1982 Report of the Auditor General of Canada
Chapter 1—Matters of Special Importance and Interest
1.1 This is my second annual Report to the House of Commons, and it will surprise no one that, after the better part of two years in Ottawa, my perspective has changed somewhat.
1.2 My first impression of sprawling immensity, confusion of purpose, and a sense of urgency comparable to the alacrity of a turtle, remains But the experience of these past months has convinced me that there are some significant opportunities for improvement in which the work of this Office can be supportive and, in some cases, a catalyst.
1.3 1982 has been a sobering year for all Canadians We have been awakened to some grim economic realities.
1.4 In such a year, it may seem strange for the Auditor General to strike any note of even cautious optimism. Nonetheless, I do perceive signs for hope.
1.5 I identify the gradual but unmistakable emergence of a new determination in government and in Parliament toward improved management and more stringent accountability.
1.6 Well managed companies faced with falling profits respond with a hard-nosed, conditioned reflex: they urgently seek to cut costs and trim fat. The response of bureaucrats in time of large and rising deficits is less immediate but, if the political will is evident, costs are cut and fat is trimmed. In my view, the political will is now present, and a number of senior managers in the public service are responding with a degree of firmness and courage that has not been seen for some time. Not only is there a welcome attention to controlling costs and numbers, but there are signs of a willingness to face up to dismissing unsatisfactory employees.
1.7 I suspect that the true test of the dedication of both politicians and senior bureaucrats to this leaner approach to management will come before long, when all political parties begin to gear up for the next federal election.
1.8 One of the constant frustrations for Members of Parliament lies in their inability to obtain full financial information before taxpayers' money is committed.
1.9 However, the important reform of the Estimates project is now beginning to provide this crucial information for MPs, giving them a far more detailed understanding of the annual appropriations. The 1982-83 Estimates include 10 Part III Expenditure Plans. At this time, it is anticipated that the majority of the remaining departments and agencies will have Expenditure Plans available during the next two years, with the balance in 1985.
1.10 These are difficult documents to create but, once developed, they are vital tools for parliamentarians in their role of keeping Government accountable.
1.11 My cautious optimism, however, also lies in less tangible things. My work brings me into constant contact with many senior managers in government, and I sense a new attitude with respect to improved financial control and a renewed interest in accountability. I cannot rely on audit evidence for this impression. But the signs are there.
1.12 This leads me to something else which I think should be said about this whole annual Report. Auditors, traditionally, tend to highlight concerns of a negative nature. That remains true even when we strive for fairness and balance in our reporting.
1.13 However, my view of the Ottawa bureaucracy is that there are many in it who deserve plaudits for their constructive efforts toward improved value for money for taxpayers. These dedicated people cannot, in the ordinary course of things, be known to the public. Nor, I suspect, will they be able to recognize themselves in this Report. The truly dedicated public servant does exist and does care. And I want that fact to be known and recognized.
1.14 In an effort to improve our own efficiency, we are seeking, with the co-operation of the Public Accounts Committee, ways to speed up the reporting of our findings and subsequent discussion of them. This will require an amendment to the Auditor General Act, and it may also require more selective reporting on our part to facilitate the work of the Public Accounts Committee. However, this Report follows past practice and covers our work for a complete year.
1.15 In Chapter 1, it is customary for the Auditor General to comment on matters that seem to him to be of special importance. I concentrate here on those issues that I believe provide significant opportunities for improvement and, therefore, are of special importance to Parliament.
Crown-owned Corporations - A Sub-government1.16 The most important of these matters, I believe, has to do with the accountability of corporations owned by the Government of Canada. This is a matter of consequence both for Members of Parliament and for taxpayers. The citizens of Canada have a right to consider themselves the principal shareholders of these organizations; parliamentarians speak for them. Crown-owned corporations must be held accountable through Parliament.
1.17 These organizations have a greater impact on the economy and the life of Canadians than ever before. There are now more people working for Crown-owned organizations than there are working in government departments and agencies when the RCMP and the Armed Forces are excluded. A sub-government has been created to fulfil some of the social and economic aims of Government. This sub-government structure is not as accountable as I believe it should be. If Parliament does not soon awaken to this phenomenon, which increasingly isolates Parliament from activities it should scrutinize and approve, Parliament may not be able to exercise its fundamental responsibility of overseeing the receipt and expenditure of public funds.
1.18 It would be convenient, and would make for more consistent treatment and better control, if all these corporations and organizations could be described as "Crown corporations". The term in Canada applies to those corporations defined in the Financial Administration Act as ultimately accountable, through a minister, to Parliament for the conduct of their affairs and named in schedule B, C or D to the Act. Unfortunately, there has been a tendency in recent years to establish corporations generally subsidiary to existing corporations, under the Canada Business Corporation Act, without naming them in the schedules of the Financial Administration Act. Seemingly, they are less accountable to Parliament.
1.19 Bill C-123. This problem has now been recognized by the Government, and Part V of Bill C-123, an Act respecting the organization of the Government of Canada, will place most Crown-owned corporations under the Financial Administration Act. This is a sound and necessary step toward bringing these corporations under a more satisfactory level of scrutiny by Parliament. The exceptions will be the cultural corporations, the Bank of Canada and the Canadian Wheat Board.
1.20 I believe that all corporations owned by the Crown should ultimately be accountable to Parliament. The legislation as drafted and the Government's policy statement make it clear that the intent is to bring all Crown-owned corporations under closer control of the Cabinet, but this does not automatically mean accountability to Parliament, nor does it equate with public scrutiny.
1.21 The intention of the new legislation is to improve ministerial control and direction over these corporations and to bring their financial activities into the planning and decision making associated with the Policy and Expenditure Management System. The legislation contains requirements for corporate plans, controls on acquisition and disposal decisions, controls on corporate borrowing and provision for the Government to exercise, where necessary, all the rights of a sole shareholder under the Canada Business Corporations Act. It is helpful legislation as far as it goes, but I am not satisfied that it addresses significant concerns of mine or of my predecessor or of the Royal Commission on Financial Management and Accountability. Chapter 2 of this Report outlines my views on what is needed to achieve adequate accountability to Parliament by Crown-owned enterprises.
1.22 In a policy statement, the Government said that what is needed is not an indiscriminate increase in controls and legislation. The purpose of the Bill is to provide effective support for ministers in their use of tools, which are either available now or will become available soon, designed to establish needed direction, control and accountability of Crown-owned corporations.
1.23 Clearly, in the Government's view, the present unsatisfactory accountability regime is at least as much an administrative failure as a shortcoming in law.
1.24 This may well prove to be true if one thinks only of the accountability of these corporations to the respective responsible ministers. But there is a further level of scrutiny which is, at times, even more important. This is the scrutiny of Parliament. At present, the degree of parliamentary scrutiny to which Crown corporations are subjected varies from sporadic to virtually non those Crown-owned corporations which, up to now, have not been included in the schedules to the Financial Administration Act, also vary greatly in the degree of parliamentary interest they attract. But in general they have been less likely to attract the attention of Parliament than those corporations that have been subject to the requirements of the Financial Administration Act.
1.25 The improvements sought by the Government will require more diligent staff work in the offices of the ministers and more co-operation on the part of the Crown corporations than has been the rule in the past. Any observer of Government will be painfully aware of the risks. The inter-relationships are complex: officers to directors; officers to ministerial staffs; officers to ministers; directors to ministers. Responsibility for speaking or acting on behalf of the Government is shared among the departmental minister, the Minister of Finance and the President of the Treasury Board.
1.26 There is also the serious risk of conflict of interest for the public servant who wears one hat as deputy minister or assistant deputy minister in a department of government and another hat as a director of a Crown corporation.
1.27 Notwithstanding these risks, the Government's recognition of the present inadequate accountability and direction is encouraging. In my opinion, this is also the logical time to provide for comprehensive auditing of these corporations. Such audits would prove most helpful to ministers and to Parliament in their endeavours to improve the direction of these enterprises.
1.28 The fear and the argument in the management ranks of government-owned corporations will be that, even with the limited accountability measures announced by the Government, their freedom to act in the corporate community will be severely curtailed, perhaps to the point where management cannot do its job. This is always the argument and it is a risk. However, I am convinced that the risk has to be taken.
1.29 If an organization is established to accomplish a public purpose, then its finances must be specifically subject to the scrutiny of Parliament. Experience in Canada would suggest that if Crown-owned corporations are to be held to the social purposes for which they were established, their activities must be visible to Parliament and to the public. Failing this, there is a high probability they will serve primarily their own corporate interests.
1.30 Classifying Crown-owned organizations. What is material in this argument, however, is the whole question of classification of these organizations. It is clear, I think, that some Crown-owned entities require and merit a greater degree of independence of action and decision-making than others. Partly for this reason, there is a definite need for an organized and regular review of the classifications of Crown-owned and controlled corporations. There is also the fundamental need to review periodically whether a given corporation should continue to exist as a Crown agency. This evaluation should be done by Government and considered by a committee of the House of Commons.
1.31 If management of a corporation is to be held publicly accountable, then Parliament must first decide and management must know, what it is the corporation is supposed to be achieving. That seems simple enough. But the fact is that the broad public purposes for which these corporations were established are frequently not spelled out either in legislation or anywhere else in a public document. It is hardly surprising, then, that accountability for public policy objectives by these corporations is an elusive target.
1.32 Management, which may have understood the public policy objectives at the time of incorporation, may, through change of personnel, shift its attention from the original purpose and become preoccupied with quite a different set of objectives. These objectives may be concerned with achieving economic power to be used in ways not envisaged by Parliament or the Canadian taxpayers when the company was established.
1.33 Petro-Canada -- an example. The apparent change in orientation can be dramatic. Petro-Canada is a recent example. When the Petro-Canada Act was given second reading in the House of Commons, the Minister of Energy, Mines and Resources placed great emphasis on the need for energy development, including risky and costly exploration in the far north, and government-to-government oil deals. However, the company's biggest financial undertaking to date, involving an investment of $1.7 billion, was in the oil refining and marketing business -- Petro-Canada's purchase of Petrofina.
1.34 Department officials have informed us that the wholly-owned Crown corporation, Petro-Canada, was used by the Government to identify, evaluate, recommend and negotiate the acquisition. This means the Government of Canada chose to delegate the implementation of a crucial decision concerning the National Energy Program to an entity that is not fully accountable to Parliament. This constitutes a serious weakness in the management of public funds.
1.35 I would have expected that the parties processing and authorizing such an expenditure would have available an evaluation of the entity to be purchased, its value in relation to price, alternate strategies to be considered in acquiring the entity, the implications of such a purchase for the purchaser (the Government of Canada) and the means of financing such a purchase.
1.36 Since none of this material was available in the Department, we have not yet been able to assess whether the $1.7 billion invested by the Government of Canada for the purchase of the shares of Canadian Petrofina Inc. was expended with due regard to economy. During our comprehensive audit of the Energy Section of Energy Mines and Resources in 1982-83, we will continue our investigation of this matter.
1.37 Letters of Comfort -- another Illustration. With regard to this whole area, another illustration is useful, I believe. One of the fundamentals of our parliamentary system is the requirement that all money bills must be introduced by the Government of the day and passed by the House of Commons. But there is a practice that has the effect of making Parliament into a large rubber stamp. This is the use of the Letter of Comfort, a device under which a minister is authorized by the Cabinet to support the credit of a corporation. Even when they contain a disclaimer, the moral obligation of the Government is clear. Thus, although the guarantee of money drawn from a bank under a Letter of Comfort must later be authorized by Parliament in the Main or Supplementary Estimates, the obligation is already firm, either legally or morally.
1.38 The amounts involved can be disconcertingly significant. In the last six years, more than a billion dollars has been advanced to Canadair through a sequence of Letters of Comfort. These were authorized by Parliament on 31 March 1982. The authorized limit is $1.35 billion. This amount of taxpayers' money is at risk without what I would consider clear criteria and objectives for providing, continuing, or terminating support. This example is all the more disturbing because there is no assurance that $1.35 billion is sufficient.
1.39 Government support for troubled companies. In this period of severe recession, government support for such troubled companies as Massey Ferguson, DeHavilland, Canadair, and, more recently, Maislin Industries and Dome Petroleum, represents very big risks, even against the scale of current budgets. It is not my task as an officer of Parliament to debate the merits of government intervention, but I am certain that, in the circumstances, it is particularly important that reliable information be available to ministers concerned and to Parliament. Parliament's control of the public purse must be secure, particularly when such troubled corporations have a tendency to become Crown corporations.
1.40 My Office will follow these situations to satisfy ourselves that the information supplied to ministers and to Parliament is as complete as possible and that Parliament's authority is not usurped. We will report and criticize any device that has the effect of committing Parliament in advance of its considering the issues at hand.
1.41 Achieving accountability. The problem of achieving accountability is, however, massive in its dimensions. There are more than 300 of these corporations, including subsidiaries, employing some 263,000 Canadians. Revenues of Crown corporations in the most recent fiscal year were $31.9 billion, and expenses were $33.6 billion. Most of these corporations are virtually unknown even to the best informed members of the tax-paying public. Yet, in the aggregate, they represent a hole in the taxpayer's pocket, resulting, as they often do, in a consistent negative return on investment.
1.42 It may be helpful in visualizing the scale of the problem to think of the whole group as an enormous iceberg floating lazily in the foggy Atlantic; silent, majestic, awesome. The public tends to see only the upper portions, consisting of the giants like CNR, Petro-Can, CBC, Air Canada and Canada Mortgage and Housing Corporation. The great bulk of the iceberg below the surface is less spectacular, less likely to attract public interest, less likely to receive the attention of Parliament, yet costly to the taxpayers. Indeed, deep down near the bottom of the iceberg are subsidiaries of Crown corporations that may escape all public scrutiny.
1.43 With the tabling by the Minister of Agriculture on 16 July 1982 of our comprehensive audit report on the Canadian Dairy Commission, the question of accountability assumed a new dimension. Beyond the accountability of the Commission to the Minister, and through him to Parliament, lay a further question. What of the accountability of the Commission to the dairy industry that arises from the imposition of a levy to finance losses which occur in disposing of surplus dairy products overseas? These levies are of the order of $120 million annually.
1.44 I am convinced that the application of the comprehensive audit to Crown corporations such as the Canadian Dairy Commission significantly strengthens the chain of accountability.
1.45 Auditing Crown-owned corporations. Throughout the twentieth century, there has been frequent public debate in Canada, in the United Kingdom and elsewhere concerning the appropriate balance between independence and freedom to act on the one hand and accountability on the other. Accountability to whom? To a Minister of the Crown and through the Minister to the Cabinet? Through the Minister to Parliament?
1.46 These questions have proved controversial enough. But they are only part of the problem.
1.47 There is also the question of the role of the auditor. The auditor's role is to make intelligent and informed scrutiny possible. His report is an instrument that permits the owners to take a searching look at an operation and to ask the right questions. The owner's objective is to determine whether the corporation is achieving the social purpose for which it was established. Is it doing so economically, efficiently and effectively?
1.48 If accountability is to be achieved, the scope of the audit must be sufficient to bring out the facts. Parliament, through one of its committees, must then take the time to complete the cycle of scrutiny.
1.49 Unfortunately, neither side of this equation is now satisfactory.
1.50 The Auditor General is at present responsible for the attest and legislative audit of some of the Crown-owned corporations; others are audited by private sector firms. In my view, the Auditor General, as Parliament's auditor, has a responsibility to satisfy himself as to the scope and quality of all these audits.
1.51 There are a number of ways in which this can be accomplished. My first reaction was to suggest a simple solution: the directors of certain corporations audited by the private sector would invite the Auditor General to sit with the firm's audit committee. Only one of the Crown corporations extended such an invitation.
1.52 My Office will monitor audit activities of private sector auditors reporting on Crown-owned enterprises and should be in a position to determine whether Parliament is kept as informed as it should be. We will also assist private sector auditors in their understanding of their legislative audit responsibilities. Our objective will be to have the accounting profession apply consistent audit practices. In a joint venture between my Office and my private sector colleagues, we are endeavouring to develop consistent audit practices for Crown-owned enterprises.
1.53 Comprehensive auditing of Crown-owned corporations. Throughout what has become a prolonged debate on the appropriate scope of audit in these corporations, no one has challenged the simple fact that any effective scrutiny of the activities of a corporation, Crown-owned or otherwise, requires the aid of a competent audit. The principle of the financial or attest audit is so firmly established that we take the requirement for granted. We also tend to assume a quality which is not always present.
1.54 The more searching comprehensive audit, to which all departments of government are now subjected as a matter of course under the Auditor General Act of 1977, is another matter. Curiously, this broad-scope audit approach, perhaps because it does raise the level of scrutiny, is resisted by some of the more prominent Crown corporations and their directors. Although several major corporations have chosen to undergo broad-scope audit, for others the very mention of comprehensive auditing can escalate the discussion from a philosophical to a highly emotional level.
1.55 In a way this is surprising. It may be that the arguments in support of comprehensive auditing have been too formal, too heavy with the professional's careful phrasing. The real advantage can be stated very simply: the comprehensive auditor turns his attention from the fly in the soup to the quality control -- or lack of it -- in the kitchen.
1.56 This means looking at the planning, right down to what is required of the individual. It means examining the standards for performance. It means evaluating any systems that exist to provide information to management about whether the organization is achieving its targets. How well are the variations from plan and standard analyzed? How promptly and how well are remedial actions taken?
1.57 This adds up to a careful assessment of the overall health of the organization. A comprehensive audit is designed to determine whether value for money is being received by the organization. Are its operations carried out economically and efficiently, and are there measures in place to determine whether the organization is effective in achieving the purpose for which it was established?
1.58 Comprehensive auditing goes beyond the transaction to the organization behind it. If one audits the transaction alone, then the fly in the soup is the focus. But to find out how the fly got there, it is wise to look at quality control in the kitchen -- the organization. Comprehensive auditing does just that.
1.59 The Public Accounts Committee endorsed comprehensive auditing for Crown corporations in its Fourth Report issued in February 1981. Specific reference to comprehensive audit does not appear in legislation before the introduction of Bill C-85. This Bill, intended to establish the Crown corporation, Canagrex, to market Canadian agricultural produce abroad, was introduced in the summer of this year. Section 29(4), as amended in committee, reads:
The accounts of Canagrex shall be audited annually by the Auditor General of Canada and the Auditor General may, where he deems it necessary, conduct a comprehensive audit of the affairs of the corporation.1.60 Thus, although Canagrex will not be the first Crown corporation to undergo a comprehensive audit, when the legislation is passed, it will be the first for which such an audit is mandatory if, in the opinion of the Auditor General, it is deemed necessary. Clearly, this is a step in the direction of statutory requirement for more thorough audit of Crown corporations. It is a key to more satisfactory scrutiny and accountability.
1.61 If one is to understand the way in which Government tends to see the relationship with the Crown corporations, and especially the more prominent among them, it is useful to attempt to look at these corporations from the Government's perspective. What does Government expect of the Crown corporations?
1.62 There are, I think, three requirements. The first is the accomplishment of the objectives which have been set by the Government for the corporation. The second, good management, is likely to be required to achieve the first requirement. And good management is likely to be important to achieve the third requirement -- the avoidance of political embarrassment. The order here may be logical, but there are undoubtedly occasions when it is reversed.
1.63 No government, and for that matter no senior public servant, relishes political embarrassment. Yet it may be the duty of the auditor to cause it. Not deliberately, for it is not the auditor's job to be concerned with the possible political consequences of his findings.
1.64 All governments are aware of this. However, my Office has been unable to find a single instance in the past seven years where a private sector auditor of a Crown corporation has felt compelled to insist that his report go to Parliament. This may explain, at least in part, why some ministers find the traditional financial audit more comfortable to contemplate than the more searching comprehensive audit.
1.65 Put simply, my concern lies in the fact that, although the Government of the day holds the shares of these corporations and is technically the owner, the real owners in a democratic society are the citizens, who, if they are kept informed and are not satisfied, have the power to change governments. If the real owners are to be kept informed about the stewardship of the management of these corporations and about the stewardship of the Government with respect to them, then Parliament must have access to relevant, reliable information.
1.66 In fact, during this past year my Office completed comprehensive audits of several corporations which we did not report directly to parliament. At the request of the Board of Directors of the Northern Transportation Company, my office and Deloitte Haskins and Sells, Chartered Accountants, jointly carried out a comprehensive audit of the Company. We found that in all significant areas management was operating with due regard to economy and efficiency. This was reported to the Board.
1.67 Similarly concerning the Teleglobe audit, I am pleased to report that Teleglobe found this comprehensive audit exercise to be stimulating and rewarding and thanked my office for the constructive approach that we took in the course of this audit.
1.68 In another instance, our comprehensive audit of the International Development Research Centre concluded that the Centre manages its resources in a satisfactory manner. It endeavours to serve its clients well and is extremely well regarded in developing countries. Management has accepted our recommendations for certain improvements, and action is already under way to implement most of them.
1.69 Independent, thorough audit is a required component if accountability to Parliament is to be achieved. The Auditor General must be in a position to insist that audit information be made available to Parliament when he considers it of sufficient consequence to merit the attention of Members.
1.70 Parliament should also be aware of issues regarding control and accountability of mixed enterprises and other entities in which the Crown is not the sole shareholder. A study of mixed and joint enterprises was recommended by this Office in 1979. To date nothing has been published on the topic. I am still concerned.
Information for Ministers1.71 In the concept of responsible government, ministers are jointly and severally responsible to Parliament for the actions of government. This stern accountability presupposes that ministers are making decisions on the basis of a reasonable knowledge. This knowledge involves not only political considerations, but also the anticipated financial, economic and social effects. The latter is where the accountability and responsibility of the public service comes into play. And it is this accountability for which I have audit responsibility.
1.72 I believe that it is the responsibility of senior public servants and officers of Crown corporations to ensure that ministers are provided with objective information setting out reasonable and feasible alternatives. Then, with such information, a minister can be expected to make an informed judgement.
1.73 It is also the responsibility of senior public servants and officers of Crown corporations to see that the resulting decisions of ministers are carried out as economically and as efficiently as possible.
1.74 When we look at the quality of information provided to ministers, we check to see that all relevant factors have been considered; that these have been analyzed in a technically competent manner in relation to the goals of the activity; and that the information has been clearly and concisely presented to ministers.
1.75 Unfortunately, we are finding that ministers are not always receiving this kind of information, even when the consequences of the decision at hand may be very far reaching indeed. The purchase of Petrofina is an example where the department did not provide such an analysis. VIA Rail is another. There are more.
1.76 Consider for instance, the sad story of Consolidated Computer Incorporated. This is the kind of financial tragedy to which Government as financier seems only too prone. In this instance, the taxpayers may also have been caught-up in what amounted to a desire by a Crown-financed corporation to get into production of peripheral computer technology and perhaps even main frames, all without sufficient research into the market and totally without anything resembling adequate financial planning, accounting or controls.
1.77 But it is also a story of incomplete information supplied to ministers who had to make key decisions and who did not seem to know the full story until very late in the day. By that time, $94 million was required in supplemental estimates to honour loan guarantees and pay current interest charges.
1.78 It is interesting that advice called for from a competent national accounting organization was ignored. Yet the advice was good and sounded a fair warning. Had it been heeded, it might have saved the taxpayer at least part of the loss. It would most certainly have saved the Government considerable embarrassment.
1.79 Once again, I am driven to the conclusion that if accountability is to be achieved, there must be an audit, both of an organizational and financial nature, sufficient in scope to uncover the problems. This must be followed by scrutiny at the level of Parliament. Without public exposure, the temptation is overwhelming to send good money after bad in the hope of reversing the situation, no matter how hopeless that situation has become.
1.80 Because of the seriousness I attach to the senior public servants' responsibility to see that ministers are properly briefed, I intend in all forthcoming comprehensive audits to assess the quality of information provided to ministers during the decision process. We will follow up to see that formal instructions of ministers are carried out by the public service.
1.81 There are times, of course, when senior public servants feel, with some justification, that they have to answer for sins that are not their own. Last year, I commented on my impression that the deputy ministers and heads of Crown corporations I had met struck me as highly motivated, hard working, intelligent and representing a wide variety of experience. I have had no reason to change my mind. Although it is my responsibility to criticize constructively the activities for which they are responsible, I am very much aware that there are occasions when, in endeavouring to support their ministers, they take responsibility for decisions that have been taken politically and have been taken before they have had any opportunity to bring their influence to bear.
Internal Audit1.82 Under the terms of the Auditor General Act of 1977, the Auditor General is required to comment when money has been expended without due regard to economy or efficiency. Such situations tend to arise when there has been poor management, inflated costs or political intervention.
1.83 An example involving all three, aired in the press, was the internal auditors' report on the construction of the Montreal Postal Terminal. It is a good example of internal audit reporting excessive costs incurred in a situation where, for what appear to have been purely political reasons, money was expended in large amounts without due regard to economy and efficiency. It is interesting to note that this example came to light publicly when an internal audit report was made public after it had been declassified.
1.84 There is a concern, which I share, that pressure may be brought to bear on the internal audit organizations within government to avoid comment which, if made public as a result of the Access to Information Act, would embarrass the Government.
1.85 Should this occur, it would be a serious challenge to the professional integrity of the staffs involved and a matter of direct concern to my Office because of our dependence on the quality and integrity of the work of internal audit. Indeed, I urge the internal auditors to continue striving for greater competence and independence.
1.86 It is my intention during my term in office to review every major capital project which the Government undertakes.
Access to Information1.87 In last year's Report I expressed a concern I had with respect to access to information. I indicated my uneasiness at the reluctance my auditors encountered from time to time in departments and agencies where I would have expected complete frankness. I said I would keep a watchful eye on the experience of my auditors during the audits of the 1981-82 fiscal year.
1.88 Having now had an opportunity to study the principles involved, and having followed closely the experience of my auditors, my conclusions are clear cut. Parliament has enacted legislation that requires that the Auditor General shall have access to all information he deems necessary to fulfil his responsibilities. These rights and privileges are consistent with the legal and constitutional conventions governing access to information by the national legislative auditors of the major commonwealth democracies, the United States, and private sector auditors performing statutory audits.
1.89 My auditors have been instructed to inform me of any incident in which information is withheld by a public servant. I will assess any such incident in terms of its impact on the work of my Office and on Parliament's right to hold the Government accountable.
1.90 I have also held discussions with cabinet ministers and senior officials on this matter. Our exchange of views has been candid and has, I believe, contributed to an increased mutual understanding. To date, my Office has received the information required, although in certain instances the receipt of material was subject to significant delay.
1.91 If I am to fulfil my responsibilities to Parliament and to the people of Canada, I must have complete access to all relevant documents, including Cabinet documents, when I believe I need to know their contents. I am sensitive to the Government's concern about confidentiality of information. I believe its position is reconcilable with the principle of the Auditor General's right of access to information. I believe the rights of Parliament are impaired if Parliament's auditor has limitations in audit scope or if his auditors encounter difficulty obtaining information essential for the expression of audit opinions. Indeed, an essential safeguard of the institution of Parliament is an attitude of openness.
The Financial Statements of the Government of Canada1.92 This year I have concluded that the Government's accounting policies are not only inappropriate to achieve a fair presentation of information, but, in one significant instance, they have not been followed.
1.93 I have included four reservations in my opinion on the Government's 1982 financial statements. Three are basic concerns with the appropriateness of the Government's accounting policies:
- - Although the financial statements are entitled "The Financial Statements of the Government of Canada", they do not include significant activities of the government on a basis I consider appropriate.
- - international development assistance loans and subscriptions are over-valued by $3.9 billion because of the concessions written into them.
- - Obligations totalling approximately $14.5 billion, which include amounts payable under statutory appropriations, employee termination benefits and actuarial liabilities arising as a result of indexing employee pensions, are not recorded.
1.94 The Standing Committee on Public Accounts, the Government, and I all have an interest in the development of improved summary financial reporting for the Government of Canada. The Canadian Institute of Chartered Accountants, through its Public Sector Accounting and Auditing Committee, is also interested in improved reporting for government. Although I am concerned, I am hopeful that, through appropriate consultation, the common goal of providing financial information that best serves the needs of users will be achieved as soon as possible.
1.95 My reservations are set out in more detail in my Opinion and the related "Observations of the Auditor General on the Financial Statements of the Government of Canada" reproduced from Volume I of Public Accounts of Canada in Appendix O.
Year-end Spending1.96 On a number of occasions over the past year, Members of Parliament and taxpayers have expressed their concern at what they have perceived to be the spending of massive amounts of taxpayers' dollars in the final weeks of the fiscal year. Implicit in this concern is the assumption that such spending is wasteful.
1.97 We made an analysis, based on information contained in the Government of Canada's monthly "Statement of Financial Operations", which is prepared by the Department of Supply and Services. The total expenditures were listed on a month-to-month basis for a period of six years. When the results are plotted, it becomes clear that exaggerated spending does indeed occur at year end. Exhibit 1.1 shows monthly government budgetary expenditures in billion of dollars. Exhibit 1.2 shows the same expenditures month by month, expressed as a percentage of total annual expenditures.
(Exhibits not available)
1.98 Financial transactions in the government are accounted for on a monthly basis, with supplementary periods at the year-end to account for final transactions and adjustments. In the exhibits, these final transactions and adjustments have been included with the March amounts, since such expenditures or accruals, for the most part, occur and relate to March activities.
1.99 Using the same data, we prepared a separate chart for each government department and found that the heavy year-end spending pattern occurs in most departments. However, the data becomes less reliable at the departmental level because other factors, such as organizational and program changes, distort the underlying patterns of expenditures.
1.100 Notwithstanding these limitations in the data and the nature of the accounting system, it is apparent that heavy spending does occur at the end of the fiscal year and that this pattern re-occurs year after year.
1.101 This does not mean that year-end spending is automatically wasteful. To conclude that, simply because it occurs, year-end spending is necessarily wasteful would be an unfair and dangerous generalization. The very nature of the budgetary system encourages withholding discretionary expenditures until later in the fiscal year. This is done to retain flexibility to deal with unexpected events or needs. Then, as the year-end approaches, remaining amounts are spent to achieve overall program objectives. This is a practice common in the private sector and may well represent a prudent, cautious concern for cash management.
1.102 There are, of course, potential abuses of any system of control. The volume of year-end spending does not, of itself, constitute an abuse. Neither does such spending automatically establish that it was necessary and that value was received for the money spent. In this period of restraint, it is particularly important that there not be improvident spending. Unfortunately, in the past, deputy ministers have had plenty of opportunity to observe that, whereas in the private sector a "lapse" is rewarded, in the public sector it is penalized.
1.103 To determine whether there are significant abuses of the existing control system, I intend to review year-end expenditures in more detail as part of a Cash and Debt Management study.
Performance Review and Employee Appraisal1.104 During the past several years, my Office has carried out a variety of studies in the area of human resource management. In the current year, this work included a survey among government employees to determine the effectiveness of the appraisal system. Some of our findings are sufficiently disturbing that I have concluded they should be brought to the attention of Members of the House of Commons.
1.105 Fundamental to satisfactory productivity in any form of endeavour is the relationship of the individual supervisor with the individual employee. Both must know what is expected of the employee, not just in a general way, but in sufficient detail that neither can be in any doubt. But this knowledge, of itself, is not sufficient. Equally important is a continuing communication, so that supervisors are aware of the level of productivity achieved, and employees know whether their performance is satisfactory. If it is not, what can they do to improve it?
1.106 Our audit of the performance review and employee appraisal in the public service has produced some disturbing information and raised some serious questions concerning the effectiveness of this process. These are discussed more fully in Chapter 5 of this Report.
1.107 The results of a survey questionnaire indicate that 68 per cent of employees feel the present review and appraisal process has little or no effect on the way they do their jobs. Forty-two per cent said their performance was discussed only once a year, at the time of the annual performance review, and 47 per cent said they did not receive enough information on their performance problems or weaknesses.
1.108 Both my predecessor and I have previously expressed concern about productivity in the public service, and this year's audit of performance review and employee appraisal practices in the public service has reinforced this concern.
1.109 All is not well when 30 per cent of public servants covered by the survey say they do not know the job performance expected of them. If this percentage is extrapolated to the whole of the public service, it suggests that a substantial proportion of the total salary bill is paid to men and women in the service who are not clear in their own minds about the job performance expected of them.
1.110 Performance review should be one of the key management systems in the public service, influencing productivity in a positive way. But if the performance review and appraisal system is not contributing as it should in this positive sense, it is also seriously lacking as an aid to weeding out employees who will not or cannot perform satisfactorily.
1.111 One of the complaints about the public service heard all too frequently in the private sector is that it is too secure; that, once in, the employee is safe from the possibility of dismissal for incompetence or refusal to perform to standard. Our findings suggest there has been some basis for this charge. In the seven departments audited in this study, only one per cent of employees were appraised to be unsatisfactory. If one projects this percentage, one finds that only 2,156 employees out of the 215,643 who were subject to the Public Service Employment Act in 1981 were not performing satisfactorily. During the whole of 1981, just over 500 employees were rejected on probation, discharged, or released from the public service for reasons of incompetence or incapacity.
1.112 Since it has long been perceived impossible to discharge an employee without a sequence of strong evidence, part of which should be appraisal reports, failure to complete these reports factually often leaves the drones secure, at least for a considerable period of time, and helps to give the public service a reputation it does not need or deserve.
1.113 The significance of these findings comes into sharp focus when one considers the continuing problems of achieving satisfactory productivity and controlling numbers within the public service, particularly in time of severe recession. Fortunately, there are signs of a new firmness.
Main Messages in the 1982 Report1.114 As many readers will be aware, we organize our audit activities in such a way that teams cover each department and agency. Depending on the scope of the audit in a given year, a given team may be a small group of professionals trained in financial audit, or may include various specialists from other disciplines if the subject warrants. We also organize a number of special audits each year that draw on information from a group of departments sufficient to be statistically representative of the public service. These are referred to as government-wide audits and have to do with some particular theme, as for example accountability in Crown corporations, or some aspect of human resource management.
1.115 Where, in our opinion, findings of the auditors warrant, we devote a chapter of this annual Report to the work of each team. We are aware, however, that it would be a convenience for many readers to concentrate our main messages in one place. For this reason, they have been drawn together in the balance of this chapter. Each subject is then reported in more detail in a chapter of the Report. Because these main messages are condensed summaries, I caution the reader to have a look at the chapters from which they are drawn in order to understand their implications.
Government Contracting Practices (Chapter 3)
- In 1981-82, the Government of Canada contracted for more than $8.8 billion in goods and services.
- Of this total, contracts worth approximately $4.8 billion required the approval of Treasury Board or the Department of Supply and Services. Some 70 per cent ($3.4 billion) of these contracts were let under the provisions of Section 8 of the Government Contracts Regulations, which allows for contracting without tender. We found from our sample that such contracts were adequately challenged during the requirements definition and supplier selection phases to give reasonable assurance that contract funds are controlled effectively within the provisions of Section 8.
- Approximately $4 billion of contract funds was approved within the authority delegated to departments and agencies. Our observations concentrate on approximately $300 million of contract funds approved by departments and agencies. For this $300 million, when contracts were let under the provisions of Section 8, the challenge process was not adequate to give a reasonable level of assurance that: the contract is needed; the department or agency is justified in entering into the contract without tender; a qualified supplier has been selected at a reasonable rate; and there has been adequate planning of contract terms for which the supplier could be held accountable.
- A cause of the lack of control in the challenge process within departments and agencies is the fact that Section 8 of the Government Contracts Regulations is open to abuse. For example, Section 8 specifies that it is not necessary to tender competitively if a contract is less than $30,000. As a result, the $30,000 level is seen as the primary justification for awarding a contract without tendering. When this "requirement" is met, contracts are not subjected to rigorous challenge.
- For both tendered and non-tendered contracts, we found inadequate control over administration of the contracts after they had been awarded. This has resulted in some lack of compliance with government contracting policies.
- Inadequacies in the government contracting process can be improved by: more specific direction from Treasury Board, especially regarding the use of Section 8 by departments; internal audits of departments' contracting practices; and greater support from senior management for contracting staff in departments.
Management of Overtime (Chapter 4)
- During the 1981-82 fiscal year, departments and agencies spent $219 million on overtime. This expenditure is the equivalent of salaries for about 8,700 person-years and represents 3.7 per cent of regular salaries. Time off in lieu of compensation is estimated to have amounted to an additional $25 million or 1,000 person-years.
- Overtime can be the most economical and appropriate means of meeting excess manpower requirements. Our study of seven organizations, accounting for 70 per cent of overtime expenditures, revealed that improvements are needed in overtime management practices.
- In most cases, departments had not developed action plans to meet predictable manpower shortages. As well, they had not assessed their use of overtime and the alternatives to it. The tendency has been to react to circumstances rather than to anticipate them through a comprehensive planning process.
- Because of the lack of measured work standards, performance criteria and established levels of service, use of overtime is often based on subjective decisions that raise questions about the necessity or urgency of working overtime.
- There was a general lack of departmental policies and guidelines governing the management of overtime. This resulted in a lack of guidance for local managers in areas such as allocating responsibility for authorizing and monitoring the use of overtime, considering alternatives, and planning and budgeting for overtime.
- Despite the proliferation of computerized human resource information systems in departments and central agencies, the information available on overtime has not met management needs. In particular, we found that the central human resource information system, ALOSS, was not providing accurate or timely information on overtime.
Performance Review and Employee Appraisal (Chapter 5)We conducted a government-wide study of performance review and employee appraisal processes in the public service and found that:
- The quality of the systems varies considerably across departments, with several departments having made, or being in the process of making, major efforts to improve their systems.
- The quality and extent of communication between many supervisors and their subordinates on performance-related matters are inadequate.
- Many employees feel that the performance review and employee appraisal process has little or no effect on the way they do their jobs.
- Many managers consider the process a paper exercise and of limited value in making management decisions.
- For the majority of employees, departments are not using appraisal information to assist in making decisions in such areas as staffing, training, development and career planning as stated or implied in departmental policies.
- Most departments do not have systems in place to assess adequately the effectiveness of their performance review and employee appraisal programs; instead, they concentrate largely on completion rates.
Government Initiative for Improved Management Practices and Controls (Chapter 6)
- Twenty-five departments, representing 66 per cent of government expenditures, had endorsed Action Plans as of 31 March 1982. Four departmental Action Plans are in the process of endorsement, and one department is in the survey stage.
- Of the 25 endorsed plans, 3 have had their implementation curtailed by major government reorganizations, and 22 are in various stages of implementation. Three Action Plans have reached a sign-off stage; three are progressing satisfactorily. Significant slippage is reported in nine departments, seven of which are undergoing plan revisions. Six departments have minor slippage, and progress in one department could not be assessed because of a lack of plan milestone dates.
- Generally, we have observed that senior management is increasingly concerned with improving management practices and controls, even in departments where measurable progress has fallen behind. Although it is difficult to measure this kind of progress against tangible milestones, it must be acknowledged as an achievement of IMPAC.
- Important progress has been achieved overall in establishing planning functions at departmental levels and developing strategic plans, and in setting up internal audit and program evaluation functions. However, management information systems development and implementation are lagging in 8 of 22 departments.
- The 25 departments whose plans were reviewed estimated their committed costs of IMPAC at $225 million, involving 3,500 person-years. For nine of these departments, costs have increased from $96 million to $134 million, and person-years increased from 924 to 1,356. Because these costs have not been compiled in a uniform manner, the accuracy of these figures cannot be assessed.
- The Office of the Comptroller General states that $10.6 million of recurring benefits and $16.5 million of non-recurring benefits have already been realized, and deputy heads in departments and agencies have formally committed themselves to another $122.9 million of recurring, and $15.5 million of non-recurring, potential benefits. To date, with the observed exception of the Unemployment Insurance benefit system of the Canada Employment and Immigration Commission, departments have not set up a process to monitor the achievement of benefits.
- We could find little evidence to indicate that there have been attempts to assess the achievements of departmental IMPAC projects or Plans in relation to Plan objectives. The OCG is scheduled to conduct a formal evaluation of the IMPAC program in 1984.
Canada Employment and Immigration Commission (Chapter 7)
- Studies prepared by the Commission raise questions about the ability of immigrants who are members of the family class to adjust to their new surroundings. This situation could have repercussions for social programs and the Canadian labour market. Yet the Commission has carried out no assessment of its selection process to determine whether it provides any insurance that these immigrants can become successfully established in Canada.
- Although the Immigration Act specifies that immigrants must obtain visas before entering Canada, more than 10 per cent of immigrants apply for visas after they are already in the country. The use of the discretionary power to make exceptions and grant landed immigrant status to persons already in Canada is not sufficiently controlled and monitored by Headquarters.
- There is a lack of control at ports of entry to Canada. Moreover, the Commission has not rationalized its efforts to find and remove from Canada those who contravene the Immigration Act.
- The Adjudication Directorate at National Headquarters provides effective direction to adjudicators in the performance of their duties.
- The Commission's practices for recovering loans fail to take account of the 1978 Immigration Regulations, including the special provisions applying to refugees and immigrants in designated categories, concerning repayment schedules.
- The National Headquarters management system provides little assurance that the Immigration Program is in accordance with the Immigration Act, Regulations and guidelines. National Headquarters thus neglects a significant part of its responsibility to provide functional direction.
Department of Agriculture (Chapter 8)
- The Department is in the process of improving its management activities. Some of the new management systems implemented over the last three years are still being refined, and most of our observations refer to these areas.
- Although the elements of a good planning system are in place, strategic plans are not sufficiently detailed or specific enough to provide a sound basis for decision making.
- The objectives of the program components are not expressed in terms that would enable existing management information to be used for ongoing effectiveness monitoring.
- There are significant delays in staffing many scientific and professional positions across the Department, due mainly to a lack of human resource planning and inadequate definition of responsibilities for training and staffing.
- Systems for controlling expenditures against the budget are in place and working well. However, there are areas such as the research program where a need exists for systems that can relate costs to results achieved.
- The Research Branch has not established comprehensive procedures nor has it assigned responsibilities for health and safety in laboratories and for the storage and disposal of toxic and dangerous chemicals and biological substances.
- Little work has been done to assess the effects of the loss of the 25 per cent of research scientists who must retire over the next four years.
- The Department's role in the Record of Performance Programs needs to be re-examined. After 77 years, only 13 per cent of the dairy cattle in Canada are included in the program.
- Levies under the Prairie Farm Assistance Act were terminated in 1972, leaving a balance of $9 million in a Fund. No payments have been made for over eight years, and no definitive action has been taken on the disposition of the Fund.
Agri-Food Regulation and Inspection
- Formal training is not provided to all import/export inspectors, nor have qualifying requirements been established. As a result, there is a potential risk of damage to crops in Canada from importing pests and plant diseases.
- In 1980-81, the National Inspection Service (Meat Hygiene) of the Food Production and Inspection Branch incurred overtime costs in excess of $5 million and recovered only 60 per cent of this amount.
Department of Energy, Mines and Resources--Minerals and Earth Sciences Program (Chapter 9)The management of change is the major challenge faced by the Minerals and Earth Sciences Program (MESP). The rapid expansion of the energy program and resource development projects have placed substantial new demands on the Program for earth science information and research studies. MESP has adapted remarkably well to these new requirements by developing new capabilities and modifying its organization and management practices. The Program has not, however, been able to improve certain of its management processes quickly enough to adapt to the rapid and extensive changes it is now facing. Improvements are necessary in areas such as strategic planning, human resource planning, and computer policy in order for MESP to make the best use of its program resources.
- MESP is planning changes that could result in over $1 billion of new expenditures over the next five to seven years. The plans include: a new radar satellite for remote sensing; new programs relating to minerals; and new initiatives in areas such as off-shore resource assessment. Although MESP has made some significant advances in its planning capabilities over the last year, program personnel will be hard put to cope with the new planning requirements of these initiatives.
- MESP's human resource planning is not adequate to meet its requirements for scientific and technical staff. Critical shortages have been experienced in some specialties such as petroleum geology and geophysics. There is every indication that shortages will continue in key areas across the Program and that they will adversely affect the ability of MESP to achieve planned initiatives such as off-shore resource assessments.
- The Surveys and Mapping Branch is a world leader in applying the advanced technologies of the computer and satellite age to increase the efficiency of map preparation. However, it has had to operate in the era of the horse and buggy when it comes to printing maps. Decisions on acquiring printing presses that would significantly increase the efficiency of map printing have been outstanding for several years. The Branch estimates that if it had replaced one of its small printing presses in 1975 for a sum of $150,000, it could have saved over $900,000 in labour costs alone over a five-year period.
- MESP does not have adequate security procedures to protect valuable technical data and information in the Surveys and Mapping Branch. The Branch stores "without duplicate" $7 million worth of aerial photographs and $1 million of digital data on topographical surveys. In the next ten years, the replacement value of digital information will increase to $70 million.
- MESP does not have sufficient plans to co-ordinate the use of computers across the program and does not conduct adequate feasibility studies to ensure due regard for economy. MESP's $12 million computer budget is growing rapidly at 17 per cent a year, and there are now over 100 mini and micro-computers in the Department. In spite of this, the Program does not have sufficient plans and guidelines for computer acquisitions and does not always conduct formal feasibility studies to ensure due regard to economy in making acquisitions. Of the seven recent acquisitions we audited, only two had formal feasibility studies.
- The Department has not updated its IMPAC plan to meet management needs. Although the implementation of the original Plan has resulted in some improvements since 1979, it has not kept pace with the changing needs of the Program. Management has not paid sufficient attention to monitoring and evaluating some IMPAC projects. For example, MESP spent over $225,000 in a three-year period for developing a management accounting and reporting system. This system is still in the pilot project stage, and it is not clear whether it can or should be implemented.
Department of Industry, Trade and Commerce - Industry Development Activities (Chapter 10)
- Our review of Industry Development activities, such as the Defence Industry Productivity Program, the Enterprise Development Program and others, revealed that the objectives and strategies in support of some of the programs were either not adequately documented, not adequately communicated, or not clear enough to permit accountability.
- There are no clear criteria or guidelines to assist the Enterprise Development Board in making decisions that may commit the Crown to more than $1 billion in loan insurance. In addition, we found that the responsibility, roles and accountability of the Board have not been defined in operational terms, beyond the Enterprise Development Program regulations.
- In all programs where discretionary decisions are made about whether to provide assistance, we found cases where decision criteria are not fully documented or do not provide for standard and consistent risk analysis.
- We could find no system for setting and applying priorities. Because industry development programs are competing for assistance funds, we expected to find documented criteria that would enable the Department to set priorities within these programs so that the benefit of assistance funds could be maximized.
- The Department's assistance activities provided direct payments, loan guarantees, loan insurance and investments totalling $2.275 billion in 1981-82. In many cases, we found that the program or project monitoring function is seriously inadequate to protect taxpayers' interests.
- Information systems and procedures in the Department do not provide adequate support for some Industry Development activities. In the Enterprise Development Program, we found a multiplicity of information systems that duplicated each other and in which the information was frequently incomplete or out of date. The Machinery Program, under which decisions are made to remit duties on imported machinery that is not produced in Canada, depends on the adequacy of its information on the availability of machinery in Canada. During our audit, the Department was unable to provide us with fully documented policies and procedures for keeping this information up to date.
Department of National Defence (Chapter 11)
- The discrepancy between ONO's commitments and its ability to meet those commitments has been a topic of much discussion during this period of heightened world tension. The Department attempts to achieve some degree of capability in all assigned tasks, but because of tight funding ceilings cannot achieve satisfactory capability in some major activities. The Department, in consultation with the appropriate Cabinet committee, needs to determine the most effective ways of using the Policy and Expenditure Management System (PEMS) to assist in the interchange of information required to reconcile these differences.
- The Department has a state-of-the-art system for clearly defining major equipment requirements identifying and analyzing options, analyzing costs and availability, and defining acquisition projects to facilitate effective execution, monitoring and control of the projects.
- Although the systems for military manpower planning and training of individuals function reasonably well, the Department has identified scope for improvement in its military personnel policies, the organization of the military personnel management function and the use of cost-benefit analysis and evaluation within the human resource management function, and is planning further work in these areas.
- Large complex computer systems support the operations of the Canadian Forces and the administration of the Department. The systems supporting logistics and supply, command and control, personnel and finance no longer satisfy user needs, and a major effort is needed in the areas of policy, planning and staffing in order to implement the required new generation of systems and technology.
Department of National Health and Welfare (Chapter 12)
- In the Health Protection Branch, there are limited management information systems to assist the Branch in reviewing and deciding upon the level of coverage against health hazards provided by its scientific directorates.
- Problems with air handling systems, together with inadequate safety practices, in several of the Health Protection Branch laboratory facilities are creating potentially hazardous work environments. The Department is giving highest priority to taking corrective action and has recently obtained Treasury Board approval in principle for an extensive laboratory building and renovation program.
- Standards for health care services that should be provided to Indians and Inuit by the Medical Services Branch have not been completely defined. Moreover, there is limited co-ordination of activities with the Department of Indian Affairs and Northern Development for the delivery of services for Indian and Inuit programs. Inaccurate cost information and the relatively low priority given to recoveries of medical services provided by the Branch and insured by provincial plans have resulted in loss of revenues to the federal government for several years; initiatives are now under way by the Branch to address these deficiencies.
- The Health Services and Promotion Branch is responsible for administering payments of contributions to the provinces for health care services. These payments totalled $4.3 billion in 1981-82. Monitoring of compliance by the provinces with the conditions under which payments are made has been limited; however, initiatives by the federal government to improve these monitoring activities are under way.
- Satisfactory procedures to control the payment of funds to the provinces under the Canada Assistance Plan are being established, and major steps are being taken by the Social Service Programs Branch to document fully responsibilities, policies and procedures for the program. More extensive use of available management information on program operations in the provinces, however, would enhance the efficiency of the administration of the Plan.
- Our audit of the Family Allowances, Old Age Security and Canada Pension Plan programs did not reveal any significant errors in payments to recipients. However, the present practice of the Department of excluding refunds of contributions in the determination of Canada Pension Plan benefit entitlements has resulted in overpayments to recipients since the early 1970s; an estimated $7 million was overpaid in 1981-82. Although this represents less than one-third of one per cent of benefit payments for that year, the amount has been increasing each year.
- Performance measurement systems used to monitor productivity of the large staff employed in the administration of the Income Security programs do not use up-to-date work standards or fully representative output measures. As a result, they do not produce adequate information on the amount of work done during the period.
Department of Transport -- Surface Transportation Program (Chapter 13)
- The Surface Transportation Program involves annual expenditures of more than $900 million. The majority of these expenditures are made under contract to Schedule D Crown corporations to provide key transportation services. The independence provided to these corporations has hampered the ability of the Department to satisfy itself that these services are provided with due regard to economy and efficiency.
- VIA Rail: The railway passenger program is in serious financial difficulty. Payments to VIA have consistently exceeded all forecasts presented to ministers and Parliament since VIA was set up to operate passenger rail services in 1978. They currently average $50 for each paying passenger and, in total, cost the taxpayer $540 million in 1981-82.
- The Department does not have sufficient information on how economically or efficiently VIA operates, what its future capital and operating requirements will be, or if or when railway passenger services will become viable. Contributing causes are inadequate initial planning, lack of information on market potential, slow and expensive regulatory decisions, complex organizational arrangements and difficulty in obtaining from VIA reliable data on the costs and revenues associated with the services it provides.
- Although the primary responsibility for ensuring successful implementation of the railway passenger program was given to the Department, it has not been in a position to control the process of decision and change required to meet its objectives and related financial targets. Major changes have been made in the program without adequate consideration of the consequences; for example, how making VIA a separate Schedule D Crown corporation would affect the Department's ability to control the program.
- CN Marine: This company has been provided with some $535 million since 1979 to meet its ferry deficits without adequate assurance that the company operates in an economical and efficient manner. Auditors appointed by the Minister of Transport were denied access to certain operational information that was necessary to complete audits of contracts with CN Marine. Although CN Marine is subject to departmental contract audit, payments by the Department are based on unaudited budget information s company. Further, in the absence of performance standards for major cost components or a comprehensive audit of the company, the Department does not know if it has been subsidizing only the costs of "properly managed services" as directed by Cabinet.
- We were unable to satisfy ourselves on the propriety of a transaction involving $25 million in up-front payments to CN Marine for the acquisition of a new ferry. We do not know what benefits to the Crown were anticipated when arrangements to advance these funds were approved, why CN Marine deposited these funds in a special bank account in the name of the shipbuilder, in trust for itself, or what consideration was received by CN Marine for $163,000 paid to the shipbuilder out of this trust account. The total cost of the new ferry is in dispute, and its exact delivery date is not known.
- The prairie branch line rehabilitation program was approved by Cabinet in 1977 without a resolution of the questions of whether the railways would agree to timely maintenance and how the program would affect branch line subsidies that the Canadian Transport Commission was already paying the railways. It was also approved without an inspection of the branch lines to determine their condition before agreeing to fund their rehabilitation.
- The Department states that the Surface Transportation Program is developed and implemented in a complex institutional setting with politically sensitive negotiations that inhibit effective long-term planning and rational decision-making. The Department comments that this Report takes much less cognizance than is warranted of decisions by the Minister and Cabinet and of the general environment in which decisions are made.
Foreign Operations (Chapter 14)
Interdepartmental Management of Foreign Operations
- The interdepartmental mechanism set up by the Government to advise it on the conduct of foreign operations has been largely ineffective in rationalizing resources abroad with Canada's external interests. As a result, the Government has no assurance that the human and financial resources at posts abroad are appropriate to Canada's needs.
Department of External Affairs
- The Department's resource allocation process is done on an arbitrary and incremental basis. Managers are not provided with a statement of objectives which are results-oriented and linked to resources provided. Plans produced to meet central agency requirements are not used as a basis for monitoring and evaluating the efficiency and effectiveness of programs.
- Human resource planning in External Affairs is inadequate. Needs are not based on operational plans, and there is no systematic determination of human resource availability. Action plans only address obvious immediate needs and do not address longer-term human resource requirements.
- With the exception of pre-posting briefings, language training and training for some special skills, there is no systematic assessment of individual and group training needs linked to organizational needs.
- The Department needs to improve its planning for the acquisition and development of property abroad, in particular its approach to identifying accommodation needs, setting priorities and preparing feasibility studies. In certain instances, excessive involvement by interested parties has compromised economical and efficient delivery of the program.
- The Telecommunications Division of External Affairs provides an economical and efficient service.
- Although improvements have been made, not all the financial recommendations in our 1975 Financial Management and Control Study have been implemented. The central financial function needs to revise its systems to provide more complete financial information to program managers. Separate, manual financial records still exist in three bureaux.
- Most of the internal auditors have been reassigned to the Inspection Service, and, as a result, only one headquarters audit has been completed. Senior management, therefore, is still not being provided with an independent appraisal of the economy and efficiency of departmental operations.
- The audit and evaluation mandate assigned to the Inspection Service overlaps with the mandate of departmental internal audit. Although offering useful suggestions for improvement, Inspection Service reports on post operations consist primarily of opinions and observations which are not based on established criteria or supported by evidence on file. The Service lacks the professional capability and methodology to discharge properly its audit and evaluation mandate.
International Trade Development
- Because the objectives, roles and responsibilities within the Trade Development program have not been adequately defined, it is difficult to pinpoint accountability for planning and controlling program activities and thus for achieving objectives.
- At the direction of Cabinet, program managers have undertaken a priority marketing exercise to identify major Canadian export opportunities. However, marketing strategies were prepared without sufficient consultation with the Canadian export community. The priority marketing strategy cannot demonstrate any direct impact on trade.
- There are significant weaknesses in the processes used by management to ensure that annual immigration levels are achieved. For example, the method of translating annual immigration levels into operational targets to guide posts on their immigration processing activities is not adequate or complete.
- In 1979 and 1980, the Commission did not clearly and completely report to Parliament on planned and actual immigration intake.
- There is inadequate monitoring and control of some key aspects of immigration operations. Examples include inadequate physical and procedural control over visas at posts, and a 25 per cent increase in discretionary decisions at posts between 1979 and 1981. These decisions were not systematically analyzed by headquarters.
- Immigration services abroad are provided without charge and on request to specific individuals. The Commission needs to undertake a study of the feasibility and desirability of charging users for services provided, a practice that has been adopted by the United States and Australia.
- To ensure proper functional supervision and review of the Immigration program abroad, it is essential that co-operation and consultation between the Canada Employment and Immigration Commission and the Department of External Affairs be increased and sustained.
- Posts do not receive current and reliable information on Canadian occupational needs and demands; moreover, existing systems do not provide a timely indication that these labour needs have been filled. Thus, there is the possibility that immigration will contribute to labour market surpluses and unemployment.
- The need to improve post processing efficiency has been recognized and is currently under study by an interdepartmental committee.
- The management information system used to monitor immigration processing activities abroad is inadequate. Managers are not provided with timely information.