Opening Statement to the Standing Committee on Public Accounts

October 2000 Report of the Auditor General

Thank you, Mr. Chairman. We are pleased to have the opportunity to meet with the Committee to discuss the Report tabled on Tuesday and the suggested priorities for your consideration.

It has been difficult for me to keep the priority list short for this Report, because it includes many serious matters that merit parliamentary attention. You will note that Chapter 12 — Ethics and Values and Chapter 13 — Financial Management Capabilities are not included as priorities, but I consider them of equal importance to the other chapters. In fact, they are fundamental to good governance.

In both cases, strong leadership at the highest levels and sustained effort is required.

With deregulation, downsizing, contracting out and partnership with the private sector, the government increasingly relies on a strong foundation of values and ethics more than detailed rules and procedures to make decisions in the public interest.

The government is taking steps to maintain sound values and ethics but most of these measures are limited or in their preliminary stages. There is a need to act faster, more decisively to put in place all the elements of a solid framework for values and ethics in the federal public sector.

Also, the challenges to be met in improving financial management are substantial. I am concerned that so few of the Departments we examined have the basic financial management capability they need today, let alone for the future. Departments are only at the initial stages of developing the capabilities needed to meet the requirements of the Financial Information Strategy and the Modernization of Comptrollership Initiative.

We hope that the Committee will be able to monitor these initiatives over the medium term.

Turning now to the five suggested priorities, I will start with the first chapter in the report.

Chapter 10 looks at how Transport Canada handled the transfers of Canada's 18 largest and busiest airports between 1992 and 1999. Under the transfer agreements, Transport Canada retains ownership of the airports but leases out their management, operation and development to bodies known as airport authorities. Airport transfers represent billions of dollars in airport revenues and other business opportunities.

The audit found significant flaws in the financial analysis supporting the transfer deals. As a result, the quality of information used to decide on such things as rent has been considerably impaired. For example, the Department did not gather information on the fair market value of the airport businesses it was transferring before it negotiated second round transfers or before any renegotiation. Further, the Department could not demonstrate how the deals for all of the transferred airports were equitable, uniform, consistent and fair one with the other, as the government had directed.

Also, Transport Canada has yet to define its post-transfer role. The Department has failed to properly monitor the growing use of airport improvement fees, sole-source contracting at major airports, and activities of subsidiaries in order to ensure that the interests of the public are protected.

I would like to make it very clear that we are not criticizing the airport transfer policy. Transport Canada notes that there are a number of positive aspects to the arrangements. However, we believe there is a pressing need for Transport Canada to demonstrate more diligence in its handling and oversight of airport transfers. I am also disturbed that the evaluation work on airport transfers that was to have been completed in 1998 is still ongoing, despite significant government and other stakeholder interest.

Chapter 11 deals with the management of grants and contributions at Human Resources Development Canada. The Department spent about $3 billion in 1999-2000 on grants and contributions for programs such as job creation and youth employment, and for employment benefits and support measures authorized under the Employment Insurance Act. Of about 40 grant and contribution programs run by HRDC, our audit examined the management of 4 up to December 1999: the Transitional Jobs Fund and its successor the Canada Jobs Fund, Youth Internships Canada, Social Development Partnerships and the Sectoral Partnerships Initiative.

We found widespread problems in all key areas and all of the programs that we examined. We found that controls had broken down, putting public funds at unacceptable risk. Mr. Chairman, I would like to make note of the fact that, notwithstanding the serious nature of the problems we identified, we found no evidence of fraud on the part of HRDC officers.

The proper management of grants and contributions is an essential part of good public administration in the federal government. There are large amounts of public funds involved and they should be spent only with great care and appropriate levels of control.

I find our audit observations in HRDC disturbing in light of good public administration principles. Our work confirmed the findings of the Department's 1999 internal audit, and more. We found breaches of authority, improper payments, limited monitoring, and approvals that had not followed established procedures. We also found problems in the design of these programs and in the measurement and reporting of results. All of this is serious because taxpayers have a right to expect that the government follow due process in spending public funds.

Current management in the Department is committed to addressing the serious weaknesses in the management of grants and contributions. Their actions and plans address the significant deficiencies we found in our audit. However, sustained effort is required. Beyond the immediate corrective action, HRDC needs to fundamentally change its day-to-day approach to the delivery of grants and contributions.

Chapter 14 focusses on how CIDA's Geographic Branches and the Canadian Partnership Branch manage contracting and contribution agreements for around $1 billion annually in goods and services. The rules for selecting third parties to deliver development assistance projects using contributions are not clear. They give the Agency too much flexibility. Particularly, they allow the use of contribution agreements in a way that often varied form CIDA's internal policies.

Although we noted some cases of non-compliance with policy and regulations on contracting, we found that when CIDA resorted to competitive contracts, it generally handled the process properly

However, CIDA's use of contribution agreements instead of competitive contracts needs further review. Some of these agreements became, in effect, the same as sole-source contracts that would not be permitted under Government Contracts Regulations. The terms and conditions for grants and contributions under Geographic programs are very general, and they provide no direction on how and when to use contribution agreements.

CIDA needs to tighten its policies, guidelines and procedures for sound management of its contracts and contribution agreements if it wants to ensure the fairness and transparency of its selection of third parties to deliver aid assistance projects. The upcoming five year review of CIDA's terms and conditions for grants and contributions is an excellent opportunity to address this matter.

Chapter 15 revisits our 1997 chapter on First Nations health. The PAC issued a report to the House on this topic in February 1998. Although Health Canada has acted on the recommendations, I am concerned that it has not made enough progress to fix many of the problems identified in 1997.

The point-of-service system for the administration of pharmacy benefits is now fully operational. However, the Department has not adequately monitored pharmacists' overrides of the warning messages generated by the system. Clients are still accessing large amounts of prescription drugs. In addition, Health Canada has been slow to develop an appropriate strategy for on-site audits of pharmacies and dental care providers.

The Department has also made limited progress toward ensuring that it receives the reports that are required under contribution agreements. Community health plans are still not being updated when transfer agreements are renewed, and requirements for audits, annual reports and evaluation often are not met.

Improving the health of First Nations is a complex task. The programs that Health Canada delivers either directly or in partnership with First Nations organizations represent a key component of this task. Health Canada needs to fulfill its responsibilities in a way that helps First Nations establish programs and services that are likely to improve their health.

Finally, the audit observation on Parc Downsview Park Inc. describes the development of a park on land no longer required by National Defence as a result of the closure of CFB Toronto at Downsview.

Normally, when land is no longer needed for program purposes, it is declared surplus and sold. The proceeds from the sale are returned to the Consolidated Revenue Fund (CRF). Through the Estimates process, Parliament then votes on its program priorities and appropriates money from the CRF. This process is intended to ensure that Parliament controls new programs and spending.

Parliament has not provided clear and explicit authority for the creation and operation of an urban park, nor has it authorized the planned related spending of over 100 million dollars of public funds.

As you can see Mr. Chairman, all of these matters are serious in nature and I hope that all of the chapters in the October Report will be of interest to the Committee. Thank you, that completes my opening statement. We would be happy to respond to questions.