[Recorded by Electronic Apparatus]
Wednesday, November 22, 1995
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[Translation]
The Chairman: Colleagues, pursuant to Standing Order 108(3)(d), we will begin consideration of the 1995 Annual Report of the Auditor General. It is our pleasure to again welcome Mr. Desautels. Mr. Desautels, you may begin.
Mr. Denis Desautels (Auditor General of Canada): Thank you, Mr. Chairman. It is with pleasure that I again have the opportunity to address the committee. I have with me today Mr. Raymond Dubois, Deputy Auditor General, and Mr. Michael McLaughlin, Assistant Auditor General.
This is already my fifth annual report and it marks the mid-point of my ten-year term as Auditor General. This year also was the first in which we issued "additional reports" in May and in October, made possible by last year's amendments to the Auditor General Act. Today, I wish to make a few comments on issues of special importance from my work in 1995 and past years, as well as issues from specific audits in the report tabled yesterday.
Nineteen-ninety-five was a year of many changes affecting both the government and the office. In addition to implementing the periodic reporting process, our new role as ``Commissioner of the Environment'' is being formulated as debate continues and legislation is nearing completion. To this extent, my staff have assisted the environment committee in its deliberations on the matter.
As I noted before, the government environment also went through significant changes. The government is not only faced with operational changes and review but must also deal with changes to some of its core roles and responsibilities. With so much attention drawn to program changes and expenditure cuts, I am concerned that some of the "basics" of government management may be neglected. For instance, I have expressed some concerns about the risks of undermanagement programs in the context of downsizing activities.
[English]
Mr. Chairman, I would like now to say a few words about the matters of significance as reported in this November report.
In my view, of special importance this year is the need to improve government management on a number of fronts if the government is to manage change successfully.
Accountability has been of concern to me, especially in programs where the delivery involves other parties, which seems to be a growing trend.
Furthermore, it is important to clarify objectives from the outset and decide how actual results will be measured and reported.
As well, it is important to make sure this is done. This year, for example, we found steps being taken in the right direction to improve accountability at CIDA, an organization where we have had some concerns in the past.
Accountability also includes good governance and the measurement of an entity's results. This a fundamental requirement of all entities, in particular in a time when resources are being reduced and reallocated. For instance, decision-makers need to know if programs are working or not in order to make informed decisions related to program activities or program renewal and to manage the changes affecting the programs.
We have reported on the need to strengthen accountability and measurement of results, for instance, in the chapters dealing with revolving funds, support for training and regional economic development programs.
Determining results is key to determining the economy, efficiency and effectiveness of programs. When you have not measured what has been achieved, it is difficult to determine outcomes and how efficiently they were achieved.
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In addition, stronger governance of crown corporations is required to address the lack in many corporations of clear mandates, measurable objectives and reporting of results. Management, boards of directors, government and parliament all have a role to play in improving the governance and accountability of these corporations.
Second, accountability must also be evident in the government's efforts in the area of administrative decentralization. Although this should bring much-needed flexibility to managers, departments must be adequately equipped to accept further responsibility and be truly accountable.
Financial management and control remains near the top of my list of areas where action is needed. In my view, still more needs to be done to meet the challenges of today, even though there has been significant improvements in the last decade or so.
Next, I would say information technology projects need to be better managed. Large projects too often fail. The government has planned to spend billions on large systems in the coming decade. We think a significant amount can be saved, and there can be benefit from frequent technology advancements, by managing projects on a smaller scale.
Environmental issues, which we have emphasized in audits in recent years, illustrate the risk of postponing action. Waste management is an example where government has to ensure the polluters rather than the taxpayers bear the cost of cleaning up the wastes that the polluters have produced.
Mr. Chairman, I would now like to say a few words about the specific orders reported in the November report and the suggested priorities for review by this committee. As you noted, regional economic development is one of the main themes, in particular in chapters 17 to 21. The government has been in the regional development business for over 30 years now and has had its fair share of supporters and critics during that time.
Our main finding in the five regional economic development chapters of this report is that government must better understand and demonstrate program results if they are to gain the public's confidence. Without sound information on results, Canadians have little basis for judging the effectiveness of these important programs.
Chapter 17 provides a summary of the overall regional development issues. The committee members may wish to examine chapters 18 and 20 and draw additional examples from chapters 19 and 21.
The same problem of information on results identified in the regional development chapters is evident in chapter 22 on support for training. Little is known about why training produces clear employment benefits in some cases but not in others, and yet $2 billion is spent annually by the federal government on support for training. This is an area bound to receive considerable attention by parliament in the coming weeks.
In chapter 23 we have also identified concerns on how capital projects are managed and maintained on native reserves. These projects present expenditures of $570 million annually. We found gaps in the analysis of project applications and highlighted the need for significant improvements to ensure the projects are properly planned and carried out. Your committee may wish to review the corrective measures being taken by the Department of Indian and Northern Affairs.
[Translation]
Mr. Chairman, I strongly support the use of innovation and technology evident in Revenue Canada's new regime for processing personal income tax returns, which includes E-file. But action must be taken quickly to correct significant deficiencies in the verification of returns and monitoring of compliance. This audit, and my October audit of the air transportation tax, underscore the concerns I expressed last year about the performance of our tax system.
Our follow-up audits of twelve chapters from previous reports found satisfactory action in many areas, but that progress is, unfortunately, often too slow. Although we recognize that changes affecting programs and operations are putting significant pressure on resources, we must not let the momentum be lost.
One follow-up section of the chapter could therefore be reviewed by the committee because of its links with the regional economic development issues. The Canadian Aboriginal Economic Development Strategy follow-up reported slow progress in conducting an overall evaluation. In proposing changes to the strategy, it is important that departments take into account lessons learned and input from aboriginal peoples.
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Another area where we have reported slow progress for many years is the development of operational plans for emergency preparedness. Your committee may wish to review the situation with Emergency Preparedness Canada.
My colleagues and I would be pleased to answer questions or provide explanations to help the committee plan its work over the next few months. Thank you, Mr. Chairman.
The Chairman: Thank you, Mr. Desautels, for your opening remarks. We will now move on to questions. As usual, Mr. Fillion, you have ten minutes.
Mr. Fillion (Chicoutimi): Mr. Auditor General, I would first like to know what you think of this new experience. You recently began producing periodic reports in addition to your annual report. Has the new system improved your audit operations or has it submerged you with work?
Mr. Desautels: I appreciate Mr. Fillion's question. From the outsets I would like to say that this new experience has been positive, as well as the new system in which we operate. We produced three reports in 1995 instead of only one, and, in doing so, we reached two important goals. We were able to produce more timely reports on certain subjects and this triggered faster corrective measures. I am referring to the National Transportation Office and the chapters regarding environmental problems in particular. The committee has not yet studied that chapter, but I know that some action has already been taken, because the report was tabled in May 1995.
In my opinion, the periodic reports have yielded positive results. Furthermore, the fact that there were three instead of one made them easier to understand and digest on the part of members as well as taxpayers interested in such issues.
However, that being said, we still need to fine-tune the process. I think it is necessary to allow for more time between reports. We produced one on October 5th and then on November 21st. Both reports were too close together and that it something we will have to take into account in the future. We also mention in the report that it is our intention to consult members to see what they think of this new system. I have just given you my impression and now I would like to know what members - and specifically members of this committee - feel about it.
Mr. Fillion: I have a follow-up question. I have the impression that your periodic reports contain less concrete examples. You support your conclusions with less specific examples.
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This is what I notice. When you produced a single annual report, all your conclusions were supported by facts. But it seems that is lacking now. Is that because you have less time to be thorough in your audits?
Mr. Desautels: The fact that we use examples or not in various chapters does not depend on whether we produce one or several reports per year. It is a question of choice. The number of examples we provide is not related to the number of reports published in a year; rather, it depends on the resources at our disposal.
If we can afford to invest more resources in a particular audit, we can find more supporting evidence. We decide how many examples will be provided in each chapter to support our conclusions.
As well, it is a question of judgment. People might be more interested in specific examples rather than matters of principle, but the examples may distract them from the issue at hand.
If we only provided concrete examples, we would spend all our time discussing them and very little time debating the root-cause of a problem. We have to find a balance between a good analysis of the issue at hand and enough examples to support our conclusions.
We believe we have reached that balance. If you disagree, I would like to know. We will take your opinion into consideration and we will make changes if necessary.
Mr. Fillion: By comparing the reports of previous years and those of this year, I realize that you provided more examples to support your conclusions in the past and less this year. That is what caught my attention.
But you are claiming the opposite. Of course, we cannot lose sight of the issue at hand, but to understand the problem it is sometimes necessary to have concrete examples.
Mr. Desautels: Mr. Chairman, I would like say a final word about this subject. Some of our chapters contain many examples, in particular the chapter on regional economic development. If you look at programs for Western and Atlantic Canada, you will find many examples. And there are a number of other chapters which contain much supporting evidence.
It is easier to include specific examples in that kind of chapter rather than one dealing, for instance, with manpower training. The issues we raised in this area cannot easily be supported by specific situations. In my opinion, that depends on the subject.
Mr. Fillion: My next question deals with an area of great concern to you: accountability. You have mentioned CIDA as an example. After a lot of work, that organization developed certain principles to address some problems.
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Could not CIDA serve as a model for other departments?
Mr. Desautels: CIDA made a commendable effort to go from a means-based approach to a results-oriented one. This not only mark an important change in CIDA's attitude, but also in that of the entire public service.
I also believe, Mr. Fillion, that the Canadian Public Service is ripe for that kind of change in its work culture. So I think it would be an excellent idea to use CIDA as a model for other departments. We have to do everything we can to reach that goal.
Mr. Fillion: Would you be spearheading that movement or will Treasury Board be in charge?
Mr. Desautels: No, Mr. Chairman, I do not believe so. All we can do is make suggestions and provide encouragement. Only departmental heads and central organizations like Treasury Board may make decisions in that regard. Only they can tell departments of any changes they want made.
[English]
The Chairman: Mr. Williams.
Mr. Williams (St. Albert): I would like to go on record, Mr. Chairman, to compliment the Auditor General and his staff for producing their third report this year. It is another fine report. They seem to find no end of problems within the federal government to report upon.
I also compliment the Auditor General for taking it upon himself to investigate the big problems, such as debts and deficits, which he did in his previous report, as well as the smaller items. Of course small items within the federal government can still be very large items, as we have seen in these particular reports. It is $20 million or $50 million or $100 million that is at risk or being lost, whatever the score may be.
I would like to talk about the basic concept of accountability. We have had these reports tabled on an ongoing basis. We have had these horror stories and they continue to crop up. I keep asking the question, who was at fault? When I asked someone from the finance department, who was before this committee, who was at fault with that resource allowance situation, he said it was nobody's fault. He said the system failed.
I have heard that so often, Mr. Desautels. As a public accounts committee, a committee that has to respond to the needs of the taxpayers to ensure they get some value for money, what can we do to try to ensure some accountability by the government so that the issues you have brought forth are really addressed? Not only the issues you have brought forth, but what can we do to just have some decent, good everyday management within government so taxpayers can be assured they are getting value for money?
Mr. Desautels: Mr. Chairman, this is a fairly broad question that could take a long time to answer and to pay full justice to. In fact I have spoken at length on occasion on this whole question.
If I may summarize some of these thoughts, let me first say that I think it is a really fundamental question. I think the current mood in the federal government and in its senior management is to honestly try to move to some form of accountability for results. One of the reasons is that there is at this point a definite move to downsizing, to decentralization, to more ``empowerment'', to use a popular term, of people on the firing line.
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All of these things are basically good things, if they are accompanied at the same time by some kind of feedback or accountability mechanism to make sure this decentralization and this empowerment are in fact working and are being used properly.
As I said earlier, at this stage I think the public service is ripe for a major move in that direction. I think it should be done and should be encouraged and carried out, but not as a threat. I think we should make it almost a virtue to be transparent and to report back on results. I think it should become more and more the right thing to do. People should be almost rewarded for transparency and for proper reporting of their results.
Some people are afraid to do that because they are afraid it might be used against them. I think if it is used in the right way it might encourage people to put such concepts into practice. I think they are basically ripe for that.
Mr. Williams: I agree with what you say. Accountability and responsibility go two ways. One point is the recognition of a transparent system where you give the people on the front line the authority to do the job, and in many instances they can do it well. At the same time, as you have pointed out, there are situations where the taxpayer has lost a significant amount of money. Therefore, you cannot have one without the other.
Without putting words in your mouth, are we maybe talking more along the merit system of management of personnel rather than just so many paid according to years of service and union contracts and so on?
With the downsizing of 30,000 civil servants who are being removed from the public service, can we anticipate more problems of management going wrong, of management not being properly followed up? I think of these regional development programs where, for example, $20 million was given to the Province of Quebec on an nonrepayable grant. Quebec turned around and used it as a contribution to a company in a repayable situation.
The federal government has lost $20 million, and that disturbs me. Are we going to see more of that as we lay off 30,000 civil servants or can we achieve downsizing without the concern that the accounts will be properly managed?
Mr. Desautels: Mr. Chairman, in my chapter on the matters of special interest, I did touch briefly on the danger of undermanaging certain programs. This might sound surprising coming from an Auditor General pushing economy, efficiency and effectiveness, but the reason I raised it is that there is a danger - but it need not happen. There is a danger if you are not careful where you make the cuts.
In certain areas you may not be managing certain expenditure programs tightly enough. I basically sounded that warning bell. We have noted just a few cases, for instance, where programs have been cancelled with repayable contributions still to be collected.
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We have to make sure there are enough people around to collect what is owed to the Crown. You have to make sure for the programs being terminated that in fact in each case there's still sufficient management left in place to make sure the interests of the Crown are well looked after. As I said earlier, there is no need for that to happen. It is something we have to be aware of and we have to ensure it does not happen.
Mr. Williams: So forewarned is forearmed. We should better make sure the government is forewarned. I noted the important chapters in your recommendations. I think you recommended every one except chapter 24, which demonstrates the importance you attach to your report.
We had another report tabled this week, Public Accounts of Canada. It included the audited statements of the Government of Canada, which you audited and found to be in order. While we in this Parliament have looked primarily at chapters and items you have brought to our attention, would it also be appropriate for us as a committee to look at the public accounts in general, at items within the public accounts that we might find of interest? What are your recommendations or feelings along that line?
Mr. Desautels: Mr. Chairman, I think the Public Accounts of Canada report tabled this week is really one of the most important reports tabled in the House. The accounts cover a lot of information, and more specifically, they contain the determination of the annual deficit and the information on the financial condition of the government.
Our own organization invests a lot of effort in auditing the accounts of Canada. Everybody, including people in Finance, Treasury Board, Government Services Canada and our department, has worked quite hard at ensuring that the accounts are properly stated.
We have had some good healthy discussions on a lot of issues. These public accounts that have been tabled have a clean opinion. The accounts for the last four years have had a clean opinion. There is a lot of useful information in there. I think it would be quite appropriate for your committee to spend one meeting on that. You could obtain explanations from ourselves, from the Comptroller General's people or from Finance as to what is behind the figures. What are the trends indicated by the public accounts? What are the issues in terms of establishing the right amounts in finalizing the accounts?
Your predecessor committee did do that once upon a time. The committee did not do it faithfully every year but on occasion members chose to have a look at the public accounts and call certain witnesses on them. I felt they were quite profitable, quite constructive meetings.
[Translation]
Mr. Assad (Gatineau - La Lièvre): I have several questions, Mr. Chairman. Our Reform Party colleague claimed that when budgetary surpluses occur in departments, people always look to try to find who is responsible. What about accountability? Are people actually made accountable for their actions?
Mr. Desautels: Mr. Chairman, accountability is a nice word which everyone uses for whatever they want it to mean. But in my opinion, there is no real accountability for results. And when I say results, I am not referring to mistakes, a lack of judgement or anything like that, but rather real results obtained when money is spent by a department on a program. Accountability does not necessarily refer to bad news, it can also refer to good news. What is important is that the information be reliable and useful.
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Therefore, what has been lacking until now, is real accountability for results obtained in each government program. That is what I mean. People are ready for that kind of approach. Perhaps they have not found the means to achieve that until now, but their attitude has changed and they are ready. Perhaps all they need is a little more encouragement to implement the necessary mechanisms.
Each department must also have the right management tools. You can call it accountability, but it basically means applying the normal and simple rules of good management. In managing its programs, each department must be able to know who is doing a good job and who is not, and reward those who do well by promoting them or by some other means. Some departments already operate this way, but they are the exception rather than the rule.
Mr. Assad: A department which does not obtain the results it expects tends to downplay mistakes. That is human nature.
Therefore, the concept of accountability to which you referred will not materialize just on its own within departments. There has to be a political will to implement it.
Mr. Desautels: It helps enormously if the government or even Parliament clearly states its expectations. It also helps very much if someone becomes the spokesperson for this cause.
For information purposes, I would point out that if you look at the British experience, you will see that performance contracts were negotiated between agencies and departments. In carrying out the programs entrusted to it, each agency must meet certain performance criteria which it has negotiated and report at the end of the year. Therefore, with this system you do not have just objectives, but also reports on the achievement of such objectives.
This approach was implemented within a few years, because such was the will of Parliament and the members clearly expressed that will.
I am not saying that we should copy the British experience, but it does clearly show that performance criteria can be established for almost every government program. It is easier in some cases than in others, but the fact is that it is feasible and does not necessarily take ten years to implement. It could be done within a much shorter timeframe.
Mr. Assad: To obtain further information on the experience to which you referred, should we call your office?
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Mr. Desautels: There is a lot of information on the British experience, and it is available to committee researchers. However, if it proves not to be adequate, we would be pleased to help you.
Mr. Assad: Thank you. I have one other short question.
When the Public Service downsizing process is completed in three or four years, will you as Auditor General be able to make an assessment and say whether these measures have really lead to considerable savings? Will it be possible to obtain figures on that point?
Mr. Desautels: I think that the figures should speak for themselves at that time. When you look at public spending and compare the payroll in three years with the situation today or one year ago, that should be obvious.
You can also see that when you look at the way spending on various programs has changed. And even before we undertake a results-based audit, the figures to be published in the next few years should be sufficiently clear to answer your question.
Mr. Assad: Thank you.
Mr. Fillion: My question deals with the follow-up, in the last chapter. You say that the follow up on previous reports shows that progress has been very slow in correcting the situation. This means therefore that your office is responsible for the follow-up.
Have you considered procedures for ensuring faster progress and thus addressing the questions you raise in your reports, rather than just leaving them unanswered?
It is all well and good to note that progress has been made, but in the interest of taxpayers what could be done to ensure faster progress?
Mr. Desautels: We take very seriously the systematic following up of our reports and we make a rule of returning to departments two years after the initial observations in order to see what is being done. In some cases, we return more than once, until we feel that the problem has been resolved.
Our follow up procedure has by itself caused departments to take certain steps. Furthermore, the interest that your committee shows in these issues and the message it can send to departments are of great help to us.
That is why I suggested, in my introductory remarks, that you invite one or two organizations which have been the subject of a follow-up to appear before you. You will see that we give a lot of importance to this.
I would also point out, Mr. Fillion, that we recently established a rating system to assess how successfully our recommendations have been implemented.
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If you remember, this was published in Part III of our Estimates, the Blue Book which your committee examined a few months ago, and we will continue to publish it. This system indicates that approximately 65% of the recommendations we made in recent years have been implemented. Unfortunately, some of our recommendations are implemented more slowly then we would wish, but all in all it is quite a good average.
There are various possible reasons for the other 35%; people may agree on the recommendations but have not yet moved, or they may disagree about the recommendations, or another possibility is that the situation has changed and our recommendations no longer apply. For example, if a department has been reorganized or a program eliminated, then obviously the recommendation would no longer apply. We therefore try to measure our results so as to ensure that the necessary corrective measures continue to be implemented.
Mr. Fillion: I have a further question. Let us take the case of Emergency Preparedness Canada, to which you refer in paragraph 23. You suggest that the committee use this example to study the follow-up process as a whole. Do you use the committee to deal with extreme cases? Do you inform the committee when it is urgent for it to intervene in a specific area and when it would be desirable for it to study a particular question?
Mr. Desautels: If we recommended this particular case, it is not necessarily because it was a matter of great urgency, but rather because we felt some frustration about the situation and believed it would be advisable for your committee to ask the people in charge to appear.
There is also another reason underlying this recommendation, which I mentioned to you earlier, namely to indicate to everyone involved in the system that the committee considers it important that there be a follow-up to our recommendations. That will help to ensure more effective implementation of our recommendations and those which the committee makes in its own reports.
Mr. Fillion: In the report which you tabled yesterday, what are the chapters which you would like to see given priority consideration?
Mr. Desautels: As regards the chapters on which we reported yesterday, I have not established a priority list. The order in which they are considered is not crucial. I think that the committee should first look at regional economic development agencies or issues related to Indian Affairs or Revenue Canada. So long as these questions are looked at within the next few weeks, I do not think the order of consideration really matters.
However, we have appended to our letter a list of chapters we identified as being of priority importance in the May and October reports, which the committee has not yet the opportunity to discuss. If you are asking for my opinion, I would say that there are one or two of these chapters which I would like the committee to examine quite soon. In this context, I would mention for example Chapter 12, which deals with development systems.
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[English]
Mr. Williams: I am looking at chapter 25, Mr. Desautels, on the Revenue Canada audit. Two years after carrying out your 1993 audit, we find that the new processing regime has still not evolved sufficiently to provide reasonable assurance that the right amount of income tax is being assessed and collected on a timely basis.
Further on, you say the department can contain the risk of issuing erroneous assessments and refunds for suspicious returns only if the programs for flagging those returns are well-designed and properly implemented.
I note the department's comments on paragraph 25.35. They respond by saying:
- The Department is of the view that the existing procedures for identifying high-risk returns
constitute a prudent basis for management of the risks involved.
- This mirrors the minister's statement that all it requires is a little bit of fine-tuning and all will
be well. But you are saying you have some serious concerns there.
What can we do to make the departments take your recommendations more seriously? Because the minister and his department - as I see from these comments, from their response - seem to be taking your concerns fairly lightly.
Mr. Desautels: Mr. Chairman, to answer Mr. Williams's question fairly succinctly, I would direct the committee to exhibit 25.9, which is the department's action plan. I think at the end of the day, the department has agreed to act on most of the recommendations, most of the issues, raised in the chapter, even though within the chapter you might have the impression that the department is somewhat defensive.
I am not surprised by that. As I said before, I think the department is proud of its new electronic filing system, and in a sense may appear to be defensive. But if you look at exhibit 25.9, in short you will see that the department is acting on pretty well all of the issues that we raise within the chapter.
This action plan was developed by the department as we were carrying out this audit. They were aware of the issues we were coming up with. We were consulted and we had frank discussions with them as they were developing this action plan.
When you cut through it all, I rely on this exhibit as a commitment by the department to take what we say quite seriously and act on it, and I am confident that they will. In any case, as you know, we are quite vigilant when it comes to the revenue collection area in particular, so we will be following up quite closely on the implementation of that plan.
Mr. Williams: Thank you.
Let us move on to chapter 23, Indian and Northern Affairs. There has been a significant amount of delegation of authority, I understand, to spend money and to manage projects. It is obvious that some of the money has trickled down into something other than the accomplishment of the projects that they intended to achieve. Is there sufficient control by Indian and Northern Affairs in the management of their moneys?
Mr. Desautels: Mr. Chairman, if I may, I will ask Mr. Dubois to answer that question.
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Mr. Raymond Dubois (Deputy Auditor General of Canada): The short answer is no. They should do more to control the program.
However, to speak a little bit for the department, for years this has been a very complex area. Throughout the years, through government policy, the department has worked on the devolution to the Indian bands of the management of all their own activities. While we are supportive of the policy and we are not there to criticize it, our position is that the department still retains the responsibility for the adequate management of all the funds issued through the program.
The difficulty is that the evolution of the individual bands to be in a position to be competent in managing all of these responsibilities is very unequal throughout the country. It is quite difficult for a manager within the Department of Indian Affairs to decide when they will intervene or not intervene in the case of funds that have been delegated or management that has been delegated to the band.
The point we are making here is we believe the department should do a better job of analysing and estimating the risks for each situation, and perhaps they should intervene a little bit more quickly when they do observe certain cases where there are difficulties.
Some of the cases we illustrate in the chapter demonstrate that in certain cases where the department was aware there was a problem, they did not act very swiftly. They seem to have hesitated and waited until the situation deteriorated to the point that the budget had to be significantly enhanced through more funds in order to get to the objective of that particular project, and in some cases they are not even there yet.
We believe the department can do more to manage their program better and at the same time encourage devolution to the Indian bands. But it is a very complex thing to do.
Mr. Williams: I understand each band has to provide audited financial statements and that a number of these have qualifications by their auditors. Some, I presume - hopefully a significant number - get a clean bill of health from their auditor, but I know that not all do.
Does the Department of Indian and Northern Affairs take into consideration the comments made by auditors, for example, on financial statements before they determine whether a band is capable of managing the disbursements and development of a capital project? Or do they just have a broad policy that says all bands are entitled to manage this particular project if it is allocated to them?
Mr. Dubois: Mr. Chairman, with your permission, I would like to ask Ms Nancy Cheng, who is the principal responsible for this particular audit, to come and answer the question.
While she approaches the table, I can answer part of it. The department should analyse these reports. As to whether they do it or not, I will ask Ms Cheng to answer that.
Ms Nancy Cheng (Principal Director, Audit Operations, Office of the Auditor General of Canada): Mr. Chairman, the question of audited financial statements was looked at last year. In this particular year we did not look at the audited statements as such, but essentially they are submitted to support funding arrangements that have been struck between Indian Affairs and the first nations themselves so there is some form of accountability as to how and where the money has been spent.
As far as the effect of operating capital projects is concerned, that is a different matter. The funding arrangement would essentially identify which projects would go ahead, i.e., whether we are funding a water system or a maintenance project. That is independent of the review of the financial statements. In other words, they do not look at the audited financial statements before capital projects are approved.
Mr. Williams: So they do not evaluate the local management in any way, shape or form.
The Chairman: Mr. Williams, you have one last question.
Mr. Williams: I am just getting clarification of this one, Mr. Chairman.
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They do not look at the local management capability or financial management capability before they decide whether or not they are going to delegate to the local band the authority to manage a capital project. Do they have just a blanket policy that says capital projects under a certain value will be delegated down to the local band level? How do they differentiate - or do they even differentiate?
Ms Cheng: Essentially, they do not differentiate. The policy is to devolve as much as possible, so to the extent that the first nation is willing to take on the management of the capital project, Indian Affairs basically just facilitates.
The Chairman: We can come back afterwards, Mr. Williams.
Mr. Telegdi.
Mr. Telegdi (Waterloo): It is nice having all of the reports in front of us. There is no question that in the time when we are undergoing downsizing - ``right-sizing'', if you will - with a reduction of 45,000 in the work force of the government, we have to make sure the dollars are being spent most efficiently.
I noted with interest the point you made that we have to be careful that as we downsize, via proper management, we can have accountability for results. It sounds quite similar to management by results. It is the same kind of principle. I know a lot of municipalities in the province of Ontario have gone through this process prior to us doing this.
I thought Mr. Williams was going to applaud your answer to the areas of tax collection, particularly when you look at the introduction, the highlight where it says that in the last four years return processing has undergone more restructuring than it had in the preceding 30 years. I was pleased to hear your comments regarding the department.
What I am wondering about is that we have been receiving quite a few reports with a fair number of chapters. I wonder if you could rank them for us in terms of where you are receiving the least cooperation in rectifying or having plans in place to rectify the situations you have identified. Since we are not going to be looking at all the chapters and we are not going to be able to have all those witnesses, it might be useful for the committee if somehow you could rank them as to which is most in need of attention.
Mr. Desautels: Mr. Chairman, could I take that under advisement and basically try to get back to committee staff on those? I think some of this is evident indirectly in the fact that we have recommended certain chapters for priority by this committee, but if you will allow me, I will consult with my colleagues and advise the committee staff as to what those might be.
Mr. Telegdi: Thank you.
I was reading one of your commentaries in the paper not too long ago, which was ``Watching the Watchdog''. Having had the department in place for a number of years, have you ever given thought to having an evaluation of your functions by audit? Would that be beneficial? If it was, who might best fulfil those functions, especially as we are seeing that you are undertaking new responsibilities with the environmental commissioners and what have you? I suspect it would be nice for you to be able to say that you got a triple-A rating from this and this - whatever.
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Mr. Desautels: Mr. Chairman, this is a question that has come up a few times recently. I guess to put it in a slightly different frame I would say the question really is what accountability mechanisms will govern the operation of the office of the Auditor General? We have in fact in the past, in discussions with this committee, I think, discussed or even listed a number of these accountability mechanism that are in place, that are a combination of both voluntary things we are doing on that front or things that happen as a direct result of the framework under which we function. For example, I think this committee plays an important role on that front in holding our office accountable for its result and its effectiveness.
Just to make a long story short, I think I could give the committee a list of about 10 different mechanisms that are in place to provide proper accountability for our office. The bottom line of all that, in my books, is that I believe we are more accountable than most government departments for a number of reasons, not the least of which is the number of times where we appear in front of parliamentary committees with our work. So that you know for the record, we in the last four years have had 40 to 50 appearances in front of parliamentary committees of different kinds in the course of a year. I believe that does provide a certain amount of real accountability.
But within all of that list of things, Mr. Telegdi, there has not been a requirement in our legislation for an outside evaluation of our organization. There is an annual financial and compliance audit carried out of our organization by independent auditors appointed by the government, by the Treasury Board, but there is not such a value for money audit or an efficient or effectiveness audit carried out of our organization.
Mr. Telegdi: All right, thank you. Maybe I can pick up on some of those things you said were made available to the committee. Thank you.
The Chairman: Mr. Grose.
Mr. Grose (Oshawa): Thank you, Mr. Chairman. If I may, rather than questioning the Auditor General I would like to address my remarks to the committee.
I think you might be an interested spectator.
I am not much of a dancer, so I do not know what we are doing here, a waltz or a minuet, but the one thing I can assure you of is that it is an awfully slow dance. We have talked about capability, responsibility, accountability: I have not heard one word, one ability, mentioned, and that is culpability.
We seem to be flogging the Auditor General with, what have you done about it? How are you going to make these people behave themselves? Why did not they do it when you told them to do it last year?
Well, I come from a background of having my own small business for many years. I must know something about business, because it is going out of business now without me. I have worked for a large company. I have one of the largest companies in Canada in my constituency. I therefore know mistakes are made. If it is a small company, the owner's head rolls. If it is a larger entity, somebody's head rolls.
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We do not seem to have this capability here. What we do is dance all over the thing, and it is like trying to write a code of conduct or a criminal code with no penalty. It is not in the nature of people to correct what they are doing if there is no discomfort involved in not correcting it, because they are comfortable with what is there and they will continue to do it.
I think we have gone a small, tiny, little step towards solving the problem, and that was with the interim reports; we do not wait a year, by which time most of the committee members are new or the government has changed and they start all over again. By the same token, where are these 30-, 60-, and 90-day reports we were going to get? I have not seen any of them, and we asked for them last spring.
What I am really getting at is that we are asking questions of the Auditor General that I really think are not his responsibility. He's being very polite with us instead of just saying I've got nothing to do with that; I'm the reporter, not the prosecutor, not the headman with the axe; all I do is report; it's up to you guys.
I think what we're going to have to do rather than trying to fill the Auditor General's dance card is maybe to take dance lessons or find a different game that will somehow solve the problems that are being pointed out to us.
Thank you very much, Mr. Chairman.
[Translation]
The Chair: I would like to pick up on the remarks made by Mr. Grose. I think this is a very interesting question. We periodically draft reports and recommendations on which there is a consensus among committee members. Whenever we have the opportunity to focus on a chapter of a report by the Auditor General, we make recommendations which are tabled in the House and, pursuant to Standing Order 109, we always ask the government to respond within 150 days.
Recently, we have received several answers from the government, I think that the government has taken steps to implement almost all of our recommendations. Therefore, the process is completed. In committee we discuss a chapter of the Auditor General's Report and, with the assistance of our research staff, we make recommendations. We issue a report which is tabled in the House, and the government responds to us within 150 days of the presentation of our report.
That is how the process through which you referred is carried out. There may perhaps be other members of the committee wishing to respond to your suggestions. Mr. Fillion.
Mr. Fillion: I do not feel that the exercise we have carried out this afternoon has been futile. Nor have we been trying to put the Auditor General on the hot seat or make him feel responsible for every thing. That wasn't the purpose of the meeting. Our purpose was to examine the methods used by the Auditor General so that, when we look individually at each chapter, we will be able to see how they apply to each department.
It is important to know how the Auditor General does his job. We will then be able to ask relevant questions when we examine the report chapter by chapter.
Since I have the floor, I would ask you to clarify one thing for me. You are very aware of the debt and the deficit. This is a broad-based question. I am not trying to accuse anyone. You say in paragraph 38 of the chapter dealing with major issues that over the next few years to intend to publish a series of reports on certain aspects of management and financial control so as to improve the financial situation. Could we not shorten the time frame for these reports? I will leave this question for your consideration, and perhaps you could answer later.
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Mr. Desautels: When we use that expression, we mean that that will be done every year for a certain number of years. We will begin to produce reports on such questions in 1996.
[English]
The Chairman: Mr. Williams.
Mr. Williams: I would like to complement Mr. Grose's remarks. I think it is just wonderful that a member of the government side feels we need more accountability by ministers and by the civil service. I found it rather strange, however, that we just put through an equal employment piece of legislation where the Reform Party was arguing very vigorously for merit-based opportunities. That met with no ear on the government side, but obviously there are some who are listening to the message we are trying to bring to this city, that things have to change, and they have to change fast; otherwise we are not going to be able to pay our bills or do very much else. I certainly do welcome his remarks.
Following the same vein as Mr. Grose, but on the questioning I had before with Madam Cheng, am I correct that in fact you were saying that the Department of Indian Affairs is delegating responsibility to the bands to manage and disperse the financing on capital projects even though they are fully aware through the audits and the management reporting they have on file regarding these bands that some are just plain incompetent and not capable of managing that responsibility delegated to them, and yet they give it to them anyway? Is that correct? Is that a fair statement?
Ms Cheng: I wouldn't put it exactly that way. What happens is, if a first nation were to request the responsibility to carry out a project, then Indian Affairs would have a role in assessing the project proposal and the engineering design.
Sometimes first nations might have the technical expertise on reserve. Very often they don't, and they can go to a tribal council if they are affiliated with one, and if not, they can seek any private sector firm to support that or go to Indian Affairs and ask for technical assistance directly from Indian Affairs.
So Indian Affairs has a role to ensure that there is enough specification on the project before they give effective project approval. But that is a little bit different from saying they would look at the first nation's ability from the outset before they decide whether or not they would delegate.
Mr. Williams: My question had nothing to do with the specifications of the project and had everything to do with the management, the capability to manage a project as it is advancing, and also the capacity to manage the funds and the disbursement of the funds. Even if the Department of Indian Affairs has on file a qualified audit that shows serious management infringements and lack of accountability of the money they have already had, they will still be perhaps given the authority to manage and disburse a capital project. Am I correct in saying that?
Ms Cheng: Mr. Speaker, in exhibit 23.4 of the report, we actually have a case example whereby you have a first nation that is on a financial management plan. A first nation goes on a financial management plan when they exhibit financial management difficulty, and despite of that fact, not only does the first nation get to manage the project, but they also receive money in advance of need.
Mr. Williams: Then I'm right back to what Mr. Grose has pointed out. Here we have a policy developed by some government department, some millionaire who says one shoe fits all. The taxpayers' money is at risk because the Auditor General has already said that in some cases they waited far too long to get reinvolved in a case, at which time they have had to substantially change the budget in order to achieve completion of the project.
It seems to me that it is a head-in-the-sand style of management, that they want to be seen to be devolving authority and responsibility, with absolutely no accountability by the department. It is this type of attitude in departments that has to change in every department, and I am sure it occurs in every department, not just in the Department of Indian Affairs.
I think, Mr. Chairman, we will be taking a look at this particular chapter. Thank you.
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The Chairman: Ms Whelan.
Ms Whelan (Essex - Windsor): Thank you, Mr. Chairman. I want to draw to the Auditor General's attention what I drew to his attention yesterday. My fear yesterday was that the press release issued by the Department of the Auditor General would mislead the Canadian public, and in fact, I think it has done that. I don't by any means put any blame on any of the journalists who followed that press release, but the press release failed to contain a very key line in it that says:
- Taxpayers using [EFILE] must submit their returns to Revenue Canada through authorized
EFILE tax preparers. These preparers are expected to deal directly with the taxpayers and to see
the documentation from which a return was prepared.
I believe your press release misleads the Canadian public. I would hope that in the future that wouldn't happen so that the Canadian public is not left with this impression that no one sees receipts, no one has to produce receipts, and they file without receipts. That's a very false presumption and I think it's unfortunate. I would hope in the future we would be able to rely on what we read in press releases from the Auditor General's department.
Mr. Desautels: Mr. Chairman, we have been tracking very closely some of the media reporting on this particular issue, particularly given Ms Whelan's concerns as expressed to me yesterday.
I must assure you that we take great pains in preparing these press releases, and the reason we prepare these press releases is to try to prevent distortion of some of the messages contained in the chapters. This is based on prior years' experience where, before we did that, we found there was indeed an amount of distortion that was disturbing, to me at least.
We spend a fair bit of time as well with the journalists, explaining to them the real facts about the matters we raise in the chapters, and I think this particular chapter, in fact, has generated a fair amount of enquiry to our staff as to what was really meant by the various points we raised in the chapter.
So I can say that we have gone through great pains to try to make sure that the understanding and the messages were not distorted. Beyond that, it's very difficult for us to do much more. I don't personally think the way the press release on this particular chapter was drafted contributed to any of the reports that Ms Whelan has referred to.
Ms Whelan: I was referring specifically to the paragraph that was quoted in The Globe and Mail today, word for word from the press release. It was the same paragraph that I quoted yesterday. What bothers me is the fact that I think it's important that the Canadian public understand that when taxpayers e-file, they have to go through registered e-file preparers. They cannot just e-file all on their own. It's not as if we don't check out people who have e-file licences, or whatever you want to call it.
The paragraph that appeared was identical to this one:
- Under the new system taxpayers can file their personal tax returns either electronically or
on paper. They do not have to submit receipts and information unless Revenue Canada asks for
them.
I'm not suggesting there isn't room for improvement, and I don't think either the minister or the department has said that. I think the department is working very diligently toward making the improvements with e-file that are necessary. With any new system it's not going to be perfect the first time you bring it up. I think it's important that we continue to monitor any new system and continue to make improvements, but I also think it's important that people understand that some of the analysis done in 1992 and 1993 - In the report you mention those 1992 results are inconclusive.
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There have been some statements made based on certain parts, and I don't know if everyone had time to go over the entire chapter in detail. I don't know what's going to happen in the future or if we're going to discuss at a future meeting whether or not there'll be more detailed analysis. I'm assuming that as more information is made available by the department as time goes on you'll see that the department's action plan does address things. We've already said very clearly that for 1995 anything that's flagged will be looked at. That's already been addressed.
As for one of Mr. Williams's earlier comments, if he had read a little further he would have noticed that it's already been addressed for the 1995 taxation year. I think it's important to recognize how new the system is. The department monitors it continuously.
Mr. Williams: On a point of order, Mr. Chairman. I think what we're having here is the defence of the department instead of questions to the Auditor General. I'm not sure that's appropriate at this particular juncture in the committee.
Ms Whelan: Excuse me, Mr. Chairman. I'm entitled to ask questions of the Auditor General and -
The Chairman: Okay. Do you have another question for the Auditor General?
Ms Whelan: Yes, I have a question for the Auditor General.
Is the e-file system a much better system than the paper system used before, or is it not?
Mr. Desautels: Mr. Chairman, we are supportive of the department's move towards electronic transmission of tax returns and we believe the department is moving in the right direction. I hope the comments we have made on e-file, and on the other changes in the department's processing of personal tax returns, will help make that system even stronger.
We have had excellent cooperation from representatives of Revenue Canada and we are all working in the same direction. This is a terribly important question and I think we are making good progress on that front. Again, the action plan prepared by the department is a product of joint efforts by the department and ourselves.
If all those things are carried out we will end up with a strong system. The reason I bring it out is because it is such a huge system, such an important system, that it's crucial to make sure it's functioning at its peak level of efficiency.
All we have said here is meant to be constructive. I believe Revenue Canada accepts our recommendations and is working on implementation as we speak.
The Chairman: Are there any other comments?
[Translation]
The Chair: Are there any other questions?
I would like to thank Mr. Desautels and his colleagues for answering our questions.
The meeting is adjourned.