Performance Report—For the period ending 31 March 1998

observations and recommendations that are implemented and result in demonstrable improvements in public sector management and service delivery

Demonstrated compliance with appropriate standards.

Extent to which parliamentarians and other users of financial statements found our audit opinions useful.

Reliability and usefulness of information provided to Parliament and management for monitoring and decision-making purposes.

• Qualified audit opinion and related observations on the government's overall financial statements included in the Public Accounts of Canada for the fiscal year 1996-97.
• Qualified audit opinion on the condensed financial statements in the government's Annual Financial Report.
• Testimony at a Public Accounts Committee hearing about the qualification in the audit opinion on the government's financial statements (accounting for a transaction with the Canada Foundation for Innovation).

Reliability of financial information

• The government responded favourably in the 1998 Budget to some of the issues raised in observations by the Auditor General on the government's financial statements for 1996-97. Our recommendation on accounting for employee pensions has been accepted and work is proceeding on the following issues: accounting for environmental liabilities and contingencies; capitalization of physical assets and accrual accounting for tax revenues; Enterprise Crown corporations and Debt Servicing and Reduction Account. Disagreement has been noted on accounting for the transaction with the Canada Foundation for Innovation.

Demonstrated compliance with appropriate standards.

Extent to which parliamentarians and other users of financial statements found our audit opinions useful.

• Some 90 financial audit opinions of federal Crown corporations and agencies and territorial governments and Crown corporations.
• Advice provided to auditees on internal control and related systems.
• Two Crown corporation audit opinions qualified because of non-compliance with generally accepted accounting principles; management and boards of directors advised of the issues.
• Auditor General's annual award of excellence in annual reporting by a Crown corporation.

• Guidance provided to management on disclosure requirements for the fair presentation of financial information in some Crown corporations and agencies of the Northwest Territories; continued improvement in compliance with professional accounting standards, for example, accounting for government funding.
• Survey of Crown corporation chairs of audit committees and chief financial officers undertaken in 1997-98. Results of the survey indicated that most of the audit entities surveyed found the audit to be worthwhile and to have added value to the corporation. In particular, our audits were identified as having improved financial statement disclosure and to have added value to the management decision-making process.

Extent to which parliamentarians, Crown corporation boards of directors and other users of our audit products were assured that operations were conducted in compliance with the relevant legislative framework, and the required rules and regulations.

• 67 audit opinions referring to compliance with authorities.

• No significant non-complian ce issues reported in the audit opinions of federal Crown corporations and other entities.

Reliability and usefulness of information provided to Parliament and management for monitoring and decision-making purposes.

• Out of 37 audits/studies, 23 made reference to stewardship/accountability issues.
• Participated in 11 committee hearings where some of these chapters were discussed.
• The Office has produced a special report (Parliamentary Committee Review of the Revised Estimates Documents). This report was distributed to parliamentarians and all heads of departments and agencies. The distribution of the report was followed by a seminar for parliamentarians and their staff.

Focus on results measurement and reporting

Our attempts to further accountability for results are having the desired impact. We aim to provide a framework that the government can use to improve measurement and reporting. In 1997-98, four chapters were specifically produced with this purpose in mind. These chapters promote the sharing of best practices and talk about how central agencies can add to the process. In one chapter, we document the progress made by Human Resources Development Canada in this area.

As a result of our work, several departments have agreed to improve their measurement and reporting of program results. For instance:

• Foreign Affairs and International Trade will be developing performance measures to improve the way it manages foreign property and thereby gain better value for the costs incurred;
• Natural Resources Canada will be providing better information to Parliament on the results (actual energy savings against specific targets) of Canada's 5-year-old energy efficiency program;
• Citizenship and Immigration Canada and the Immigration and Refugee Board will be providing the information necessary for Parliament to judge whether the refugee program is working. Our findings in three reports on the measurement and reporting of results have been used as input into the government's review of the programs in question, i.e. Atlantic Fisheries, the processing of refugee claims and administration of the Small Business Loans Act.

Accountability

In 1997-98 we reported on the Canadian government's first alternative service delivery arrangement - the commercialization of the air navigation system. We also took a first look at a relatively new activity, the use of acquisition cards by government employees. Our approach to these reviews was to identify best practices and lessons learned for the future. In response to our report on the commercialization of the air navigation system, steps have already been taken by Treasury Board Secretariat to improve the procedures involved in the privatization of government entities. The Secretariat has also responded favourably to our report on acquisition cards and has taken several concrete measures to ensure more accountability for the use of these cards.

• In our chapter on Human Resources Development Canada's transition toward results-based management, we describe how parliamentarians could benefit from a separate report on the government's Employment Insurance Account. As a way to improve the government's accountability for the program, we recommended that parliamentarians be provided with information on performance and results, along with the audited financial statements, all in one single and easily accessible document.
• In 1997-98 we produced a report entitled Financial Management: Developing a Capability Model. It represents the first phase of a study on financial management in the public service. Once complete, the study will provide an agreed-upon framework for departments to assess and improve their financial management capabilities.

Refers to opportunities to reduce costs or achieve more with resources provided.

• Out of 37 audits/ studies, 23 made reference to efficiency, productivity and cost effectiveness. Some of these are referred to below. One of our chapters was devoted to the examination of government work force issues (Maintaining a Competent and Efficient Public Service).
• Participated in 15 hearings where some of these chapters were discussed.

Cost savings opportunities:

Some of the cost savings opportunities that were identified in 1997-98:

• Household Goods Removal Services of the Federal Government: By bringing the program more in line with practices used by other governments and the private sector, potential savings of $1.5 million (out of a $5 million budget) could be realized.
• Report on the Federal Court of Canada and the Tax Court of Canada: Potential savings of 15 to 25% out of about $53 million spent annually if recommended changes to the administrative structure are implemented.
• Prairie Farm Rehabilitation Administration: The program could present a potential for costs savings to the taxpayers if inconsistencies in the way costs are recovered were corrected.

Management Practices

In 1997-98, many audits identified management practices and procedures that were not conducive to an efficient, cost-effective discharge of the department's mandate. These audits were able to show, for instance, how:

• varying interpretations of the eligibility criteria under The Atlantic Groundfish Strategy resulted in different treatment of participants, depending on where they lived;
• significant weaknesses in the management of pharmacy benefits resulted in First Nations clients having access to excessively high levels of prescription drugs;
• the current process of handling refugee claims has led to substantial backlogs of legitimate claims and has impaired the department's ability to effectively remove those who do not qualify for refugee status;
• contrary to the intent of the Small Business Loans Act, some large corporations have been able to gain access to loans earmarked for the development of small businesses; and
• the asymmetrical treatment of overpayments and underpayments to the provinces under the Equalization Program resulted in an estimated cost to the federal government of $38 million for 1995-96, a policy decision now being discussed with the provinces.

Significant improvements in program management have been noted, including:

• a revised policy on tendering to ensure better selection and implementation of capital projects for First Nations;
• strengthened ministerial control and accountability with respect to intelligence collection and related functions in the Department of National Defence (DND) and Foreign Affairs and International Trade Canada, including a mandated audit of all DND intelligence collection activities every two years; and
• federal/provincial agreements that now set out clear requirements for compliance audits of the extended phase of the Canada Infrastructure Works Program.

• Two chapters devoted to information technology; one on systems under development and one on the Year 2000 conversion (Systems Under Development: Taking Charge; Information Technology: Preparedness for the Year 2000).
• The Office has organized and participated in various workshops and seminars to share with provincial audit staff and internal audit staff the knowledge that has been acquired during the Year 2000 audit.

Information Technology

In 1997-98 we audited three systems under development, each representing investments of $50 million to $100 million. In the report, we identified the root causes of the failures of large information systems, and recommended ways to better control the costs of such projects while also meeting the intended client's needs. As a result, Treasury Board Secretariat has agreed that it needs to take on a more active monitoring role.

The government-wide audit of preparedness for the Year 2000 gave parliamentarians a more complete picture of the extent of the problem and its urgency. The work has resulted in an accelerated effort by TBS and departments to aggressively manage the problem. The effort is now more focussed on a group of systems considered to be the most critical - those with the most potential to negatively impact the everyday lives of Canadians, as well as the country's finances. Also, parliamentarians are now in a better position to assess whether the government's level of effort is acceptable.

Increased effectiveness of revenue administration and maintenance of the tax base.

• Three chapters dealt with revenue administration and tax issues (Revenue Canada - The Financial Management Regime; Revenue Canada and Department of Finance - Understanding Changes in Tax Revenues: GST; Revenue Canada and Department of Finance - Fostering Improvement in Tax and Trade Administration).
• The Office participated in one hearing with the Public Accounts Committee to discuss two chapters on Revenue Canada.

Protecting the tax base:

In 1997-98 we conducted a consolidated follow-up on observations from previous audits of Revenue Canada. We determined that action had been taken on several fronts and that, overall, tax administration had been strengthened. For instance, the collection of unpaid income tax, GST, excise tax and customs duty is better integrated, more proactive and based increasingly on an assessment of the risk of loss. Improvements such as these not only serve to protect the tax base but also to make the system fairer as a whole.

In our report on the financial management regime at Revenue Canada, we identified opportunities to generate several millions in potential interest revenue for the government each year by depositing taxpayer receipts more promptly. This matter was seriously considered by both the Department and the Public Accounts Committee. As a result, changes to the practices and procedures surrounding these deposits have already been undertaken.

In a third report in 1997-98 involving Revenue Canada (along with the Department of Finance), we concluded that work undertaken by the two departments did not adequately explain the $400 million decrease in net GST revenue. In the report we suggested an appropriate process for analyzing changes in the GST and in other revenue streams. The process used to analyze such fluctuations is now being re-engineered.

Extent to which parliamentarians , Crown corporation boards of directors and other users of our audit products were assured that operations were conducted in compliance with the relevant legislative framework, and the required rules and regulations.

• Seven value-for-money chapters dealing with compliance with authority issues.
• The Office participated in a hearing of the Public Accounts Committee on the management of capital projects by Indian and Northern Affairs Canada (On-Reserve Capital Facilities and Maintenance; Escalating Costs of On-Reserve Water Supply Projects).

In 1997-98, the following improvements have been noted:

• National Defence has developed a formal approval process for intelligence priorities to ensure that the activities of its military intelligence division are approved at the ministerial level.
• Our follow-up audit of on-reserve capital and maintenance by Indian and Northern Affairs Canada resulted in more rigorous requirements for tendering federal construction contracts by that department.
• Revenue Canada will ensure that its licensing of land border duty free shops will comply with regulations and policies.

Contribution to reducing the risks of wrongdoing, conflict of interest and fraud, and to maintenance of sound ethics and values.

• In 1997-98, 32 complaints of wrongdoing were referred to our Forensic Audit Section.
• Since 1992-93, 615 complaints of waste, mismanagement and wrongdoing have been screened by our Forensic Audit Section; 178 complaints related to wrongdoing were retained for further review, 104 files were closed, 35 complaints were found to be supported and 74 files were under review.
• We have maintained ongoing vigilance related to fraud and administrative abuse.
• In response to a special request by the government, we published an audit report on the Canada Labour Relations Board.

Ethics, values and fraud awareness:

As a result of our audit of the Canada Labour Relations Board, there will be more accountability for the actions and the spending of Governor in Council appointees, due to the following administrative changes:

• Agencies that establish their own travel policies will be required to publish those travel policies and the resulting additional costs in their reports to Parliament.
• Standards of conduct for Governor in Council appointees have been clarified.
• Clearer rules have been established for travel and hospitality expenses of Governor in Council appointees.
• The need for the government to establish policies for settling legal disputes within departments and agencies has been identified.
• The role of the senior financial officer as protector of public assets has been strengthened.

Refers to opportunities to reduce costs or achieve more with resources provided.

• Five reports have been issued on special examinations of Crown corporations.
• Work under way on six special examinations (third cycle).

Extent to which ministers and Crown corporation boards of directors found our special examination reports useful.

• Five reports have been issued on special examinations of Crown corporations.
• Work under way on six special examinations (third cycle).

• Assurance has been provided to ministers and Crown corporation boards of directors about the adequacy of management systems and practices following our special examinations. For instance, in the second special examination cycle for one Crown corporation, we had reported a significant deficiency in the safeguarding and protection of assets. In our third-cycle report, we noted that numerous changes had been made to correct the deficiency.

Reliability and usefulness of information provided to Parliament and management for monitoring and decision-making purposes.

• Auditor General's annual award of excellence in annual reporting by a Crown corporation.
• Value-for-money report on the management and reporting of performance by Crown corporations.

• Since the award's inception in 1994, we have noted significant improvement in the quality of reports submitted by Crown corporations to Parliament (annual report and corporate plan summaries).
• Improvement has been noted in the performance measures adopted by several corporations and in their reporting.

Amount of audit work carried out on the government's efforts in environmental issues and sustainable development strategies.

• Ten value-for- money chapters, three of which were follow-ups to previous audits, dealing with environmental and sustainable development issues.
• Nine parliamentary committee hearings at which the OAG gave information and advice related to findings in our chapters.
• First complete review of the sustainab le development strategies (SDSs) of 28 departments and agencies along with each related action plan.
• A series of workshops with federal department managers was undertaken with a focus on identifying and measuring performance indicators .
• A data base listing all international environment agreements was created and put on the Internet.
• A publication entitled Mapping the Journey: Case Studies in Developing and Implementing Sustainable Development Strategies was prepared and distributed.

Impact on the environment

In our audits, we have covered a broad range of topics, from the government's initiatives to protect the ozone layer to its efforts at controling the movement of toxic wastes. Our tracking of references in the House of Commons and the Senate to the OAG's work on environmental issues shows an increase from last year. Our strategy to better inform parliamentarians about environmental issues seems to be having an impact. During this fiscal year, there has also been an increase in the number of parliamentary committee hearings dedicated to discussion of the issues presented in our audit reports. Both our Office staff and senior managers of the respective departments attended committee hearings as witnesses. Some of the issues debated in this forum included:

• the lack of adequate information on federal contaminated sites throughout Canada;
• problems with emergency measures in case of accidents involving oil or chemicals;
• the factors that led to the failure of The Atlantic Groundfish Strategy; and
• enforcement of regulations dealing with the transboundary movement of hazardous waste. Our chapters often prove useful to the committees because they offer a cross-jurisdictional look at a particular government program. The result is a more complete picture of the elements causing a particular government initiative to falter, along with the potential solutions. For example, the report on the movement of hazardous waste points to the respective roles of Environment Canada and the provinces, and the report on Contaminated Sites points to roles of Environment Canada and Treasury Board Secretariat. These issues were discussed during two separate committee meetings with the Environment Committee.

Two reports have been issued by parliamentary committees making use of our findings: Fisheries and Oceans Canada - Pacific Salmon: Sustainability of the Resource Base and Kyoto and Beyond: Meeting the Climate Change Challenge. As a result, Fisheries and Oceans officials will be establishing a schedule for regular reviews of its salmon habitat policies and practices and will report to parliamentarians on the results of those reviews.

Encouraging good practices

In a concerted effort to provide practical assistance to the government on sustainable development, we have attempted to "package" the knowledge we have gathered and disseminate it. For example, our chapters this year included 57 references to good management practices, compared with 15 in the previous year. Also, we have put together a series of workshops for departmental managers on the subject of performance indicators, and created a data base listing all international agreements and their features. We have also distributed a booklet on selected case studies.

Independent financial audit of the Office of the Auditor General and issuance of an auditor's report

1998

• Qualified auditor nominated by Treasury Board.
• Conducted each fiscal year.
• Auditor examines the receipts and disbursements of the Office, and annually reports the outcome of the examinations to the House of Commons through the President of the Treasury Board.
• Done in accordance with section 21(1) and (2) of the Auditor General Act.

Provincial chartered accountants institutes/ordre practice inspection programs

Periodic - depends on province

• Purpose of inspection is to ensure that a practising member (in this case, the OAG) who employs one or more accounting students provides practical experience and instruction and affords opportunities that will enable the student to acquire the art, skill, science and knowledge of a chartered accountant.
• Inspections done at various times depending on institute/ordre.
• OAG is the only federal organization where chartered accounting students can fulfil their educational requirements and secure practical experience.

OAG Quality Review Program

Regularly

• Our Professional Practices and Review Group (PPRG) conducts two types of reviews to assess quality in the Office. Practice Review focussed on 16 annual financial attest audits and two value-for-money audits to provide assurance to the Auditor General on the quality of Office products and their compliance with key controls and Office and professional standards. Review and Internal Audit focussed on internal management and administration of Information Technology and Human Resources in the Office, to assist senior management by providing independent information, analysis, assessments and recommendations.

OAG Quality Management System

1998

• An Office Quality Management System that will apply to all Office products is under development. Steady progress has been made in identifying areas for improvement in the system's three components: audit management, people management and continuous learning. As part of this exercise, "fitness tests" have been conducted against benchmarks established for high-quality organizations.

1998-99 Estimates of the Office of the Auditor General - appearance before the Public Accounts Committee

1998

• Appearance before the Public Accounts Committee to explain the subsequent year's spending estimates and answer questions on the management practices of the Office.

Notes:

Numbers in italics denote Total Authorities for 1997-98 (main and supplementary estimates and other authorities).

"Operating" includes contributions to employee benefits plans and the salary of the Auditor General.