Opening Statement to the Standing Committee on Public Accounts

2001 Report of the Auditor General

Mr. Chairman, thank you for the opportunity to meet with the Committee to discuss the Report tabled on Tuesday. I am very pleased to present my first report as Auditor General of Canada.

The Report has 13 chapters reporting on audits carried out in about 30 government departments and agencies, and it contains many serious matters that warrant parliament's attention. I have grouped my comments today into five themes:

• the erosion of parliamentary control over how the government raises money and spends it,
• strengthening fiscal and financial management,
• the undermanagement of grant and contribution programs,
• the health of the federal public service, and
• the need to improve information management.

The erosion of parliamentary control

In my opinion, Parliament's role in controlling the expenditure of public funds has eroded, and with it, its control over government spending. This year the report has some important examples—commitments of millions of dollars—in which Parliament was bypassed or side-stepped. In none of these cases was anything done illegally, but the oversight of government spending by the taxpayers' elected representatives should not be replaced with administrative manoeuvres.

Parc Downsview Park Inc. is one example of the erosion of parliamentary control. Last year, we noted that Parliament had not provided clear and explicit authority for the creation and operation of an urban park, nor had it authorized the planned related spending of over 100 million dollars of public funds. The park is being developed on land no longer required by National Defence as a result of the closure of Canadian Forces Base 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 for them from the CRF. This process is intended to ensure that Parliament controls new programs and spending.

The government has transferred $19 million to the Park this year. This was accomplished through the sale of land to a third party. We have reported on this matter twice, and we would like some guidance from the Committee on the need to report on a continuing basis.

Last winter's Relief for Heating Expenses is another example. Parliament was not given an opportunity to approve this $1.4 billion initiative. The payments were authorized by an order-in-council, and the funds were provided by special warrants. Furthermore, we found that the initiative was poorly targeted. The government wanted to help low and modest income households offset the increase in their heating expenses last winter. But more than 40 percent of the households that received the relief either did not need assistance or did not have low or modest-incomes. And at least 90,000 Canadians who needed immediate help did not receive the relief for heating expenses because they did not qualify for a goods and services tax credit.

I look forward to discussing both these issues with the Committee.

Strengthening fiscal and financial management

I believe that the government is making progress in strengthening fiscal and financial management with its improvements to the Budget process, the Financial Information Strategy, and the Modern Comptrollership initiative. The debt is still high, and I am concerned about the recent trend of large transfers to foundations at year-end. While the intent of these foundations is worthy, I am concerned that a prime motivator for funding them in advance is the accounting impact on the government's bottom line—showing larger expenditures today (and smaller ones tomorrow) reduces the size of current surpluses. I am also concerned that Parliament has only limited means of holding the government to account for the public policy functions performed by these foundations.

Another financial management issue concerns contracting for professional services. In our follow-up on contracting, we note that the government has not addressed the concerns we raised about management oversight in 1998 and 1999. The Treasury Board Secretariat continues to reject our recommendation that departments with significant levels of sole sourcing be required to conduct annual assessments of their compliance with the regulations. The Secretariat has issued a new policy on advance contract award notices (ACAN) and has acted on our recommendations for training. However, it is too early to assess the extent to which, under the revised policy, ACANs may play a role beyond adding transparency to what we view as an otherwise non-competitive process. This is an area of continuing fundamental difference of opinion between our Office and the government. We do not view ACANs as competitive contracts. The Committee may wish to revisit contracting for professional services.

Undermanagement of grant and contribution programs

Let me turn now to the undermanagement of grant and contribution programs. In 1999, the Committee recommended that the Office carry out a comprehensive audit of the management of grant and contribution programs and report its conclusions and recommendations to Parliament. We conducted audit work in 16 departments and agencies this year in response to that recommendation, and we report the results in chapters 4, 5, 6, and 9. Chapter 4 focusses on government-wide issues; chapter 5 covers audits in 13 departments and agencies, and includes follow-up reports; Chapter 6 deals with the Atlantic Canada Opportunities Agency's economic development contribution programs; and Chapter 9 deals with Health Canada's preventive health contribution programs for population and public health.

Although we have seen improvements in some programs that we audited in previous years—at Human Resources Development Canada, for example—these improvements have not spread to all government departments. Grant and contribution programs are still by and large undermanaged.

Most of the programs we audited were having problems in one or more areas of management responsibility: program design, project assessment, project monitoring and performance measurement, and the training of the staff who manage them.

For example, we looked at Health Canada's Population and Public Health Branch. We found that it has a good process in place for managing grant and contribution programs. Unfortunately, management does not always follow its own established process, even in some of the larger projects the Branch has funded.

In Heritage Canada, we noted problems throughout the Support for Official-Language Communities program. We found that the program needs significant improvements in its management framework, performance information, project assessment and analysis of results achieved.

The problems with grant and contribution programs are correctable, as shown by our follow-up work, and the government has introduced a new and improved policy framework. But policies are not enough. The Treasury Board Secretariat faces a major challenge in reviewing the terms and conditions of all grants and contribution programs by March 2005. It does not yet have an accurate count of programs coming up for renewal each year. It has not identified the resources it will need to review the revised terms and conditions and the supporting program audits and evaluations. It will take a determined and sustained effort by the government to make sure that all grant and contribution programs are well managed.

I believe that it would be useful for the Committee to hold a series of three or four meetings on these four chapters.

Health of the public service

The government has established an ambitious schedule for modernizing human resource management. Chapter 2 identifies problems in the recruitment and staffing system and discusses the need for legislative changes. Chapter 3 focusses on improvements that do not require legislative change: how managers and departments identify their recruiting needs, how they fill them, and what support hiring managers receive from their departments and from central agencies.

This Committee's attention to human resource management issues in the past has been very productive, and I believe it would be worthwhile to hold a hearing on both chapters.

Inadequate management of information

This brings me to the final issue I would like to address: information management. A common problem throughout the government—one that has been noted in many previous reports—is inadequate management of information—and by that I mean a failure by departments to collect, to analyze, and to use information in a way that would enable them to make better decisions, to manage risks and to improve their programs and services.

We found examples of inadequate management of information and of risk in this year's audits of the Canadian Forces' management of major equipment, the Canada Customs and Revenue Agency's management of cross-border commercial shipments and its enforcement of non-resident income tax, in our review of Canada's Drug Strategy, and in our look at the government's human resource management.

Good information is the essential first step in good management. Without it, managing risk intelligently is not possible.

CONCLUSION

As you can see, Mr. Chairman, all of these matters are serious and I would urge the Committee to consider hearings on as many of these chapters as possible between now and the next report in April 2002.

In conclusion, I would like to end on a positive note. We have mentioned examples of good management throughout our report, but sometimes these get lost in the glare of publicity that surrounds the bad examples. I'd like to mention just a few, most of them from our follow-up work:

• Human Resources Development Canada's improved management of grants and contributions
• The government's meeting the deadline for bringing departmental financial systems on-line as part of implementing the Financial Information Strategy
• The processing of GST refunds
• The successful management of Y2K readiness (The PAC played no small part in this effort)

I am encouraged to find that there are examples of good management throughout government. The challenge to government is to make good management the norm.

Thank you, Mr Chairman, that completes my opening statement. We would be pleased to respond to questions.