Opening Statement to the Standing Committee on Public Accounts

The Sponsorship Program
(Chapter 3 - November 2003 Report of the Auditor General of Canada)

19 February, 2004

Sheila Fraser — Opening Statement, Closing Statement

Ronnie Campbell — Opening Statement, Closing Statement

PowerPoint Slide Presentation (PDF: 244 KB)

Handout to Committee members (PDF: 207 KB)

Sheila Fraser, FCA
Auditor General of Canada

Mr. Chair, before we begin our presentation today, I would like to mention that we have just provided the Committee with a letter with additional information requested at your Committee's meeting on February 12. At that meeting, you had asked us to identify individuals who authorized certain transactions outlined in the Report.

On Friday, February 13, I provided you with the names of the officials who were identified by title in Chapter 3 of my Report. The identity of these individuals is publicly available information.

However, other individuals were not identified by title in the Report. We must respect their privacy, and the confidentiality of our audit working papers. Therefore, I believe that we should not provide their names to the Committee. It would be more appropriate for the Committee to obtain this information from the government.

To help facilitate this, we contacted the three Crown corporations in question and asked them to provide the information directly to the Committee. I understand that the committee has received some responses.

I hope you can appreciate that we cannot provide information beyond that contained in the Report or that is not publicly available. Therefore, many of your questions may need to be addressed to government representatives.

* * * * * * *

Mr. Chair, I am pleased to be here today to give the Committee further details about the Sponsorship Program discussed in Chapter 3 of my annual Report. Today I am accompanied by Assistant Auditors General Shahid Minto and Ronnie Campbell, as well as Louise Bertrand, Principal.

Before I go over some of the key observations in Chapter 3, I would like to offer the Committee some background to our audit. As you all know, in March 2002, my Office was asked by the then Minister of Public Works and Government Services (PWGSC) to audit three contracts totalling $1.6 million that had been awarded to Groupaction. That audit report, presented in May 2002, revealed significant shortcomings at all stages of the contract management process.

The nature of the findings was such that we undertook a government-wide audit, which is reported in the November 2003 Report tabled on February 10, 2004.

Our audit examined the management of the Sponsorship Program by the Communications Co-ordination Services Branch (CCSB) of Public Works and Government Services Canada up to August 31, 2001, when Communication Canada was created by the amalgamation of CCSB and the Canada Information Office. We examined the subsequent management of the program by Communication Canada to March 31, 2003.

We selected a sample of sponsorship projects and reviewed them in detail. Further, we selected a sample of transactions involving payments by CCSB to Crown entities, including Crown corporations. Through an order-in-council, we were also able to audit selected sponsorship transactions at Canada Post Corporation. We audited the way both CCSB and the Crown entities managed the transactions.

Our findings are disturbing. The non-compliance with contracting rules extended beyond PWGSC and into five major Crown corporations and agencies. My colleagues will explain in more detail how the sponsorship program functioned as well as certain cases where sponsorship funds were transferred to Crown corporations, which will give you a better understanding of our concerns. We had 3 major concerns:

• lack of respect for the parliamentary process
• widespread mismanagement of the program, and
• payment of commissions for moving money from one government entity to another and with little evidence of value added.

Mr. Chair, not only was there no respect for the rules, there was also disrespect for the parliamentary process. Parliament was not informed of the program's real objectives and was later misinformed about how the program was run. The parliamentary appropriation process was bypassed when money was transferred to Crown corporations under this program.

My colleagues will now discuss some key observations and specific transactions we audited.

Closing Remarks of Sheila Fraser, FCA

Mr. Chair, as you have seen from our presentations, the findings of our audit from 1997 to 2001 are troubling. A considerable amount of money was spent with little indication of the value received. Rules were broken and the role of Parliament was not respected.

I would like to point out that the government began to take action on many of these issues when Communication Canada was created in September 2001. (See paragraphs 3.103 to 3.118)

From that date, although some problems remained, we saw an improvement in the management of sponsorship files. These included improvements in selecting and approving projects, better analysis of the sponsorship amount given for each event, better enforcement of the terms and conditions of contracts, and improved compliance with relevant authorities.

In addition, a new sponsorship program was announced in December 2002 to take effect April 1, 2003. We did not audit the new program.

As you know, the government announced on December 13 that the Sponsorship Program would be eliminated and Communication Canada would be disbanded by the end of this fiscal year.

In closing, I want to draw the Committee's attention to the recommendations contained in my Report. I believe they will be important in the government's effort to ensure that these types of problems do not occur again. For example, the government should continue to ensure that

• any operating units established to undertake new activities do so with proper control, accountability, and transparency;
• parliamentary appropriations are respected;
• any transfers of funds between government entities are conducted with transparency and efficiency;
• relationships between Crown corporations and government departments are maintained at arm's length; and
• public servants understand their obligations and comply with the Financial Administration Act.

Mr. Chair, I trust that this presentation has given you a better understanding of how the sponsorship program operated and we would be pleased to answer any questions you may have.

Ronnie Campbell
Assistant Auditor General

Thank you. Mr. Chair, before discussing the details of our findings I would like to briefly comment on the control environment within which the Sponsorship Program operated.

In Results for Canadians, the management framework for the federal government, the Treasury Board states that departments and agencies are responsible for ensuring that they have adequate management frameworks to achieve results and manage resources. This means, among other things, that they must maintain robust internal controls and be vigilant to detect early any conditions that could lead to a control failure.

The Sponsorship Program operated in a weak control environment: procurement and financial activities were handled within CCSB with little oversight by PWGSC's central services; communications agencies and events to be sponsored were selected by only a few individuals; and the same individuals who approved the projects also approved invoices for payment.

Roles and responsibilities were not segregated to eliminate, as far as possible, any opportunities for fraud and misstatement or an override of controls by management.

There were no written guidelines. Written guidelines can be a key tool for delivering any program consistently, fairly, and transparently: they can provide clear criteria for eligibility, set out the conditions attached to financial support, and in this case provide guidance on levels of sponsorship funding.

We noted that the Sponsorship Program operated with no guidelines from its inception in 1997 until 1 April 2000, resulting in ad hoc selection and approval of projects and decisions on levels of sponsorship funding.

Mr. Chair, your Committee may wish to ask government officials for further details on the control environment and why it was allowed to operate in this manner.

Closing Remarks of Ronnie Campbell

Mr. Chair, the findings contained in this report are consistent with those of our May 2002 report on the three Groupaction contracts. There was little evidence that the government received the visibility it had paid for. Verbal agreements were used where we would have expected appropriate documentation. As Committee members may remember, we reported in 2002 that the retired Executive Director had informed us this was how business was done while he was responsible for the program.

In our review of files, we found it impossible in most cases to determine why an event was selected for sponsorship, how the dollar value of a sponsorship was determined, or what federal visibility the sponsorship would achieve.

As an introduction to the cases that my colleagues are going to discuss, I refer the Committee to the top of page 10 in Chapter 3. A representative of the company L'information essentielle told us that the Executive Director of CCSB had verbally committed the government to funding $7.5 million dollars. There was no business case, no contract, and no other documentation or exchange of correspondence between the government and the company to reflect these commitments.

The representative of L'information essentielle told us that he was instructed to contact VIA Rail and Canada Post for portions of these funds. The remainder of the funds would be transferred through a number of communications agencies.

My colleagues will now explain to you how that was actually done.

PowerPoint Slide Presentation (PDF: 920 KB)

Handout to Committee members (PDF: 767 KB)