Performance Audit Manual

General Policies The Code of Values, Ethics and Professional Conduct and other Office policies should be adhered to in all Office activities. All performance audits should be completed in accordance with the Office's performance audit policies.

Definition of Performance Auditing

1.1 A performance audit is a systematic, purposeful, organized and objective examination of government activities. It provides Parliament with an assessment on the performance of these activities; with information, observations and recommendations designed to promote accountable government, an ethical and effective public service, good governance, sustainable development and the protection of Canada's legacy and heritage.

1.2 Its scope includes the examination of economy, efficiency, cost-effectiveness and environmental effects of government activities; procedures to measure effectiveness; accountability relationships; protection of public assets; and compliance with authorities. The subject of the audit can be a government entity or activity (business line), a sectoral activity, or a government-wide functional area.

1.3 A high-quality performance audit is one that is carried out in compliance with the policies contained in this manual (see Appendix 1), and, in particular, responds to the full range of obligations in our mandate, adds value, serves Parliament and the well-being of Canadians, and is objective, timely and cost-effective.

Mandate

1.4 The Auditor General Act of 1977 provides the original legal basis for the Auditor General to carry out performance audits. It was amended in 1995 to include responsibilities related to environmental matters. Section 7 (2) of the Act requires the Auditor General to "call attention to anything that she considers to be of significance and of a nature that should be brought to the attention of the House of Commons, including cases in which she has observed that:

1. accounts have not been faithfully or properly maintained or public money has not been fully accounted for or paid, where so required by law, into the Consolidated Revenue Fund;
2. essential records have not been maintained or the rules and procedures applied have been insufficient to safeguard and control public property, to secure an effective check on the assessment, collection and proper allocation of the revenue and to ensure that the expenditures have been made only as authorized;
3. money has been expended other than for the purposes for which it was appropriated by Parliament;
4. money has been expended without due regard to economy or efficiency;
5. satisfactory procedures have not been established to measure and report the effectiveness of programs, where such procedures could appropriately and reasonably be implemented; or
6. money has been expended without due regard to the environmental effects of those expenditures in the context of sustainable development."

1.5 The cases listed above do not specifically define or limit the scope of performance audits, but indicate that they are of a nature that Parliament wants examined. As a result, they are considered when scoping all performance audits.

The Relationship between the Audit Function, and Government Policy and Policy Making

1.6 Special care is required when audit findings touch on government policy. As officers of Parliament, we do not want to be seen to be second-guessing the intentions of Parliament when it approves legislation, or of Cabinet when it selects a certain policy direction. On the other hand, auditors must understand pertinent policies to audit effectively, and results-oriented auditing inevitably brings us closer to policy matters.

Past audit chapters have commented on the following policy issues:

• The economy or efficiency of the implementation of policy (for example, the high cost of achieving industrial benefits through government procurement);
• Whether practices comply with policy expectations (for example, extent of compliance with Treasury Board's policy on service standards);
• The adequacy of the analysis on which a policy or program is based;
• Opportunities to fill policy gaps (for example, the need for a government-wide policy on emergency preparedness);
• The need to update or improve existing policy (for example, the need for a new White Paper for defence).

1.6.1 The risks of mandate concerns are low for the first two examples, but increase considerably for the latter three.

1.6.2 This is especially true when the policies involved are political rather than administrative in nature. As illustrated by the spectrum in the exhibit below, policies range from administrative policies to national policies. Generally, the risk to the Office increases as you move to the right, especially if we want to comment on the completeness or adequacy of policy.

Departmental administrative policies, such as service delivery policies.

Government administrative policies that support programs, such as the requirements of the Contract Regulations or the Financial Administration Act.

Tax administration policies, such as rules designed to secure an effective check on the assessment, collection and proper allocation of revenue.

Specific policy decisions which may or may not require legislative approval; e.g. to close certain government offices, or create jobs in certain regions.

Program policy goals (usually in legislation or the Estimates) such as fisheries conservation policy, peacekeeping policy, or universality in the Canada Health Act.

National policy goals that may not be formally enunciated, documented or adopted, such as reducing child poverty.

1.6.3 Government policies often begin as a party platform, white paper or political speech without any official standing or legislative base (national policy goals). They achieve more formal status when they are enshrined in legislation and/or receive government funding (program policy goals). Once they reach this stage, auditors can examine how they are being implemented, and whether the policy goals are being achieved. It is generally understood that audits more usefully examine the implementation rather than the development of policy, and that audits do not question the merits of the government's programs and policies. The merits are for Parliament to review and debate. If audit findings throw a government policy or legislation into doubt, caution is necessary as the auditor may become involved in a partisan political debate.

1.6.4 A related issue is whether the Auditor General should put potential policy issues on the parliamentary/public agenda — e.g., aging, or child poverty. The AG's mandate and role as servant of Parliament requires her to bring to the attention of Parliament, and thus the public, any matter that she deems relevant to the exercise of her responsibilities. To this extent at least, the AG can legitimately play a role in shaping the public policy debate. But this would be very risky, and could easily involve the Office in partisan politics.

1.6.5 Programs may be subject to specific policy decisions by ministers or Cabinet committees. In some cases they are unwritten policies supported by ministers. Even if they have the effect of reducing economy and efficiency, they may be justifiable to the Government on the basis of effectiveness. It may be very difficult to get the whole story and find out what analysis and weighting was given to efficiency versus effectiveness.

1.6.6 Tax administration policy is a special case. The Auditor General's mandate lies in paragraph 7(2)(b) which requires her to call attention to cases where the rules and procedures do not secure an effective check on the assessment, collection and proper allocation of revenue. Because the Canada Customs and Revenue Agency is on a self-assessment system of taxation, taxpayers are drawn into the administration or implementation of the rules and procedures that, for the most part, are set out in legislation. Therefore, concluding on the rules and procedures necessarily entails concluding on the sufficiency of legislation. We judge "sufficiency" according to the rather intangible standard of policy or legislative intent. Our comments on tax policy have been limited to situations where the intentions of the policy were not being realized.

1.6.7 Departmental or government-wide administrative policies present fewer risks. There are areas, such as Official Languages, where the sensitivities are high.

Principals should:

• Notify their Assistant Auditor General (AAG) or Commissioner of the Environment and Sustainable Development (CESD) when it appears that an audit will result in observations about the adequacy of national or program policy; and
• Obtain Executive Committee approval before reporting on the merits of existing government policies, or attempting to put matters on the public policy agenda.

A discussion paper, entitled "Audits and Government Policy", provides additional information on the relationship between policy and auditing.

Performance auditing and accountability

1.7 Audit is superimposed on an accountability framework. A traditional definition of accountability is the obligation to answer for a responsibility conferred. This definition often is interpreted as implying two distinct and often unequal partners: one who confers and the other who is obliged to answer. In so doing, it does not address well several realities in today's public management. These include:

• the emergence of alternative delivery approaches, such as arrangements between the federal and provincial governments, where responsibilities may not be conferred from a senior party to a junior one, but agreements nonetheless assume accounting for results;
• the call for a much increased focus on performance-based management and results in the public sector; and
• the importance of transparency as an essential feature of public sector accountability.

1.8 In light of these new realities, a restatement of the underlying principles, practices and tools of accountability, which incorporates the traditional definition could be: a relationship based on the obligation to demonstrate and take responsibility for performance in light of agreed upon expectations.

1.9 In this view, accountability is about the requirement to answer for what you have accomplished (or not) that is of significance and of value. This restatement implies that accountability can exist in other than hierarchical relationships, since there is no necessary "conferring" taking place. Accountability is rather seen to be assumed and/or agreed to by each party in a recognized accountability relationship, even when one party does indeed delegate responsibilities to the other, as in the traditional case. A focus on performance covers both the benefits accomplished for Canadians and due process and fairness in the delivery of services. In demonstrating performance against agreed upon expectations, the need for openness and transparency is made evident.

1.10 Parliament has three fundamental roles:

• to legislate;
• to appropriate funds; and
• to scrutinize government operations.

1.11 Parliament expects that the government will carry out its wishes, spend money with due regard to value for money, and measure the effectiveness of approved programs. The government has an obligation to account to Parliament on its stewardship of taxpayers' money and on the discharge of its responsibilities.

1.12 The Auditor General's role, superimposed on this relationship, is to assist Parliament in its scrutiny of the government's performance. One way it fulfils this role is by conducting performance audits and examinations.

Those independent audits, examinations and studies provide objective information, advice and assurance to Parliament, government and Canadians. The OAG works collaboratively with legislative auditors, federal and territorial governments, and professional organizations and provides a respectful workplace in which its diverse workforce can strive for excellence and realize their full career potential.

1.13 The Act, for the most part, does not define the means by which the performance audit responsibilities are to be discharged. It entrusts the technical interpretation and application of the law to the Auditor General. In other words, the Auditor General decides what, how and when to audit. This unique position of trust places a responsibility on the Office to carry out its work in accordance with the highest professional standards.

1.14 Appendix 2 sets out definitions and interpretations of key terms used in the Auditor General Act.

Access to information to fulfil audit responsibilities

1.15 Sub-section 13(1) of the Auditor General Act and the Financial Administration Act entitles the Auditor General "to free access at all convenient times to information" needed in order to report. She is also entitled to "receive from members of the public service such information, reports and explanations, as she deems necessary". The nature and type of information needed to fulfil her responsibilities is decided by the Auditor General. Further guidance on matters of access is provided under Access to information in Chapter 8.