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1991 Report of the Auditor General of Canada

1991 Report

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

REPORT TO THE HOUSE

Monday, November 5, 1990

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

SIXTH REPORT

(Second Session of the Thirty-fourth Parliament)

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

3. Your Committee sought an understanding of the nature and the adequacy of financial controls and accountability for grants and contributions. In order to give an overview of the system in place in the federal government, Treasury Board officers were invited as the first witnesses to explain the roles and responsibilities of Ministers, departments and Treasury Board in the management of grants and contributions.

4. Your Committee noted that there is less accountability for grants than for contributions. Grants are defined by Treasury Board as unconditional transfer payments, not subject to being accounted for or audited, but for which eligibility and entitlement may be verified. In contrast, contributions are conditional transfer payments for a specific purpose, subject to being accounted for and audited under a contribution agreement.

5. Treasury Board officials informed your Committee that approximately 20 per cent of the $72.6 billion allocated to transfer payments in the Main Estimates for fiscal year 1990-91 was devoted to discretionary grants and contributions. In this context, discretionary payments are those which are appropriated annually by Parliament, as opposed to statutory funding on a continuing basis.

6. In a period of high deficit spending, your Committee considers it appropriate to focus on the management of discretionary grants. The fact that grants rather than contributions are used to deliver programs implies a weaker accountability framework. Moreover, the implications of discretionary spending place an added burden on the system to ensure adequate controls, fairness and due regard for economy, efficiency and effectiveness in the face of competing demands for public funds.

7. Accordingly, your Committee held four public meetings subsequent to the initial hearing with the Treasury Board officials and invited the following departments and agencies: the Secretary of State department, the Social Sciences and Humanities Research Council (SSHRC) and the Canada Council. Each of these agencies administers a significant program (or programs) of discretionary grants. A meeting was also held with the Auditor General to canvass the views of the Audit Office and gain an appreciation of the audit evidence in this area.

8. The Auditor General outlined a framework for the sound management of grants programs with the following major components:

(a) Because there is less accountability for grants than for contributions, grants should only be used rarely and should be reserved for situations where the payment of public funds is truly unconditional and where the use of grants is cost-effective. Otherwise contributions, with their requirement for monitoring and auditing, should be used;

(b) Granting agencies should verify both the initial and the continuing eligibility and entitlement of a recipient. The recipient should be required to provide information on how much money was spent and what it was spent on;

(c) Grants programs should have clear objectives and it should be evident how any particular grant meets that objective;

(d) Grant applications should be assessed against documented selection criteria and decisions documented to ensure fairness to all applicants;

(e) Sound financial practices should be observed. For example, payments should not be in advance of need. Management should follow-up on how much is spent and there should be reasonable assurance that funds are used for the purpose intended;

(f) There should be a periodic assessment of the continuing eligibility and need for funds of those who are receiving funding year after year; and

(g) There should be a periodic assessment of whether the program is accomplishing its objectives.

9. Your Committee strongly endorses the Auditor General's framework and has used it as a guide in the examination of granting procedures in use in the Secretary of State, SSHRC and the Canada Council. A comparison of the three agencies has yielded some insights into the adequacy of controls over grants. Each agency reflects a different form of organization. The Secretary of State is a line department, administering cultural programs, and is directly subject to Treasury Board policies. The SSHRC is a granting council with the status of departmental corporation, which promotes research and funds scholarships in the social sciences and the humanities; it too is subject to Treasury Board policies, although officials from the Board informed your Committee that the granting councils were at arm's length from central controls. In contrast to the other two agencies, the Canada Council is constituted as a Crown corporation and as such is not subject to Treasury Board controls. The Canada Council provides assistance to the arts through a variety of programs, most of which take the form of grants. The independence of the Council is reinforced by the fact that it has been exempted from the accountability and control provisions of the Financial Administration Act which govern other Crown corporations.

10. Your Committee's examination of controls over grants will be grouped under two headings:

A. Approval and Administration; and

B. Review and Follow-up.

A. Approval and Administration

12. Your Committee is concerned by the somewhat permissive wording used in the Treasury Board Guide. For example, departmental procedures "if any" are required and there "may" be eligibility and entitlement criteria. In view of the importance of clearly defined criteria and effective procedures to implement them for all grants programs, your Committee considers that Treasury Board should leave no doubt as to the mandatory nature of requirements in this area.

Recommendation

14. Your Committee noted the importance of establishing procedures to communicate well with interest groups and the public so that when concerns or complaints arise about particular grant payments, a substantial and satisfactory response will be forthcoming from the responsible government agency. The planned initiative of the SSHRC to allow grant recipients to devote up to 10 per cent of their funds to better communicate with interested parties and with society in general is commendable.

15. Both with regard to the approval process and the monitoring of grant payments, your Committee noted a number of procedures which may be considered improvements resulting in better controls. For example, in the case of larger grants which constitute core or operational funding for recipient organizations, audited financial statements should be required.

16. Another important control which your Committee encourages and wishes to see expanded is the requirement that grant recipients agree to submit both activity and financial reports. For core funding, activity reports should focus on the extent to which the activities funded by the grant are meeting the objectives of the grant program and should be required at least at mid-term in the life of the grant and before the final instalment payment in any given year. Financial reports should be filed at the same intervals, detailing expenditures and financial information related to the viability of the recipient organization. Your Committee recognizes that such reporting requirements are feasible only for larger, operational grants. For smaller or project grants, enhanced reporting could be required only at the end of the project, before any subsequent funding of the same organization.

17. Improvements in reporting by grant recipients should be accompanied by better controls over instalment payments and selective on-site and other monitoring procedures. Your Committee noted that Treasury Board policies call for larger grants to be paid in instalments. However, greater emphasis needs to be placed on the co-ordination of monitoring, reporting and the paying out of instalments. If circumstances warrant, consideration must be given to stopping an instalment payment. Your Committee cannot agree with the statement made by Treasury Board officials, that "you do not care", when providing public money as a grant, how that money will be spent within the realm of the purposes of the recipient. As the President of the SSHRC pointed out, Treasury Board itself approves the terms and conditions for grants under which SSHRC and other agencies require reporting and control measures.

18. Cost-effectiveness is an important consideration in the upgrading of approval, reporting and monitoring requirements for grants. Your Committee therefore was concerned by the apparent lack of cost information on the processing of grants in the Secretary of State department. The department had not examined the cost of administering operating and project grants and had not developed cost information for processing grants with widely varying dollar values.

Recommendation

(a) enhanced communication with interest groups and the public;

(b) the requirement for audited financial statements;

(c) the requirement of activity and financial reports together with acceptance of monitoring as criteria of eligibility;

(d) co-ordination of the payment of subsequent instalments with requirements for reporting and monitoring where it is cost-effective to do so; and

(e) implementation of reporting, monitoring and instalment controls on the basis of appropriate cost information.

B. Review and Follow-up

21. Your Committee noted that many discretionary grants, notably those given for core funding, appear to be renewed year after year. Based on the testimony it has heard, your Committee considers that granting agencies need to augment their review procedures for long-term or continuing renewals. Also, it is not enough for an agency to portray itself as a "facilitator" that does not interfere in the content of selections but relies instead on a peer review process.

Recommendation

23. The existence of an active program evaluation capability in each of the three granting agencies before your Committee is an encouraging sign of review and assessment at the program level. Both SSHRC and Secretary of State have well-established program evaluation units which are carrying out evaluations of grants programs on a cyclical basis. The Canada Council stated that some program evaluations have been completed and that a formal evaluation plan was being developed for implementation as resources permit.

Recommendation

(a) all departments and agencies which administer grants programs establish a program evaluation function as described in Treasury Board policies;

(b) all grants programs be subject to program evaluation on a cyclical basis; and

(c) sufficient resources be provided for the implementation of this recommendation.

25. Your Committee compared the policy on recoveries in the SSHRC with the Secretary of State. In the case of SSHRC, when the term of a grant has expired the Council may request a refund of any balance or of funds allocated to ineligible items. In contrast, the Secretary of State officials informed your Committee that no refunds were sought for grants on the grounds that grants are not accountable. If a grant recipient did not use or misdirected funds, the Secretary of State department would attempt to uncover this fact in its review of any subsequent application, based on the financial statement required and the activity report from the initial grant. While the detection of ill-used funds may not be cost-effective except in the case of very large grants, your Committee considers that recipients should have a duty to report and government agencies a duty to collect unspent balances.

Recommendations

27. Your Committee recommends that Crown corporations which administer major grant programs, such as the Canada Council, implement recommendations 19, 22, 24 and 26 above.

28. Your Committee requests the Government to table a comprehensive response to this report in accordance with Standing Order 109.

A copy of the relevant Minutes of Proceedings and Evidence (Issues Nos. 26, 32, 33, 34, 35 and 39, which includes this report) is tabled.

Respectfully submitted,

LEN HOPKINS,

Chairman.

REPORT TO THE HOUSE

Monday, November 5, 1990

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

SEVENTH REPORT

(Second Session of the Thirty-fourth Parliament)

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

3. Throughout the 1980s, your Committee considered a number of issues related to the sound management of human resources in the Public Service. High on the list of concerns have been the need to improve systems for staffing and job classification and the need to clarify the roles and responsibilities of the government agencies involved. Each of these concerns has been the subject of a report to the House. Many of these issues remain unresolved and your Committee continues to seek their resolution. Recently, however, the frame of reference for your Committee's concerns changed. In his 1989 Annual Report, the Auditor General brought together a number of themes from several years' audits and called for an overall reform of the legislative and administrative structure that governs people in the Public Service.

4. Your Committee decided to turn its attention to the Auditor General's findings and hold a series of hearings on the reform of the Public Service. There are a number of compelling reasons for such an inquiry. First of all, the Public Service is an important institution that affects the lives of all Canadians. Approximately 240,000 Canadians are employed in the Public Service and all manner of important services and government programs are delivered through their efforts. Consequently, the need for far-reaching reform in the Public Service is a matter of great concern to all citizens and to Parliament. Secondly, it has become clear that there is a serious morale problem among public servants. Several important studies and the evidence heard by your Committee have confirmed the depth and the breadth of motivational and attitudinal problems. Morale requires urgent attention if the level and quality of service provided to the public is to be maintained and improved. A third factor is the initiative recently taken by the Government to establish "Public Service 2000", an agency with the mandate to study reform-related issues. Through the work of ten task forces, Public Service 2000 is dealing with a wide range of human resource concerns, from staffing and classification to training and development. Public Service 2000 was created in December, 1989 and is intended to put forward proposals for legislative, institutional and attitudinal change.

5. Your Committee held six public meetings and heard witnesses representing both management and the Public Service unions. A number of objectives were set for these meetings: (1) to follow up on the Committee's recommendations in earlier reports to the House; (2) to receive an accounting from the senior officials of the responsible government agencies with respect to the need to improve the management of human resources; and (3) to review the plans, objectives and progress of Public Service 2000. Throughout its hearings, your Committee focused on economy, efficiency and effectiveness in the management of human resources. An equally important theme was the continuing requirement for senior officials to be accountable to Parliament and to your Committee for the stewardship of public funds and for the management of people - the most important resource of all.

6. Based on the testimony, your Committee has arrived at a number of conclusions and recommendations in various areas of human resource management. However, your Committee does not wish to anticipate legislative reform and will therefore not undertake a systematic review of the legislation. The House has not given your Committee such a mandate. Nor has your Committee been authorized to examine employer-employee relations in the Public Service. Consequently, issues such as the design of the collective bargaining system are beyond your Committee's purview.

7. Your Committee considered the Auditor General's observations on the need for reform. The Auditor General identified five areas:

(a) the current legislative and administrative framework is not adapted to the environment and challenges facing the Public Service today;

(b) the need to streamline processes, notably job classification, staffing and procedures to handle poor performers;

(c) the need to eliminate unreasonable constraints, devolving more meaningful authority to departments and front-line managers, while ensuring proper rendering of accounts;

(d) the provision of clear and visible leadership, a focal point and overall accountability for the management of people; and

(e) there is a need for a change in mindset or attitudes at various levels.

8. A number of these areas relate to the conclusions and recommendations of your Committee's earlier reports to the House. Another relates to the important need to deal with the morale problem. Your Committee will comment on each one. However, there is a matter of prior concern which involves the process followed by Public Service 2000.

PROCESS

10. Your Committee considered the process as it presently stands. Public Service 2000 was announced by the Prime Minister on December 12, 1989. A small secretariat has been established as an arm of the Privy Council Office to co-ordinate the work of ten task forces, in the following areas: (1) occupational and classification structure; (2) compensation and benefits; (3) staffing; (4) staff relations; (5) work-force adaptation; (6) resource management; (7) administrative policies and common services; (8) the management category; (9) service to the public; and (10) staff training and development. Task forces were chaired by senior deputy ministers and composed of small numbers of senior officials. For example, the task force on staff training and development involved ten senior officials from different departments as members and six "ex officio" members, including representatives of Treasury Board and the Public Service Commission (who provided support for each task force). The responsible officials clearly stated to your Committee that Public Service 2000 was "management-driven", an exercise controlled by management at the request of the Prime Minister and responsible to him for its results. No front-line managers or employees served on any of the task forces; nor did representatives of the Public Service unions.

11. The time frame for the completion of Public Service 2000 is tight. After less than three months' work, the task forces came up with a series of remedial measures that could be implemented without legislative change. These "quick fixes" were explained to your Committee in a status report which was conveyed under covering letter from the President of the Treasury Board. It is a matter of concern from the standpoint of accountability to Parliament that this status report was not also tabled in the House. The second phase of Public Service 2000 has been the completion of the final reports of all the task forces over the summer. Because several areas covered by different task forces overlap, there must also be a process of reconciliation and synthesis to develop the final recommendations for legislative change. These recommendations are to go forward to Ministers and amendments are to be introduced in the House in the New Year. Your Committee has also received a series of discussion reports from the task forces.

12. Your Committee asked the officials to explain the nature of their consultations with the Public Service unions, with employees at all levels and with the private sector, including large corporations, academics and other interested bodies. Vigorous representations were also heard from several of the Public Service unions, who informed your Committee that the consultative process followed by Public Service 2000 was not acceptable to them.

13. A wide range of consultative procedures were cited by Public Service 2000. There have been several meetings with the Public Service unions and officials stated that the unions had participated in discussions with all of the task forces and that their input was taken seriously. However, union representatives have at times taken issue with the testimony of these officials, saying that consultations had not been meaningful and had consisted of informing them after-the-fact rather than an effort to help formulate conclusions and recommendations. Further consultations with the unions have taken place in relation to the task force reports released in August and September.

14. Among the other consultations carried out with employees have been focus groups, questionnaires and other surveys. A great deal of information has also been submitted by employees in response to an invitation issued by Public Service 2000 to say what is wrong with the Public Service and how improvements can be made. However, your Committee noted that employees may be constrained in responding to representatives of management on such matters.

15. Consultations with major private sector employers were also cited. A number of important parallels exist between human resource management in these organizations and in the Public Service. In sum, within the bounds of the process followed by Public Service 2000 as a management-driven exercise, there appear to have been extensive consultations. However, your Committee must question both the design of the process and the haste with which it is being carried out.

16. As the Economists', Sociologists' and Statisticians' Association pointed out, previous major reforms of the Public Service have been based on extensive studies and have involved open, public consultations under the aegis of a third party prior to the introduction of legislation in the House. In contrast, Public Service 2000 is being run by senior management, behind closed doors, in the absence of neutral, third party involvement and to a demanding schedule.

17. Your Committee considers that there is a need to pause once the task force recommendations have been put in final form, before proceeding with the introduction of legislative amendments in the House. The process of Public Service 2000 must be changed to allow for meaningful and open consultation, with greater involvement of front-line employees.

Recommendations

(a) tabling a discussion paper prior to proceeding with the introduction of legislative amendments and/or administrative changes and that this discussion paper set out the principal conclusions and recommendations arising from Public Service 2000;

(b) referring the aforementioned discussion paper to a Special Committee of the House on Reform of the Public Service and that the Special Committee conduct a consultation process involving employees, the Public Service unions and other interested parties and report back to the House within a reasonable period; and

(c) responding to recommendations 18(a) and (b) above in writing by November 30, 1990, notwithstanding the provisions of Standing Order 109, in view of the immediacy of this matter.

MORALE

20. Public Service 2000 has acknowledged that 60 per cent of the reform needed in the Public Service lies in attitudinal change. Numerous surveys, including authoritative, scientific studies, indicate problems in the areas of work values, leadership, rewards and the quality of the work environment. The Auditor General noted the tendency towards risk aversion, the failure to take responsibility for decisions and the growth of attitudes of scepticism and cynicism. Senior officials pointed to the stress and heavy workload in difficult departments such as National Revenue - Taxation and Employment and Immigration. In some cases, poor morale has led to inefficient, indifferent and even discourteous service to the public. The Public Service unions placed emphasis on the negative effects of the government's restraint program on morale. A survey conducted by the Public Service Alliance found that many public servants expressed concerns over such morale-related issues as job satisfaction, lack of promotion, privatization, poor management, a poor perception of the Public Service, stress, working conditions, workload and reclassification.

21. In addition to job classification and staffing, which your Committee has considered in earlier reports and which will be discussed below under that heading, a number of significant morale-related matters have arisen in the testimony, including:

(a) contracting-out;

(b) aspects of pay and benefits;

(c) procedures to deal with poor performers; and

(d) training.

(a) Contracting-Out

23. It is clear to your Committee that departments routinely enter into contracts with individuals, with consulting firms, with agencies and so on for work that could be done by public servants. However, the extent of the substitution effect is not revealed in the Estimates or in the Public Accounts. Your Committee was not satisfied with Treasury Board Secretariat's inability to supply information on the use of personal service contracts. Your Committee considers that a full report to Parliament on contracting-out should be included in the Estimates to ensure that departments and agencies are held accountable for all human resource expenditures. The fact that individuals are not counted as filling person-years because they are paid through contracts should not camouflage the nature of the expenditure of public funds.

24. Your Committee noted the criticism of person-year controls voiced by officials of Public Service 2000. The system of double budgetary controls, through the allocation of both funds and person-years, which are average levels of personnel resources authorized for departments over a one-year period, is seen to be inefficient and inflexible because the ability to hire staff depends on the availability of person-years, not money. Your Committee agrees that person-years should be dropped; certainly their use in the Estimates is confusing and does not help Parliamentarians get a clear picture of government spending.

Recommendations

(a) ensure that departments and agencies fully disclose expenditures on contracts which replace the work of public servants in Part III of the Estimates; and

(b) ensure that departments and agencies report the services of individuals on contract.

26. Your Committee noted the connection between the cost effectiveness of contracting-out and its impact on morale. In the absence of reliable data, your Committee can only consider impressions conveyed in the testimony. However, it would appear that government should only use outside contactors to replace public servants where cost-effectiveness has been clearly demonstrated, taking into account the negative effects on public servants' morale. Among the concerns raised by the Public Service unions were the following:

(a) the costs and delays of administering contracts in accordance with complex government regulations;

(b) the need to retain professional staff who can understand the contractors' work and are capable of doing it themselves, so that results can be interpreted and senior officials and ministers briefed;

(c) the decline in the professional standing of public servants who spend more and more of their time managing contracts and less time doing the studies themselves;

(d) the extensive use made by contractors of in-house work; and

(e) the fact that contractors take their expertise with them when the contract is completed and leave no lasting store of knowledge in the department.

Recommendation

(b) Pay and Benefits

29. In his audit of the management category, the Auditor General found that many people in the executive and senior management ranks do not believe that there is a relationship between what they are paid and how well they perform. They do not feel that the highest pay increases are generally awarded to individuals who perform best on the job. Much of the testimony from the Public Service unions underlines the Auditor General's findings and suggests that the problem is by no means confined to management ranks. For example, an honest appraisal was termed the "kiss of death" for promotion opportunities because job evaluation ratings are typically greatly inflated. Employees who are simply doing their job well and rated as fully satisfactory would not be considered for promotion unless their rating improved to "superior" or the highest grade, "outstanding". Appraisal criteria were also considered to be unevenly applied and not transparent to employees.

30. Your Committee noted that Public Service 2000 placed emphasis on performance-pay systems and on the need to overhaul and strengthen appraisal systems. Treasury Board introduced a new performance pay plan on April 1, 1990, which it claimed would significantly increase flexibility for deputy ministers to reward performance. However, in his audit of the management category, the Auditor General documented a series of questionable practices relating to performance pay and the performance ratings used to determine performance pay. The Auditor General concluded that pay for performance has been a major source of dissatisfaction. It remains to be seen if the Treasury Board's new system will correct these deficiencies. Equally important, will major improvements be made in performance appraisals and ratings on which performance pay is based? Your Committee will monitor Treasury Board's progress in this regard.

31. In other areas, your Committee noted that significant opportunities exist to improve benefits and correct inequities. For example, the spouses of foreign service officers and of members of the Canadian Armed Forces are not eligible to collect unemployment insurance in the event of a foreign posting. These individuals often leave a job when they go overseas with no compensation at all, in spite of having paid unemployment insurance premiums. Nor are they eligible for benefits upon returning to Canada if they have been abroad for more than one year.

(c) Dealing with Poor Performers

33. The Public Service unions also expressed dissatisfaction with the procedures used to handle poor performers, but for different reasons. The Public Service Alliance, for example, argued that existing provisions for demotion, release, lay-off or rejection on probation favoured management and provided more than sufficient avenues to terminate employees.

34. Your Committee asked for a comparison with the private sector. Officials from Public Service 2000 noted that the Public Service took longer than the private sector both to decide to dismiss someone and then to carry it out. In large private sector corporations, the decision to release an employee is often carried out very quickly. Your Committee wishes to emphasize the importance of protecting the employees' rights and therefore of maintaining appropriate redress mechanisms and third-party reviews. At the same time, however, the process needs to be clarified so that employer and employee know when the issue centers on performance, rather than competence or discipline.

Recommendation

(d) Training

EARLIER COMMITTEE REPORTS

38. Three important issues have arisen in connection with these earlier reports on human resource management:

(a) staffing - the need to simplify the process while at the same time taking care to maintain the merit principle and employees' rights;

(b) job classification - the need to streamline the system in conjunction with staffing; and

(c) roles, responsibilities and accountability - the need to clarify the division of responsibilities between the Public Service Commission and the Treasury Board Secretariat, to provide leadership and overall accountability for the management of people.

(a) Staffing

Recommendation

41. One aspect of the application of the Public Service Employment Act is of particular concern to your Committee. The use of exclusion orders by the Public Service Commission has grown over the last few years, particularly in the hiring of temporary employees for six months or less. An exclusion order excludes persons, positions or classes of positions from the operation of the Act where the Commission considers it is not practicable or in the best interests of the Public Service to apply the Act. In effect, exclusion orders deny temporary or term employees access to permanent jobs through internal competitions, place them outside the merit system and cut them off from the rights that indeterminate employees enjoy under the collective bargaining system. Term employees are often skilled and knowledgeable workers who have many years experience. Your Committee considers their exclusion from internal competitions and other rights and privileges of permanent employees deplorable and unjust.

Recommendation

43. The Auditor General has called for a review of the Public Service Employment Act to reassess the balance between the protection of the merit principle and the attainment of greater efficiency through more flexible and adaptable human resource management. Your Committee agrees with the need for such a review and the need to consider alternatives to the present staffing system, such as greater use of staffing to level. However, your Committee wishes to restate a fundamental concern raised in its earlier reports, which is the importance of the merit principle in the selection of the best qualified candidates without discrimination or favoritism. Reforms in the staffing process need to be accompanied by appropriate measures to protect the application of merit.

(b) Job Classification

45. Your Committee also noted the views of the Public Service Alliance of Canada that Treasury Board had not yet revised classification standards for two of the largest occupational groups, the clerical and secretarial groups, and was taking too long to complete these classification reviews, in some cases up to 10 years.

Recommendation

47. In 1985, your Committee recognized the impact of the classification system on morale and productivity in the Public Service. Job classification as it presently stands is a complex, unwieldly system with some seventy occupational groups, each with many levels; thousands of classification decisions are being made every year. Vertical barriers are created between public servants that are at odds with career development, with motivation of staff and with overall sound human resource management. There are pervasive linkages with staffing, because the completion of a staffing action normally requires the availability of a duly classified position. Both staffing and classification have been identified by the Auditor General as major constraints to productive management in the Public Service because they are overly complex, over-regulated and time-consuming. Moreover, your Committee noted the concerns of the Public Service unions that the classification system needs to be made free from gender-based discrimination and must recognize the impact of technological change on work processes and procedures.

48. The need to streamline the classification system, to reduce the number of occupational groups and levels and simplify job descriptions, was cited by representatives of Public Service 2000. In particular, one of the outcomes of Public Service 2000, if it is successful, is seen to be a reduction in the number of levels or management. A more fluid management structure has been the key to reform in other jurisdictions and in large private sector organizations studied by Public Service 2000. The Auditor General has also pointed out that the classification structure does not provide a clear identification of the management cadre, based on his audit of the management category.

49. While the need for major changes in the classification system is apparent, your Committee considers that great care should be taken in how these changes are made. The review of the Public Service Staff Relations Act, which is a major part of the legislative framework for job classification, will be difficult, involving sensitive consultations with the Public Service unions. Additionally, the rationalization of occupational groups should not be used as an excuse to demote or dismiss public servants. A priority also needs to be placed on fairness and equity issues and equal pay for work of equal value. All of these considerations underline the importance of your Committee's recommendation, made earlier in the Report, that the process of Public Service 2000 be altered to ensure meaningful consultations with all interested parties.

(c) Roles, Responsibilities and Accountability

Recommendation

52. Another basic concern of your Committee is the development of a clear and effective division of responsibilities between the Public Service Commission and Treasury Board Secretariat. Equally important is the creation of a focal point for visible leadership and overall accountability for the management of people. Your Committee has twice recommended that the central agencies resolve problems of overlapping responsibilities and yet the Auditor General continues to find a lack of clarity in the respective roles of the Commission, the Board and the Privy Council Office. For example, staff training and development is subject to Treasury Board Secretariat's policy guidelines and has been delegated to the Commission, for management and special area training, and to departments for line training functions. To what extent should the Public Service Commission, which is responsible to Parliament as a guardian of merit, be involved in activities that relate to management's prerogatives such as the responsibility to develop people and provide training to employees? Such questions need to be high on Public Service 2000's agenda.

53. Several Public Service unions expressed a lack of confidence in the ability of the Public Service Commission to monitor the staffing process and correct abuse in departments; they called into question the role and continued existence of the Commission.

54. Your Committee wishes to emphasize the importance of clarifying the jurisdiction and responsibilities of the Public Service Commission. As the Auditor General pointed out, the Commission is trying to carry out several somewhat contradictory roles: it is responsible to Parliament in relation to merit, but at the same time tries to be sensitive to management in terms of operational efficiency and simplifying staffing processes. In addition, overlaying these other roles, the Commission is trying to project an image to employees as a defender of their rights against potential abuse by management.

Recommendation

56. Your Committee requests a Government response to this Report in accordance with Standing Order 109. The Public Service Commission is requested to reply to the recommendations addressed to it on the same basis. The response to recommendation 18 above is requested on an urgent basis, by November 30, 1990, and is therefore not to be included with the responses sought under Standing Order 109.

A copy of the relevant Minutes of Proceedings and Evidence (Issues Nos. 28, 29, 30, 36, 37, 38 and 40, which includes this Report) is tabled.

Respectfully submitted,

LEN HOPKINS,

Chairman.

REPORT TO THE HOUSE

Friday, December 14, 1990

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

EIGHTH REPORT

(Second Session of the Thirty-fourth Parliament)

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

Background

4. In the case of the first request of the Auditor General, namely, the access to travel receipts held in ministerial offices, Ministers are required by virtue of a 1963 Cabinet decision, only to provide a certificate stating their expenditures to secure reimbursement; they are not required to submit nor maintain any receipts with respect to such expenditures. With respect to the Auditor General's second request, the Government advised through the Deputy Clerk of the Privy Council that the original letters between Ministers and the Minister of National Defence would not be made available to Parliament's auditor.

5. On August 10, 1989, the Supreme Court of Canada ruled that in the event of a denial of access to information required by the Auditor General to fulfil his audit responsibilities, the ultimate remedy provided in the Auditor General Act is to report to the House of Commons. This he did at the earliest opportunity in his Annual Report on October 24, 1989.

6. Your Committee considered this denial of access to information by the Government to be a most serious matter. It is the second time that the Office of the Auditor General has been denied information. As a result, your Committee felt it necessary to hold two meetings with senior officers of the Auditor General's Office, the Privy Council Office and the Office of the Comptroller General to examine the issues surrounding the circumstances for this denial of access to information and to report its conclusions to the House of Commons.

Nature of the Audit and the Request for Information

8. To undertake an attest and authority audit of Ministers' reimbursable expenses, the Auditor General informed your Committee that he would have to determine whether:

(a) accounting data was accurate and reliable;

(b) funds were spent for the purposes authorised by Parliament;

(c) supporting documentation for claimed expenses was adequate;

(d) internal control systems were adequate to protect against error or irregularity;

(e) in the case of exempt staff and public servants, funds were spent and accounted for in accordance with Receiver General regulations and Treasury Board travel policies;

(f) in the case of Ministers, funds were spent and accounted for in accordance with applicable Receiver General regulations, and Treasury Board, Privy Council Office and Prime Ministerial directions;

(g) funds were spent and accounted for in accordance with the Financial Administration Act; and,

(h) reporting of travel expenditures in the Public Accounts was accurate and in accordance with Receiver General directives.

Furthermore, this audit of Ministers' expenses would involve a review of controls and a testing of a sample of transactions. This would involve access to ministerial travel receipts and other supporting documentation held in Ministers' offices and government departmental files.

Denial of Access to Ministerial Travel Receipts

10. Your Committee examined the honour system approved by Cabinet in 1963 in which Ministers should account for moneys advanced and expended for travelling on official business. Your Committee noted that only a statement for transportation and other expenses for each trip, certified by the Minister, was required.

11. In a letter, dated January 17, 1990, the Auditor General informed your Committee that, following the recent action of the Government of the Province of Manitoba, the Government of Canada is the sole Canadian jurisdiction where Ministers' travel expenses are accounted for on an honour basis. All other jurisdictions in Canada are now on a system requiring ministerial travel receipts that are subject to audit by the legislative auditor.

12. Your Committee also noted that the Treasury Board Guidelines for Ministers' Offices, issued in November 1988, stated that "even though Ministers do not have to provide receipts and supporting documentation, it would be prudent to maintain such information in Ministers' offices for audit purposes" (page IV - I). Your Committee observed that these Guidelines were subsequently amended in September 1989 and the words "for audit purposes" were deleted.

13. Your Committee concludes that with the present honour system for ministerial travel, Parliament has no assurance that it is not subject to abuse. Furthermore, without ministerial travel documents being subject to audit by Parliament's auditor, it places a very great burden of trust on each Minister. Your Committee believes that all parliamentarians, including Ministers, should be subject to the same audit guidelines for travel expenses as those promulgated for Members of Parliament and officials by Treasury Board and which is now the practice in all provincial jurisdictions in Canada.

Accountability

15. Your Committee heard testimony from the Clerk of the Privy Council that Ministers in the Canadian political system are not accountable to departmental officials. They are accountable to the Members of the House of Commons and more generally to the Canadian public. In his view, such accountability takes place only in the House of Commons and without audit, because Ministers are not accountable to the Auditor General.

16. Your Committee strongly disagrees with this argument of the Clerk of the Privy Council. It is simply not realistic nor practical to question Ministers in the House of Commons on the detailed travel expenses without an independent audit report of the Auditor General.

17. Full disclosure in the Public Accounts of Canada of ministerial travel expenses is, in your Committee's view, another important financial control in the parliamentary accountability process. Your Committee reviewed the President of the Treasury Board's Report on Ministerial Travel Expenses for the period ending September 30, 1990 which was issued on October 29, 1990. Your Committee concludes that although the report provides Parliament and the Canadian people with information on travel expenses of Ministers and Parliamentary Secretaries in aggregate form, it does not disclose the breakdown of these expenses that would provide Parliament with a complete accounting of ministerial travel.

Costs of Administrative Flight Service (AFS) Aircraft

19. Your Committee examined the above reports and concluded that without an audit by the Auditor General of the full costs of operating the AFS aircraft of the Department of National Defence, your Committee is not adequately assured that such costs are accurately disclosed to Parliament.

Lack of Responsiveness to Committee's Requests

21. Recommendations:

Your Committee therefore recommends that:

(a) the Government consider revoking the honour system for ministerial travel established by the Cabinet in 1963 and replace it with similar financial procedures and controls now in use by Members of Parliament and public officials;

(b) the Government consider revising its Guidelines for Ministers Offices to ensure that receipts and supporting documentation be maintained and made available for audit purposes;

(c) the Government consider allowing the Auditor General access to ministerial travel receipts to the extent that he can discharge his statutory duties by means of an authority and attest audit of the Accounts of Canada under the Auditor General Act;

(d) the President of the Treasury Board consider the implementation of recommendations 21 (a) to (c) inclusive to take effect in fiscal year 1991-92; and respond to your Committee in writing by March 31, 1991; and

(e) the Auditor General consider including in his plans for 1991-92 a comprehensive audit of the Administrative Flight Service of the Department of National Defence.

A copy of the relevant Minutes of Proceedings and Evidence (Issues Nos. 17, 19 and 43, which includes this report) is tabled.

Respectfully submitted,

LEN HOPKINS,

Chairman.

REPORT TO THE HOUSE

Wednesday, December 19, 1990

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

NINTH REPORT

(Second Session of the Thirty-fourth Parliament)

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

3. The nature of the problem before your Committee, which the Auditor General has referred to as "a breakdown in the accountability process", is a serious inability of the Department of External Affairs to properly control outstanding advances to employees. The Auditor General estimated that some $25 million in advances were outstanding as of March 31, 1990, with approximately one-half representing overdue accounts that should have been repaid. In some cases, advances have been outstanding for several years.

4. These advances to employees relate to a variety of purposes, including: vacation leave, family reunion travel, educational travel, medical travel, accountable advances for dependents and relocation of employees. In total, there are 41 different types of accountable advances to individuals by the Department.

5. The Auditor General informed your Committee that inadequate financial management and control in the Department has been repeatedly brought to the attention of the government and Parliament. The 1987 and 1989 Auditor General's reports pointed out the need for improvement and the slow progress being made. Over the four year period from March 31, 1986 to March 31, 1990, the total amounts of outstanding advances have increased from $15 million to $25 million. In addition, annual audits of the Department have highlighted an urgent need for improvements to accounting controls and procedures and for the training of departmental financial staff.

6. Your Committee wishes to comment on three major areas of concern:

(a) Poor accounting records and controls;

(b) Ineffective and delayed follow-up on outstanding advances; and

(c) The lack of assurance that amounts due from employees reported in the Public Accounts of Canada are accurate.

Accounting Records and Controls

8. Your Committee sought an understanding of the factors contributing to these serious accounting and control inadequacies. The Department made reference to several matters:

(a) the scope and diversity of operations at 120 embassies and consulates worldwide;

(b) the difficulties in communicating by diplomatic bag with headquarters and the lack of a single computer-based financial reporting system at posts abroad;

(c) differing interpretations by responsible officials of claims at headquarters and posts abroad;

(d) the fact that individuals may be unaware that an advance was booked in their name. In some cases, advances do not relate to an individual's personal expenditure, but to some government program;

(e) inadequate training or qualifications of responsible financial officers. In some posts abroad, administrators may be managers in name only and not have the necessary basic training to discharge their duties properly;

(f) the tendency to place less emphasis on collecting monies due to the Crown, perhaps due to the "culture" in the Department, but also related to the lack of private-sector profit or loss considerations and because revenues do not accrue to the Department but are paid into the Consolidated Revenue Fund; and

(g) the impact of frequent staff rotations and the difficulty in having an employee's advances follow him from place to place.

9. The Department also stated that one of the major conclusions of a recent high-level departmental review was to decentralize decision-making to managers at posts abroad. As the Auditor General pointed out, financial controls must be fully restored at headquarters before any move to decentralize authority to missions overseas is contemplated. Otherwise, the problem of inadequate controls will be compounded.

10. In light of the long-term nature of many of the factors contributing to the problem, your Committee is concerned that the issuing of monthly statements to employees is by no means the only action that the Department needs to take. For example, the recruitment and training of fully qualified financial officers is essential, especially if decision-making is further delegated to missions abroad, yet such a measure may well take several years to implement. In addition, the Department has noted that there are errors in the data base underpinning the monthly statements.

11. Although the Department informed your Committee that the process of staff rotation had been slowed down, with the addition of one or two years (for a total of three to five years) at less difficult postings, both the cost and efficiency of the rotation system are matters of continuing concern which bear directly on issues of financial management and control, including accountable advances. A large part of the $250,000 annual cost of maintaining the average foreign service employee abroad may relate to the frequency of re-assignment. Staff at headquarters, including responsible financial officers, may also be rotated. Consequently, the overall effectiveness of financial management, both at headquarters and in the field, may be impaired. For these reasons, and because of the need to establish appropriate commercial contacts, your Committee recommended in 1987 that the Department encourage the extension of postings abroad (Sixth Report, 2nd Session, 33rd Parliament, tabled May 20, 1987). Your Committee considers that the Department needs to do more in this regard.

Follow-up

13. Your Committee also noted with concern that the Department's internal audit function did not bring the serious problem with accountable advances to management's attention and that it was left to the external auditor, the Auditor General, to do so.

Reporting in the Public Accounts

15. Although the Auditor General stated that he did not audit the information on accountable advances in Volume II of the Public Accounts, he has expressed the concern that the accounting records and management reports on advances are so poor in the Department "that there is no assurance that the amounts due from employees as recorded in the accounts of Canada are correct."

16. In view of the importance of providing accurate and clear information to Parliament in the Public Accounts of Canada, your Committee considers that the Department must ensure, in the next Public Accounts, for the fiscal year ending March 31, 1991, that all accountable advances outstanding are shown correctly. The Office of the Comptroller General and the Receiver General's department (the Department of Supply and Services), who are jointly responsible for the guidelines governing the content of the Public Accounts, may be able to assist the Department in this regard.

Recommendations

(a) the Department of External Affairs ensure that all overdue advances to employees presently outstanding are subject to appropriate settlement or recovery action as soon as possible and that future advances are subject to settlement or recovery in strict conformity with the applicable policies of Treasury Board and the Department;

(b) the Department of External Affairs improve accounting controls and procedures on an urgent basis in order to ensure that appropriate professional standards are achieved and maintained for the control of monies advanced to employees and in all areas of financial management and control;

(c) the Department of External Affairs ensure that effective and timely monitoring, follow-up and recovery procedures are established and maintained for all advances to employees;

(d) the Department of External Affairs review the frequency of postings abroad with a view to extending postings for a longer period whenever possible;

(e) the Department of External Affairs, with the assistance of the Office of the Comptroller General and the Receiver General's department, ensure that the information contained in the Public Accounts of Canada pursuant to Section 38(3) of the Financial Administration Act is complete and accurate;

(f) the Department of External Affairs respond in writing to recommendations (a) to (e) above by January 31, 1991 and provide a copy of this response at the same time to the Auditor General; and

(g) the Auditor General assess the aforementioned response of the Department and report his findings to your Committee within a reasonable period.

A copy of the relevant Minutes of Proceedings and Evidence (Issues Nos. 40 and 43, which includes this Report ) is tabled.

Respectfully submitted,

LEN HOPKINS,

Chairman.

REPORT TO THE HOUSE

Friday, April 12, 1991

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

TENTH REPORT

(Second Session of the Thirty-fourth Parliament)

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

3. The objective of the modernization is to make the vessel more cost-efficient and give it 15 to 20 years of additional life expectancy. The "St. Laurent", built in 1969, is the most powerful icebreaker in the Coast Guard fleet, and has been used for Arctic supply escort duties.

4. At the time of your Committee's hearings in December 1990, the modernization, which started in August 1988, was approximately 20 months behind schedule and the total cost had escalated to $139 million from an initial planned expenditure of approximately $51 million, that being two and one-half times as much.

5. Your Committee has a number of areas of concern arising from the "St. Laurent" modernization:

(a) Levels of service - the importance of standards or levels of service for the icebreaker fleet;

(b) Cost estimation - the need to improve cost estimation procedures and reporting to Parliament on these costs;

(c) The modernization decision - the validity of the make-or-buy decision;

(d) Sole-sourcing; and

(e) The role of Treasury Board in the approval of the modernization.

Levels of Service

Cost Estimation

8. Your Committee made reference to the Transport Canada 1987-88 Estimates Part III, which listed a total estimated cost of $54,469,000 for the modernization, with $6,171,000 to be expended in 1987-88, the first year of the project. No explanatory notation accompanied the $54.5 million figure, which was of the same order of magnitude as the $51 million planning figure. The Auditor General noted that the $51 million was significant because it "locked the system in" to future cost increases. Equally important, the appearance of such a cost figure in the Estimates constituted basic information for Parliament in the voting of Supply.

9. Your Committee must emphasize the importance of the presentation of reliable information in the Estimates documentation. Data presented in Part III, showing the total estimated cost of a major capital project, should be a true indicator of the overall cost of the project over its life-cycle.

10. Your Committee noted that the Office of the Comptroller General plays a role in offering policy guidance to departments to ensure that the Estimates documents serve Parliament well.

11. The estimated cost of the modernization underwent a rapid increase from the $54.5 million reported in the 1987-88 Estimates, through a $75.8 million cost in 1988-89, to $95.5 million in the 1989-90 Estimates. A notation in the Transport Canada Part III in 1988-89 explained the increase in terms of an upgrading of the class of estimate and a further refinement of work required; a similar notation the next year, 1989-90, indicated movement to yet a higher class of estimate.

12. Your Committee has two concerns with respect to this cost escalation. First, the cost of the project almost doubled in a three-year period. The Department's testimony that this was substantially more than a normal mid-life modernization, with significant upgrading of the propulsion and other major systems, gives the impression of a rapidly re-thought project which in 1987-88 conformed to a rough planning figure, but which by 1989-90 had emerged as a much greater undertaking. Secondly, your Committee considers that Transport Canada's Estimates Part III failed to provide adequate information to Parliament about this project. There was no indication in the 1987-88 Part III, the first year in which funds were appropriated, that the amount shown as the estimated total cost was based on an early, unrefined class of estimate, not yet approved by Treasury Board.

Recommendation

(a) Transport Canada ensure that earlier, unrefined cost estimates for major capital projects are clearly distinguished from later, refined estimates when reported in the Estimates Part III and that the dates of Treasury Board approvals are shown in each case; and

(b) the Office of the Comptroller General assist Transport Canada and other departments responsible for major capital projects (and major Crown projects) in implementing this recommendation across the government.

14. The cost escalation on the modernization did not stop at $95.5 million; a cost overrun for the replacement of corroded steel has added $36.9 million to the total, which, with some additional amounts from the annual refit budget, has reached approximately $139 million. The overrun raises important questions about prudent management of public funds; it also places an onus on Transport Canada to find out what went wrong and take appropriate corrective measures. For these reasons, your Committee welcomes the Department's commitment to undertake an internal audit of the modernization project.

15. The Auditor General informed your Committee that the Department failed to include a contingency allowance for steel replacement in early cost estimates for the modernization project and did not respond to reports in 1981 and 1984 from the captain, officers and crew of the ship about serious indications of extensive corrosion.

16. While surveys of the ship, over and above normal Coast Guard Ship Safety Inspections, were carried out in 1984, 1987, and 1989-90, Coast Guard officials indicated that the 1984 and 1987 surveys did not involve dry docking the vessel and only the last survey, in 1989-90, when the ship was well into the modernization in dry dock, revealed the full extent of the corrosion.

17. In subsequent correspondence with the Committee, Transport Canada has confirmed the need for a more thorough assessment process than was carried out on the "St. Laurent" in all future major repair or modernization projects. The Coast Guard envisages a two-step process involving both a survey of the condition of the vessel and a full assessment study in which the vessel will be removed from operational status.

18. The Coast Guard will also examine the need for surveys to include more extensive tests, including those which are potentially destructive to components of the vessel or involve removal of equipment. The Auditor General has interpreted Coast Guard's commitments to include dry docking while the vessel is removed from operational status.

Recommendation

The Modernization Decision

21. Also tied to the modernization decision is the importance of using levels of service in related vessel acquisitions. Both the decision to modernize the "St. Laurent" and the need for one and perhaps two such heavy icebreakers in the far North were determined by the Coast Guard on the basis of professional judgement, prior to the introduction of levels of service. The other triple-screw heavy icebreaker in the Coast Guard fleet, the CCGS John A. MacDonald, is nearing the end of its useful life in the Arctic. Your Committee considers it essential that levels of service be used to decide upon the replacement of the "MacDonald" and, indeed, for all other such decisions in relation to the Coast Guard fleet. As the Auditor General noted in his testimony, it would be curious to carry on discussions about the replacement of the "MacDonald" on the assumption that it should be replaced without knowing, on the basis of levels of service, whether or not it was needed in the first place.

Recommendation

(a) future least-cost analysis of planned capital projects include all cost factors; and

(b) levels of service are used in all major ship acquisition, modernization and deployment decisions.

Sole-Sourcing

24. Your Committee's objections to the sole-sourcing of government contracts are a matter of public record. In earlier reports to the House, most recently in 1986, your Committee recognized the fairness and economy of the competitive tendering process and recommended that government departments make maximum use of competitive tendering for contracts (Second Report, 2nd Session, 33rd Parliament, tabled December 18, 1986).

25. Therefore, the Cabinet direction to sole-source the modernization is a matter of serious concern to your Committee, particularly since this direction was given several months after the chosen shipyard, Halifax Dartmouth Industries Ltd., had submitted an unsolicited proposal for the work to the Department of Supply and Services. Senior Coast Guard officials testified that other shipyards capable of doing the work made representations when the Cabinet decision became known. These officials also stated that the standard procedure for major ship modernizations, to go to public tender, was recommended in this case on the basis of a review of the unsolicited proposal.

Recommendation

(a) Transport Canada make maximum use of competitive tendering for contracts; and

(b) The Minister of Transport give consideration to reporting at least annually to Parliament on the use of exceptions to the mandatory tendering requirement under the Government Contracts Regulations.

The Role of Treasury Board

28. Your Committee also raised with Treasury Board officials the failure of the Coast Guard to comply with the requirement to specify levels of service. Although levels of service have now been introduced, the requirement for them, established by Treasury Board in 1974 and repeated by Cabinet in 1981, is a longstanding one and many major capital projects have been approved by Treasury Board, including the "St. Laurent" modernization, in the absence of levels of service. Your Committee was not satisfied with the statement by Treasury Board officials that the number of icebreakers needed was "obvious" and "self-evident".

Recommendations

30. Your Committee recommends that:

(a) Transport Canada respond in writing by June 28, 1991 to recommendations 13(a), 19, 22 and 26(a);

(b) the Office of the Comptroller General respond in writing by June 28, 1991 to recommendation 13(b);

(c) Transport Canada and the Office of the Comptroller General provide copies of their responses to the Auditor General on the due date; and

(d) the Auditor General assess these responses and report back to your Committee within a reasonable period.

31. Your Committee requests a Government response to recommendations 26(b) and 29 in accordance with Standing Order 109.

A copy of the relevant Minutes of Proceedings and Evidence (Issues Nos. 41, 43 and 44, which includes this Report) is tabled.

Respectfully submitted,

LEN HOPKINS,

Chairman.

REPORT TO THE HOUSE

Thursday, June 6, 1991

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

FIRST REPORT

(Third Session of the Thirty-fourth Parliament)

A copy of the relevant Minutes of Proceedings and Evidence (Issue No. 1, which includes this Report) is tabled.

Respectfully submitted,

JEAN-ROBERT GAUTHIER

Chairman