Opening Statement to the Committee on Public Accounts

Transport Canada - Investments in Highways (Chapter 25 - 1998 Report of the Auditor General)

16 March 1999

L. Denis Desautels, FCA
Auditor General of Canada

Mr. Chairman, thank you for providing us with the opportunity to meet with the Committee to discuss Chapter 25 of my December Report, which focusses on Transport Canada's investments in highways. With me today are Mr. Shahid Minto and Ms. Basia Gadomski Ruta, respectively the Assistant Auditor General and Principal responsible for Transport Canada matters.

Chapter 25 focusses on key areas of Transport Canada's management of $1 billion invested in highways over the last five years. These investments were mostly administered through federal-provincial agreements.

Overall, we reported that Transport Canada failed to properly manage $1 billion of federal investments in highways in accordance with its responsibilities under the various federal-provincial agreements. We also noted instances in which ministerial or government direction was not complied with.

Mr. Chairman, before we get into some specific observations, I would like to first begin by putting into context the nature of Transport Canada highway investments. First, these investments are cost-sharing investments structured in such a way as to enable a partnership arrangement with provinces/territories for the management of highway projects. Second, the investments are meant to achieve several specified federal objectives.

Transport Canada has a number of responsibilities specified in those agreements. These obligations, Mr. Chairman, were deemed necessary by the government and were negotiated and incorporated in agreements with the provinces.

I should emphasize that our chapter does not recommend or suggest any duplication of the provinces' work, nor do we expect Transport Canada to set up a parallel department to mirror the work of provinces. We understand that a multitude of information may come from the provinces. To the extent that Transport Canada wishes to rely on this information, it needs to communicate clearly its information needs and requirements and to review the reliability and relevance of the information. As noted in our chapter, we found that the Department has not done this frequently or on a systematic basis.

Mr. Chairman, I would like to now take a few minutes to discuss some other key areas where improvements are needed in the management of current highway investment programs and any future initiative of this kind. Our chapter identifies serious weaknesses at three levels - in particular, those involving policy, financing and the administration of federal-provincial agreements.

For example, we noted the following situations:

• First, the National Highway Transportation policy is 25 years old and has never been updated. It does not reflect a number of substantive events in highway transportation, such as the introduction of tolls or the concept of the National Highway System, all of which have implications for decision making on federal highway investments.
• Second, information supplied to decision makers in support of hundreds of millions of dollars of funding for new programs has not always been accurate or complete. Among other examples is the Department's failure to assess potential environmental impacts of proposed highway programs at the strategic decision-making level as directed by Cabinet.
• Third, federal review to support project approval lacks rigour. Transport Canada does not even have information on dangerous segments of highways when deciding which project to fund.
• Fourth, there is poor record keeping and little monitoring and analysis to support highway investments. Information on federally funded highway projects is fragmented across the Department and is incomplete.
• Fifth, we found instances in which, contrary to federal statutory requirements, payments were made before the required environmental assessments were completed.
• Finally, during the last five years, notwithstanding that the Department's financial management system has many weaknesses, it assigned only nine people to deliver its highway investment programs and to administer 24 federal-provincial highway agreements, involving the review, approval, monitoring and reporting on over 600 projects and many more construction contracts. Our audit found that the Department did not do much of what it was supposed to do under the agreements.

Mr. Chairman, Transport Canada has been involved in making federal highway investments for many years but has yet to conduct a formal evaluation of any of its highway investment programs. I am disturbed that the Department is lacking key information it needs to plan for the future and to make informed recommendations to the government as it considers new highway investment initiatives.

Before closing, I would like to say just a few words on the topic of tolls. Despite their emergence almost 10 years ago, until very recently none of the agreements dealt with the issue, nor is there a federal policy on the matter. Moreover, at the time our audit ended, Transport Canada had yet to complete any analysis of the impact of tolls or transfers of highways to the private sector on traditional federal funding arrangements, and other matters such as the implications for the Trans-Canada Highway and inter/intra-provincial trade. In view of the increased public interest on the matter, the billion dollars already spent under the programs and the federal commitments to spend several hundred million dollars more over the next few years under existing federal-provincial agreements, a clear position on this matter is essential.

In closing, Mr. Chairman, I would like to note that the Department has committed itself to a number of positive actions to deal with many concerns raised in the chapter. We are encouraged by the Department's response to our audit. The Committee may wish to request from the Department a status report on actions taken to date together with target dates to deal with any outstanding matters.

Thank you, Mr. Chairman that concludes my opening statement with respect to Chapter 25. I would be pleased to answer your Committee's questions.