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1981 Report of the Auditor General of Canada

1981 Report

Appendix C—Reports of the Standing Committee on Public Accounts to the House of Commons

REPORT TO THE HOUSE

Friday, November 21, 1980

The Standing Committee on Public Accounts has the honour to present its

SECOND REPORT

2. The cooperation of the witnesses who appeared before your Committee is acknowledged and appreciated.

Recommendation

Background

Efficiency

6. The Auditor General has tried to determine what constitutes due regard for efficiency. His basic point of departure is that the public service managers should monitor their operations and actively seek means of increasing efficiency. To guide his audits of efficiency, he has established a set of audit criteria. Briefly, they are:

(a) measures of performance should be relevant and accurate;

(b) performance should be adequate in comparison to the standard;

(c) reports should be tailored to management needs;

(d) performance data should be used to achieve productivity improvement; and

(e) productivity measures and reports should be kept current.

7. Your Committee endorses the audit criteria drafted by the Auditor General. It believes that the criteria represent minimum acceptable standards by which to judge management performance in measuring and improving efficiency. Furthermore, in testimony and written evidence before your Committee, the Office of the Comptroller General and departments whose performance measurement systems were examined, supported the audit criteria.

8. The evidence submitted to your Committee shows that most of the performance measurement systems examined by the Auditor General failed to satisfy these criteria. Your Committee examined two case histories. In one, External Affairs-Passport Office, the operating controls were generally satisfactory; in the other, Post Office-Mail Processing, management efforts did not meet the standards embodied in the audit criteria.

9. In your Committee's opinion, the performance measurement systems reviewed by the Auditor General exhibited substantial weakness in management control. Testimony indicated general concern for improved management processes. Departments have submitted extensive documentation describing their efforts to strengthen management controls. The Comptroller General has placed emphasis on performance measurement systems in his IMPAC project.

10. The emphasis on improving efficiency is not new. Submissions and testimony have revealed that in 1973, the Treasury Board directed departments and agencies to institute systems to monitor efficiency. A further circular that was issued by the Treasury Board in 1976 indicated that performance measurement implementation should be accelerated and completed by 1980. Your Committee has noted that the President of the Treasury Board has tabled two progress reports in the House, indicating the successes and the problems of implementing performance measurement systems.

11. As a result of his audit investigations, the Auditor General concluded that only two of the sixteen systems examined were considered satisfactory. Most of the performance measurement systems reviewed did not play an important part in the program management process. They generally did not satisfy the information needs of the operating manager who must make the day-to-day decisions required to control productivity. In most operations, management did not know the actual level of efficiency or how much it might be increased. In most labour intensive situations, there was insufficient effort to increase productivity.

Test of Efficiency

13. Because of limited resources and a desire to work in cooperation with departments, the test was subject to a number of potential biases. These biases, primarily the non-random selection of units to be audited, meant that the test was not conducted according to a rigorous statistical design. In each case, the bias was recognized and was treated in a manner which would tend to be favourable to the efficiency results. In other words, the efficiency results tend to overstate the actual level of efficiency achieved in the units that were examined. The test showed an average efficiency of about 60 per cent against engineered standards. Strictly speaking, this result cannot be generalized to the population of CRs. Nevertheless, it presents compelling evidence that efficiency is probably below the minimum acceptable level of 80 per cent.

14. Your Committee judges it extremely unlikely that there are many units operating under the same conditions as those studied which are achieving the minimum acceptable level of efficiency of 80 per cent. The test therefore indicates that there are substantial opportunities for improvements in efficiency among the CR group. Because of the general weakness absence of performance measurement systems, your Committee concludes that equivalent opportunities for improvement are widespread throughout government.

15. This situation is a matter of considerable concern. It presents a major weakness in the systems whereby managers in government indicate their expectations of employees and monitor the extent to which those expectations have been fulfilled. Your Committee recognizes that a test of efficiency does reflect on employees. Efficiency is a responsibility of management. Improving efficiency is by no means simple. Its importance leads your Committee to urge prompt and continuing attention to performance measurement by the Government.

16. A copy of the relevant Minutes of Proceedings and Evidence ( Issues Nos. 5, 8 and 9 of the First Session of The Thirty-First Parliament and Issues Nos. 1, 6 and 13 of the First Session of the Thirty-Second Parliament ) is tabled.

Respectfully submitted,

Bill Clarke

Chairman

REPORT TO THE HOUSE

Wednesday, January 14, 1981

The Standing Committee on Public Accounts has the honour to present its

THIRD REPORT

2. The co-operation of the Honourable Erik Nielsen, Minister of Public works at the time of his appearance, and the other witnesses who appeared before your Committee is acknowledged and appreciated.

3. In 1977-78 the Auditor General completed a special study of the practices followed by government in entering into and administering contracts for construction and for the acquisition of goods and services. Your Committee reviewed the findings of the Auditor General and heard testimony on the government-wide issues from the Treasury Board Secretariat, the Office of the Comptroller General, the Department of Supply and Services, and the Department of Public works.

4. Your Committee was informed that the Auditor General examined 1528 contracts, selected on a representative basis with a total value of $3 billion.

5. The Auditor General reported that some Government Contract Regulations have been misinterpreted; he also revealed a number of weaknesses and deficiencies in contract administration at the government-wide level in the areas of:

(a) competitive tendering;

(b) pricing methods and payment terms;

(c) contract approvals in emergency situations;

(d) departmental delegations of authority;

(e) commitment authority; and

(f) payment of contractors' accounts.

The Auditor General made some specific recommendations in these areas.

6. In their submission before your Committee in November 1979, officials of the Treasury Board Secretariat acknowledged the criticisms of the Auditor General and responded positively to each of the four government-wide recommendations made by the Auditor General by issuing the following documents:

(a) Circular No. 1978-54 - Preparation of Submissions for approval of Contracts, December 6, 1978 (now superseded by Appendix E to Chapter 310 of the Administrative Policy Manual);

(b) Chapter 312-Administrative Policy Manual-Article 7, Contracting for Consulting and Professional Services, September 1979; and

(c) Circular No. 1979-20 - Directives on Cost Control, July 27, 1979.

7. In November 1980, as a result of a request from your Committee, Treasury Board officials reported a number of continuing significant deficiencies and deviations in contract administration. They range from a lack of compliance in the policy areas relating to employer-employee relationships and cost-effectiveness to the relatively high use of retroactive and sole-source contracts. It was reported that a significant proportion of contract submissions lacked essential information and did not comply with Treasury Board directives.

8. Your Committee concludes that the Treasury Board action to revise and update government policy and guidelines on contracting and cost control is a positive response to improving contract administration. However, your Committee recognizes the continuous need for monitoring compliance in this area as evidenced by the Treasury Board's update of November, 1980.

9. The Auditor General also revealed that a significant number of contracts were not awarded under a competitive tendering process but on an exception basis under Section 8 of the Government Contract Regulations. This Section requires that tenders be invited before entry into contract except where:

(a) the need is one of pressing emergency in which delay would be injurious to the public interest; or

(b) the estimated expenditure involved does not exceed $15,000; or

(c) the nature of the work is such that it would not be in the public interest to invite tenders; or

(d) only one person is capable of performing the contract.

10. Testimony and evidence submitted to your Committee showed that of the 281,920 contracts awarded by the Department of Supply and Services-Supply Administration in fiscal year 1976-77, 89,659 contracts or 31.8 per cent totalling $1.8 billion were in the sole-source category. Of this amount, $935 million were for major contracts in' defence. Your Committee recognizes the fact that certain circumstances justify the non competitive selection of a contractor. However, your Committee holds the view that the contract regulations for the category of exception are open to either misinterpretation or avoidance of the purpose and intent of Section 8, because of the reliance in large measure upon a subjective test for qualification.

11. Your Committee recommends that:

(a) the Treasury Board adopt stronger measures to ensure that departments and agencies comply with Government Contract Regulations;

(b) the Comptroller General ensure that the internal audit function monitors compliance;

(c) the Auditor General continue to follow up on those areas where deficiencies and deviations have been identified;

(d) the Treasury Board undertake a special review of Section 8 of the Government Contract Regulations for the purpose of defining the four exceptions with greater objective precision; and

(e) the Auditor General proceed with an evaluation of the use of the exceptions under Section 8 of the Government Contract Regulations.

12. Your Committee respectfully seeks an early response from the Government to the above recommendations in order that it be informed of the corrective action taken.

13. A copy of the relevant Minutes of Proceedings and Evidence ( Issues Nos. 2, 3 and 13 of the First Session of the Thirty-First Parliament and Nos. 16 and 18 of the First Session of the Thirty-second Parliament ) is tabled.

Respectfully submitted,

Bill Clarke

Chairman

REPORT TO THE HOUSE

Friday, February 20, 1981

The Standing Committee on Public Accounts has the honour to present its

FOURTH REPORT

Introduction

3. The co-operation of the witnesses who appeared before your Committee is acknowledged and appreciated.

Summary of Recommendations

(a) that the Government introduce legislation which would authorize the Auditor General to put into effect a program of comprehensive auditing in wholly-owned Crown corporations (see paragraph 12 of this Report); and

(b) that the decision to conduct a comprehensive audit be based on the results of a preliminary survey and be concurred in by the corporation's Board of Directors (see paragraph 13 of this Report).

Analysis of Testimony

"... the auditor shall call attention to any other matter falling within the scope of his examination that in his opinion should be brought to the attention of Parliament."

7. The Auditor General noted that commercially-oriented Crown corporations should be included in the comprehensive audit program because of the all-inclusiveness of the ownership principle and in order to assure management of the adequacy of the financial management and reporting procedures they already have in place. He gave assurances that comprehensive audit reports would be made through the Board of Directors of each corporation.

8. Your Committee sought the views of three Crown corporations known to have differing opinions concerning comprehensive auditing.

9. The Canadian Broadcasting Corporation (CBC) fully endorses the principle of comprehensive auditing for ensuring economy and efficiency in its operations. However, the CBC has a number of reservations:

(a) the methodology of comprehensive auditing has not been developed fully;

(b) responsibility for development of systems should remain with the corporation; and

(c) it would be inappropriate "... to attempt to audit the largely non-normative and non-quantifiable determination as to the CBC's "effectiveness" in its programming".

10. Eldorado Nuclear Ltd. is firmly opposed to comprehensive auditing for a number of reasons:

(a) comprehensive auditing is not appropriate for a commercially-oriented Crown corporation;

(b) comprehensive auditing would undermine the role of its Board of Directors;

(c) excessive time demands on management would result; and

(d) the methodology of comprehensive auditing has not been developed fully.

11. Export Development Corporation is unique among the three corporations appearing before your Committee in that it is the only Crown corporation to have actually undergone a comprehensive audit. The Board of Directors and management of Export Development Corporation considered their comprehensive audit to be a very useful and productive exercise. They recommended, however, the following:

(a) involvement of the Board of Directors in the planning and direction of the audit; and

(b) extension of the comprehensive audit time-frame from the present six to eight months to a two-year period in order to reduce management overload.

Conclusions and Recommendations

13. Your Committee concludes that comprehensive auditing should be applied on a selective basis and recommends that the decision to conduct a comprehensive audit be based on the results of a preliminary survey and be concurred in by the corporation's Board of Directors, provided that in the absence of such concurrence, the Auditor General may take such further action as he deems necessary or advisable.

14. Your Committee concludes that the position taken by the Export Development Corporation with respect to the desirability and feasibility of the comprehensive audit is both satisfactory and acceptable.

15. Your Committee is of the opinion that the position taken the Canadian Broadcasting Corporation with respect to the efficiency and economy aspects of comprehensive auditing is reasonable. However, your Committee considers that there is no reason why the Auditor General should not conduct a comprehensive audit including a review of the Corporation's procedures for evaluating the effectiveness of its entire relations.

16. Your Committee concludes that the position of Eldorado Nuclear Ltd. is unacceptable; that the refusal of that Corporation to involve itself in a comprehensive audit cannot be satisfied for the reasons stated; and that a comprehensive audit could benefit the Corporation.

17. A copy of the relevant Minutes of Proceedings and Evidence ( Issues Nos. 7, 8, 15 and 23 of the First Session of the Thirty-second Parliament ) is tabled.

Respectfully submitted,

Bill Clarke

Chairman

REPORT TO THE HOUSE

Wednesday, April 8, 1981

The Standing Committee on Public Accounts has the honour to present its

FIFTH REPORT

2. The co-operation of the witnesses who appeared before your Committee is acknowledged and appreciated.

3. Your Committee heard testimony on the decisions taken by AECL:

(a) to mothball its La Prade heavy water plant;

(b) to seek forgiveness of the loans from the Government of Canada for the La Prade, Glace Bay and Port Hawkesbury heavy water plants; and

(c) to continue producing heavy water at the Glace Bay and Port Hawkesbury plants.

4. Testimony revealed that the decision in 1973 by AECL to build the La Prade heavy water plant was based on both Canadian and world forecasts of demand for nuclear-generated electricity which were greatly overestimated. Given that the demand for heavy water failed to materialize in the last decade and that excess capacity has been created by new planned production facilities outside the AECL program, your Committee concurs with the corporation's decision in 1978 to mothball the incomplete La Prade plant.

5. With respect to the AECL decision to seek forgiveness of the loans from the Government of Canada for the construction of the La Prade plant and for the acquisition and rehabilitation costs associated with the Glace Bay and Port Hawkesbury plants, your Committee notes that the Government has obtained the approval of Parliament for such forgiveness by means of a supplementary estimate. Your Committee is concerned that indebtedness of this nature and magnitude, caused by miscalculation in AECL forecasting of domestic and world demand for heavy water, has developed. Furthermore, your Committee questions AECL's plans to stockpile heavy water at an annual cost in excess of $100 million with no reasonable expectation of immediate sales. Your Committee is greatly concerned that this will lead to further requests for forgiveness of unmanageable debt. Your Committee has not been made aware of any specific safeguards to prevent the recurrence of such indebtedness.

6. The Auditor General observed in his 1980 Report that AECL was carrying the three heavy water plants at a total depreciated net book value of $765.4 million as of March 31, 1980 and questioned whether the book value of the plants was reasonable. The corporation holds the view that the La Prade plant has no commercial value and that this asset should be written off and that the assets of the other two plants should be written down in light of the forgiveness of the loans.

7. The management of AECL reported that progress had been made in implementing the recommendations of the Financial Management and Control Study. The Auditor General has not had the opportunity to confirm this.

Conclusions and Recommendations

9. Your Committee concludes that AECL's major difficulty in capturing overseas markets is Canada's nuclear safeguards policy which insists upon additional bilateral agreements over and above the International Atomic Energy Agency standards to which all Non-Proliferation Treaty member nations must conform, thereby effectively excluding AECL from foreign markets.

10. Your Committee recommends that:

(a) the Government and AECL take measures to increase export sales of CANDU reactors or abandon this program;

(b) the corporation make contingency plans for the closure or mothballing of one or both of its heavy water plants and that these plans be reported to Parliament;

(c) the management of AECL put in place sound planning and control mechanisms or other safeguards so that it will not incur indebtedness that cannot be repaid by the corporation; and

(d) the Auditor General undertake, before the end of 1981, a preliminary survey for a comprehensive audit of AECL.

11. A copy of the relevant Minutes of Proceedings and Residence ( Issues Nos. 18, 19, and 30 of the First Session of the Thirty-second Parliament ) is tabled.

Respectfully submitted,

BILL CLARKE

Chairman

REPORT TO THE HOUSE

Tuesday, June 23, 1981

The Standing Committee on Public Accounts has the honour to present its

SIXTH REPORT

2. The co-operation of the witnesses who appeared before your Committee is acknowledged and appreciated.

3. Your Committee heard testimony on the major issues arising from the comprehensive audit of the Department, with emphasis on:

(a) the audit of Indian Band trust accounts and the scope of the Auditor General's audit role with respect to these trust accounts;

(b) the transfer of program delivery responsibilities from the Department to Indian Bands;

(c) financial controls over contributions to Indian Bands and the Indian Economic Development Account; and

(d) clarification of the mandate of the Department.

4. In response to an Order of the House made November 15, 1979, the Auditor General has audited a statistical sample of the transactions related to Indian Band trust accounts for the fiscal year 1979-80. He is of the opinion that receipts and disbursements for that year are properly recorded. With regard to previous years, he concludes that because of the unavailability of certain departmental records, an extended audit would be inconclusive and very costly. Your Committee shares this view.

5. The Department has proposed a plan to conduct an internal audit of the 1,146 trust accounts within the next three years. The Auditor General has indicated his willingness to monitor the implementation of this audit plan and assess its methodology. However, representations by the Department and the Auditor General have not yet been made to the Indians and such representations would be advisable in light of the fiduciary nature of the accounts and the fact that the National Indian Brotherhood and 75 Band Councils has requested that the Auditor General undertake audits of individual trust accounts.

6. The Department stated the underlying principle that governs transfers of program delivery responsibilities to Indian Bands, viz., that Indians should have the responsibility for managing their own communities and providing their own services. While this principle is laudable, your Committee is concerned that a number of the major deficiencies in the administration of these transfers have not yet been adequately addressed by the Department. These are the need to:

(a) upgrade the capabilities of those Indian Bands and Band Councils requiring the same so that they can cope with responsibilities transferred to them;

(b) appoint a "Commissioner" to be responsible for the adequacy of the transfers and control of related departmental overhead;

(c) ensure that the interests of departmental employees are not adversely affected by such transfers (e.g. teachers' job security);

(d) ensure that individual Indians have adequate means of redress if their interests are adversely affected by transfers to a negligent Band Council; and

(e) hold the Department accountable for the implementation of its "General Management Improvement Plan" so that legislative or other measures can be adopted as soon as possible to rectify the deficiencies noted in this paragraph.

7. Your Committee noted that expenditures by Indian lands are not subject to appropriate accountability processes. The Indians have voiced concerns about inflexible conditions they are required to meet under current contribution agree-ments. The Department has responded by initiating negotiations with Treasury Board to develop an accountability process which is more appropriate both for the Indians and the Government. Your Committee has sought and has not yet received clarification of the status of these negotiations between Treasury Board and the Department. Your Committee has also not been made aware of the timetable for the resolution of this problem.

8. Your Committee is concerned that the interest rate for funds made available through the Indian Economic Development Account (2% above prime) is unduly high by comparison with rates levied under other federal programs. For example, he Farm Credit Corporation's mortgage interest rate is only 14%.

9. Your Committee noted that the Office of the Comptroller General and the Department have taken measures to improve the administration of the Indian Economic Development Account and have attempted to respond to many of the serious weaknesses in the financial control of the Account identified by the Auditor General. However, your Committee is concerned that the following important problems have not yet been adequately addressed:

(a) a satisfactory definition of the goals of the Account is lacking;

(b) the excessive level of departmental overhead charged to the administration of this program; and

(c) the misuse of the Account such as ill-advised loans for overly large and ambitious projects.

10. Your Committee is concerned that the Department take the necessary steps to clarify its mandate, especially in light of the absence of specific objectives, plans or goals against which its achievements can be measured. This has been an underlying cause of its management control weaknesses. Your Committee wishes to see the implementation of the Department's IMPAC action plan for improvements in this area. Your Committee will review the Department's directional and strategic plans at a later date to ascertain what progress has been made.

Conclusions and Recommendations

12. With respect to the transfer of program delivery responsibilities to Indian Bands, your Committee concludes that:

(a) many Indian Bands are unable to cope with transferred responsibilities;

(b) excessive overhead costs have been charged to the administration of the transfers; and

(c) there are many deficiencies in the transfer program.

13. Your Committee therefore recommends that:

(a) the Auditor General undertake an audit of one or more individual Indian Band trust accounts and that he and the Department consult with representatives of the Indians to ascertain the scope of his examination of the accounts;

(b) the Auditor General monitor the implementation of the Department's internal audit plan for trust accounts;

(c) the Department appoint a "Commissioner", who would be the designated senior official in the Department to be held accountable for the transfer of responsibilities to Indian Bands;

(d) Treasury Board take measures to expedite and conclude its negotiations with the Department over the establishment of appropriate controls for contributions to Indian Bands;

(e) the Department immediately define and implement the goals of the Indian Economic Development Account;

(f) the Department immediately define its mandate; and

(g) the Department provide to your Committee by September 1, 1981 a timetable of proposed implementation dates for the foregoing recommendations.

14. A copy of the relevant Minutes of Proceedings and Evidence ( Issues Nos. 27, 28, 29 and 35 of the First Session of the Thirty-second Parliament ) is tabled.

Respectfully submitted,

BILL CLARKE

Chairman

REPORT TO THE HOUSE

Tuesday, June 23,1981

The Standing Committee on Public Accounts has the honour to present its

SEVENTH REPORT

2. The co-operation of the Honourable Jeanne Sauvé, Speaker of the House of Commons, and the other witnesses who appeared before your Committee is acknowledged and appreciated.

Introduction

4. In a final Report for the Speaker in April 1980, the Auditor General proposed an action plan which was accepted. This plan called for the appointment of an Administrator, with deputy head status, to provide leadership and direction for administrative functions. The Clerk of the House was to remain the senior permanent deputy head, responsible for procedural matters. The Sergeant-at-Arms, also with deputy head status, was to be responsible for ceremonial duties as well as for security and access to buildings and other services. All three officials were to report directly to the Speaker and were to constitute an Executive Committee with the Speaker as Chairperson.

5. The action plan also called for the appointment of a Comptroller and a Director General, Human Resources, each reporting directly to the Administrator, and for the development and implementation of policies and procedures necessary to provide effective financial, personnel and operating practices in the House of Commons.

Organization of the House of Commons

7. Your Committee recognizes that the reorganization of the functional responsibilities of the three senior officials and their reporting relationships, as shown on a House of Commons Organization Chart, dated October 1, 1980, is experimental at this stage. It may be formalized later by amendments to legislation and the Standing Orders as necessary but only if it proves to be operationally efficient and effective.

8. However, your Committee has the following concerns:

(a) the current division of functional responsibilities is a compromise to satisfy short-term needs rather than a solution for long-term organizational problems;

(b) the organizational structure as proposed by the Auditor General in his 1980 Report and subsequently modified and implemented by the Speaker may need to be further modified to consolidate administrative functions in order to avoid overlapping responsibilities and to strengthen the management and accountability processes; and

(c) the methods of appointing senior officers are inconsistent.

9. Your Committee does not intend to recommend any changes in the current organization of the House of Commons at this time. However, it will review the situation at the end of the current fiscal year to determine whether or not it is satisfied that progress has been made by the senior management in achieving its objectives under these new organizational arrangements and that there has been due regard for economy, efficiency and effectiveness.

Need for an Action Plan

11. The Auditor General's action plan, adopted in April 1980, included the recommendation that the Speaker:

"Develop and implement the policies and procedures necessary to provide effective financial, personnel and operating practices in the House... Leadership in this task should be provided by the Administrator".

12. A copy of the relevant Minutes of Proceedings and Evidence ( Issues Nos. 20, 21, 22 and 35 of the First Session of the Thirty-second Parliament ) is tabled.

Respectfully submitted,

BILL CLARKE

Chairman