Opening Statement to the Standing Committee on Public Accounts

May 2006 Status Report

18 May 2006

Sheila Fraser, FCA
Auditor General of Canada

Mr. Chair, I am very pleased to be here today to present my fourth Status Report, which was tabled on May 16. I am accompanied by Ronnie Campbell, Assistant Auditor General, and Peter Kasurak and Wendy Loschiuk, Principals in our Office.

Status Reports are important because they tell parliamentarians and Canadians what the government has done in response to recommendations made in our past audits. In other words, Status Reports answer the question: Did government take action in response to the Auditor General's reports?

We recognize that some of the issues are highly complex and that some recommendations are clearly more difficult to carry out than others. We take this into account, along with the amount of time departments have had to act, when we assess whether progress has been satisfactory or unsatisfactory.

In our Status Reports, we give credit where there has been improvement and we call attention to areas where progress has not been satisfactory.

As you know, I have also provided Parliament with an additional report.

I will come back to that report shortly. First, let me tell you about the government's actions in response to our past audits.

Taken as a whole, the eight chapters in this year's report paint a picture of mixed progress. For half the chapters, we conclude that overall progress has been unsatisfactory. For the other four, we report satisfactory progress. We also note some problems that have emerged.

Satisfactory progress

Chapter 6
Management of Voted Grants and Contributions

We last reported on the management of grants and contributions in 2001. The government spends around $17.5 billion a year on voted grants and contributions. Voted grant and contribution programs are those whose funding requires Parliament's approval each year.

This year I am reporting that for the most part, the government has made satisfactory progress in responding to our past concerns. We found that four of the five departments we audited had satisfactory controls to ensure that recipients of grants and contributions were eligible and were monitored according to risk.

We do note, however, that recipients have said the administrative burden imposed by the government's requirements is daunting. We believe departments should streamline their management of grants and contributions to address this problem.

Chapter 2
National Defence—Military Recruiting and Retention

I am pleased to see that National Defence has made satisfactory progress since 2002 at stopping the decline in the number of trained military members available for duty.

Despite the progress, however, the current system of recruiting is not addressing the needs of the Canadian Forces. With growing numbers of people expected to leave in the next 10 years, I am concerned that plans to expand the forces are at risk.

National Defence has established a new strategic direction for managing its military human resources more effectively. Now it needs to ensure that its policies and practices reflect the new direction.

Chapter 3
National Defence—NATO Flying Training in Canada

Concerning the NATO flight training program, we are reporting satisfactory progress in resolving some contract issues. The contractor and the government have reached a settlement for flight instruction that the Department had paid for but not obtained in the early years of the program. However, we note that with the current slowdown in training, the Department is still struggling to fill training spaces.

Now it is up to National Defence to make sure it uses the spaces it is paying for.

Chapter 4
Canadian Firearms Program

We found that the Canada Firearms Centre has made satisfactory progress since our 2002 audit in addressing our recommendation to improve its reporting of financial information to Parliament, except for an issue that I will return to in a few minutes.

I am also pleased to report that despite having inherited some serious problems, a new management team has established the organization and systems needed to operate as a government department.

The program's total net cost to March 2005 was reported by the government as $946 million, a little under its earlier estimate of $1 billion. But operational problems remain. For example, there are still problems in the registration database—the Centre does not know how many of its records are incorrect or incomplete.

As well, the information system it is developing is three years late, its costs have grown from the original budget of $32 million to $90 million, and it still is not operational.

Now, let me turn to areas where we found unsatisfactory progress in implementing recommendations from previous reports. In fact, in the four areas I am about to mention, the problems are long-standing.

Unsatisfactory progress

Chapter 5
Management of Programs for First Nations

Let's start with First Nations issues. The federal government has obligations to First Nations people that are set out in treaties, government policies, the Indian Act, and other legislation. Past audits have found that the government falls short of meeting these obligations.

This audit focused on 37 recommendations that we made to five federal organizations between 2000 and 2003. Some of these recommendations addressed serious issues that are important to health and well-being, including mould in houses on reserves and monitoring prescription drug use.

Overall, we found unsatisfactory progress in addressing our recommendations. In some key areas, little has been done.

However, where our recommendations were implemented successfully, some of the critical factors appeared to be co-ordination of programs, sustained attention by management, and meaningful consultation with First Nations. These lessons can guide the federal government as it moves forward in fulfilling its responsibilities to First Nations people.

Chapter 8
Canada Revenue Agency—Collection of Tax Debts

We found unsatisfactory progress by the Canada Revenue Agency in managing the collection of tax debts. While the vast majority of taxes are paid on time, the tax debt owed to the government by individuals and corporations totals over $18 billion. The Agency has known for many years what it needs to do to improve its collection of tax debts, but its efforts have fallen short. And it still is not gathering critical information that it needs to understand and manage the growing tax debt.

The Agency has set ambitious goals in its strategic vision for the future of collections but it has not specified how it intends to reach those goals. Without detailed planning and diligent attention by management, I am concerned that the Agency will have a hard time improving the way it manages collection.

Chapter 1
Managing Government: Financial Information

The issue of financial Information is a long-standing problem in the federal government, and we report that progress is unsatisfactory. I am disappointed that departments and agencies have been slow to improve the quality of their financial information, and I regret having to repeat this year after year.

In addition, we found that departments and agencies have been slow to correct weaknesses in key financial systems and controls.

The federal government handles billions of our tax dollars every year. To do this well, it is vital that it have good, complete financial information.

Departments and agencies are still not using accrual financial information as a regular management tool. If they were using it, they would have a very different and more accurate financial picture of their revenues, expenses, assets, and liabilities. When all the costs are visible, managers are more likely to consider those costs when making decisions.

Our observations on the leasing of office space demonstrate the need for good financial information.

Chapter 7
Acquisition of Leased Office Space

We are reporting unsatisfactory progress by Public Works and Government Services Canada in managing its leasing of office space for federal public servants.

We found that the basic information needed by property managers still does not exist, is inadequate, or is difficult to get. To make the right strategic decisions, managers need information that is timely, accurate, and complete.

PWGSC shares responsibility for decisions on office accommodation with its client departments and the Treasury Board Secretariat. This, and the way government funding works, means that the most cost-effective option is not always the option chosen.

The result can be additional costs to the taxpayer, as several examples in our report illustrate.

The government should ensure that the system provides the right incentives for managing well, which includes selecting the most cost-effective option.

Government Decisions Limited Parliament's Control of Public Spending

Finally, let me turn to the additional report that was tabled on Tuesday.

Departments and agencies need to give Parliament good estimates of their spending plans and report their actual spending properly.

In our opinion, significant costs incurred by the Canada Firearms Centre in 2003-04 were not reported properly to Parliament, and the government did not follow its own accounting policies.

Had these costs been properly recorded, the Centre would have exceeded its voted appropriation that year, unless it had been granted supplementary estimates.

We consider this a serious matter for Parliament's attention, because the ability of the House of Commons to approve government spending is fundamental to Parliament's control of the public purse.

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