Proceedings of the Standing Senate Committee on
National Finance
Issue 4 - Evidence
OTTAWA, Tuesday, February 25, 2003
The Standing Senate Committee on National Finance met this day at 9:32 a.m., to examine the Main Estimates for the fiscal year ending March 31, 2003 (Committee Budget 2003-2004).
Senator Lowell Murray (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, this morning we will be hearing from the Auditor General of Canada, Ms. Fraser. She has an opening statement to make after which we will have questions and comments from senators. I then intend to proceed, chapter by chapter, through her most recent report.
Ms. Sheila Fraser, Auditor General, Office of the Auditor General of Canada: Honourable senators, we thank you for the opportunity to meet with your committee today to discuss our December 2002 report. With me today are Ms. Barrados, Mr. McRoberts, and Mr. Timmins, Assistant Auditors General, who are responsible for a number of the chapters in the report.
As you know, my role as Auditor General is to promote greater government accountability and a more effective public service. Canadians are increasingly demanding both. This report deals with two issues of great concern to me. The first is the need for Parliament to receive full and accurate information so that it can effectively hold the government to account. The second is the government's ability to successfully manage its long-term reform initiatives.
Canadians sometimes tell me that they do not think the government is accountable, and that those responsible for managing programs — which should mean producing results while playing by the rules — are not watching closely enough and that nothing seems to happen when things go wrong. If Canadians are to have confidence in the government, it must account for its performance in a clear and timely way.
Today's public sector is a changing one. The government now delivers many policies and programs through arrangements with the provinces and with private sector organizations. We are seeing a new culture of results-based management emerge, as well as more encouragement for managers to innovate and to take reasonable risks.
All of these developments challenge our traditional notions of accountability. Chapter 9 of this report proposes an enhanced definition of accountability that better fits the times. It stresses the importance of the means used as well as the results achieved while adhering to public sector values. It points to the obligations of all parties. It underlines the need for review of performance by managers and by Parliament. It emphasizes the importance of transparency in the accountability process. Finally, it takes into account managing for results, innovation and the sharing of accountability among partners.
Effective accountability requires a holding to account. Members of Parliament must be able to review and approve the government's plans for spending and its performance expectations, and then scrutinize the results of that spending. To do this properly, Parliament needs sufficient information about costs and expected results.
The Canadian Firearms Program in our chapter 10 is an example of a failure of accountability. Parliament was never given realistic estimates of program costs or performance expectations, nor was it provided with credible and timely performance information. Adequate explanations for the large cost increases were not given. Thus, Parliament could not fulfil its vital duty of holding the government to account.
Back in 1995, the Department of Justice told Parliament that the program would cost taxpayers, on a net basis, about $2 million. The department now says that by 2004-05, the costs of this program could amount to more than $1 billion. Explanations for the ballooning costs were given to ministers and central agencies, but Parliament was provided information on only a piecemeal basis. While Parliament did approve all of the funding given to this program, I am concerned that about 70 per cent of the funding was obtained through Supplementary Estimates. I know that your committee has raised a number of questions and expressed concerns over the years about the amounts presented in the Main Estimates and Supplementary Estimates.
I should like to be clear that the issue here is not about the policy of gun control. While I am concerned about the serious cost overruns, I am very concerned that Parliament was not adequately informed. I question why the department continued to watch the costs escalate without fully informing Parliament.
My report also brings to light other instances in which Parliament was not given the information it needed to authorize large expenditures of public funds. For example, the government still has not taken the required step of obtaining Parliament's authorization to create Downsview Park. I believe that spending more than $100 million of taxpayers' money over the next 20 years requires formal parliamentary approval. This is the third year in a row that I am drawing attention to this issue. I hope it will be the last.
[Translation]
However, the report's messages are not all bad. Significant advances have been made in providing vital information on health to our elected representatives and to Canadians. Last fall, for the first time, the federal, provincial, and territorial governments published indicators of the performance of their health systems. Canada's legislative auditors were asked to verify the accuracy of the health data. My office conducted this work for the federal government and the three territories. In my view, adding an opinion attesting to the information's validity makes the reports more credible. Good national health statistics are vital to a fully informed public debate on the future of our health system.
Let me turn now to the other major area that concerns me. I am disappointed by the government's lacklustre progress in achieving key government-wide management reforms. Over the years, the government has launched several ambitious initiatives with far-reaching and very commendable objectives. They range from reforming the management of human resources to modernizing comptrollership and strengthening financial management and control. Unfortunately, I see a large gap between the government's commitment and what it has actually achieved in all these areas. Given the size of government, any initiative that seeks to change how government functions is a formidable challenge.
Progress is especially difficult, and momentum may be hard to maintain, when the agenda extends over several years. To succeed, the commitment to change must be translated into concrete action through strong leadership by senior management and the central agencies such as the Treasury Board Secretariat and the Privy Council Office. Clear direction is essential. The government must do more than say where it wants to go; it must also explain how it will get there. Those responsible for implementation must be held accountable for achieving key milestones by specified target dates. And if targets are not met, they must be able to explain why.
Take the initiative to improve the government's financial management, for example. The government's efforts to modernize the way it manages and controls its finances go back some 40 years. It has spent an enormous amount of money — hundreds of millions of dollars — to set up state-of-the-art financial systems. Yet public service managers still cannot easily find out the true costs of their programs, nor do they have complete and reliable information on the assets and liabilities they are responsible for managing.
[English]
The initiative aimed at improving financial management and control has not received the commitment and leadership that it needs to succeed. For an organization that spends almost $180 billion a year, this is not acceptable. It is time for the government to get serious and to get on with making the necessary improvements.
Honourable senators, I have briefly touched on only a few of the issues that we cover in this report. Other chapters deal with topics such as the reporting requirements for First Nations, navigational support and boating safety activities managed by Fisheries and Oceans Canada, the Canadian Space Agency, the Special Import Measures Act, taxing international transactions of Canadian residents and tax arrangements for foreign affiliates. We would be pleased to review any of these issues today or at any of your future hearings should the committee wish.
Honourable senators, there have been recent developments in several of the areas that I have noted. First, Bill C-25, the Public Service Modernization Act, should help to improve the management of human resources in the public sector. We have reported frequently on this issue over the years and we will continue to monitor and report on progress in this area.
Second, in the budget plan the government indicated its intention to improve accountability and governance arrangements of arm's length foundations that it establishes. I am encouraged by its stated intent to strengthen accountability in future arrangements, but I remain concerned about existing arrangements.
I am also pleased to note the Minister of Finance's announcement that the government would present its financial statements on a full accrual accounting basis. This should enable decision makers to know the true cost of delivering programs.
That concludes our opening statements. We would be pleased to answer any questions that the committee might have.
The Chairman: Honourable senators, you will notice that there are ten chapters in the Auditor General's report. In order to focus the discussion, I will give opportunity to ask questions chapter by chapter, bearing in mind that chapters 5, 9 and 10 have been singled out by the Auditor General as possibly being of special interest to us.
We will start with chapter 1 entitled ``Streamlining First Nations Reporting to Federal Organizations'' in which the Auditor General makes the recommendation that a study of federal reporting requirements found that First Nations submit 168 reports a year to four main funding organizations and most of the information is never used. Many First Nations bands are relatively small and are located in remote areas. For these, the reporting requirements represent a significant burden, and the consequences of not reporting can be severe in terms of the loss of federal funds.
What are the four main funding organizations to which you refer?
Ms. Fraser: The four main ones are Indian and Northern Affairs, Health Canada, HRDC and Central Mortgage and Housing Canada, which has the housing program.
The Chairman: Are there questions or comments on chapter one?
[Translation]
Senator Ferretti Barth: Chapter 1 of your report deals with First Nations. You express some concern about how First Nations could receive assistance without incurring any penalties. Is there anything you could recommend to the government to help First Nations who are isolated on their vast expanses of land, so that they would not incur any penalties?
Ms. Fraser: That is an excellent point. One of the biggest problems is the ability of First Nations to fulfil all of the obligations incumbent upon them. Our audit differed somewhat from more traditional audits. We looked at things from the standpoint of the community to examine everything they were being asked to do.
We are proposing that the government further coordinate requests. Demand for each program may seem legitimate, but when taken together, we note an overload. A number of programs are intended for First Nations. Among others, general accountants offer a program to train aboriginal financial officers.
Considerable progress has been made in this area. Of course, much work remains to be done. The challenge that the government must overcome is the ability of First Nations.
Senator Ferretti Barth: My question may be somewhat naive. I have read all of your reports and these reflect a profound level of concern. Are your recommendations in fact acted upon?
Ms. Fraser: The government takes note of our recommendations and changes do occur for the better. Occasionally, the government is criticized for being slow off the mark. In this instance, it has admitted that the reporting requirements need to be reviewed. This process will require several departmental and program officials to work together to review the requirements. I am confident that they will be able to reach an agreement with First Nations.
Senator Ferretti Barth: The departments are not following through on the recommendations. Correct?
Ms. Fraser: The departments represent the government.
Senator Ferretti Barth: Are you saying the departments are not complying?
Ms. Fraser: A number of programs are in place, and one does not necessarily take into account the requirements of the other. It boils down to a horizontal management structure. Departments need to work together more closely and focus more on the ability of First Nations to fulfil their reporting obligations. I also wish to point out that First Nations receive funding under each of these programs to assist with reporting. One of the points that has been made is that if fewer requests were made, more funds would be available for direct services.
Senator Gauthier: One of the problems encountered with all of the reports tabled to Parliament is that very few are actually examined. As a rule, they are shelved after a few weeks. Are there any requirements or national standards in place as far as these reports are concerned? Are there requirements that must be satisfied? How much time is spent drafting these reports? What happens to these reports and who works on them?
Departments table a large number of reports. Each federal institution, including the AG's Office, is required to table a report on official languages. It is a real waste of time and money, as nothing ever comes of them. Are First Nations' practices and procedures subject to national standards?
Ms. Fraser: Yes, national standards do apply. Reports are tabled to the departments or Crown corporations that administer the programs. Our office was critical of the fact that the various reports contained the same information and that frequently, the reports were not examined or used.
Senator Gauthier made an excellent observation. When we have too much information, the end result is not necessarily better. We are suggesting that the process be streamlined. For instance, in one case, First Nations were required to table five separate audited financial statements.
If departments and program officials communicated better, they might be able to come up with a solution that satisfies everyone. It is important to see if the information is in fact used and whether programs are subsequently evaluated. Departments need to work together to determine requirements and, in the process, lighten the load of First Nations.
[English]
The Chairman: Let us move on to chapter 2.
[Translation]
Senator Gauthier: Before moving on to the next point, I have a question. I asked who was responsible for auditing the AG's books. The AG was caught off guard by the question and did not have an answer for me. Does your office audit First Nations?
Ms. Fraser: No, that is not our area of responsibility. We have no mandate whatsoever where First Nations are concerned. This work is performed by auditors with private sector accounting firms.
[English]
The Chairman: Chapter 2: ``Contributing to Safe and Efficient Marine Navigation.'' Fisheries and Oceans Canada must overcome some serious obstacles in order to succeed in its efforts to modernize and better manage its navigational support and boating safety activities. There are five regional Coast Guards rather than one integrated national program. National policies, standards and level of service expectations are out of date.
Senator Comeau: The chairman raised the question of one integrated program. Is that what the Auditor General is recommending?
Ms. Fraser: We are concerned with the way in which the program is managed. The Coast Guard is managed by each one of the regional directives without having clear standards and clear policies. There was great inconsistency in procedures between the various regions. We also found, for instance, duplications in regions that were using the same computer system. We were recently at a hearing about one week ago in the Other Place, as you refer to it, where officials from the Coast Guard and from the Department of Fisheries and Oceans appeared. They have made several changes to their internal structure to try and bring about a more cohesive and coordinated approach.
Senator Comeau: One would need to be careful, given the differences between the regions. For example, in the Gulf region, there is no fishing during the winter because of the ice. In other parts of Atlantic Canada, the greatest amount of fishing occurs during the winter, which is a different reality. We want to be careful that we do not have a bureaucratic system that does not respond to such needs.
Ms. Fraser: We appreciate, senator, that there are large differences between the various regions. Even some of the services they offer vary quite a bit from the West Coast to the East Coast. The department is free to organize itself as it sees fit. However, we felt there needed to be more adherences to national standards and policies to ensure consistency, where appropriate.
The Chairman: Chapter 3 of the Auditor General's report deals with the Special Import Measures Act and recommendations that have been made by the Auditor General and various parliamentary subcommittees to the Canada Customs and Revenue Agency and to the Canadian International Trade Tribunal. This is important for those seeking protection from injury caused by dumped and subsidized goods from abroad. Are there any questions or comments on the Auditor General's report in respect of that chapter?
If not, we will move on to chapter 4: ``Taxing International Transactions of Canadian Residents.'' Here again, we are talking about the Canada Customs and Revenue Agency. The Auditor General finds that a lack of expert staff is hindering the ability of that agency to plan and audit the taxation of international transactions of Canadian residents. Are there questions or comments?
Senator Gauthier: I have one small question concerning international transactions. I recently read an article by a Mr. Donald Cox, who writes for Maclean's magazine and always has an opinion on everything. He claims that we are in a disadvantaged position because we do not impose taxes on our exports. He deems that unjust and unfair for the Americans, who do have to pay taxes. I do not know what he is talking about. Is the GST applied to export products?
Ms. Fraser: Honourable senators, the GST is not applied to exports. That was a government policy, I believe, to help encourage exports.
[Translation]
The Chairman: Are there any further comments?
[English]
Chapter 5 was singled out by the Auditor General as being of special interest to honourable senators. That chapter is headed: ``Financial Management and Control in the Government of Canada.'' In the report, Ms. Fraser states that the federal government needs to resolve several outstanding issues that are necessary in order to improve its financial management and control. The Auditor General sees this as vital for measuring and evaluating the results of programs and services. It involves the use of financial and non-financial information in decision-making and the implementation of effective financial information systems and control. Ms. Fraser referred to that earlier in her statement today. Honourable senators, are there questions?
Senator Lynch-Staunton: Are foundations under this chapter?
Ms. Fraser: No, they are not.
The Chairman: They merit a special chapter.
Senator Lynch-Staunton: Is there an area for questions on foundations?
I have a general comment on control of expenditures. I think the major problem is that the House of Commons, in particular, and Parliament in general, has lost control of the public purse. It has abandoned, deliberately or unknowingly — or both — its control over expenditures. The budget process is strictly a deposit of documents and it becomes a fait accompli. The budget has been down since February 18. There have been three days of debate and then we move on to other things.
Twice, the Prime Minister announced changes in the budget. Once was in respect of the territories and once in respect of amateur sports. This happened unilaterally, outside of the chamber. If Parliament is to be treated in that way, it is pretty discouraging when, after the fact, it is necessary to try to correct some of the excesses that you, your predecessors and, unfortunately, your successors will continue to outline.
Do you have a recommendation or a suggestion on how Parliament may regain some of its authority over the purse? The way it is now — and I hate to use some of the vocabulary that I had in mind, so I will refrain — it is becoming close to farcical.
Ms. Fraser: I share Senator Lynch-Staunton's concern and we will move on to a chapter that will, perhaps, be an example — the firearms program. Incomplete information was given to Parliament, and Parliament was not really aware of the costs of a significant program.
In this chapter, we have raised the issue of importance, in chapter 9, in respect of accountability. It is important to be able to review the spending and to challenge and hold the government to account.
I should like — and we are putting it into our planning — to review the expenditure management system in terms of how it works and how the Main and Supplementary Estimates work. Many parliamentarians are unaware of how the Votes actually work. There was some confusion in the House of Commons last week about numbers and what went through spending estimates and what went through Main Estimates. It was quite confused. It is an issue, and I hope that other committees will take it on. The firearms program has raised a flag in that committees should study it to understand how the information could improve, and how committees could become more involved in challenging estimates and reviewing departmental performance reports, plans and priorities.
The Chairman: In the House of Commons, the Estimates, once tabled, are automatically referred to the various parliamentary committees. They are then deemed to have been approved by those committees by a certain date, whether or not such committees have even opened the book on them. That is a far cry from the situation that used to obtain 30 years ago or more, and still does in many provinces where ministers are required to come in with their Estimates into Supply Committee of the Whole and defend the Estimates. That system has its drawbacks, as we saw 30 years ago, because typically the House would spend all of its time on three or four departments and the others would be passed on the nod at five minutes to midnight, but still, for four or five departments — and they were not the same departments year after year — there was a very intense scrutiny and debate in the Commons.
In the Senate, we have the Estimates as a whole and the sups referred to us. They come to this committee, but we do not pretend that we go department by department, line by line. That is not our job.
Senator Cools: I think the chairman is raising a very important point. I would be very interested to know if perhaps we could have an in camera meeting to discuss this thought more precisely. However, I wish to caution this committee that there are forces at work in the Senate which want to abandon the system that we have now and go to the system being used by the House of Commons that has been shown to be failing. Therefore I think the members of this committee should be very vigilant and sure, because we need more study, not less.
The Chairman: Senator Gauthier?
Senator Gauthier: I want some information because I go back a long time on this issue. Value for money auditing, is that still your by-line?
Ms. Fraser: Senator, we call it more than a by-line, but these reports are what we know as value for money audit and represent about half of the work of the office.
The Chairman: Colleagues, is there anything further? I will move on to chapter 6: ``Managing the Quality of Health Statistics.''
The Auditor General finds that we can rely on the data that is managed exclusively by Statistics Canada. However, there is room for improvement insofar as the other providers are concerned, specifically Health Canada and the Canadian Institute for Health Information.
Do you have questions or comments on that area, senators? Would you like to elaborate, Auditor General?
Ms. Fraser: I would ask my colleague Dr. Barrados to give us a brief overview of the report.
The Chairman: Is Dr. Barrados a medical doctor?
Ms. Maria Barrados, Assistant Auditor General, Audit Operations Branch: No, I am a sociologist, so I am a little nervous about the doctor part.
Our work originated out of the agreement that was signed by ministers in 2000, and that agreement had every signitor commit to presenting a report on the results of their health system. They agreed on 64 indicators, and they asked that verifiers verify the reports. We did this, and our other colleagues in the provinces did this also.
Health Canada produced a report that looks like this, and it has a number of indicators about the performance of the health system. They are not perfect; everyone recognizes that. However, it is a start at getting public reporting on both the system, incidence of disease, results, activities, and outcomes. It has a mix of things.
Our audit that we reported in the December report used those series as what we examined in more detail to present to Parliament how good were the systems beneath the production of these data series and these results. As you summarized correctly, the processes are very strong coming from Statistics Canada for this kind of reporting. At Health Canada, there is room for improvement, and the same with CIHI. CIHI is an interesting instance because CIHI is one of these funds and foundations that is outside the purview of Parliament directly, but we had an arrangement with them whereby they invited us to come in and look at those data series.
The Chairman: With regard to Health Canada's statistics and the Canadian Institute for Health information, are these federal or federal-provincial problems?
Ms. Barrados: In part. The Health Canada numbers are based a lot on disease surveillance. This relies on systems where there is reporting from provinces and from providers of information, such as doctors and hospitals, to Health Canada. We have made other audit observations that they do not have a very strong system that supports this kind of work.
In the case of CIHI, it is data that is coming from hospitals where they abstract the charts of patients. This data is used for many purposes. However, that whole abstracting process needs some attention, and they realize that. They are doing some work themselves on the reliability of the abstracting process.
The Chairman: Thank you. Are there other questions or comments on this area of health information?
Senator Cools: We are here to get to foundations or firearms.
The Chairman: Patience, senator.
Implementing the Canadian Space Program: The Canadian Space Agency says that the Auditor General is unable to carry out its required activities under the Canadian Space Program because of funding obligations that predate its creation, and the situation is likely to worsen in the next five years.
Senator Lynch-Staunton, is this a matter of concern in Montreal?
Senator Lynch-Staunton: St. Hubert, sir.
It is not a chapter that I read, Mr. Chairman. Unfortunately, I cannot comment.
The Chairman: What is the problem, Auditor General?
Ms. Fraser: The main issue is that the space agency is committed to being a partner in some very large projects, including, for example, the space station. Canada is obliged to pay a percentage of the total costs of the space station. However, we do not control those costs. These are very large projects with a significant degree of risk, and costs can change dramatically. In fact, as we mention here, in the U.S. a cap has been put on the total cost of the space station, which could, in fact, jeopardize the research in which Canada is participating. These are very large projects. The agency estimates that about one-third of its budget will go to those projects. Yet it has a program that it has set out to accomplish, and it is obvious that the funding is not sufficient to meet that program. We are bringing forward the point that there is a gap between the funding and the expectations, and that gap must be resolved.
The Chairman: Can the expectations be reduced? Can our international commitments be reduced?
Ms. Fraser: To my knowledge, they cannot be reduced. These are firm commitments where we must pay a percentage of the costs. We, with other partners, are committed to doing this.
Perhaps through negotiations and the rest of it, that can be changed, but these are firm commitments. It would have to be the expectations on the other program more within Canada, if you will, that would need to be altered if funding levels do not change.
We were just bringing forward the fact that it is important that Parliament be aware of this situation, and that there be a discussion as to what the expectations should be, given the funding levels that have been given to the agency.
[Translation]
Senator Gauthier: Has the crash of the space shuttle had an impact on our current financial commitments? Will this affect our agency's costs?
Ms. Fraser: I cannot say for certain. The crash could mean additional costs associated with supplying the space station, but unfortunately, I cannot say beyond that.
Senator Biron: What other countries are participating? Are they experiencing the same problems as we are in terms of controlling costs?
Ms. Fraser: I do not know whether I have a complete list of participating countries. A number of other European nations are also participating. All partners share the same concern. Even the government, in its response, notes that overall, partners share the same concerns about controlling costs and the risks associated with such projects. I could provide you with additional details about the other partners.
Senator Biron: Should we not come to some kind of agreement with the other countries in an effort to control costs?
Ms. Fraser: Of course. However, we are merely one very small partner in this process.
[English]
Senator Lynch-Staunton: How does that open-ended commitment differ, if at all, from others that we have, such as with the United Nations, the World Bank and the IMF, where we are committed, if there is a call, to meet the call? As far as I know, in those instances it is open ended. What is the difference in the policy between those and this one, if any?
Ms. Fraser: Unfortunately, senator, I am not aware of all of the commitments with other organizations. However, I know that we are committed to assuming a certain percentage of the cost, and we must pay our share. I recognize that our percentage is quite small in relation to the total, but we are subject to the risks, as the other partners are. They could become large costs for our agency, given its budget.
Senator Lynch-Staunton: I know in the Estimates we occasionally see — and I cannot remember the entity in particular — but an international bank that calls on its partners to meet a certain obligation that I do not think had been foreseen for some emergency and we had no choice but to commit to whatever millions of dollars the figure was. In more than just one instance we are exposed to that kind of commitment.
Ms. Fraser: Yes, we were committed to paying, for example, for the International Space Station, 2.3 per cent of the cost. I believe that commitment goes out to 2015-16, so there is a firm commitment there.
The Chairman: Chapter 8 has to do with the acquisition of office space. The Department of Public Works and Government Services is responsible for providing office space to other government departments, and the Auditor General is of the view that Public Works must improve the way in which it analyzes and compares the options available to the departments looking for office space.
Ms. Fraser, how open and transparent is the process of renting office space for the various government departments across the country? We are talking about rentals or leasing most of the time, are we not?
Ms. Fraser: Here we are referring to purchase, long-term leasing or shorter-term rentals. We did not look at the specific acquisition. We wanted to start doing specific projects, including shorter-term ones, to see how they are managed. We were looking more at the planning end of it, what information they had in order to determine the space that was required and how they went about evaluating the different options.
This has been a long-standing problem that has been raised several times. They do not have the planning and sufficient information to be able to forecast the space that they will need. As well, they do not evaluate the various options available to them in the various markets.
The Chairman: Public Works does not do that, is that what you are saying?
Ms. Fraser: I refer here to Public Works, that is correct.
Senator Gauthier: There is quite a hoopla right now about renting public space to private enterprise, and some of the clauses that require the renter to follow certain requirements of the law; language law, for example. Why is it that the federal government is in the renting business? Do you audit that portion of Public Works Canada that rents out federal space for private use? Is that efficiently run? Do we get value for the money that we have invested in that building? In Ottawa a significant amount of public space has been rented. I do not understand why we are in that business at all. Have you ever done a study on that?
Ms. Fraser: Honourable senators, to my knowledge we have not done a study or an audit of that. I find that is an interesting suggestion, so we will put that on the list of projects to be considered in the future.
The Chairman: I would like to look at the process some time. We all know that, for certain goods and services, there are tenders and a process that is followed. I am totally unclear as to how the acquisition of office space is done. How public and transparent is that?
Ms. Fraser: We agree that this area needs to be reviewed. We will be taking various projects over the next few years and looking specifically, project by project, at how the process has worked and how they evaluated the space needs and whether that was done in an open and transparent fashion.
The Chairman: Chapter 9 is another of the chapters to which the Auditor General has invited our particular attention. That chapter has to do with modernizing accountability in the public sector. I will not read the summary. She wants an enhanced definition of accountability. She referred to this subject in her opening statement this morning, so I invite colleagues to question or comment.
Senator Lynch-Staunton: Does that include foundations?
The Chairman: Go ahead, senator.
Senator Lynch-Staunton: I will not go over old territory. We are all familiar with the situation. Ms. Fraser, I wish to ask you questions in regard to the response of the government in the budget plan. The documents before us say that the government relied on two major accounting firms to support its position, both of which endorse the approach of the government. Were you shown those accounting studies?
Ms. Fraser: Honourable senators, I am preparing a response to the government on that. Those are letters that I believe date from 1995, approximately. They were letters that were given by two firms when the accounting issue first arose in the public accounts where my predecessor qualified the public accounts because expenditures had been recorded for transfers to foundations that did not exist at the time.
I take exception to the way in which government has reflected this matter in its response. The letters did not actually deal with the issues that we are dealing with today, and, in fact, dealt with quite a different issue. I will be providing a letter to government to try to clarify that issue. I have seen the letters in the past, but I was never given a direct copy from government.
Senator Lynch-Staunton: In the response of the government, they are quite dismissive of the role of the Auditor General, and after a series of other people, they may call upon you for verification. I do see that they say that, at the end, an all-new funding agreements provision will be put in place so that the responsible minister may, at his or her discretion, recover unspent funds in the event of winding up.
Are you aware that, in a number of cases, including that of the Canadian Foundation for Innovation, if there is a wind-up the monies do not return to the original investors but are actually to be distributed on a pro rata basis to those who received grants over the years? What is your comment on that?
Ms. Fraser: Honourable senators, that was one of the concerns that we raised quite early on when we looked at the foundations. We do not believe that that is appropriate. If the foundation is wound up, it would be our expectation that any surplus funds left in the foundation would go back to the government who actually funded them. The government has indicated that they will be correcting this matter, going forward.
The Chairman: The operative word is ``may,'' Senator Lynch-Staunton.
Senator Lynch-Staunton: ``May'' was on the use of the Auditor General for auditing, but an all-new funding agreements provision which will be put in place so that, yes, the minister may, at his or her discretion, recover unspent funds.
The Chairman: ``May at his or her discretion'' are the words; is that not correct?
Senator Lynch-Staunton: Yes, the words are ``may recover.''
Ms. Fraser: The issue, as well, is that existing foundations are under no obligation to open up the contractual agreements that are currently in place. I know that the government has indicated that they will try to do so. I would hope that if they were to give additional funding to any of these foundations, that would be an opportunity to try to renegotiate some of the clauses in these agreements.
Senator Lynch-Staunton: I have a general question that does not deal with foundations. What is your opinion on the growing tendency by two current ministers to commit funds over a period of years? In the current budget, some of the programs commit funds for five or six years into the future. In the old days, budgets were for the fiscal year only, and then future Parliaments or future governments would provide enough funds to satisfy the following 12 months. Now, more and more, a current Parliament will commit billions of dollars for the years ahead. What is your view on that?
Ms. Fraser: That raises the whole question about governments' and Parliaments' control over spending. If governments and Parliaments change, are they then committed by previous ones? There is an issue there. We have also raised the issue of pre-funding of some initiatives for many years before the funds will actually flow to the intended recipients. Under accounting treatment, all of those amounts are currently recorded as an expense in the current year. Some of the testimony that has been given in the House makes it quite clear that the accounting treatment is a major factor in the way these things are being set up.
Ms. Barrados: There are a number of statutory programs, like the Employment Insurance account, that put in place long-term commitments. Even though the budget may have a longer-term commitment, the Estimates' vote is for one year.
Senator Lynch-Staunton: I do not mind the program being long term, but I do mind having the amounts of that program determined years ahead of time. Let the program be announced, let the funds for the current year be confirmed, let future years' Estimates be given, but let Parliament have a say. I suppose they must have a say, anyway, but the way it is now written and presented is that this is how it will be for the next few years.
The tragedy is that the House will not react. I think there is more reaction to this clumsy budget process in this place than in the other place.
I got that out of my system. Thank you, Chair.
[Translation]
Senator Gauthier: Recently, we considered Bill C-12 respecting sport and fitness. Some of us were of the opinion that the Office of the Auditor General of Canada should be assigned responsibility for auditing the books of the Dispute Resolution Centre. We were unable to convince our colleagues of this and the bill was adopted without this recommended change.
Does your office audit all, or only some, federal institutions? Who decides this?
Ms. Fraser: My office does not audit all federal institutions. For example, we do not audit the books of certain Crown corporations. Canada Pos is a case in point. The decision rests with Parliament. When these institutions are set up, laws are passed. Quite often, the legislation specifies the entity responsible for the auditing function. Ultimately, the decision rests with Parliament.
[English]
The Chairman: There is one point I would like to raise with regard to the budget plan, where they are making some headway towards better accountability. One thing that struck me about the arrangements the minister is talking about is that they seem to studiously avoid requiring ministers to table in Parliament corporate plans or annual reports of most of these foundations. The wording of the plan very frequently says that the corporate plan, the annual report, or whatever it is, will be made public and is therefore accessible to members of Parliament.
That, in my humble opinion, is not good enough. Once you table the plan or the report in Parliament, it becomes a document of Parliament and in the House of Commons it is automatically referred to a parliamentary committee. However, the government, in the budget plan, seems to be steering very carefully clear of a requirement like that. Did you notice that?
Ms. Fraser: I believe there will be information given in the departmental performance reports. I know the government is being very cautious in trying to ensure that these foundations are viewed as being independent. If ever the foundations were deemed not to be independent, the accounting treatment currently being used would not apply.
A new report has just come out from the Canadian Institute of Chartered Accountants on the definition of control. We will be looking at each one of the foundations to see if they meet the requirements to be truly independent. That could possibly change the accounting treatment for some of those foundations.
In the budget plan there seemed to be more desire to have more information made available to Parliament, but information is only one part of accountability. There must also be the holding to account. We believe that that part of it is still flawed. There is no mechanism for Parliament to intervene. If these organizations are viewed as being independent, how do you change their course of action when all the money has been given to them and they are really not accountable to Parliament?
The Chairman: Coming back to your point about the information being departmental plans and performance reports, in your considered opinion is that sufficient, or should we be pressing to have the annual reports tabled?
Ms. Fraser: It is not sufficient for the sums of money that are out there, and for the public policy role that many foundations play.
The Chairman: I do not see how the tabling of a corporate plan, and certainly not of an annual report, interferes with the autonomy or independence of these organizations. The minister tables the annual report of the CBC, and if a committee wants to look at it, it does so, but there is no suggestion that there is political interference by the mere fact of the tabling of the report.
Ms. Fraser: I think the government is quite concerned that if they put some of these provisions in, these foundations would not be viewed as being independent from an accounting point of view. The CBC is included in the accounts of the government when we do the Public Accounts.
The Chairman: That is a technical problem, is it not?
Ms. Fraser: It has a great impact because all of the money that is flowing out would not be recorded as an expense in the current year. I believe the Treasury Board secretariat gave testimony that indicated that one of the motivators of setting these up is that the large sums of money that are transferred out are recorded in the current year, rather than over time as they spend the money.
The Chairman: It is open to us or to the House of Commons to impose certain processes of accountability. If we decided to call the chairman of one of these foundations before us, I doubt very much that he or she would decline to appear. Indeed, there are one or two of them who keep asking to appear to tell us about all the good work they are doing. Perhaps we should convene more of them more often just to make the point of who is in charge, or who we think should be in charge.
Ms. Fraser: That is an interesting suggestion, given the sums of money that they are managing and the public policy role that they play.
Senator Cools: I think we should bring as many of them as possible before us in the next few months.
Senator Comeau: On the question of the government reporting expenditures for future years under current expenditures, I am not sure if the government is bound by accounting principles that indicate that a future expenditure is not a current expenditure. If that is the case, does the Auditor General not issue a qualification to any of the reports where accrual accounting is not followed?
Ms. Fraser: The rules for transfers are not very clear. In fact, the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants currently has a project under way to look at how these transfers should be recorded. The accounting rules were designed at a time when we were in cash accounting and it was very rare for government to pre-fund expenses. In fact, there is a policy of the Treasury Board that says you should not pre-fund expenses. Therefore, it was unusual that the government would give more cash than was needed in the current year, and the rules were based around that. Now, when we have these large transfers going out many years in advance, they have been set up in such a way as to meet the current rules, but we have raised my concern on the Public Accounts, and the CICA is currently doing a study on that. We will await the results of that study. It is to be hoped that that will clarify the accounting rules.
Senator Comeau: It is a moving target.
Ms. Fraser: Very much so.
The Chairman: We thought of having that group appear before us. They are private sector and public sector accountants. Are you a part of that?
Ms. Fraser: I am. I am a member of the Public Sector Accounting Board. As well, there is generally always a representative from the federal Treasury Board Secretariat, the Comptroller General, in addition to provincial and municipal colleagues. There are auditors, reporters and various people.
The Chairman: There would be no problem having them appear before a parliamentary committee?
Ms. Fraser: I am sure that they would be pleased to appear.
The Chairman: In the few minutes we have left, does anyone have anything new to say about the Canadian Firearms Registry? I think that the Auditor General would agree with Mr. Raymond Hession that the performance has been sub-optimal.
Senator Lynch-Staunton: My question is not in regard to costs. I thank Senator Cools for drawing this to my attention. My item was raised yesterday, and I saw a brief mention in one newspaper today.
On page 8, paragraph 10.39, you talk about the Firearms Program as being ``designated as a Major Crown Project'' that requires some basic information to be given to Parliament on an annual basis, I assume. However, the department did not follow that requirement until after the program had been started.
What actually happened there? Who designates a ``Major Crown Project?''
Ms. Fraser: These are programs that are a greater risk and need a special reporting tracking.
Senator Lynch-Staunton: Justice ignored that for some time.
Ms. Fraser: Justice has never, if you will, conformed to these requirements. They have never given their departmental performance reports, including costs of the program to date, expected cost to complete, milestones, et cetera. That reporting requirement has never been respected.
Senator Lynch-Staunton: Was that done deliberately?
Ms. Fraser: I, unfortunately, cannot respond to that. I would indicate that the requirement was quite clear. The requirements were known. There was, in fact, an internal audit by the Department of Justice that raised that point in 1998. It indicated, from within their department, that they should be reporting under this requirement. The department knew that they had these requirements.
Senator Lynch-Staunton: What would Treasury Board's role be in this? On page 17, paragraph 10.79, you write: ``The project should not have been started until the Effective Project Approval was obtained from the Treasury Board.'' However, it was started anyway. Some years later, in May, 1998, the Treasury Board gave the department effective project approval. It sounds as if they have no choice here, so let us go ahead with it.
If one department can get away with not following basic rules, what is to stop another department doing the same thing? There are no sanctions. If you had not raised it, we would not know about this.
Ms. Fraser: I am concerned, as I mentioned, about the accountability around this project, including the reports of the information and the roles that certain key players played. I would hope that when we have a hearing in mid-March in the House of Commons Public Accounts Committee with the Treasury Board Secretariat, that they will be able to respond. I would presume there would be questions about the role of Treasury Board.
Treasury Board co-chaired a steering committee on this subject. It is hard to imagine that they were not aware of this situation and the reporting requirements. One of the questions is why did they not insist that this information be given, especially since many parliamentarians were asking questions about the project.
Senator Lynch-Staunton: We should pursue this subject with Treasury Board, Mr. Chairman.
Senator Cools: I wish to welcome the Auditor General here today and to thank her for what I think has been very excellent work.
I should like to make one small point in respect of her report for the sake of this record. As honourable senators know, this committee has been vigorous and diligent in asking questions about the expenditures on the Firearms Program for the past many years. Our questions began almost with the enactment of the bill, Bill C-68. I can remember clearly that we were questioning in 1996. A journalist reminded me a few days ago that in 1996 questions were being asked before this committee.
The Auditor General has pointed out in her reports, very clearly, that the justice department relied on Supplementary Estimates as the method to bring forth their request for appropriations. Yesterday in testimony before the House Committee on Public Accounts, both the Minister of Justice and the Deputy Minister did say that that was, indeed, true.
If we were to look at page 15-2 of the Main Estimates for 2002-03 under the Department of Justice, you would see Vote 1, ``Operating Expenses'' and Vote 5, ``Grants and Contributions. You would see the amounts of $325,464,000 and $398,715,000. There is not a mention of the Canadian Firearms Program on that page.
However, if one probes, as some of us are prone to do, one will discover that in adopting these estimates, and a few weeks later in adopting the two bills for interim supply and the main supply in June, there was about $36 million buried in there for the Canadian Firearms Program. This is not unusual.
We now turn to Supplementary Estimates ``A'', which came much later in the fall. Under Votes 1A and 5A you see the explanation requirement for the Canadian Firearms Program. Between the two Votes there is a total amount there of $72 million, which is the amount by which the House of Commons reduced the Estimates last December.
I want the record to be crystal clear that this interesting phenomenon has gone on for quite some time. In addition to that, it has been very irksome and worrisome to me that, despite all the questions that this committee has asked and despite the numerous committee reports that have been put forth to the Senate, not a single minister in this government has seen fit to answer a single senator's concern. In point of fact, neither the current Minister of Justice nor the two previous Ministers of Justice have ever seen fit to answer one of these questions, either in writing or on the floor. Our Government Leader in the Senate has not answered any of these concerns, either.
It is indeed worrisome. Honourable senators, on a very personal, moral, philosophical note, one begins to wonder whether responsible government really does exist in this country and whether ministers are responsible to government. If it is not so, perhaps it is time for us to unmask the lie. There is something very wrong, honourable senators, in a situation where no one could comprehend that this program was about to cost $1 billion.
We have voted on Estimates and supply bill after supply bill, and yet everyone seemed surprised when the Auditor General's report was introduced in the House of Commons last December. Now, we hear the appropriate amount of contrition. I believe that yesterday the minister and the deputy minister both said they were happy to adopt the recommendations of the Auditor General. That is most interesting.
I wish that the same ministers would be so willing to adopt the recommendations of this committee. Had they been taking the advice of this committee, they certainly would have understood clearly that it was time to pause, to take stock and to make some correction. A child could have seen that something was terribly wrong.
There is so much to be said and there is so much to be questioned. I would like to follow up on Senator Lynch- Staunton's question. For the sake of the record, could the Auditor General amplify more on this designation of ``Crown Project''? This is important because there are many references in today's newspaper reports about it. One reference, in particular, is an article by Mr. Tim Naumetz in the Saskatoon Star Phoenix. He is an extremely capable journalist. The article speaks to a disagreement between you, Auditor General Fraser, and the Deputy Minister of Justice, Mr. Rosenberg, on this whole question. The record should be clarified. I have no doubt that this newspaper article is extremely accurate. For the sake of our record, the disagreement between you and the Deputy Minister should be explained and supported by evidence.
Ms. Fraser: Thank you, senator. Yesterday, in the hearing, the Deputy Minister of Justice, Mr. Rosenberg, indicated that he was not aware that this project had been designated a Crown Project, and he questioned our report on that fact. There were two elements of response. First, it is clear that it was designated as a major Crown Project. We have the documentation from the Treasury Board. We have an internal audit report from the Department of Justice, which clearly recommends to the department that they have to follow this reporting requirement. As I am sure honourable senators will appreciate, we go into great detail and take great care to substantiate everything that is in our reports. This is fundamental to us and to our credibility.
We give a copy of all of out reports to the department several months in advance of publication for several reasons. First, to validate the facts, because we want to be sure that the department agrees with our facts; that they approve of our tone, such that if there is any question of tone, or if we think that we are being inappropriate in any of the tone, we will consider remarks from the department; and to give the department an opportunity to respond. At the outset of an audit, we set out the criteria against which we will audit the program.
It has been clear from the beginning that one of the criteria was that this was a major Crown Project. We had no disagreement from the department on that fact. There was no disagreement when we gave them the report. Their response does not indicate a disagreement. I was, I must admit, surprised yesterday when the deputy minister raised this question. If he truly believed that it was not such a project, I would have thought that he would have mentioned the disagreement many months ago — six months ago — rather than yesterday in a hearing.
We have all of the support for that and, if the committee chooses, we will provide a copy to the Public Accounts Committee of the House of Commons. If this committee would like to receive a copy of that, we would be more than pleased to furnish it to you.
Senator Cools: We would love to have that information.
The Chairman: There is a parliamentary aspect to all of this that is important and with which we are properly concerned. There is also an administrative problem at various levels, as we have seen. There is also an important federal-provincial aspect to it in terms of a criminal law initiative. On almost every front, if anything could go wrong, it has gone wrong. I am sure we will hear more about it.
Senator Cools: It just occurred to me that the newspaper to which I referred was the Star Phoenix of Saskatoon.
The Chairman: We will not take a second round of questions.
Senator Cools: I wish to make one last profound point. I say this for the record. Back in 1995, if Mr. Alan Rock, the then Minister of Justice and his Deputy Minister of Justice, Mr. George Thompson, had ever told these two chambers that the real cost of Bill C-68 would be in the vicinity of $1 billion, that bill would never have passed.
Senator Comeau: Ms. Fraser, in chapter 5 you noted that you wished to have financial controls on financial and non-financial information. That leads me to ask if, when you do the general audit, there are any audit criteria to look at for non-financial papers? For example, would you look at the controls over the application for firearms licence?
Ms. Fraser: Yes, senator. Generally, when we do an audit of the operations of any program, we will look at those kinds of transactions. In this case, we did not do an audit of the operations of the centre. We did not do an audit of the program, per se. It was still in great evolution and so we thought it was not appropriate to go in at this time. We only focused on the costs and the reporting to Parliament of those costs. It was a very limited audit.
We have indicated that we will do an audit eventually, or we will consider doing an audit when the systems become more stable. The department has indicated to us that that will be in at least three or four years.
Senator Comeau: May I suggest that you might wish to make very close scrutiny of the application forms? I will give you two examples of questions that are on the application form that are highly sensitive and extremely loaded. These are ``yes'' or ``no'' responses that an applicant must give. I will give you two: ``During the last five years, have you threatened or attempted suicide, or have you been diagnosed or treated by a medical practitioner for depression, alcohol, drug, substances, behavioural problems or emotional abuse? Yes or No.'' The second question that I point out is: ``During the past two years, have you experienced a divorce, a separation, a breakdown of a significant relationship, job loss or bankruptcy? Yes or No.'' If a respondent responds ``yes'' to either of these two questions, obviously it would trigger some kind of police investigation of the individual because you would need to know what caused the breakdown. If a police force did not have that information, they could be held liable should something go wrong that involved that gun licence issue.
Obviously, the police must use whatever tools they have, which may mean questioning neighbours, employers, spouses and so on. Such an investigation could trigger an entire rumour mill. If that were to happen, it could be followed by a ruined reputation, thanks to the loaded questions on the application form.
What happens to these applications afterwards? I have one before me. Is there any kind of control on the access to these documents? There could be interesting fishing expeditions for some people because of the responses. May I pass that along as a way of ensuring that these papers are not accessed by the wrong people?
Ms. Fraser: Senator, we will certainly take your concerns into account when we do an actual audit of the operations of the program.
Senator Furey: I have a brief question, Ms. Fraser. If we put aside the costs of the program for a moment, is there a significant discrepancy in the registration rate as claimed by the Department of Justice and officials in the department compared to what you have found in your department, and if so, how do you account for that?
Ms. Fraser: I do not have the information to respond to that. Our audit was strictly on the costs and the reporting of those. We have not looked at where the registrations are at and how the processing has gone to date. I am afraid I cannot give you that information.
The Chairman: As always, Ms. Fraser, it was extremely interesting and helpful. I hope our report to the house does justice to the occasion. We look forward to seeing you again soon.
Honourable senators, we have very important meetings on Tuesday, March 18, on the final Supplementary Estimates for 2002-03, and on Wednesday, March 19, for the Main Estimates 2003-04.
Until then, the committee stands adjourned, although I wish to meet in camera following this session.
The committee continued in camera.