This Web page has been archived on the Web.

1985 Report of the Auditor General of Canada

1985 Report

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

REPORT TO THE HOUSE

Monday, February 11, 1985

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

FIRST REPORT

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

3. Your Committee has received the Department's updated response to the Auditor General's audit observations, as of December 31, 1984. Your Committee is not satisfied with this response.

A - Paragraphs 3.50-55: Inadequate Accounting for Contributions of $500 Million to Indian Bands

4. Your Committee notes that the Department's contribution payments to Indian bands, under Treasury Board's regulations, are conditional on the achievement of results which are subject to audit verification. The Department, following Government policy, has been transferring program delivery responsibilities to Indian bands. Implicitly, the transfer process gives Indian bands the responsibility to monitor performance under contribution arrangements. This is at odds with the Department's continuing responsibilities under these same arrangements for the stewardship of public funds.

5. The Auditor General informed your Committee that the transfer process had not been adequately planned and implemented, a situation that was unchanged from the findings of his 1980 comprehensive audit. Financial controls over contributions to Indian bands continued to be weak. One effect of this situation was that the independent auditors of many Indian bands either qualified or denied opinions on bands' financial statements.

6. The need for the Department to negotiate with Treasury Board to put in place a satisfactory system of financial controls over contributions to Indian bands was recognized by your Committee in its Sixth Report of June, 1981 (1st Session, 32nd Parliament). At that time, your Committee recommended that the Department and Treasury Board "expedite and conclude (their) negotiations... over the establishment of appropriate controls for contributions to Indian bands" (Paragraph 12(d)).

7. Your Committee heard testimony that the Department had not made a submission to Treasury Board with respect to financial controls over contributions to Indian bands since 1982. Your Committee also heard that the Department's 1982 submission was deficient and that Treasury Board had requested a new submission prior to approving any further transfers of responsibilities to Indian bands. Your Committee considers the Department's inaction in this regard to be an extremely urgent matter and supports the position of the Treasury Board not to approve further transfers until the Department has made an acceptable submission.

B - Paragraphs 3.56-59: Questionable Safeguards over the Release of Indian Capital Moneys

8. Your Committee heard from the Auditor General that the Department has released funds from Indian capital accounts based on a broad and possibly inaccurate interpretation of Section 64 of the Indian Act. This section of the Act allows the Department to release these funds, with the consent of the council of a band, for a number of specific purposes. However, the Auditor General found that in some cases the Department failed to consult with the band membership on expenditures and that the Department's procedures to ensure that moneys were spent for an authorized purpose were inadequate. All of this, in the Auditor General's view, exposed the Crown to potentially significant future legal liability.

9. The Auditor General noted that the Department has not followed the advice of the Department of Justice to seek a judicial opinion from the courts.

10. Your Committee considers that the Department must safeguard the Crown's interests. The Department should retain professional trust administrators and should use all procedures currently available to ensure that funds are legally released. The Department should also consider how to establish a non-governmental trust fund management system that will ensure proper financial administration and serve the diverse interests of Indian bands.

C - Paragraphs 3.60-68: Reimbursement of Education Costs Without Parliamentary Authority; Education Costs Paid Twice; and Loss Due to Unauthorized Issue of Timber Licence

11. In the case of the Department's reimbursement of education costs without Parliamentary authority, your Committee was concerned both by the disregard for Parliamentary authorization and by the inadequate monitoring of land tenure by the Crown which is the basis for the Department's funding of Indian education under the Indian Act. The Department's failure to seek a Supplementary Estimate when it sought public funds outside its statutory authority had the effect of hiding its activities from Parliamentary scrutiny.

12. With regard to the double-payment of education costs, your Committee believes that this case illustrates very well the consequences of inadequate financial controls over contributions to Indian bands. Your Committee was also concerned by the Department's preferential treatment of a provincial government as a creditor.

13. In the case of the loss due to an unauthorized timber licence, your Committee noted that, in addition to negligence in the licence renewal process, there had been inadequate consultation with the Indian band on whose lands the timber was cut.

Recommendations

(a) the Department take urgent action on the following matters:

(i) the establishment of appropriate controls for contributions to Indian bands (Paragraph 6) as was recommended in your Committee's Sixth Report of June, 1981;

(ii) the implementation of procedures to ensure that Indian capital moneys are professionally administered and disbursed in accordance with law (Paragraph 10);

(iii) the implementation of sound procedures to ensure that the Department will always have proper Parliamentary authorization for its expenditures (Paragraph 11);

(iv) the improvement of existing financial controls (Paragraph 12); and

(u) the adoption of improved procedures for consultations with Indian bands (Paragraph 13).

(b) the Department report to the Auditor General with regards to an action plan for the implementation of the recommendations mentioned in (a) above by April 30, 1985;

(c) the Auditor General assess the aforementioned report of the Department and report his findings to your Committee by May 31,1985;

(d) the Minister immediately seek a judicial opinion regarding the correct interpretation of Subsection 64(k) of the Indian Act in order to ensure that the Crown is not exposed to any future legal liability.

15. A copy of the relevant Minutes of Proceedings and Evidence ( Issues Nos. 4 and 10 which includes this report ) is tabled.

Respectfully submitted,

AIDEEN NICHOLSON

Chairman

REPORT TO THE HOUSE

Monday, April 1, 1985

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

SECOND REPORT

2. In April, 1984, in its Second Report (2nd Session, 32nd Parliament), your Committee addressed many of the issues now before it with respect to the accommodation of government departments. At that time, your Committee found serious fault with the procedures of the Department of Public Works. In its present meetings, on the comprehensive audit of the Department, your Committee has seen little or no evidence of improvement. There continues to be a lack of cost-consciousness in the expenditure of public funds. Accommodation continues to be acquired without due regard for economy.

3. Your Committee noted the response of the Minister of Public Works to its April, 1984 Report. In a letter dated February 28,1985, the Minister assured your Committee that the Department of Public Works will follow directives, policies and procedures for providing office accommodation as laid down by Treasury Board.

4. In a statement before your Committee, the newly appointed Deputy Minister of Public Works outlined the specific action plans his Department intends to develop and execute in order to improve the accountability and management practices of the Department.

Recommendation

Compliance with Treasury Board Rules

7. Treasury Board officials stated that it was "normal" that waste and mismanagement were identified through consideration of the Auditor General's findings in a Parliamentary committee. Your Committee takes strong exception to this point of view. Treasury Board must ensure that proper controls are exercised and that its rules are complied with in order to avoid misuse of public funds.

8. Your Committee noted the Auditor General's finding that Treasury Board rules governing the accommodation of government departments, if followed, were adequate to ensure due regard for economy.

9. Your Committee considers a sound working relationship between the Department and Treasury Board to be the foundation of a well-managed accommodation program. Your Committee was therefore greatly concerned by the inept and ineffective reporting practices that were revealed in the testimony. For example, the authority to lease a large Ottawa building (Place de Ville, Tower C) was not complete and was left that way over a two-year period, until discovered by the Auditor General. This resulted in a retroactive approval of a major transaction. Your Committee also heard that a $42 million increase in the cost of a lease was authorized by a late-night telephone call and that Treasury Board approved a major submission from the Department that was incomplete in important respects.

10. Your Committee wishes to emphasize in the strongest possible terms its concern that Treasury Board insist on compliance with its policies and effectively monitor their implementation. Your Committee heard from the Auditor General that Treasury Board rules and regulations have been abused and ignored. For example, many departments do not follow Treasury Board rules governing utilization of office space. This resulted in departments occupying up to 305,000 square metres of office space in excess of Treasury Board standards, at an annual cost to the taxpayer of approximately $120 per square metre.

11. Another important example of non-compliance with Treasury Board rules was the failure to enforce mandatory public tendering of lease proposals. In this regard, a witness stated that there was direction from Treasury Board to the Department to negotiate directly with a single contractor (the Campeau Corporation) rather than call public tenders. As a result, a $135 million lease (Journal Towers in Ottawa) was entered into without public tender when alternative space was available elsewhere at lower cost.

12. It has become increasingly evident to your Committee that there is a need for stronger controls within the Treasury Board and within departments and agencies to ensure that compliance with government regulations, policies and directives is taking place.

Recommendations

(a) The Minister of Public Works designate a senior official of his Department, at the Associate Deputy Minister level, to be a comptroller or "accounting officer" to ensure that all departmental submissions comply with the Treasury Board's regulations, policies and directives respecting accommodation and to ensure that there is proper and effective communication between the Department and Treasury Board;

(b) The President of the Treasury Board designate a senior official to ensure that all departmental submissions respecting accommodation comply with Treasury Board's regulations, policies and directives and where necessary, enforce compliance;

(c) The Treasury Board re-examine its common services policy in terms of responsibilities delegated to Public Works as the common services organization responsible for accommodation and amend this policy to enable enforcement by the Treasury Board; and

(d) The above Ministers respond in writing to your Committee with respect to recommendations (a), (b) and (c) above by May 31, 1985.

Weak Management of Accommodation

15. Your Committee also questioned the Department's assessment of available space. For example, the Department, when renewing the lease of a large Ottawa building (Journal Towers), advised Treasury Board that no other space was available, and then promptly issued a lease tender call that revealed large quantities of available space. Your Committee also heard a description of ad hoc assignment and re-assignment of departments to buildings in Ottawa and Hull that resembled nothing so much as a gigantic game of musical chairs, played at the taxpayer's expense.

16. The Auditor General noted that the Department was "amateur" in not preparing a market analysis of the $145 million lease of the Journal Towers complex in Ottawa. Your Committee considers the Department's management of this transaction unacceptable for two reasons: first, there was no substantial market analysis comparable to industry standards to ensure economical use of public funds; and second, the Department misled Treasury Board when it claimed, in its submission, to have completed such an analysis.

17. In view of the importance of reliable information for sound decision-making, your Committee was greatly concerned by the Department's admission that its surveys of office space were lacking accurate and complete data. The Department has made no headway in improving these surveys over the last five years. The Auditor General informed your Committee that the Department's data bases remained incomplete and unreliable, in spite of the expenditure of large sums of money to improve them. Your Committee expects the Department to ensure that its latest "facilities inventory system" will remedy this situation.

18. Another major example of weak management in the Department was the failure of senior management to make use of the internal audit function and implement the recommendations of their internal auditors. The Auditor General was impressed with the calibre of the Department's internal audit and with the quality of their recommendations to management, "most of which have not been followed".

19. Your Committee noted that approximately 760,000 square metres or 9% of the Department's space lay vacant as of April 1,1984, at a considerable cost to the Crown. Your Committee considers that the Department's mismanagement of unoccupied space is inexcusable. Your Committee will hold the Department to account for its undertaking in testimony to have vacant space occupied by this Summer.

20. Your Committee also wishes to call the Department to account for a number of specific undertakings in its testimony with respect to the disposal of unused properties or the occupancy of vacant space. Among these properties and buildings were Block 56 in Vancouver, the Government of Canada building in Scarborough, the Dufferin St. site in Toronto, the Ottawa Teachers' College, the Mulligan building (Ottawa), the former Bank of Canada building (Ottawa), Place du Portage, Phase IV (Hull) and the Daly building (Ottawa).

Recommendations

(a) Develop a long-term plan for accommodation of government departments, including a rational plan-of-action for accommodation in the National Capital Region;

(b) Develop market analyses for major leasing transactions comparable to an acceptable industry standard;

(c) Implement a reliable inventory system to measure use of space;

(d) Make productive use of its internal audit function;

(e) Use or dispose of unused properties and occupy vacant space; and

(f) Report to the Auditor General with respect to its progress in implementing recommendations (a) to (e) above by July 31, 1985.

22. Your Committee recommends that the Auditor General assess the report of the Department mentioned in recommendation 21 (fl above and report back to your Committee by August 30,1985.

Failure to Inform Ministers

Misleading the Committee

Favouritism

26. Some of the testimony before your Committee indicated that the Department, in the lease of the Journal Towers complex in Ottawa from the Campeau Corporation, agreed to a rental rate substantially in excess of the rates then prevailing in the market. The Auditor General advised your Committee that the costs of upgrading the building, included in the rent, fell far short of the premium rental rate paid.

Implementation of Revenue Dependency

Recommendations

(a) The Department provide the Auditor General with progress reports on the implementation of revenue dependency at intervals of six months, beginning on October 1, 1985;

(b) The Department demonstrate, in the aforementioned reports, that an effective cost accounting system has been established; and

(c) The Auditor General assess the reports mentioned in recommendation 28(a) above and report back to your Committee.

Disclosure in Part III of the Estimates

Recommendation

Architectural and Engineering Services

Auditor General's Involvement in the Department's Audit Committee

33. A copy of the relevant Minutes of Proceedings and Evidence ( Issues Nos. 6,7,8, 9 and 14 which includes this report ) is tabled.

Respectfully submitted,

AIDEEN NICHOLSON

Chairman

REPORT TO THE HOUSE

Monday, April 29, 1985

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

THIRD REPORT

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

Objectives of Defence Procurement

4. The justification of extremely large expenditures for state-of-the-art weapons systems appears to depend, at least in part, on non-military benefits. Your Committee therefore considers that there is a need for an effective system to measure the attainment of non-military objectives in defence procurement.

Recommendations

(a) identify non-military objectives for each of its major capital projects in Part III of the Estimates;

(b) establish a system to measure the attainment of these non-military objectives, in conjunction with the departments of Regional Industrial Expansion and Supply and Services;

(c) report, in Part III of the Estimates, on the extent to which non-military objectives have been achieved through defence procurement; and

(d) respond to your Committee in writing with respect to the foregoing recommendations by July 31,1985.

Management of Major Crown Projects

7. In the case of the CF-18 fighter aircraft, your Committee noted the Auditor General's finding that indispensable items had not been included in the original budget approved by Treasury Board.

8. The Department stated that an improvement has been made in the process of estimating life cycle costs for the Canadian Patrol Frigate project. Your Committee looks forward to a full accounting from the Department with regards to this improvement.

9. In the testimony it received on the long-term, multi-billion dollar contract to acquire the CF-18, your Committee sought assurances that adequate safeguards had been established to protect the Crown from unreasonable cost escalation over the life of the contract. Your Committee was concerned that the structure of the contracts, as pointed out by the Auditor General, could allow the contractor, McDonnell Douglas Corporation, to recover losses in the main or "prime mission vehicle" contract from the spare parts contract. Your Committee also noted that profits had been established as a percentage of indeterminate costs and that the extent and nature of economic adjustments in the contract appeared to favour McDonnell Douglas.

10. The Auditor General raised as a concern to your Committee the funding of capital expenditures on the CF- 18 from the Department's operations and maintenance budget. This contravened Treasury Board authority and distorted the Department's budgeting process. The Department admitted that its 1979 project brief to Treasury Board lacked clarity and was subject to misinterpretation with respect to some of the budget items identified by the Auditor General. Your Committee considers that the Department should not have submitted, and Treasury Board should not have accepted, such a submission. Your Committee expects the Department to improve future submissions in this regard.

11. The Auditor General informed your Committee that many of the original price estimates for CF-18 spare parts were unrealistic and unreliable. Your Committee agrees with the Auditor General's observation that such unreliable estimates affect the Department's future management of the CF-18 program. Your Committee considers that the Department has an obligation to establish actual costs of spare parts at an early stage in contract negotiations in order to ensure a fair price and minimize the overall cost to the Crown.

12. The Department informed your Committee that less than 25% of CF-18 spare parts were acquired on a competitive basis directly from subcontractors. Your Committee noted that the Department could achieve cost savings through diversification of equipment suppliers and direct purchases from original equipment manufacturers (known as "dual sourcing").

Recommendations

(a) establish life cycle costs at the start of each major capital project, including the Canadian Patrol Frigate project;

(b) include these life cycle costs in the initial project brief to Treasury Board;

(c) disclose life cycle costs of every major capital project in Part III of the Estimates;

(d) implement, where possible, dual sourcing of CF-18 spare parts and components; and

(e) respond to your Committee in writing with respect to the foregoing recommendations by July 31,1985.

Improvement of Automatic Data Processing (ADP) Systems

15. Although your Committee noted that the Department had initiated corrective action since the 1982 Auditor General's Report in the area of ADP and personnel information systems, your Committee is concerned that insufficient resources are being devoted to these systems and that they are not able to function efficiently and effectively in the face of emergency conditions.

Recommendations

(a) the Department report its progress and an action plan for further improvements in ADP and personnel systems to the Auditor General by July 31, 1985; and

(b) the Auditor General assess the aforementioned report of the Department and report back to your Committee by August 30,1985.

Internal Audit

Recommendations

(a) designate a senior official, at the Associate Deputy Minister level, who would be the chief financial officer and comptroller and who would be responsible for the internal audit function;

(b) respond in writing to your Committee with respect to the foregoing recommendation by July 31,1985; and

(c) report its progress and an action plan for further improvements in internal audit to the Auditor General by July 31, 1985.

19. Your Committee recommends that the Auditor General assess the report of the Department mentioned in recommendation 18(c) above and report back to your Committee by August 30, 1985.

20. A copy of the relevant Minutes of Proceedings and Evidence ( Issues Nos. 10, 11, 12 and 15 which includes this report ) is tabled.

Respectfully submitted,

AIDEEN NICHOLSON

Chairman

REPORT TO THE HOUSE

Wednesday, May 22, 1985

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

FOURTH REPORT

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

Management of the Function

4. Your Committee believes that a clearly defined line of responsibility to a single official who is duly empowered under law to exercise his responsibilities is preferable to shared accountability, with decision-making carried on by interdepartmental committees.

5. Your Committee therefore strongly endorses the Comptroller General's acceptance of responsibility for cash management. However, your Committee is concerned that he does not have the mandate to carry out these responsibilities successfully. The Comptroller General must have authority to enforce compliance.

Recommendation No. 1

Negotiations with the Chartered Banks

8. As an indication of its interest in the conclusion of the negotiations and the potential savings to taxpayers, your Committee insisted that both parties resume negotiations. Your Committee understands that they have now met and negotiations are proceeding.

9. Your Committee considers that the Government should impose a timetable in order to ensure a settlement by August 30, 1985 of the different issues with the banking community. The Office of the Comptroller General then should proceed as quickly as is practical with the implementation of the new banking arrangements.

10. In view of the above, your Committee believes that future negotiations should become the responsibility of the Comptroller General with support from the Department of Finance and the Department of Supply and Services.

Recommendations No. 2, 3, and 4

(a) the Deputy Minister of Finance report in writing to your Committee by June 14, 1985 on the progress achieved to date on the current negotiations with the financial institutions;

(b) the Comptroller General, once the current negotiations are completed, be made responsible for the future negotiations on behalf of the Government of Canada with respect to the banking arrangements with the financial institutions; and

(c) the Government consider the tendering of the whole range of banking services with the financial institutions.

Deposit, Payment, Collection and Billing Practices

Recommendation No. 5

14. A copy of the relevant Minutes of Proceedings and evidence ( Issues Nos. 5,13 and 18 which includes this report ) is tabled.

Respectfully submitted,

AIDEEN NICHOLSON

Chairman

REPORT TO THE HOUSE

Wednesday, May 22, 1985

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

FIFTH REPORT

A copy of the relevant Minutes of Proceedings and Evidence (Issue No. 18 which includes this report) is tabled.

Respectfully submitted,

AIDEEN NICHOLSON

Chairman