Opening Statement to the Committee On Public Accounts

Report of the Auditor General of Canada - April 1998

L. Denis Desautels, FCA
Auditor General Of Canada

Thank you Mr. Chairman. We are pleased to have the opportunity to meet with the Committee to discuss the April Report tabled on Tuesday. I have with me today Deputy Auditor General Michael McLaughlin and Assistant Auditor General David Rattray.

Once again, this report reflects the enormous challenges faced by government as it seeks to redefine its role while reducing its expenditures. It is my role, as Parliament’s auditor, to ensure that public funds are spent with due regard, in accordance with the wishes of Parliament, as well as to ensure that financial information provided to Parliament and Canadians is complete, useful and credible.

In this regard, many issues raised in this Report are highly significant. For example, in Chapter 6, I urge the government to provide parliamentarians with long-term financial projections that capture the potential impact of the aging baby boom generation on future government finances. I also raise matters of significance related to the Department of National Defence in Chapters 3 and 4.

While the Department assures Canadians that it would never take on a military commitment it could not fulfill, I am concerned that the portion of the Defence budget that is available to modernize equipment is decreasing due to fiscal restraint and rising operational costs. In particular, this means that the army and the air force are having difficulty in keeping pace with technology. We are at the stage where hard choices may have to be made. I believe it is important that Parliament be better informed as to what the Canadian Armed Forces can do and am concerned about the slow pace of progress in providing information.

Also, billions of dollars worth of military equipment could be spent more wisely. Due to affordability concerns, several projects examined have resulted in the purchase of equipment that cannot completely perform the missions that justified its purchase. I am also concerned that departmental management did not conduct adequate analysis to justify its spending decisions for most of the projects we examined. The lack of rigorous risk analysis and test and evaluation create additional concerns, even if serious problems have not resulted so far. The department has responded that it has a major initiative underway to improve its capital acquisition process. With major new acquisitions just announced, the department is at a critical point. An implementation plan is needed to direct the re-engineering effort and to ensure the prompt resolution of these problems.

I would hope that the Standing Committee on National Defence and Veterans Affairs will deal with these issues even though they may be of interest to this Committee as well.

Knowing that the Committee cannot deal with all the subjects raised in my Report, I have kept the list of proposed priorities relatively short. The four areas proposed for early consideration deal with: 1) downsizing of the public service, 2) economy issues and lessons learned in constructing a major capital project, 3) results reporting and the provision of information to Parliament, and 4) reporting government financial results.

I will deal first with reductions in the Public Service covered in Chapters 1 and 2 of the Report. The good news is that the latest round of cuts has achieved the government’s desired objectives. Ministers and senior officials played a key role in making sure departments met their targets for spending cuts. Personnel costs have actually declined and there have been no significant labour disruptions. From March 1995 to March 1997 alone, over 30,000 employees benefited from departure incentives.

But departments did not focus enough on the costs of providing incentives for employees to leave or retire, or on finding less costly alternative ways to reduce their workforce. The program cost is more than anticipated and the break even date is later than planned. Frameworks and guidelines were designed to keep on top of costs, but these measures were not well understood and were communicated too late, after departments had approved incentives for a significant number of employees.

In terms of work force viability, there are some questions as to whether the remaining work force will be able to cope with the existing workload and meet program objectives. We raise questions about the management of work force reductions for critical groups where surpluses may exist in some departments but where shortages may exist in others.

It is important for Parliament to be aware of the significant impacts of work force reductions. As usual, lessons learned can be useful in that they can be applied to future initiatives. Downsizing initiatives will end by March 1999. A review by the Committee now, at this point in the program, would support clarifying the accountability of the departments and central agencies for the management of work force reductions – both their cost and impacts. In paragraph 2.121, the Treasury Board Secretariat has agreed to report comprehensively at the end of Program Review, scheduled for March 1999.

Next, Chapter 7 deals with the federal government’s newest laboratories located in downtown Winnipeg. They are the first in Canada to handle the most dangerous viruses known. The facility will be used by Health Canada and the Canadian Food Inspection Agency, and I am satisfied that the departments have taken appropriate measures to ensure that this building is safe for both employees and the community. However, the project could have been delivered for 5 to 10 million dollars less. There is built-in overcapacity and no strategy to optimize the use of the excess space.

Some of our previous audits of major Crown projects have identified a range of deficiencies in the approval and management practices. These deficiencies persist. Existing policies are in need of review, and improvements are needed in project management practices. The Committee might wish to review the roles played by Health Canada, Agriculture and Agri-Food Canada, the Canadian Food Inspection Agency, Public Works and Government Services, and the Secretariat as a way of providing an incentive for corrective action.

Chapter 8 deals with effectiveness measurement and reporting by the Department of Finance. The Department’s 1997-98 planned expenditures of $66 billion represent 43 percent of planned federal expenditures, and its responsibilities include federal tax policy, and therefore tax expenditures, as well as programs such as the management of the public debt and federal-provincial transfer payments.

The Department should address gaps in reporting to Parliament on its objectives and on the effectiveness of its policies and programs. Your Committee may wish to review how the Department plans to provide such information to Parliament in the future.

Chapter 9 addresses the government’s recent departure from both objective accounting standards of the CICA and its own stated accounting policies for certain transfer payments. We have discussed this matter with you on a number of occasions. Our chapter provides important new information that we would ask you to consider.

This might seem like a simple disagreement between accountants, but it is much more serious. The method of accounting proposed by the Government represents a significant departure from objective accounting standards recommended by the CICA’s Public Sector Accounting and Auditing Board. These standards have been developed, principally by people in government, to strengthen the credibility of government financial statements in Canada.

With the significant improvements since 1980 in the accounting policies used to prepare the government's financial statements, which were encouraged, in part, by the PAC, I see these departures as a step back in time. Your Committee's review of and support in this matter would help in maintaining the credibility of government-reported financial results for the Government of Canada.

Mr. Chairman, this concludes my statement. We would be pleased to answer questions.