number of other initiatives taken. Colleagues, this is one where our CIBA committee reports publicly.
It is the opinion of the subcommittee that transparency is the greatest tool. It is the most effective method to ensure accountability, by having expenditures disclosed to all Canadians.
Under “Audit and Oversight Principles and Best Practices”: Your subcommittee was also asked to examine industry best practices in establishing an audit mechanism. During its review, it noted some basic principles for the establishment of an effective audit process for the Senate.
Under “Independence”: To conduct a proper audit and oversight function, the work must be conducted at all times outside an organization’s decision-making process, especially relating to the approval of expenditures. The cross-membership between the executive, which, in this case, colleagues, is CIBA, and the audit functions should be prohibited. An audit and oversight body should also have full control over its agenda and its processes.
Under “Reporting”: Any audit body should report directly to the highest governing authority in an organization. Any review conducted by an audit body also requires response from management, as well as monitoring, to ensure timely and adequate implementation of actions.
Under “Scope”: In an audit and oversight role, the reviewing body should have continuous access to the organization’s governing authority, management and all auditors, internal and external.
Under “Accountability of Auditors and Management”: According to the information received by the subcommittee, an audit body must have the ability to appoint internal and external auditors and have the appropriate mechanism to hold management accountable for audit findings.
Under “Proper Meeting Management”: An audit body of five members should meet regularly and keep proper records of its decisions. It should also have the ability to meet when needed, without restrictions, such as during inter-session.
Under “Transparency”: In a parliamentary context, an audit function should be conducted in public, where its deliberations are open to public scrutiny. This principle must also respect the rules and conventions related to in camera confidentiality of parliamentary meetings.
Under “Parliamentary Role of the Senate”: In reviewing the recommendations from the AG, the subcommittee was mindful of 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 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.
The standing Senate committee on audit and oversight: During its review of the Auditor General’s report and the principles of audit and oversight, the subcommittee examined different structures. It came to the conclusion that the creation of a standing committee, under the Rules of the Senate, would be the best option. This standing committee would be composed of senators and be modelled after the Standing Committee on Ethics and Conflict of Interest for senators, with one important difference. The Audit and Oversight committee would meet in public to conduct its business and meet only in camera as permitted under rule 12-16(1) of the Rules of the Senate, which states:
12-16. (1) Except as provided in subsection (2) and elsewhere in these Rules, a committee may meet in camera only for the purpose of discussing:
(a) wages, salaries and other employee benefits;
(b) contracts and contract negotiations;
(c) labour relations and personnel matters; and
(d) a draft agenda or draft report.
In addition to the provisions in rule 12-16(1), the new committee should also meet in camera for the review of in camera proceedings of other committees. That, colleagues, is to give full respect to the confidentiality conducted by other committees but also give full access to the proposed committee.
The establishment of a standing committee would follow the principles outlined in this report. It would report independently and directly to the Senate as the highest governing authority, with no cross-membership between CIBA and the audit and oversight committee.
Your subcommittee believes that such an oversight committee would serve the Senate and Canada more effectively and efficiently if it included oversight of not only senators’ travel and living expenses, which comprise only 4.8 per cent of the total Senate budget, but of all Senate expenditures. You’ll recall, colleagues, that the Auditor General spent in excess of $23 million to look at a small slice of the Senate’s budget. The proposal for this audit and oversight committee would look at all aspects of the Senate and, obviously, would cost much less.
Internal and External Auditors: Following the establishment of the standing Senate committee on audit and oversight, the new committee should be authorized to hire and direct the work of an internal auditor. The internal auditor would exist outside the Senate administration and would have unrestricted access to Senate records, financial information and systems, as directed by the committee. The internal auditor would report its findings to the committee, after which the committee would report to the Senate, which, of course, colleagues, as I mentioned earlier, is the highest governing authority.
Currently, the Senate’s annual financial statements are audited by an external auditor, appointed and reporting to CIBA. This practice will be transferred to the audit and oversight committee. The new committee’s appointment process would include the assistance of outside experts for the examination of requests for proposals, evaluations of proposals and formal interviews with candidates. Colleagues, this would be to ensure an arm’s length process away from senators to select the assistance that this committee would need.
In the Auditor General’s report, it was recommended that his office be given the mandate to act as the Senate’s external auditor. The last audit of the Senate conducted by the Auditor General cost over $23 million. It is the view of your subcommittee that it is not in the legislative mandate or authority of the Auditor General to be the regular external auditor of a house of Parliament. Indeed, the Auditor General already overstepped his legislative authority in a number of recommendations in his June 2015 report.
Colleagues, the recommendations would be: That the Standing Committee on Internal Economy, Budgets and Administration recommend to the Senate that the Standing Committee on Rules, Procedures and Rights of Parliament develop and propose amendments to the Rules of the Senate and any other necessary modifications to the Rules to establish the standing Senate committee on audit and oversight, with five members, and to develop its general mandate, consistent with the audit and oversight principles and best practices contained in this report, including an authorization to consider issues on its own initiative.
That any proposed amendments to the Rules of the Senate include no cross-membership between members of CIBA and the standing Senate committee on audit and oversight.
That the Standing Committee on Internal Economy, Budgets and Administration develop and propose amendments to the Senate Administrative Rules as required for the proper functioning of the new standing Senate committee on audit and oversight, including the ability to act independently and to interpret sections of the SARs relating to its work.
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 Senate 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.
That, following the creation of the standing Senate committee on audit and oversight, appropriate resources be allocated for an internal audit function.
That the Standing Committee on Internal Economy, Budgets and Administration develop and propose amendments to the Senate Administrative Rules as required for the proper functioning of an internal auditor.
That the standing Senate committee on audit and oversight be authorized to hire the external auditor.
Respectfully submitted, colleagues.
The Chair: Thank you, Senator Wells.
Senator Wells: I’d also like to say that, accompanying this report, for the information of colleagues, the subcommittee has developed a dashboard or an information graphic that talks about some of the key things that we discussed and learned at committee. It also has an instructive timeline at the bottom of the page that talks about the things that the Senate has done over the years to increase its transparency and accountability up to the Auditor General’s report and the steps that we’ve taken since then.
Colleagues, I’d be happy to answer any questions on the infographic as well.
The Chair: Thank you, Senator Wells, and thank you to your committee for this very important work.
Colleagues, keep in mind that this is really substantive because, at the end of the day, we’re dealing with issues that affect the whole premise of our parliamentary privilege. I think we have to be very diligent.
I also want to thank Senator Wells for highlighting all of the changes that we have made as the Internal Economy Committee over the last two, three years, working hard toward the principle of accountability and transparency. He highlighted all of them. He missed one, which is, of course, that this committee created, a couple of years back, even before the Auditor General filed his report, an arm’s length arbitration process led by former Justice Binnie. So it’s been, now, a number of years that this committee, and the Senate, doesn’t sit in judgment of disputes between senators and the administration.
So we took that leadership role a while ago. Again, I’m proud of the fact that it’s unprecedented and no other Parliament has systems of that nature in place.
I want to exercise my privilege as chair of this committee to ask the first question to Senator Wells. I was wondering if you have reviewed other structures of this nature in other parliaments that are based on the Westminster system. My understanding is that the only Parliament in the Commonwealth that has an oversight body that’s independent to the Parliament is, of course, the House of Lords. They have had a system in place now for about a decade.
When I was on the other side of the Atlantic visiting the Speaker of the House of Lords a number of years ago, it became evidently clear to me that they’ve had some difficulties in the last decade. Unfortunately, at the end of the day, it became a creation of another layer of bureaucracy. That layer of bureaucracy ended up becoming a bit of a financial boondoggle for the House of Lords. Now, of course, they’re in the process, from my understanding, of reviewing the whole structure of oversight and the cost, because the cost of that oversight body ended up costing hundreds of thousands of pounds a year. Has the committee looked at that?
Senator Wells: You’re correct, we did an exhaustive study of all parliaments of Canada, and all parliaments and legislative bodies of the G8 plus New Zealand and Australia.
There were two we found that had what I’ll call independent members as opposed to a level of independence, which the proposed committee does have. You’re right. There is the House of Lords in Great Britain and you’ve noted correctly the problems associated with that.
The only other Parliament within those was in Newfoundland and Labrador where there are external members. There are members of the House of Assembly of Newfoundland and Labrador, but there are external members.
Colleagues, I’d also note that in our exhaustive study of best practices, with a mind to respect to the rights and privileges of a parliamentary body, we didn’t see this as a best practice to have external members. So we’ve instituted other independent measures within this proposal that I hope would give comfort to colleagues.
In fact, when we began our deliberations and we went around the table to all members of the subcommittee, there were those who believed that it should be 100 per cent external, and there were those who believed it should be 100 per cent internal. And there were those in between who thought it should be chaired externally, internally, have majority members on one side or the other. Rather than give my opinion, which was to have it entirely composed of senators, I’ll ask Senator Tannas to comment because he was on the other end of the spectrum.
Senator Tannas: I went into the process determined that we needed outside people. I’m mindful of parliamentary privilege and our ultimate responsibilities and rights that we have in exercising those responsibilities, but it came down to transparency being the absolute best way to balance things out.
I said that if we have 100 per cent transparency so that even audit reports, management reports, deficiencies and the entire reporting system that auditors provide to an audit committee would all be in public, then I felt that that level of transparency effectively gives 35 million independent members of our audit committee. They get every single document, see every single document that the audit committee sees. That, to me, is far better and far stronger than having people who are somehow picked to sit on the audit committee.
The conversion for me was when we agreed that we would have senators run the committee but that every single document would be public, and would be meeting in public.
The Chair: Can I ask a question, Senator Tannas, to that point? As you know, currently with our public disclosure platform, every single expense in the Senate is made public. We, of course, took the unprecedented step of having every contract now in the Senate made public as opposed to before when it was only contracts of $10,000 and above.
To your point, by taking that extra step, what particular expense in the audit process will the public see that they don’t currently see on our website? Also, the leaders, the Speaker’s office, every single item right now that’s expensed by any senator is made public already.
Senator Tannas: They would see additional things around the operation of the Senate. There would be internal audit reports, reports that are provided from the auditor with respect to management performance, deficiencies in following policies and procedures, unadjusted differences between what was originally reported and the findings after the audit. So it’s things that management and auditors disagreed on or where auditors changed the interpretation. All of those things that occur before you get to the final audit.
The Chair: Wouldn’t a lot of the things you mentioned be in the public audit report that we table in the Senate?
Senator Wells: Thank you, chair, for your question.
We have a highly skilled team throughout our system of professionals who know how to do their job. Probably the greatest role of the proposed committee would be to make sure that the entity of the Senate has the appropriate rigour and due diligence to do their job. It’s not so much looking at $1,000 and wondering where that was spent, but are there appropriate structures in place to ensure that it’s not only budgeted correctly but expended correctly? It’s very much a body of due diligence and rigour for our processes.
Second, it’s proposed that this committee would not only look at senators’ expenses, which is what the Auditor General recommended. We’ll all recall — who were subject to the Auditor General’s study — that he looked at travel, goods and services, living expenses and our staff salaries. That constituted only 25 per cent of the total Senate budget. In fact, over half of that which he looked at was related to senators’ staff salaries. He had no comments or recommendations whatsoever, no observations on more than half of the things he looked at.
Of the three categories that he did have comments on, goods and services, expenditures — which we’ve covered — living and travel, which is a very small portion, it’s 12 per cent of the total budget that had any observations or comments.
This committee would look at the entirety of the Senate budget and currently it’s $103 million. It would include some sampling as part of its normal rigour to look at Senators’ expenses in the categories that I noted, but its greatest asset would probably be to look at individual aspects of the Senate, efficiencies and operations, not just the costs but the operations of the various directorates and the activities of the Senate.
In fact, I recall that last week Senator Marwah suggested a post-mortem six months in the future on the changes suggested for the HR Directorate. This is something that the oversight committee could look at.
Senator Mitchell: Thanks, chair. And thanks to Senator Wells and your subcommittee. I am impressed by the amount of work. I know you’ve been extremely diligent. I’m very impressed by some of the principles you’ve emphasized. I do believe that transparency is extremely important, and I think the Senate’s been extremely effective in doing that. We’ve brought our credibility a long way.
I do want to say, however, that I’m concerned that there isn’t outside representation. I would say we started at a position — we being the Government Representative group — with three external. I can see where you could go to two external.
The problem that I see is that transparency is excellent. It’s very complicated processes that were being transparent about, however, and when the crunch comes, when difficulties arise, the credibility becomes extremely important feature of this. That’s not to say that senators aren’t credible, but when you’re reviewing yourselves, there’s always that suggestion or suspicion. That’s exactly what happened prior to the Auditor General coming in to audit us, because we did commission our own external auditor, and where did that get us? That didn’t work. On the other hand, when we brought in Justice Binnie, he actually overruled the Auditor General, and there wasn’t a whiff of question about his judgment, credibility and ability to do that. So on the one hand, where we did it ourselves, it didn’t help; on the other hand, when we went externally, we got tremendous credibility.
So I understand that one of the biggest concerns about this is a very powerful line — a clear hallmark of the legislative body’s capacity to regulate itself independently from outside interference. So the way you get what I’m talking about and you meet that concern is that this group could have two external people. It could be chaired by a senator, but the external people and that group wouldn’t be telling us what to do; they would be making recommendations. The external members could say, “We’ve reviewed this audit process. We’ve reviewed the choice of this particular external auditor, and we feel from our experience and from our distance from being within the Senate itself that this is a credible process.” It would give us great strength in that regard.
From the cost point of view, which was a second concern, actually this group being set up is going to have costs. The group I’m proposing, with two externals, wouldn’t add to that cost, particularly.
I think we can get the best of all possible worlds by adhering to the principles you’ve laid out here very clearly, very powerfully, very compellingly — transparency, obviously, at the root of it — but also gaining the credibility in the crunch, in particular, when and if we ever meet these kinds of problems by having external, senior, accomplished people who wouldn’t be seen to be part of the internal workings and, therefore, having the intrinsic possibility of a conflict of interest, the perception of which might be visited upon this strictly internal Senate group.
Senator Wells: I’d like to address that. It’s a good question. We spent probably more time on that one topic than any other single topic.
So there is independence built into this system. I’ll start with, certainly, the independence of 35 million pairs of eyes looking at every expense that we could ever make within our authority — and every report and every contract we have. That’s a change from pre-audit. That’s a very important act of independence, transparency and accountability, frankly.
We will get independent assistance — not a Senate employee or senator — in developing the terms of reference for the creation of a new internal audit function, which includes an internal auditor, but I’m not going to call it that because it’s the function of that. It would include an internal auditor, with whatever assistance is needed. That would be internal.
We have an external auditor — and you heard Mr. Newman already. In fact, colleagues, we had Mr. Newman as a witness to review some of the things we’re proposing.
So we would have an independently retained internal audit function —independent — that would fully advise the committee. That person’s reports to the committee would be public. That’s an adviser to the committee that would be public.
The external auditor’s advice to the committee would be public.
Justice Binnie, who is independent, is still part of the senators’ expenses process. That doesn’t change.
So we’ve got the independence of the oversight of 35 million Canadians and people outside Canada, if they care to look. We’ve got the independent advice and work of the internal auditor and audit function. We’ve got the independent advice of the external auditor. And we hold our meetings in public. I don’t know how much more independent, transparent and accountable you can get.
Even adding two people would just be adding two more people to the level of independence that we already have. I don’t know if there would be a benefit to that. In fact, I think it would disrespect the rights and privileges of our parliamentary body. And of course, only parliamentarians can report to the Senate.
Senator Batters: Thanks very much. I have a few quick questions. First of all, the cost of the Auditor General report, I believe, was actually $27 million;$23.6 million was the amount released by the Auditor General when they released their audit in June 2015, and then there were additional costs after that. Given that you have it on an infographic, you might want to put 27.
Senator Wells: Senator Batters, unlike the Auditor General, I wanted to give him the benefit of the doubt.
Senator Batters: I think he has admitted that it’s 27, so we should have the full extent of his largesse included on here.
Speaking of the Auditor General, do we have the actual Auditor General recommendations here at the meeting? I notice there was just a very quick reference to each of them, but I’m wondering if we have those particular recommendations here.
Senator Wells: I’m sure they can be provided, senator.
Senator Batters: One of the recommendations that isn’t in here but which I’m assuming you’re recommending and probably should be included is that the current audit subcommittee be disbanded. It wasn’t referenced in here, but I’m assuming that would be necessary to give effect to your recommendations.
Senator Wells: Do you want me to address that?
Senator Batters: I’m assuming that’s what you’re wanting to do, correct?
Senator Wells: That would be an act of CIBA, which created it. It would obviously follow that that would be something that needed to be done as part of the process.
Senator Batters: Perhaps there should be some reference to that.
Also, in the mandate for your subcommittee, it was indicated that you were going to review all of the Auditor General’s recommendations and see if there were any other recommendations to be addressed. Did that occur, and were there any outside of those specific ones that were initially mandated to the Audit Subcommittee?
Senator Wells: No. The ones that addressed audit and oversight were the ones I stated. I believe they were 51 to 57.
Senator Batters: You mentioned that you had Mr. Newman as a witness. I’m wondering if you asked for and received the acquiescence of the Senate’s external auditors, KPMG, from whom we just heard earlier in this meeting, to this particular plan that contains a major change to the governance of the Senate?
Senator Wells: We did not ask for his acquiescence, but we discussed the various elements of what we knew would be our proposal. It was one of the later meetings that he attended, so we were quite well briefed already. We had discussions with him. Of course, it was an in-camera discussion, but we talked about things like frequency of meetings, the mandate and the number of members on the proposed committee.
He told us — it was quite interesting. He attends more than 100 of these committees a year as an observer and witness, and for guidance. It was his view that the right number — he’s seen them from three members to seven members, I think. Of course, with our committee, we need quorum, so having three members we’d have difficulties with quorum, and having nine is too many.
He said that, generally, when you have nine or more, you’ll have four or five that are highly engaged and four or five maybe not so much. That’s why we landed at five. We’d be nimble and able to give direction and authority where required.
Senator Batters: Does he and the external auditors, KPMG, agree with this particular plan?
Senator Wells: We did not furnish the draft report to him. Senator Batters, it’s a good question. The elements he agreed to are the elements that were in the recommendations.
Senator Downe: Thank you, chair, and Senator Wells and his committee. You’ve done an outstanding job.
As you know, I was highly supportive of the Auditor General coming in to do the audit in the Senate. That was obviously a mistake when I saw the cost of $23 or $27 million. I believe it to be $27 million as well. It was a fiscal fiasco. He identified, I believe, $900,000, which was later reduced by a third by Justice Binnie. It was a terrible waste of taxpayers’ money.
That leads me to my question. The proposed oversight committee is to cost slightly less than $500,000 a year, but over 10 years, that’s going to be about $5 million. Is there any way to adjust the cost? Can we do the work every third year or every five years? The committee, I understand, will be doing something every year.
We’ve all gone through the rules after the Auditor General changes. Do we have to do something right away? What’s the view of the committee? Can we wait and do it every five years to reduce the cost?
Before I conclude, I’m very pleased that you don’t have the Auditor General as external auditor of the Senate. As you know, he doesn’t do that for the House of Commons. Also, Crown corporations and the Bank of Canada don’t allow the Auditor General in. Given what it cost taxpayers, we should keep the Auditor General at arm’s length as well. There are many ways of getting the same objective, protecting taxpayers’ money, without abusing it, as they did.
Senator Wells: Thank you, Senator Downe.
I’ll address the Auditor General as the second part of your question. The first part was, can we adjust the cost? Of course we can. But you get what you pay for in most cases. I don’t think we got what we paid for in the Auditor General’s review that he did a couple of years ago.
For the $500,000 — and it will be less than $500,000 — that is primarily to retain the internal audit function. Colleagues, it would look at 100 per cent of Senate expenditures, targeted where necessary. Like in procurement, we spend millions and millions of dollars a year through our Procurement Directorate. I’m sure there can be savings in excess of $500,000 if we decided to take a look at it.
I can name any directorate. We’ve already seen significant changes and value for those changes in our Communications Directorate. We will see them, I’m confident, in our HR Directorate. And, of course, the proposed committee will be able to assess the changes that we’ve made in operations to see if there’s been fiscal savings, also to see if there are efficiencies and if these directorates are operating more effectively.
For less than $500,000 a year on an ongoing basis, because you still need to do sampling of senators’ expenses, for instance, sampling of other expenses within the Senate that aren’t related to senators’ living, travel, goods and services.
With respect to value for money, that will be determined when we strike the committee and look at the operations it does. I think it’s a better process if this was a consistent part of the Senate’s operations rather than a from-time-to-time part of our Senate’s operations.
Second, I want to go to your Auditor General comment. I think you’re right, “fiscal fiasco” would have been a perfect hashtag when he released his report. In my report, I specifically mentioned that he overstepped his bounds. The motion that was presented a couple of years ago was that the Senate invite the AG of Canada to conduct a comprehensive audit of Senate expenses, including senators’ expenses. Of course, he didn’t look at Senate expenses; he just looked at senators’ expenses. Within the AG’s own authority, the Auditor General criticized the fact that senators govern themselves with limited independent oversight, which we believe we’ve addressed in our recommendations, and he made specific recommendations to review the mandate and structure of CIBA.
The mandate of the Auditor General is to do legislative auditing. Since the Auditor General is not funded to comment on the policy decisions, making recommendations to change the Parliament of Canada Act, I perceive, as the AG being non-compliant to his own authority. In fact, when I went to his website, I looked at some of the things that they are mandated to do, and they have a section, interestingly, that says, “What We Don’t Do.” Within that is audit policy decisions which are the prerogative of Parliament and elected officials, and I would say appointed officials as well.
The Chair: Thank you. These are all valid and interesting points. At the end of the day, I think Senator Downe got it right on the money, the ultimate authority in the Senate is the Senate. When we take a decision to bring in the Auditor General, and he spends $23.6 million or $27 million to recoup $300,000 or $400,000, that’s ultimately on us; it’s not on him. And Senator Downe is absolutely right about that.
We’re, unfortunately, a number of minutes past our time.
Senator Marshall: Just one sentence.
The Chair: You’ll have many sentences to say at the next meeting because this issue is being deferred. There are a number of senators on the list, and it’s a long list. We have to vacate in four minutes for Foreign Affairs.
I will guarantee that the list will be picked up from where we just left off.
Thank you, colleagues.
(The committee adjourned.)