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Opening Statement to the Standing Committee on Public Accounts

February 2005 Status Report of the Auditor General of Canada

16 February, 2005

Sheila Fraser, FCA
Auditor General of Canada

Mr. Chair, I am very pleased to be here today to present my third Status Report to Parliament, tabled February 15. I am accompanied by Assistant Auditors General Richard Flageole, Ronnie Campbell and Doug Timmins.

I introduced this report in 2002 as a way to tell parliamentarians and Canadians what the government has done in response to recommendations made in our past audits. Over the years, members of Parliament, particularly members of this Committee, have let us know that they want a more thorough follow-up of how well departments are doing in implementing our recommendations.

This Status Report follows up on eight previous audits, and focusses on issues that are likely to be of most interest to parliamentarians. I am pleased to say that in half of them, overall progress has been satisfactory.

I’ll talk about each in turn. But first let me explain how we decide whether progress has been satisfactory or unsatisfactory.

A few years after an audit, we follow up to see how much progress has been made in implementing our original recommendations. We look at selected issues that are still relevant and at any new issues that may have emerged since our last audit.

We recognize that some recommendations are clearly more difficult to carry out than others. And some issues are more important—such as those that involve protecting the well-being of Canadians or saving large amounts of money.

So, we take into account both the significance of the issues and the difficulty of implementing the recommendations when deciding whether or not progress has been satisfactory.

Let me start with the good news. The Canadian Nuclear Safety Commission, the Canadian International Development Agency, and Transport Canada have all made satisfactory progress in addressing issues raised in our previous audits.

And I’m happy to see that the early stages of implementing the government’s new Public Service Modernization Act are on track as well.

Chapter 6 — Canadian Nuclear Safety Commission—Power Reactor Regulation

Canadians rely on the Canadian Nuclear Safety Commission to regulate nuclear energy and materials in order to protect health, safety, national security, and the environment. The CNSC has made significant progress in acting on the recommendations we made in 2000 on the licensing and regulation of nuclear power reactors.

The Canadian Nuclear Safety Commission stands out as an example of an organization that took our recommendations very seriously and prepared a detailed action plan in response. The plan, along with timelines, was posted on its Web site and updated regularly.

The CNSC has adopted a consistent approach to planning and conducting inspections of power reactors. It has developed a new scale for rating how power reactor licensees perform in meeting regulatory expectations. It has also issued key regulatory documents that were needed.

Chapter 5 — Canadian International Development Agency—Financial Compliance Audits and Managing Contracts and Contributions

The Canadian International Development Agency is responsible for some $2.6 billion in international development assistance, so it’s vital that its contracts and contributions be well managed.

I am glad to see that CIDA has taken action on a number of the recommendations we made in 1999 and 2000. It has improved its project management and is paying more attention to the long-term viability of its development projects.

CIDA has made satisfactory progress in reducing the total value of sole-source contracts it awards and decreasing the unjustified sole-sourcing of contributions.

Chapter 2 — Transport Canada—Overseeing the National Airports System

Back in 1992, Transport Canada began to transfer the management of 22 airports of the National Airports System to airport authorities, while retaining ownership of them. Our 2000 audit raised concerns about the transfers and about the oversight of the system.

I am pleased to see that the Department has made satisfactory progress and is now assuming its role as owner and ensuring oversight of the National Airports System.

Chapter 3 — Modernization of Human Resources Management: Managing the Reforms

With the passage of the Public Service Modernization Act in 2003, the government has launched far-reaching changes in the way it manages human resources. Although the full impact of the reforms won’t be apparent for several years, in my view the government has laid a solid foundation for modernizing its management of human resources.

With so many other competing priorities, managing such a long-term project is a big challenge. If these reforms are to be successful, the government will need to maintain its momentum. And given the significance of the reforms, I also encourage parliamentarians to monitor their progress closely.

Now let me turn to areas where we found that progress was unsatisfactory— the security of the government’s information technology, the governance of Crown corporations, the accountability of foundations, and the improvement of government financial information.

Chapter 1 — Information Technology Security

I’m disappointed that the government still does not meet its own minimum standards for IT security, even though most of them have been well known for more than a decade. It means that government systems and the sensitive data they hold are vulnerable to security breaches.

I urge senior managers in departments to pay more attention to identifying threats and risks, to develop action plans for correcting weaknesses, and to ensure that their departments are fully compliant with IT policy and standards.

Chapter 7 — Governance of Crown Corporations

Another area where we had hoped to see more improvement is the governance of Crown corporations, which manage billions of dollars of taxpayers’ money. The government has taken more than three years to begin to address the key recommendations of an audit we conducted in 2000.

The timeliness of the government’s appointments of board members, chairs, and CEOs is still a major issue. At the time of our audit, in the 15 largest Crown corporations, more than one third of board members’ terms had expired—some for more than a year—and four were operating without a permanent CEO.

The terms of board members are not staggered to ensure continuity in the functioning of boards. There is also no formal mechanism for communicating government expectations to Crown corporations.

I am pleased that some Crown corporations have improved their governance practices since our last audit. However, recent developments in the private sector have raised the bar for corporate governance, and this area will require much more attention.

Chapter 4 — Accountability of Foundations

For some years now I have been concerned about the lack of adequate accountability of foundations to Parliament—and I am still concerned.

Since 1997, the government has transferred more than $9 billion to various foundations in advance of need, and $7.7 billion is still sitting in their bank accounts.

Transferring funds to these foundations continues to place public money beyond the reach of effective scrutiny by Parliament.

In its 2003 and 2004 Budgets, the government committed itself to improving the accountability of foundations, and it has since made a number of improvements in reporting. These were important steps in the right direction.

I urge the government to close the remaining gaps in foundations’ accountability to Parliament. For one thing, the government cannot make adjustments to foundations when circumstances change significantly. And for another, there is no provision for providing Parliament with the results of performance audits of significant public policy areas involving foundations.

Chapter 8 — Managing Government: Financial Information

Government departments and agencies manage millions of dollars. To do this well, they need good financial information.

I’m disappointed that weaknesses we found in financial information systems in 2001 and 2002 have still not been resolved. Many of them are easy fixes.

Another issue is accrual budgeting and appropriations. Other countries, several Canadian provinces, and a territory have already implemented accrual budgeting and appropriations. I find it difficult to understand why, after years of study, the federal government has not resolved this matter.

Mr. Chair, that completes my overview of the Report. We would be pleased to answer your questions.