Opening Statement to the Standing Committee on Public Accounts

November 2003 Report of the Auditor General of Canada

12 February, 2004

Sheila Fraser, FCA
Auditor General of Canada

Mr. Chair, I am very pleased to be here today to give you an overview of my annual Report that was initially planned to be tabled last November. Today, I am accompanied by Assistant Auditors General, Shahid Minto and Ronnie Campbell as well as other Assistant Auditors General who are available to answer questions on the report.

Much of the audit work that we are reporting on was completed last summer and since then, the government has announced many changes. Not having audited these new initiatives, it would be premature for me to comment on those changes.

Now, I would like to go over some of the key messages in each chapter.

Chapter 1 — Information Technology : Government On-Line

Chapter 1 deals with the Government On-Line project. Canada enjoys an enviable worldwide reputation for Government On-Line, which is the federal government's initiative to make services available on the Internet by 2005.

We noted that, with only two years left to go, many difficult issues remain to be resolved if the government is to achieve its objective of full service transformation.

For example, many departments have developed only high-level plans for service transformation and for dealing with the changes that will occur as a result of a shift to delivering services on-line.

And long-term financing for the development of a secure channel—which the government considers the cornerstone of the program and vital to its success—is uncertain.

I urge the government to take the necessary steps to prevent Government On-Line from becoming an expensive and underused initiative.

Chapter 2 — Accountability and Ethics in Government

Turning now to Chapter 2 — Accountability and Ethics in Government.

The government recognizes that controversies about the management of grants and contributions, the sponsorship program, and other high-profile issues can weaken public trust. In this study, we reviewed the initiatives taken by the government to address accountability and ethics matters, including :

• a Guide for Ministers and Secretaries of State, issued in June 2002
• Guidance for Deputy Ministers, issued in June 2003 that includes a Management Accountability Framework, and
• a Values and Ethics Code for the Public Service, issued in September 2003.

Our study concluded that these were necessary and positive steps and that these principles need to be clarified and put into practice.

I hope that this study will assist Parliamentarians in any future considerations of the responsibility and accountability of ministers and senior public servants.

Chapter 3 — The Sponsorship Program
Chapter 4 — Advertising Activities
Chapter 5 — Management of Public Opinion Research

Chapters 3, 4 and 5 deal with the sponsorship program, advertising and public opinion research.

Our findings on the government's sponsorship program from 1997 to 2001 are deeply disturbing.

Most significant was the widespread non-compliance with contracting rules, which extended beyond Public Works and Government Services Canada and into five major Crown corporations and agencies: the Business Development Bank of Canada, Canada Post Corporation, the Old Port of Montreal corporation Inc., VIA Rail Canada Inc., and the Royal Canadian Mounted Police.

Rules were broken or ignored at every stage of the process for more than four years and there was little evidence of value received for the money spent.

During that time, the Sponsorship Program consumed $250 million of taxpayers' money, and more than $100 million of that amount went to communications agencies in fees and commissions.

In a small number of very troubling cases, sponsorship funds were transferred to Crown corporations by highly questionable methods. This wasn't just a matter of missing documentation or bending the rules.

These transfers were apparently designed to pay commissions to communications agencies while hiding the source of the funds. And the amounts were significant. These practices failed to respect both the parliamentary appropriations process and Parliament itself.

Even though the government has cancelled the sponsorship program, I am deeply disturbed that such practices were allowed to happen in the first place. There has not been an adequate explanation for the collapse of controls and oversight mechanisms. Lessons must be learned to ensure that these kinds of problems do not occur again.

There are still questions that remain to be answered, but our audit could only go so far. Our audit was limited to government actions, particularly those of the Communications Co-ordination Services Branch of Public Works and Government Services Canada and its successor, Communications Canada, and Crown corporations. We could not look at what happened to these funds once they left the government.

I would like to point out that, under its current management, Communications Canada has made significant improvements to the operation of the sponsorship program.

Public servants also broke the rules in selecting communications agencies for government advertising. In some cases, we found no evidence that a selection process had even been used. Between 1998-99 and 2002-the federal government ran more than 2,200 advertising activities with contracts valued at about $793 million, making it one of the larger advertisers in the country.

In Chapter 5 we found that, overall, public opinion research was managed transparently, with roles and responsibilities clearly defined. However, there were some cases in which departments did not establish a clear statement of the need to undertake a public opinion research project.

Chapter 6 — Protection of Cultural Heritage in the Federal Government

Chapter 6 deals with the Protection of Cultural Heritage in the Federal Government.

The federal government plays a key role in protecting Canada's cultural heritage, which includes national historic sites, federal heritage buildings, the federal archives, and the collections of the National Library of Canada.

This audit looked at how the federal government protects cultural heritage—an international first for a national audit office and an issue that is very important to me. Unfortunately, we uncovered serious problems.

More than two-thirds of the national historic sites administered by the Parks Canada Agency and federal heritage buildings are in a poor to fair condition. And more than 90 percent of the National Library's collection is housed in buildings that do not meet current standards for temperature and humidity. Our National Archives is having difficulty identifying and collecting documents of historic value.

The current protection regimes have reached their limits. The government must act now so that important parts of our cultural heritage are not lost to future generations.

Chapter 7 — Human Resources Development Canada and the Canada Employment Insurance Commission-Measuring and Reporting the Performance of the Employment Insurance Income Benefits Program

In chapter 7 we looked at how the Employment Insurance Income Benefits Program—a vital part of Canada's social safety net—measures and reports on its performance.

The quality of service provided by the EI program is mixed. In 2002-03, more than 95 percent of employment insurance payments were correct and a 2001 opinion survey showed that a majority of respondents were generally satisfied with the service they received.

However, the performance of important aspects of service—such as access to call centres and the quality and timeliness of claims processing—fell short of targets and varied considerably among regions.

Parliament needs to receive a better picture of the performance of the Employment Insurance benefits program, including the savings that have resulted from changes to the Act in 1996 and the department's plans for addressing regional disparities in claims processing.

Chapter 8 — Indian and Northern Affairs Canada—Transferring Federal Responsibilities to the North

Signing land claims and transferring responsibilities to Northern governments mark significant changes in the governance of the North but it's only a first step of a process leading to improved economic conditions for Aboriginal groups.

Our audit, reported in Chapter 8, showed that Indian and Northern Affairs Canada does not know if it is fulfilling all of its responsibilities spelled out in two land claim agreements in the North—the Gwich'in in the Northwest Territories and the Inuit in Nunavut.

We found that the Department generally meets its specific obligations under the land claims agreements, but does not measure its performance in achieving the objectives that were agreed upon by the federal and territorial governments and Aboriginal groups.

In its response to our audit, the Department fundamentally disagreed with our view of how success should be measured. The Department defines success as fulfilling the specific obligations as set out in the agreements. We believe that success means more than meeting the minimum legal requirements—results matter above all.

All parties have a responsibility to make land claim agreements successful and Indian and Northern Affairs Canada must provide leadership to ensure lasting benefits.

On another issue, we noted that a number of media reports refer to the Department's failure to track spending of $1.2 billion. Our audit noted that other than the capital transfer of $1.2 billion for the two land claims, the department does not report the costs of meeting the federal government's annual obligations for each of these two claims. The department indicated that it would not be possible, or particularly useful, to track such spending.

Chapter 9 — Economic Development of First Nations Communities—Institutional Arrangements

Chapter 9 reports on a study of the institutional arrangements in place to encourage the economic development of First Nations.

The right institutional arrangements can make the difference between poverty and economic success for First Nations.

The federal government is a key contributor to First Nations economic development through its programs and its regulatory functions.

Thirteen First Nations, and four tribal councils and governments in five provinces participated in the study. I am encouraged by their efforts and thank them for their cooperation.

Our study identified several steps that the federal government should take to strengthen its support for First Nation economic development. These include consolidating administrative requirements of programs, supporting First Nations to build stable institutional arrangements in a timely way, and developing a more co-ordinated approach.

Chapter 10 — Other Audit Observations

Chapter 10 includes six observations that I believe deserve Parliament's attention.

We are pleased to report that the government has initiated actions to address some of the issues we had raised in our previous reports about Downsview Park.

However, for Indian and Northern Affairs Canada, we found several weaknesses in the Department's administration of the third-party management process.

We also found that Natural Resources Canada needs to improve its financial information and monitoring used to manage contribution payments and scientific equipment.

The purchase of two new Challenger 604 aircraft for the VIP fleet is another example of government's failure to follow its own rules—in this case, its procurement policies and procedures. The decision to spend close to $100 million was made in the space of nine days. This did not give any of the responsible departments a chance to look at their requirements or review how best to go about improving the capabilities of the fleet.

I don't believe the government demonstrated due diligence or due regard to economy in making this purchase. It's difficult to see how good procurement practices could have been followed in the rush to complete the purchase before the end of the fiscal year.

The government disagreed with our conclusion that policies and practices were bypassed and considered the procurement appropriately managed. I am concerned about this view because it leaves the door open for the same thing to happen again.

One of our audit observations dealt with the issue of special powers granted to intelligence-gathering agencies in the interests of national security. Independent reviews by external agencies can provide assurances to Canadians that these powers are used properly and with justification. However, organizations that collect security intelligence are not all subject to the same level of external review, and review bodies provide varying degrees of detail in their reports to Parliament.

I recommend that the government ensure that all agencies collecting security intelligence be subject to appropriate levels of external review and disclosure.

The final audit observation concludes that the government has not yet addressed our concerns about the surplus in the Employment Insurance Account.

Conclusion

Mr. Chair, that completes my overview of the Report. We would be pleased to answer questions.