Opening Statement to the Standing Committee on Government Operations and Estimates

Canadian Firearms Program
(Chapter 4 - May 2006 Status Report of the Auditor General)

30 May 2006

Sheila Fraser, FCA
Auditor General of Canada

Thank you, Madam Chair, for inviting me to discuss the audit of the Canada Firearms Centre. With me today is Peter Kasurak, Senior Principal of the Public Safety team who was responsible for this audit.

I would like to take this opportunity to provide Members with an overview of our findings.

This audit was a follow-up to our 2002 audit of the cost of the Canadian Firearms Program. We were unable to complete our 2002 audit because the financial information available was unreliable and did not fairly represent the net costs of the program. This year we are able to report the Centre had made good progress in addressing our findings—with one exception as I will discuss later. The Canada Firearms Centre has adequate financial reports, and it has developed a reasonable method of apportioning costs between licensing and registration activities.

The Firearms Program has been substantially reorganized since our 2002 audit. When the new management team took over in May 2003, not only did they have to establish all of the functions of a separate agency, they also had to deal with existing problems. The new team has handled a large volume of licence applications, firearm registrations and transfers. It has dealt with operational issues such as spreading out the timing of licence renewals, consolidating the application processing site, and establishing the infrastructure necessary for a stand-alone department. The team has also improved contracting practices, and the number of contracts that have "red flags" indicating non-compliance with regulations has dropped significantly since 2001–02.

However, we have also found some problems that have yet to be addressed. The most important of these are as follows:

• the program still lacks performance targets or a definition of how program activities will result in the desired outcomes for public safety. Errors have been made in reports to Parliament overstating the degree to which service standards have been met;
• the quality of the information in the Registry still has significant inaccuracies in part due to information carried over from the Restricted Weapon Registration System as well as the 2002 decision to allow applicants to describe their own weapons without verification. We also found the system of volunteer verifiers to be generally weak;
• there are continuing concerns with the new information system called CFIS II. These concerns start with the basis for the initial decision to build the system, the lack of a detailed requirement, and the subsequent delays and cost overruns. We report that the system has tripled in cost to about $90 million to date, including about $30 million in avoidable delay costs. At the time of the audit, the system had not been tested or declared operational.

I would encourage the Committee to press for correction of these problems, no matter what form the Firearms Program may take in the future.

However, the most important finding from my perspective—and the object of our additional report—is how the costs of CFIS II were accounted for; and how they were then reported to Parliament.

In fiscal 2002–03 the Department of Justice did not record liabilities of $39 million incurred in the development of CFIS II as they should have. This error had two effects. The first was that Parliament was not told that the program had actually exceeded the limit stated by the then Minister of Justice in the House. Secondly, it also meant that the new Firearms Centre management team had to deal with an unexpected $39 million expense in 2003–04.

During 2003–04 the Centre—now a separate department—realized that it was likely to exceed the amounts appropriated by Parliament because of the prior year's accounting error and because of additional unexpected increases in the cost of CFIS II. Although the Centre initially recommended additional funds be requested from Parliament through Supplementary Estimates, senior officials at the Treasury Board Secretariat and Public Safety and Emergency Preparedness Canada sought an accounting presentation that would avoid reporting certain costs against that year's appropriation. Acting on their advice and a legal opinion obtained by Public Safety, the Centre incorrectly decided that the CFIS II liabilities at March 31, 2004 of $21.8 million did not need to be recorded against the Centre's voted appropriation. Again, the result was that Parliament was not informed that the Centre had in fact exceeded its appropriation and "blown its vote."

Our report analyzes each argument made by officials to justify their decision not to report these costs against the Centre's vote and concludes that officials erred and government accounting policy was not followed. In particular, the argument that the Treasury Board had not approved the contract and that therefore the liability did not have to be recorded in the year in which it occurred is troubling. I am very concerned about any possible adoption of an accounting policy that would allow the government to move the recording of expenditures from one year to the next, based only on the timing of their approval by the Treasury Board. This is not in accordance with recognized accounting principles nor with current policy.

These accounting errors meant that Parliament was not properly informed of the true costs of CFIS II on a timely basis. We also note that not seeking proper authority for supplementary funds where there was a reasonable likelihood that an appropriation will be exceeded could be interpreted as a breach of the Standing Orders of the House of Commons. Failure to fully account to Parliament for expenditures against a vote could also be viewed as an infringement on the privileges of the House of Commons.

Only the House itself can determine whether such a breach has occurred.

Madam Chair, that concludes my opening statement and we would be pleased to answer your Committee's questions.