Opening Statement to the Standing Committee on Public Accounts

Reflections on a Decade of Serving Parliament
(The Auditor General's End of Term Report)

Thank you, Mr. Chairman. I am pleased and honoured that this committee has asked me to appear before you to discuss my final report, Reflections on a Decade of Serving Parliament.

The idea for this report came from a number of people, including members of Parliament and from my own panel of senior advisors, who asked me if I intended to write an end-of-term report. No previous Auditor General has tabled such a report, and I gave the matter much thought. Most of the parliamentarians and senior public servants that I spoke to encouraged me to do so. In the end, I decided to reflect on the work that the Office has done over the last decade and to summarize my thoughts and our findings. I sincerely hope that the report provides a useful summary of the Office’s main messages, which otherwise would have to be extracted from our several hundred audit reports.

This report addresses five major themes: fixing the country’s finances, fixing some of the fundamental systems of government, taking care of the environment, improving the delivery of services, and improving legislative audit. I will speak briefly on each theme.

Fixing our Public Finances

At the beginning of the decade, Canada was in the middle of a debt and deficit crisis. By the end of the decade, things had greatly improved. Nevertheless, it would be wrong to be complacent. We need to draw the lessons learned from our problems.

Since the beginning of my term, I argued that Parliament and Canadians had to be kept better informed about the overall financial status of the country in order to have a meaningful public debate on deficit and debt issues. And the government has improved the information it provides: the Annual Financial Report, the Debt Management Strategy, the Debt Report and the annual Economic and Fiscal Update all represent progress.

But we can do better. The government should reconsider its budgeting system and in particular the part in which it builds in prudence. This has resulted in large surpluses just before year-end that create a temptation to spend. We also need to have longer-range forecasts that show the consequences of various spending policies decades ahead for Canadians to judge whether the government is headed in the right direction. Several countries already do this, while Canada still publishes only a five-year forecast target.

We also need to continuously review expenditures to cut non-performing or less important programs. Program Review did this quite well, but on a one-time basis. Without this kind of discipline, inertia will allow spending to build up again in an unplanned manner.

Finally, we need to ensure that the revenue side of the equation is secure. Serious challenges remain, such as taxation of the international activities of Canadian taxpayers and of the underground economy. Parliament has a key role to play by ensuring tax legislation is equitable, tax policy is consistent with objectives, and that policies have been adequately implemented.

Fixing Fundamental Systems of Government

Auditors spend a lot of time thinking about the plumbing and wiring of government. These issues sometimes appear to be remote from the interests of Canadians and of importance only to government insiders. But the fact of the matter is that if the structure of government is not right, it will be much less likely that Canadians receive the programs they want at an appropriate price.

I believe there are three areas that deserve priority in Parliament’s consideration: human resource management, new delivery arrangements, and management accountability.

Human resource management

Human resource management is at the heart of every government activity. The delivery of federal programs depends entirely on the public service. The federal public service was not functioning well at the beginning of the 1990s and renewal and reform efforts have been continuous since. Public Service 2000, a renewal project which started at the beginning of the decade, aimed at making the public service less rule-bound and more focussed on service. Another project called La Relève tried to deal with the malaise of the public service and with the forecast shortage of executives. Neither of these major initiatives completely met expectations. They were impeded by too many players trying to manage the public service and of a lack of interest in internal problems at the political level.

Without effective action now, things will only get worse. The federal government is having difficulty attracting and retaining knowledge workers and the demographics of the public service point to the wholesale depletion of senior, experienced staff in the next 5 to 10 years.

I am discouraged by this. The system does not seem to be able to reform itself. Radical measures are needed now more than ever before. The government should consider setting up an independent review aimed at changing the legislative structure of human resource management to break the log jam. At the same time, it might consider models put in place in other jurisdictions that are less centralized or uniform than the Canadian model.

This is a problem that should not — and cannot — be left to drift for much longer.

New delivery arrangements

During the 1990s the government experimented with new ways of delivering services — to try to lower costs and to improve quality and levels of service. By 1999 we found that over 77 collaborative and delegated arrangements with other levels of government or with the private and voluntary sectors cost the taxpayer about $5 billion each year.

Some of these arrangements lack adequate accountability structures such as appropriate annual reports. Sometimes the federal government did not demonstrate due diligence in finding out whether its partners could deliver their side of the arrangement. Often, little was reported to Parliament on the performance of the arrangement. Measures and baselines were missing.

Contracting out has been another new means of delivering services. The government has managed this well at times, as in the case of the Prince Edward Island fixed link. In other cases, such as the NAV CANADA privatization and the NATO Flying Training in Canada program, the government did not adhere to the basics of figuring out the costs and benefits of these deals.

Overall, two major improvements are needed: there has to be improved transparency and accountability; and if the government wants to do business in this way, it has to learn to negotiate contracts in a more business-like manner.

Making government accountable

Canada has a strong system of political accountability, but management accountability in government is more diffused. The two pillars of management accountability — financial and results (or performance) management — are weak. While financial management is improving slowly, results management seems stuck in a perpetual planning phase with managers looking for perfect measures.

Lack of progress is not caused only by technical difficulties. Rather, providing performance information that is balanced and candid is seen to carry too many risks: this can be true for both ministers and public servants. In short, we have a government culture where mediocre reporting is safe reporting.

To break out of this, Parliament may need to legislate the provision of performance information by departments. Perhaps we should separate political and bureaucratic accountability more clearly. We should probably link the pay of senior officials to financial and performance results more closely.

Financial Management

Financial management is the cornerstone for ensuring that we receive value for money. We need to control our dollars and we need to know how much things cost. Until very recently, deputy ministers did not worry much about financial management — it was regarded as a subordinate administrative function. As long as there was cash in the drawer and rules were not being broken, everything was fine. The prime directive was never to allow funds to go unspent and lapse at year-end.

The government is now devoting a huge amount of resources to implement its Financial Information Strategy, which should move us away from this very basic level of expectations. But problems remain. Accrual accounting will help departments record costs as assets are used up, but appropriations for funding will not be on an accrual basis for some time. This means that two accounting systems will be used. Equally important is the need to link costs and results and to ensure that the performance of senior public servants is assessed on that basis.

Taking Care of the Environment

Concern over the state of the environment has led to a huge change in our Office — creating the position of the Commissioner of the Environment and Sustainable Development is the embodiment of this concern.

The Commissioner has identified three weaknesses in federal management of environmental and sustainable development issues: gaps between commitments and action; lack of co-ordination among departments and across jurisdictions; and inadequate review of environmental performance and reporting to Parliament.

First, the federal government is better at setting targets than working to reach them. This has created gaps. For example, the federal government and the provinces agreed on a plan to reduce ground-level ozone, an important component of smog, but never agreed on how to carry out the plan.

Second, when my predecessor, Ken Dye, considered the environment, he asked, "Who’s minding the store?" We are still not sure who is. Federal departments are deeply divided on how to manage toxic substances, and the federal government and the provinces have entered into agreements that lack requirements to find out whether they have been implemented.

Finally, reporting environmental information is no better than the reporting of other results in the federal government. In others words, it is rudimentary at best.

The Commissioner, Johanne Gélinas, is attacking these problems by working with federal departments to develop sustainable development strategies that work. She is also carrying out environmental audits and is administering the petition process through which Canadians can hold the government accountable for environmental matters. She is also planning to make this process more visible.

I would urge members of Parliament to give priority to those three key environmental issues.

Improving Delivery of Services

The largest share of audit work has been to examine the delivery of services to Canadians. It is impossible to condense what we have learned in the last 10 years down to a few words or cases. Indeed, some of our most important findings and recommendations were unique to a single case. Nevertheless, three themes run through our work of the last 10 years.

First, it has been costly for the government to defer hard choices. Politics is said to be the art of the possible. One feature of the "possible" is that all stakeholders come out better off than they were before. However, when a no win-win solution presents itself, there is a tendency to play for time and to avoid hard decisions. At a management level, this results in a drift and prevents public servants from designing economic, efficient, and effective programs.

The report provides some examples where there has been considerable drift over the last 10 years: An overall policy framework for sustainable fisheries has been elusive; improvements in the life of First Nations are proceeding at a frustratingly slow pace; and large budget cuts have been made but needed structural changes to the Canadian Forces have been pushed off.

Second, the cut-backs and re-organizations of the 1990s did affect departments. Human Resources Development Canada, Fisheries and Oceans and National Defence all provide cases where performance difficulties can be attributed, in part, to cuts.

Finally, the departmental cases presented in my final report reflect the management problems I have already mentioned: weak control structures, inadequate results management and a shortage of highly-trained people.

I hope that this Committee can consider these over-arching problems when it deals with specific cases that arise from the Office’s usual periodic reports.

Improving legislative audit

I think that our Office has also learned a thing or two about improving its own operations over the last 10 years. I firmly believe that legislative audit is key to maintaining our government’s current level of probity and efficiency, and to improving it in the future. We need to safeguard the independence of the Office and allow it to maintain its effectiveness.

Looking at the Office, I challenge my own colleagues to move beyond simply reporting that problems exist and to identifying what caused them. We already do this to some extent, but the Office needs to do more. Identifying causes moves management a step closer to a solution and makes ducking the problems more difficult.

Structurally, we need to review how the Office’s budget is set in order to preserve its independence. At present, the Office’s budget is negotiated with Treasury Board officials. This is not a comfortable situation because the Office audits many activities which fall under their responsibility. A better system is the one used by the United Kingdom where the audit office budget is recommended by an all-party, non-partisan committee of members of Parliament.

We also need to clarify the rules as to which entities the Auditor General should audit. Functions such as food inspection, park services, and revenue have been moved outside the core of government, but the Auditor General has remained their auditor. However, in some cases, such as the Millenium Scholarship Fund and the Canada Pension Plan Investment Board, the Auditor General is not the auditor.

Parliament needs to set guidelines to establish when its auditor should examine new entities and report to the House.

Conclusion

Mr. Chairman, it has been a fulfilling 10 years. I come away impressed by the importance and strength of our institutions and the political process protecting us from adverse social, economic, and environmental trends and guarding us against vested interests. Our institutions are important. Politics is important. Those of us who are or have been inside the system have a duty to ensure that we remain accountable for our actions and the vast resources and aspirations entrusted to us.

Finally, Mr. Chairman, I would like to take this opportunity to thank my colleagues in the Office for supporting me with such skill and energy in the last 10 years. I would also like to thank ministers, all parliamentarians and in particular the members of this committee, and public servants for the respect they have shown the Office and me personally, and for their hard work to implement our recommendations. Finally, I am grateful for having had this unique opportunity to serve Parliament and the people of Canada.

That concludes my opening statement. I welcome your questions.