Government Response to the Ninth Report of the Standing Committee on Public Accounts
The government welcomes the Committee's recommendations and appreciates the
effort and detail in the analysis of policies, procedures and outcomes related
to the issues raised by the Auditor General's November 2003 report.
The Commission of Inquiry into the Sponsorship Program and Advertising
Activities, led by Mr. Justice John Gomery, is currently examining many of the
same issues covered in the Committee's report. The government has asked
the Commission of Inquiry "to investigate and report on questions raised,
directly or indirectly, by Chapters 3 and 4 of the November 2003 Report of
the Auditor General of Canada to the House of Commons with regard to the
sponsorship program and advertising activities of the Government of Canada"
and "to submit, on an urgent basis, one or more reports, interim or final, of
his factual findings."
Therefore, responses to the Committee's recommendations may need to be
adjusted in light of the factual findings of the Commission or in light of the
government's response to recommendations made by Justice Gomery. In
addition, the government's response to the Committee's recommendations
should not be read as an acceptance or rejection of the factual findings of the
Committee nor of its conclusions as to the cause of the issues that arose with
sponsorship, advertising activities and public opinion research. Even
though the government does not agree with the Committee's observations that
lead to some recommendations (3, 11, 13, 14, 15, 16, 19, 20, 21 and 29), the
government has generally agreed with the objectives of these recommendations and
agrees their implementation would strengthen management practices in these
areas.
RECOMMENDATION 1
That the Government provide the Committee with an action plan that
includes target implementation and completion dates for the components of the
Auditor General's recommendation.
The government will put in place a deliberate and transparent action plan to
address the observations raised by the Auditor General and to provide the
Committee with a solid basis upon which it can hold the government to account
for progress on the action plan, but will do so following the tabling of Justice
Gomery's final report in December 2005. This will allow the government to take
into account all information from the Auditor General, the Standing Committee on
Public Accounts and Justice Gomery in the preparation of a complete and
definitive government response to address the issues raised in the areas of
sponsorship, advertising and public opinion research.
In the meantime, the government is implementing an ambitious management
agenda to strengthen governance, accountability and stewardship of public
funds. The government's management agenda, articulated in the Budget
2005 booklet Strengthening and Modernizing Public Sector Management and
the 2005-06 Report on Plans and Priorities for the Treasury Board
Secretariat, has been greatly influenced by the Auditor General's observations
and the Committee's proceedings. Further details on initiatives underway
as part of the management agenda are provided in response to recommendation 2.
RECOMMENDATION 2
That the Government provide an annual report to the House of Commons on
progress being made in implementing the action plan until it is completed.
The government will report to Parliament on progress made in the
implementation of the comprehensive action plan described in response to
recommendation 1, which will be announced following the tabling of Justice
Gomery's final report.
In the meantime, the government is able to report significant progress on a
number of initiatives to strengthen governance, accountability and stewardship
of public funds. The government's integrated management agenda and other
initiatives have been detailed in documents such as:
The government will continue to implement the measures already
announced. These measures may be adjusted to take into account the
recommendations of the Commission of Inquiry and the views of the Standing
Committee on Public Accounts.
The Auditor General's November 2003 report drew the attention of Parliament
and the public to the issue of accountability in its investigation of
sponsorship, advertising and public opinion research activities. In its
response at that time, the government outlined the comprehensive set of measures
that had already been taken, dating back to 2002. This included the
cancellation of the Sponsorship Program in December 2003. A number of
other measures were taken beginning in February 2004 to further address the
concerns, including:
- the creation of an independent Commission of Public Inquiry, led by
Justice John Gomery, to examine past behaviour in the sponsorship program
and advertising activities and formulate recommendations to prevent
mismanagement in the future;
- the appointment of a Special Counsel for financial recovery, with a
mandate to pursue all possible avenues to recover funds that were improperly
received by certain parties involved in the delivery of the sponsorship
program;
- a competency-based, professional and transparent process for the
appointment of chief executive officers, directors and chairpersons of Crown
corporations, which now includes parliamentary review of appointments;
- tabling of the Public Servants Disclosure Protection Act on March
22, 2004 (and then re-tabling in the new parliamentary session on October 8,
2004 with significant revisions) to establish a mechanism for the disclosure
of wrongdoing in the public sector and to protect public servants who make
disclosures;
- changes to strengthen the management of government advertising, including
the selection of a new Agency of Record, development of new procurement
tools and open, fully-competitive and transparent selection processes;
- the launching of a review to strengthen the rules governing compliance
under the Financial Administration Act, including the prevention of
mismanagement and sanctions for non-compliance with policies;
- the launching of a review of the responsibilities and accountabilities of
ministers and senior officials; and
- a review to improve oversight and management of Crown corporations through
better governance and accountability regimes, which was tabled by the
President of the Treasury Board in Parliament on February 17, 2005.
The government announced measures to strengthen governance and
accountability in Crown corporations by:
- clarifying the relationship between Ministers and Crown corporations;
- clarifying the accountability regimes of Crowns corporations;
- making the appointment process more transparent;
- bringing the governance of Crown corporations in line with relevant
best practices in the private sector;
- strengthening the audit regimes in some Crown corporations; and
- making the activities and operations of Crown corporations more
transparent.
Beyond these measures that were linked to the sponsorship program and
advertising activities, strengthening accountability has been a priority of the
government since it took office in December 2003. It has initiated or put
it place a range of measures that improve the accountability regime within
government on matters of finance and administration.
Management expectations have been clarified and the capacity to meet them is
being enhanced:
- in December 2003, the government committed to develop and strengthen the Management
Accountability Framework to assess management capacity across government
and promote improvements. It will be used to assess the performance of
deputy ministers and ultimately to report to Treasury Board on the
stewardship of resources by departments, and these reports will be published
on departmental Web sites; and
- the suite of Treasury Board management policies are being consolidated and
streamlined to provide greater policy clarity, improve reporting
requirements and focus on areas of risk.
There have been improvements in transparency and reporting to Parliament:
- a new format for the Estimates has been introduced in November 2004
that improves the consistency of information and includes more horizontal
and summary information to aid parliamentarians;
- there is mandatory quarterly "proactive" disclosure on departmental
and Treasury Board Secretariat's Web sites of the following information:
- travel and hospitality expenses of ministers, parliamentary
secretaries, political staff and senior public servants as of April
2004;
- the government's own goods and services contracts over $10,000 in
value as of November 2004; and
- re-classifications of public service positions as of November 2004.
- in March 2004, the government committed to produce an annual and
comprehensive report to Parliament on the public service and its management.
Significant measures have been taken to enhance financial management:
- in December 2003 the government re-established the Office of the
Comptroller General of Canada to oversee all government spending. A
new Comptroller General was appointed in May 2004 and professionally
accredited comptrollers will be appointed in government departments.
Professional certification standards for departmental comptrollers are being
developed; and
- investments have been made in an expenditure management information system
at the Treasury Board Secretariat to provide real-time, government-wide
financial and human resource information to track spending in all
departments and to provide tools for effective scrutiny and decision-making.
Chapter 1 of the Auditor General's November 2004 report focused on internal
audit and the government responded with an action plan to strengthen the
internal audit function government-wide. Improvements to the internal
audit function are underway and any further changes will be included as part of
the broader action plan described in response to recommendation 1.
Specifically, greater attention is being paid to auditing departments and
agencies and the capacity to do so is being increased:
- the special examinations of Crown corporations by the Auditor General will
be tabled in Parliament and posted on the Crown corporations' Web sites;
- in March 2004 the government committed to auditing all annual financial
statements of departments and agencies by 2009;
- the internal audit function within government is being re-organized and
strengthened to ensure comprehensive audits programs, based on sound risk
analysis of departmental activities. An assessment of the audit capacity
across government is underway; and
- in November 2004, the government announced that the Office of the
Comptroller General would provide internal audit services to small
departments and agencies that have limited internal audit capacity.
Human resources modernization will also strengthen accountability within the
Public Service:
- the Public Service Human Resources Management Agency of Canada was created
in December 2003 as a key step towards strengthening and modernizing public
management. Among its priorities is the encouragement and training of
highly skilled leaders of the Public Service who are guided by the highest
standards of ethics and accountability and who are evaluated against these
standards;
- a new results-based approach is being taken to account for human resources
management, including the development of the "people" component of the Management
Accountability Framework;
- the Public Service Modernization Act requires the government to
produce an annual report to Parliament, currently under development, on the
state of human resource management within the public service; and
- the Canada School of Public Service was created in April 2004 to provide
leadership and training for members of the Public Service and Crown
corporation boards of directors.
Initiatives in each of these areas are progressing on individual timelines
and have been committed to in the Reports on Plans and Priorities for the
Treasury Board portfolio and other government departments over the past few
years. Progress against these initiatives will be reported on annually, to
Parliament, in the Departmental Performance Reports for these
organizations.
RECOMMENDATION 3
That financial services units in departments and agencies review
supporting documentation, as per recommendation 19 below, to ensure that it is
correct before issuing payments for contracts.
RECOMMENDATION 4
That financial services units in departments and agencies challenge
requests for contract payment on both a random and a risk basis.
RECOMMENDATION 20
That TBS amend the appropriate policies by the inclusion of a prohibition
against issuing payments of grants or contributions, or for contracts in the
absence of required documentation.
Recommendations 3, 4 and 20 are all concerned with processes and procedures
in departmental financial services units for reviewing, challenging and issuing
payments for contracts and/or grants and contributions. An integrated
response to these three recommendations follows.
The government concurs with these recommendations, but notes that most of
what is stated is already included in existing policies.
The Committee acknowledged that government rules, regulations, and procedures
surrounding contracting and financial management are for the most part sound.
Departments and agencies must have in place departmental policies and
procedures that respect the government's financial management control
framework as set out in:
The Treasury Board's Policy on Account Verification and the Policy
on Payment Requisitioning and Payment on Due Date define the government's
requirements for compliance with the FAA. These policies specifically prescribe
that the account verification process, including requirements that must be met
before financial services (departmental payment officers) can approve issuing
payments. For instance, the Policy on Account Verification stipulates
that an enhanced level of review and challenge is required by departmental
payment officers for all high-risk transactions. The policies also state
that the responsibility for the systems of account verification and related
financial controls rests ultimately with those departmental payment officers who
are delegated payment authority pursuant to section 33 of the FAA. Among other
things, these payment officers must ensure that payments have been approved by
authorized managers and that these managers have an appropriate verification
process that is conscientiously followed, which would include reviewing and
verifying appropriate documentation. As well, under section 33 of the FAA, the
departmental payment officers must certify that the proposed payment is lawful,
and that there are sufficient funds available to make the payment.
The Treasury Board's Policy on Payment Requisitioning and Payment on Due
Date requires that departmental payment officers have adequate assurance
that the Section 34 certification has been provided. This policy
requirement thus provides the payment officer in the departmental financial
services unit with the authority to challenge any requests for payments before
providing their section 33 certification.
The requirements of the Treasury Board Policy on Account Verification
and the Policy on Payment Requisitioning and Payment on Due Date and
sections 33 and 34 of the FAA apply to all payments made by departments
including all payments for contracting, grants and contributions, communications
and advertising.
The financial management control framework described above requires the
application of a sound system of internal controls that demands appropriate
documentation be in place before payments may be made. When properly
implemented, used, and managed, this system of internal controls has the effect
of prohibiting the issue of payments when the required documents are absent.
Accordingly, the above illustrates that the recommended enhancements to the
financial management control framework are already in place and are consistent
with the Committee's recommendations. This being said, the government
recognizes that ongoing training and oversight need to be enhanced to ensure
that the financial management control framework is applied consistently and
effectively.
RECOMMENDATION 5
That all programs and activities involving contracts, grants and
contributions, and transfers to other departments or agencies be subject to a
regular schedule of internal audits.
The government agrees in principle with this recommendation. The deputy
head of each department is accountable to the Minister for ensuring, with the
support of his or her management team, that the appropriate control environment
is created and monitoring mechanisms are applied (including audits of recipients
undertaken by operations) to contracts, grants, contributions and transfers to
other departments.[1]
Nearly all major programs, however, involve elements of contracting or grants
and contributions, and audit resources have to be directed to the areas of most
risk.
The Policy on Transfer
Payments, which covers grants, contributions and other
transfer payments, requires that recipients of contributions be subject to audit
to ensure that all conditions, both financial and non-financial, have been
met. The right of departments and agencies to undertake an audit of
recipients must be clearly established in the contribution agreement. This
policy also states that verification of the continuing eligibility, entitlement
and qualification of a grant recipient is to be performed, normally before the
grant payment is made. Audit provisions can be included in the funding
agreements related to other transfer payments. These would be designed
keeping in mind the risks being managed and the program objectives being sought.
Also, the policy requires that a risk-based framework for audit of recipients
of contributions, an audit plan and a program evaluation plan of the transfer
payment program, including expected funds to be budgeted for costs related to
these requirements, be included in the Treasury Board submissions for program
approval of terms and conditions.
In the case of the Contracting Policy, it requires that departments
and agencies ensure that they have adequate control frameworks for due diligence
and effective stewardship of public funds in place for their contracting
activities. To assist departments in this regard, the Treasury Board
Secretariat has published a monitoring and audit guide, entitled Guide for
Managers and Internal Auditors - Monitoring Procurement and Contracting.
It provides guidance to assist departments and agencies in addressing questions
such as establishing appropriate schedules, timing, scope and risk-based
approaches to planning and performing internal audits and ensuring appropriate
follow through in addressing internal audit findings.
The government agrees that regular monitoring and audit of contracts is
required. The Committee states on page 63 of the report that "…the
rules and regulations that govern contracting are unambiguous and appropriate."
It is the responsibility of the deputy head and his or her management team in
each department and agency to ensure that a sufficient control environment
exists and that contracting rules are implemented with all due diligence.
The Treasury Board Secretariat will monitor, among other matters, that
departmental and agency internal audit groups are assessing management's
control environment for contracts, grants, contributions and other transfers, to
become aware, as early as possible, of control deficiencies or compliance
issues. The Secretariat currently monitors Risk-Based Audit Frameworks
prepared by departments for the audit of contributions.
RECOMMENDATION 6
That internal audit be placed under centralized authority located within
TBS.
It is the government's position that the internal audit function is a core
responsibility of deputy heads, for which they are accountable to their
Minister. The transfer of responsibility for this function to a
centralized authority would undermine the accountability of deputy heads and
ultimately ministers for managing their departments in line with legislation,
regulations and policy. Therefore, the government does not concur with this
recommendation.
The government acknowledges the need to ensure that internal audit is
sufficiently independent of line operations. Steps currently under way to
strengthen the Policy on Internal Audit will address the rationale,
amongst other things, for objective audit committees.
The Treasury Board Secretariat intends to conduct practice reviews and direct
horizontal or sectoral internal audits on fundamental controls as well as on
issues of high risk. In addition, the Secretariat has committed to conduct
internal audits for small departments and agencies where there are capacity
issues.
RECOMMENDATION 7
That overall authority for the internal audit function in government be
assigned to the Comptroller General of Canada.
RECOMMENDATION 8
That the government continue to restore the internal audit function and
report to Parliament on the status of the internal audit function on an annual
basis, addressing such issues as the levels of human, financial, and
technological resources being devoted to the function.
Recommendations 7 and 8 are similarly concerned with overall authority for
the internal audit function, strengthening of the function within government and
responsibility for building internal audit capacity. An integrated
response to these two recommendations is provided below.
The government has committed to increasing the capacity of the internal audit
function across government and within the Office of the Comptroller General. The
Policy on Internal Audit, once revised, will place a clear responsibility
on the Comptroller General for government-wide functional leadership of internal
audit, to build capacity, and to ensure professionalism, rigour and common
standards in the delivery of internal audit services. It will also address
the issue of reporting on
the overall state of risk management, control and governance processes across
government, and the status and performance of internal audit
government-wide.
RECOMMENDATION 9
That there be mandatory follow-ups of internal audits within one year of
an initial audit with the results posted on the TBS Web site.
RECOMMENDATION 10
That all decisions to reject recommendations stemming from internal audits
be documented, reported to TBS, and posted on the TBS Web site.
Recommendations 9 and 10 are similarly concerned with follow-up,
documentation and posting of internal audit results on government Web
sites. An integrated response to these two recommendations follows.
The government agrees in principle with the recommendations to have mandatory
follow-up of internal audits and decisions to reject internal audit
recommendations posted on departmental Web sites. Posting this information
on departmental Web sites will reinforce their responsibility for following up
on audits. There will be a link to departmental sites on the Treasury
Board Secretariat Web site to provide single-window access to this information
and facilitate comparisons by departments.
The government notes that the Auditor General has indicated that a three-year
time frame for audit follow-ups is not unreasonable except in cases of health
and safety where action should be immediate. Three years may be the
outside limit for follow-up but at the same time one year (given an active audit
program and perhaps the complexity of the remedial actions necessary) may be too
soon to effectively measure the effects of changes made. A certain amount
of judgment needs to be applied in determining follow-up schedules within the
one to three year time span.
In the revised Policy on Internal Audit, the intention is to establish
practice inspections to ascertain whether internal audit groups have adhered to
the standards of internal auditing, including the adequacy, timeliness and
implementation of follow-up procedures, and the proposed audit committees would
closely monitor the adequacy and implementation of management action
plans. There is also the intention to require that the rejection of
recommendations from internal audits be reported to the Treasury Board
Secretariat and posted on departmental and the Secretariat's Web sites.
However, management is accountable for reporting on the performance of their
organizations including the results they achieve, as well as the actions they
take to address identified deficiencies.
RECOMMENDATION 11
That all new branches within departments and agencies be subject to
internal review one year following their establishment and a follow-up internal
audit be conducted within six months.
The government agrees with undertaking audits of new organizations. The
government cautions however, that new organizational initiatives can vary widely
as to their circumstances. Therefore the government sees a necessity to exercise
some judgment around the specific time frames set out in the recommendation.
RECOMMENDATION 12
That the Comptroller General of Canada be authorized to sign off on all
internal re-organizations or creation of new departments or agencies to ensure
that the corporate and internal audit systems remain intact, functioning,
adequate, and capable.
The government position is that such a change is unnecessary and
inappropriate. Deputy heads are responsible and accountable to their
Minister for managing their departments in line with legislation, regulations
and policy; this includes responsibility for ensuring that corporate and
internal audit systems are in place and functional following major
re-organizations or the creation of new entities.
The Treasury Board Policy on Responsibilities and Organization for
Comptrollership requires that departments exercise sound comptrollership and
that deputy heads designate senior financial officers (SFO) who must have direct
reporting relationships to the deputy head. The government intends to
amend the current policy to provide greater clarity for the roles and
responsibilities of the deputy head, the SFO and the Chief Audit
Executive. The deputy head would have overall responsibility and
accountability to ensure an appropriate system of internal controls is in place
and effective, to set the "tone at the top" and to facilitate and support
the work of the SFO in this regard. In turn, the SFO would be responsible
to devise and implement financial management organizations and controls within
departments and agencies that ensure an effective system of internal
controls. The Chief Audit Executive of the department would be responsible
to provide independent assurance to the deputy head and the Audit Committee that
the system of internal controls implemented by the SFO is effective.
Currently, departments include SFOs when developing and implementing new
programs or major projects, or when making changes to existing programs that
will have or are likely to have material financial implications. This
involvement provides some assurance that departments assess financial risks,
respect financial authorities, and implement efficient and effective financial
controls before programs are put into operation. The government intends to
amend the Policy on Responsibilities and Organization for Comptrollership
to strengthen the role and authority of the SFO in this regard. The policy
would define the management assertions and the expectations of due diligence
associated with the "sign-off" protocol.
The Comptroller General is charged with providing leadership to ensure that
departments comply with Treasury Board policies aimed at financial
management. To achieve these goals the government intends to amend the Policy
on Responsibilities and Organization for Comptrollership to strengthen the
role and responsibilities of the Comptroller General in the nomination,
assessment and removal of SFOs.
Deputy heads and SFOs currently sign-off representations on their systems of
financial management and internal control relating to their annual Public
Accounts information and financial statements and SFOs always sign off on human
resources Treasury Board Submissions. The Comptroller General will conduct
consultations to assess the appropriateness of an improved certification
protocol, modeled in part on the protocol recently adopted by the Canadian
Security Administrators.
In addition to being unnecessary, the proposed change would be inappropriate,
as it would effectively give the Comptroller General authority over the exercise
of the Prime Minister's power and responsibility for organizing the machinery
of government.
RECOMMENDATION 13
That internal audit units monitor adherence to contracting rules and
regulations and report non-compliance to TBS.
The government agrees with this recommendation, but for greater clarity notes
the distinction between auditing the compliance of contracting practices to
rules and regulations versus contract management activities designed to ensure
contract performance. The government's position is that contract
management activities should remain the responsibility of the contract
management function. By contrast, internal audit should retain
responsibility for compliance auditing of contracting practices, and further,
should be responsible for including, as part of a department's audit universe,
the control frameworks invoked by the contract management function over contract
performance.
In this regard, the Treasury Board Secretariat will advocate, by way of
directed or horizontal audits, risk assessment and ultimately practice review,
that internal audit groups include in their annual audit plans compliance audits
of contracting practices to ensure that contracting rules and regulations are
respected. These audit activities could be on an entity or horizontal basis
across government.
The government notes, however, that it is the responsibility of the deputy
head, for which the deputy head is accountable to the Minister, to ensure, with
the support of his or her management team that the appropriate control
environment is created and monitoring mechanisms are applied to contracting
activities. Internal audit activity does not relieve the deputy head and
management team of this
responsibility.
RECOMMENDATION 14
That administrative penalties up to and including dismissal from the
Public Service of Canada be established to discourage non-compliance with
contracting rules and regulations.
Both before and after the coming into force of the Public Service
Modernization Act, there has been a comprehensive administrative framework
in the Public Service of Canada that governs discipline, up to and including
termination of employment (dismissal). This framework allows management to
deal with all situations of misconduct, which includes situations of
non-compliance with contracting rules and illegal activities.
Prior to the coming into force of the Public Service Modernization Act,
paragraph 12(1)(c) of the Financial Administration Act authorized every
deputy head to establish standards of discipline and set penalties, including
termination of employment, suspension and demotion. Generally,
disciplinary sanctions should be progressively more severe for repeated
incidents of misconduct. However, termination of employment may be
considered from the outset in cases of very serious misconduct.
Allegations of misconduct are investigated and employees are provided an
opportunity to explain their actions. Management must be able to
demonstrate cause for any disciplinary decision it takes and employees have the
right to grieve the action, if they believe it to be unwarranted. While
the Minister does not intervene in the discipline of public servants, the deputy
head is accountable to the Minister for the proper discharge of his or her
responsibilities.
With the coming into force of the Public Service Modernization Act,
responsibility and accountability to apply disciplinary measures is vested
directly with deputy heads (this authority previously rested with the Treasury
Board but was delegated to deputy heads). The Treasury Board Secretariat
provides advice and support to departments and agencies in dealing with
disciplinary situations. It has also issued Guidelines for
Discipline, which
provide a detailed description of the disciplinary process and the disciplinary
measures that can be used when misconduct occurs. These guidelines assist
deputy heads, who are ultimately accountable, in applying a fair, consistent and
coherent approach to discipline across the public service.
The administrative framework reflects the well-accepted labour relations
principle that discipline is to be corrective, rather than punitive. Its
purpose is to motivate employees to accept those rules and standards of conduct,
including those that are contained in the Values and Ethics Code for the
Public Service, that are desirable or necessary to achieve the goals and
objectives of the organization. However, in advance of corrective
measures, proactive preventative measures can be invoked to motivate desired
behaviours. For example, Public Works and Government Services Canada's
Ethics Program, which began in 1999, provides the focus, framework and processes
needed to guide, assess and continuously improve the ethical conduct of
departmental managers and employees.
RECOMMENDATION 15
That when public service employees working in procurement are subject to
annual evaluations, or are being considered for performance bonuses or
promotion, adherence with contracting rules and regulations be taken into
account.
Good management of human and financial resources is a fundamental principle
of the Performance Management Program for Executives. Executives'
performance is reviewed at least annually against agreed-to commitments and
expectations for the delivery of results. The performance review
determines whether performance has met expectations and determines executive
compensation. The Performance Management Program for Executives is
part of a range of approaches and tools to assist supervisors in managing
performance including training, coaching, career counselling, withholding
performance pay, and documenting poor performance on an employee's file.
These are relevant to all areas of work, including the area of procurement, and
they already include adherence to rules and regulations as an indication of
performance. Should the performance of an employee be considered
unsatisfactory, the Treasury Board Guidelines for
Demotion/Termination of
Employment for Unsatisfactory Performance describe management obligations
and procedures to ensure due process is followed. If, at the end of the
process, management concludes that performance is unsatisfactory, demotion or
termination is considered.
RECOMMENDATION 16
That TBS report to Parliament on a regular, timely basis on departmental
contracting activity. Reports should include references to instances of
non-compliance and corrective measures/sanctions.
Reporting on departmental contracting activity has been expanded since the
publication of the Auditor General's report on the Sponsorship Program,
Advertising Activities and Management of Public Opinion Research, through key
Budget 2004 measures, most notably, the public quarterly disclosure departmental
and TBS Web sites of procurement contracts worth more than $10,000.
The Treasury Board Secretariat monitors the control environment of
departments and agencies to become aware, as early as possible, of control
deficiencies or compliance issues; intervenes as appropriate; and continues to
monitor whether further action is needed to respond to identified deficiencies.
Departments and agencies are accountable for reporting to Parliament on the
performance of their organizations, including the identification of significant
compliance issues and actions taken to address identified deficiencies. This
information is made available to Parliamentarians and the public through public
posting of internal audit reports, associated action plans, evaluations and
other management reviews. For major departments and agencies, contracting is
also addressed in Departmental Performance Reports, which are tabled in
Parliament, as identified in the Guidance for Departmental Performance
Reports published by the Secretariat.
RECOMMENDATION 17
That TBS actively challenge departments on their contracting activities
with an emphasis on areas of highest risk.
The government agrees with this recommendation and already actively
challenges the management of contracting where appropriate and monitors it more
generally through the Management Accountability Framework
(MAF). The MAF
provides an effective basis of engagement with departments and agencies within
an explicit and coherent model for high organizational performance.
Informed by this framework, the Treasury Board Secretariat's oversight
approach reflects a balance between ensuring the department is playing its role
to provide an adequate management control framework to manage the risks
associated with their activities and providing selective oversight and
monitoring of departmental activity based on an assessment of risk and capacity.
Treasury Board Secretariat decisions to strengthen oversight activities in
contracting or to intervene are based on an informed judgement, taking into
consideration the issues associated with a particular situation, the nature of
the risks and the actions of the department in taking early and effective
remedial action.
RECOMMENDATION 18
That TBS amend its contracting policies to require that the awarding and
management of contracts are conducted as separate activities by separate units
within departments, enforce these policies and monitor their application to
ensure that they are rigorously adhered to.
Existing Treasury Board policies already address this issue. Deputy
heads are responsible and accountable to their Minister for managing their
departments in accordance with legislation, regulations and policy. Decisions
about organizational structure are guided by policies, notably the Treasury
Board Policy on Delegation of Authorities, which already highlights the
importance of segregation of duties as an internal management control.
In accordance with this policy, departments and agencies must establish
policies and procedures that will ensure an adequate level of control over
delegated authorities and that persons with delegated authorities are well
informed of their responsibilities in this regard. In assigning
responsibility to individuals involved in the expenditure process, the Policy
on Delegation of Authorities addresses the Committee's concern by
directing that deputy heads maintain an appropriate segregation of duties in
terms of program, contracting and financial responsibilities, thereby ensuring
that appropriate controls are applied in spending public money.
Departments and agencies are expected to conduct internal audits of their
compliance with this policy and these audits would be examined in the conduct of
the Treasury Board Secretariat's oversight and monitoring of departmental
performance.
Therefore, amendments to the Contracting Policy are not necessary to
meet the objective of this recommendation.
RECOMMENDATION 19
That departments provide clear statements of required documentation on
files involving contracting, grants and contributions, and communications and
advertising activities, to satisfy accountability, internal audit, performance
reporting, and payment requirements.
The government is committed to strengthening management performance and
measures have already been taken to improve practices in the areas of
contracting, grants and contributions, and communications and advertising
activities.
The Contracting Policy requires that procurement files be established
and structured to facilitate management oversight and demonstrate that the
procurement process is carried out in accordance with trade agreement
obligations (in some areas of procurement, files must be documented to support
international trade tribunal challenges). This requires a complete audit
trail that contains contracting details related to relevant communications and
decisions including the identification of involved officials and contracting
approval authorities.
The Treasury Board Secretariat will compile best practices to assist
departments and agencies in establishing standards to ensure complete contract
file documentation in accordance with obligations identified under the Contracting
Policy.
The Treasury Board Policy on Account Verification requires that
departments establish internal policies to ensure the availability of
appropriate documentation required to support the verification and certification
of all types of payment, including contracts, grants and contributions,
communications and advertising activities. Such documentation includes for
example, contracts, leases, purchase orders, requisitions, and program terms and
conditions. The documentation must be sufficient to ensure a proper audit
trail that, among other things, provides evidence of verification including
identifying the various individuals who have performed a review.
Departmental policies strengthen accountability, internal audit, performance
reporting and payment requirements. This being said, the government
recognizes that ongoing training and oversight need to be enhanced to ensure
that legislation, regulations, Treasury Board and departmental policies are
applied consistently and effectively.
Measures instituted under the Communications Policy of the Government of
Canada, which was amended in November 2004, meet the Committee's objective
of ensuring proper documentation of communications and advertising activities.
The Communications Policy requires departments to maintain complete
internal records and to document all advertising activities on the government's
central advertising information database, AdMIS (Advertising Management
Information System) managed by Public Works and Government Services Canada.
Policy requirement 23, "Advertising," sets out the new requirements for
the management of government advertising. It requires departments and
agencies to document all information pertaining to their advertising activities
on AdMIS, including plans, estimates, budgets, expenditures, contracts, and
amendments to contracts.
The policy's Procedures for Planning, Contracting and Evaluating
Advertising outline the steps to be followed to ensure complete
documentation of all activities related to advertising projects through six
different stages: 1) planning and approval; 2) contracting for advertising
services; 3) advertising production; 4) pre-testing; 5) media placement; and 6)
post-campaign evaluation and reporting.
RECOMMENDATION 21
That Parliament's ability to hold Crown corporations to account be
enhanced.
Overall governance, including the accountabilities of Crown corporations, has
recently been strengthened through the February 17, 2005 tabling of 31 specific
measures as outlined in the "Review of the Governance Framework for Canada's
Crown Corporations." The government's measures include:
- working closely with parliamentary committees to facilitate the prior
review of CEO and chairperson appointments;
- ensuring that the Main Estimates clearly identifies the funds allocated to
each Crown corporation that receives parliamentary appropriations; and
- assigning responsibility to the Auditor General to determine the frequency
under which Crown corporations will be subject to the special examinations
of the financial management control, information systems and management
practices in the corporations and requiring that each special examination
report be submitted to Parliament.
It should be noted that the Financial Administration Act already
requires that Crown corporations provide Parliament with a number of reports
annually, most of which are referred to an appropriate Standing Committee of the
House of Commons. Some Standing Committees have, following the tabling of a
report, invited the Minister responsible for the Crown corporation to appear
before them, and be held to account for the overall functioning of the Crown
corporation. Committees also have the authority to invite Chairpersons and CEOs
of Crown corporations to appear before them to explain the activities of their
organizations. Such reports include:
Through the tabling and review of these reports, Parliament has the
opportunity to exercise existing powers to hold ministers to account for the
overall functioning of Crown corporations.
RECOMMENDATION 22
That Parliament's involvement in the selection and appointment of heads
of Crown corporations be enhanced.
The government announced a number of changes to the appointments process in
the Review of the Governance Framework for Canada's Crown Corporations tabled
in Parliament on February 17, 2005.
While selection and appointment remain executive functions, an increased role
for Parliament has been introduced with the prior review of all
Governor-in-Council appointments to key positions. For Crown corporations,
this includes the ability of standing committees to review proposed appointments
to CEO positions, prior to the appointments being made.
RECOMMENDATION 23
That the Auditor General of Canada Act be amended to give the
Auditor General the authority to conduct performance audits of all Crown
corporations and to report the results directly to Parliament, and that the
Office of the Auditor General be given the resources necessary to do so.
RECOMMENDATION 24
That the Auditor General of Canada Act be amended through the
inclusion of a clause giving the Auditor General the authority to conduct an
audit of the records, files, documents and accounts of any individual,
establishment, institution or enterprise in relation to the receipt and/or use
of any grant, contribution, or transfer under an agreement made to it by the
Government of Canada.
Recommendations 23 and 24 are similarly concerned with the scope of Auditor
General activities and the necessary amendments to the Auditor General Act.
An integrated response to these two recommendations follows.
The government has proposed amendments to the Financial Administration Act
in the Budget Implementation Bill 2005, in order to allow for the
appointment of the Auditor General of Canada as the auditor or joint auditor and
to perform special examinations (a type of value-for-money or performance audit)
of almost all Crown corporations. The two exceptions are the Bank of
Canada and the Canada Pension Plan Investment Board, the inclusion of which
would require further review and consultation given their unique roles and
governance structures. With respect to providing the special examination
to Parliament, the Auditor General currently has the discretion to do so.
However, the government has committed to implementing a new special examination
regime that would require that each special examination report prepared by the
Auditor General be submitted to Parliament (this was committed to in the "Review
of the Governance Framework for Canada's Crown Corporations", tabled in
Parliament on February 17, 2005).
The government has also proposed to expand the mandate of the Auditor General
in the Budget Implementation Bill 2005 by amending the Auditor General
Act. This expanded mandate would permit the Auditor General to inquire
into the use of federal funds by not-for-profit corporations or any corporations
without share capital that have, in any five consecutive fiscal years, received
a total of $100 million or more under one or more funding agreements.
Several funding agreements recently signed under the Policy on Transfer
Payments relating to funding announcements made in Budget 2005 include
provisions for compliance and performance audits to be carried out by the
Auditor General or the government. Going forward, the government will work
closely with the Auditor General to ensure any new or amended agreements fully
address her audit requirements.
The proposed legislative amendments were developed in close consultation with
the Auditor General to ensure her objectives were being met. The cost that the
Auditor General incurs in carrying out performance audits is provided for in the
Auditor General's budget. As new and additional Crown corporations
become subject to performance audits by the Auditor General, the budget of the
Auditor General will be reviewed.
RECOMMENDATION 25
That departments and agencies be required to include sections in their
performance reports that specifically address contracting activities, grants,
and contributions, and transfers to other departments or agencies. The
goals and objectives of these activities, performance indicators, and results
must be clearly stated.
The Treasury Board Secretariat provides reporting guidance to departments and
agencies on Reports on Plans and Priorities and Departmental
Performance Reports, so that Parliament receives a coherent, balanced and
effective picture of departmental priorities, expected results and
performance. The Secretariat's guidelines require departments and
agencies to explain how their expected results will be achieved, as well as the
means used to achieve them. These organizations are also to provide enough
information to demonstrate how resources and activities, as well as programs and
services, logically support the achievements of their results. In
particular, specific templates are already provided in the guidelines to ensure
that departments and agencies meet policy and statutory reporting requirements
applying to them, including for procurement and contracting, transfer payments,
grants and contributions. The templates require clear statement of
objectives, expected results, results achieved, as well as of efficiency and
effectiveness for procurement practices.
RECOMMENDATION 26
That TBS develop a more effective monitoring and compliance regime, to
ensure that departments and agencies reflect existing guidelines in their
performance reports.
Reports on Plans and Priorities and Departmental Performance
Reports are primary instruments of accountability to Parliament. They
are planning and performance documents written by each department reflecting the
responsibility of ministers and their organizations to explain to Parliament
their plans and expected results and to account for the performance achieved
with the resources entrusted to their organization.
The Treasury Board Secretariat supports departments and agencies in
fulfilling their reporting responsibilities. In particular, the
Secretariat's guidelines require deputy heads to sign a "Management
Representation Statement" to reinforce their organizations' commitment to
present consistent, comprehensive, balanced and accurate information to
Parliament by adhering to the Treasury Board Secretariat reporting principles
and requirements.
The Secretariat will continue working with departments and agencies to
further their understanding of the reporting principles and to improve the
quality of performance reports. The effectiveness of the government
monitoring and compliance regime is currently under review. Further to the
recommendations of this review, Treasury Board Secretariat will revisit its
guidance on performance reporting. These initiatives will help to ensure
that departments and agencies reflect existing guidelines in their performance
reports.
RECOMMENDATION 27
That all programs involving payment to individuals or entities outside
government that do not result in the direct receipt, by government, of goods or
services in return be framed as contributions under the TB's Policy on
Transfer Payments.
The government does not agree that all transfer payments should be framed as
contributions. Choosing between a grant, a contribution or other transfer
payment is a critical factor in meeting the objectives and expectations of all
stakeholders, and depends upon the intended recipients, the cost effectiveness,
the risks and the degree of control desired to achieve the objectives and
mitigate the risks. On a continuum, as risk or the desire for control
increases, the more likely it is that a contribution will be the appropriate
instrument.
Contributions are a type of transfer payment made to reimburse eligible
expenditures incurred through an agreement. They must be accounted for and
can be audited. Grants are generally not accounted for or audited but the
recipient may need to meet pre-conditions to be eligible and this entitlement
may be verified. Other transfer payments are based on legislation or
arrangements and the amount of the expenditure is normally based on a formula or
schedule. Examples of other transfer payments are transfers to other level
of government such as equalization payments, Canada Health and Social Transfer
payments, and gas tax transfers to cities.
The terms and conditions of transfer payment programs are approved by the
Treasury Board and are designed with appropriate audit and evaluation
regimes. All transfer payments are subject to public scrutiny and must be
managed in a manner that is open and transparent to the public, and with due
regard to economy, efficiency and effectiveness. Basic principles of
parliamentary control, authority and accountability establish the boundaries
within which decisions are made on the use and management of all transfer
payments.
RECOMMENDATION 28
That section 41(2) – 41(3) of the Public Service Employment Act
be repealed immediately.
Section 41(2) of the Public Service Employment Act (PSEA) indicates
that ministerial priorities apply to people employed in the office of a
minister, the Leader of the Opposition in the Senate or the leader of the
Opposition in the House of Commons under certain conditions. The person
must have been a public servant immediately before joining that office or must
have been found qualified for an appointment through an advertised external
process while employed in the office of a minister or Leader of the Opposition.
Section 41(3) of the PSEA provides for the appointment of senior Ministerial
staff who have been employed as the executive assistant, special assistant or
private secretary in the office of a minister, the Leader of the Opposition in
the Senate or the Leader of the Opposition in the House of Commons for at least
three years. Appointment would be at least to the equivalent of an executive
assistant to a deputy head.
In both cases, eligibility lasts for one year from the date the person ceases
to be employed in one of the offices mentioned above.
This issue was considered during debate of the Public Service
Modernization Act and a decision was made by the government to maintain the
priority. This recommendation would require legislative amendment and will
be reconsidered when the legislation is reviewed after 5 years.
RECOMMENDATION 29
That TBS examine the procedures that are in place for reviewing and
approving candidacies for all EX-level appointments and promotions to ensure
that past performance is taken into account.
Issues raised in this recommendation are under the jurisdiction of the
Public Service Commission (PSC). The PSC is an independent agency
reporting to Parliament and has provided the following response in order to
provide a more comprehensive document.
Under the current Public Service Employment Act, the Public Service
Commission (PSC) is responsible for appointing qualified persons to and within
the federal Public Service at the EX-1 to EX-5 levels. Although The
Leadership Network of the Public Service Human Resources Management Agency of
Canada conducts all EX-4 and EX-5 selection processes, the PSC retains the
authority to approve these appointments.
The PSC has delegated a few executive appointment authorities to deputy
heads, such as acting appointments to and within the EX group and appointments
of EX-1 to EX-2 and EX-2 to EX-3 following the reclassification of the incumbent's
position. Promotions are a permanent appointment to a higher level that
includes an appointment following the reclassification of a position.
- For the appointment following the reclassification of the position,
departments and agencies are required to meet the terms and conditions of
delegation that require that:
- there is no change to the qualifications;
- the incumbent has occupied the position for at least six months;
- individual merit is applied;
- the incumbent has performed in a fully satisfactory manner;
- past performance has been assessed; and
- the official languages requirements are respected.
The PSC advised the Heads of Personnel and Chiefs of Staffing within
departments of these conditions (including assessment of past performance) when
it delegated this authority in 2001.
For all non-delegated EX appointments, at least two assessment tools, the
interview and structure reference checks, are always used to determine if a
candidate is qualified at the EX level in accordance with the selection process
used. This is where past performance of candidates is taken into
consideration. In addition, a third assessment tool, a simulation test such as
SELEX[2], is mandatory for
an entry to the EX group through a non-competitive process (reclassification or
appointment without competition).
Past performance of candidates is taken into consideration during the
structured reference check. Structured reference checks are based on the
competencies identified for the position being filled. Typically three
reference checks take place. The referees are asked to indicate how well a
candidate meets each competency and what past performance would support their
assessment.
In addition, past performance is taken into consideration during the
interview process. Candidates are presented with behavioural based questions
which delve into a candidate's past experience and aim to determine how well
the candidate dealt with situations, the results achieved and the lessons
learned.
As part of implementation of the PSEA 2003, a new appointment framework has
been approved by the commission. As well, intensive training will take
place on the delegated authorities from now to the fall 2005. The PSC is
also building its audit capacity and in the future, with the increased
delegation being offered to departments, will monitor these actions through the
audit process.
[1] It should be
noted that the term "deputy head" is used in the generic sense throughout
this document to refer to both deputy ministers and heads of arms-length
organizations. The latter group operates at arms-length for the
day-to-day operations of their organizations, but is still ultimately
accountable for overall policy direction and effectiveness in delivering on
the organization's mandate to the Minister responsible for the portfolio
under which their arms-length organizations fall.
[2]SELEX consists of
a series of interrelated simulations in which the candidate assumes the duties
and responsibilities of a director in a simulated organization. The
simulations provide the candidate with an opportunity to demonstrate seven of
the 14 leadership competencies as he/she deals with the varied issues and
challenges that are typical of entry-level executive positions. The candidate's
behaviour on each of the competencies is observed, recorded and evaluated by
trained assessors using standardized rating procedures.
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