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1983 Report of the Auditor General of Canada

The Financial Statements of the Government of Canada

1.1 Canadians know that our country has been moving through tough economic times. The forecasts remain mixed. For many of our people, these are still harsh days.

1.2 One important result of our economic troubles is an intense scrutiny of government spending. The climate of these times is one in which taxpayers are demanding that their tax dollars be spent wisely and well by all levels of government.

1.3 Recently, I signed the Opinion of the Auditor General on the Financial Statements of the Government of Canada. Those statements are a part of the public accounts, which reflect the financial transactions of the federal government for the fiscal year ending 31 March 1983.

1.4 On the expenditure side, the accounts reveal where Canadians' tax dollars go. They also show the relationship between the operating costs of the federal government and the rising federal budgets and deficits. Many people assume that increased government spending and the increased deficit are due to an ever enlarging bureaucracy. That is not so.

1.5 In fact, operating and capital expenditures within departments and agencies, including National Defence, account for almost one-quarter of the total federal budget. The figure for the year ended 31 March 1983 is $20 billion.

1.6 Where, then, is the rest of the money going? The answer is that a massive $63 billion goes in grants and contributions, to servicing the public debt and in payments to specific Crown-owned corporations.

1.7 Grants and contributions include payments to the provinces for health services, Canada Assistance Plan and post-secondary education, and to individuals as old-age security, family allowances, and unemployment insurance. The total is $41 billion.

1.8 Public debt costs were $17 billion for 1982-1983. Payments to Crown-owned corporations were $5 billion.

Exhibit 1.1 not available

1.9 Two years ago, I expressed concern about the size of the national debt and the ever-increasing annual deficits. That both the national debt and the annual deficits have grown substantially larger over the ensuing years continues to concern me. The decisions which result in annual deficits are policy decisions. These are beyond the purview of my Office. I am also, of course, aware that economists have widely divergent views in regard to the merits of deficit financing.

1.10 What should be beyond dispute, however, is that the Financial Statements of the Government of Canada should, as informatively as possible, set out the operational results and financial position of the Government. For example, if the reporting of liabilities is incomplete, this directly affects the reported deficit and financial position of the Government. The consequence is to leave Parliament with an incomplete or misleading picture.

1.11 My conviction is that the primary objective of the Government's summary financial statements must be to provide a clear picture of the Government's overall financial position, including how it has changed since the previous financial statements were tabled. By contrast, the Government describes the current financial statements as "designed primarily to provide an accounting of the financial resources appropriated by Parliament" and "to report compliance with legislative authority."

1.12 Some progress in the matter of clarifying the objectives of the financial statements has been achieved. The Office of the Comptroller General is studying the purposes of summary financial reporting for the Government and the feasibility of developing comprehensive financial statements. Both the Office of the Comptroller General and my Office have provided input to the Public Sector Accounting and Auditing Committee of the Canadian Institute of Chartered Accountants. The Institute has begun to research the appropriate objectives of government financial statements. It anticipates issuing an exposure draft on financial statements for senior levels of government in Canada before the end of 1983. My Office continues to support these important initiatives.

1.13 I am concerned, however, that this disagreement on the objective of the financial statements may be seen as something of a theoretical discussion between accountants. It is far more than that.

1.14 What is insufficiently understood is that those who prepare financial statements must make choices. It is not possible to produce a set of statements that meets every objective.

1.15 It is like map-making. An all-purpose map is not possible. If, on a single map of Canada, we attempted to include federal, provincial and municipal electoral boundaries, geological formations, climatic conditions, economic distribution, population statistics, language groupings, archaeological sites, communication networks, and all the many other things that can be represented on a map, the result would be chaotic, unintelligible and of no use to anyone.

1.16 Map makers must choose what primary information they wish to convey; and their choice will be governed by the needs of the user. Pilots of aircraft, seeking a landing place, would find a map indicating only the sites of convents and cathedrals unhelpful to their needs.

1.17 Similarly, the preparers of financial statements must make choices. And their choices must also be guided by the needs of their users.

1.18 Parliament, on behalf of the people of Canada, makes its decisions based, in large part, on its understanding of the nation's prior financial commitments. Parliament's expressed need, as user, is that the public accounts include audited statements "of the expenditures and revenues of Canada for the fiscal year" and "of such of the assets and liabilities of Canada as in the opinion of the Minister are required to show the financial position of Canada as at the termination of the fiscal year". These needs are set out in the Financial Administration Act.

1.19 In brief, parliamentarians are asking for a financial map to show them where they have been and where they are. Further, it has to help them chart their choices for the future.

1.20 My contention is that, with the Government emphasizing compliance as the primary objective of its statements, it is as though parliamentarians were being handed a road map showing speed limits when their real need is for one showing starting points and present locations. Speed limits are important. So is compliance. But in financial matters, as in travelling, it is even more important to know where you have come from and where you are.

1.21 The increase in the national debt is important to all Canadians. Parliamentarians have the need - and all Canadians the right - to know the actual deficit, the actual debt as precisely as can be stated. My Opinion on the Financial Statements of the Government of Canada illustrates that those amounts would differ by many billions of dollars from what is presented in those statements if the Government were to prepare the statements with the primary aim of providing the clearest possible picture of its overall financial position to the people of Canada.

1.22 The integrity of the summary financial statements is, therefore, not merely a theoretical issue for discussion by accountants. Although economists may be divided on the merits of deficit budgeting, the one certain thing is that there is a direct link between parliamentarians' awareness of the magnitude of the annual deficit and the policies they agree to. Further, there is a direct link between their decisions and the impact of those decisions on such things as inflation, unemployment and the cost of credit - all of which are of vital significance to every Canadian.

1.23 My concern about the integrity of the present summary financial statements is set out in my Opinion and my related Observations on the Financial Statements of the Government of Canada, reproduced in Appendix D. My Opinion includes four reservations relating to failure of the Government to comply with its own stated accounting policy, fragmented reporting of government activities, assets reported as amounts in excess of their value and unrecorded liabilities.

1.24 In including these four reservations in my Opinion, my primary concern is with the integrity of the financial statements as an instrument of information for Parliament. However, the financial statements also speak to a broader constituency - to those who have the responsibility for making, or advising on, a wide variety of decisions within the total financial community. They include economists, bankers and advisers at all levels of government. If the financial statements do not fully present significant information on the real extent of the Government's revenues, expenditures, deficit, financial requirements and debt, then the essential data upon which those decisions are being made become inadequate.

1.25 Individual Canadians, about to make important financial decisions involving the future, need to know where they stand: assets, liabilities, the existence of a sufficient line of credit, an awareness of current expenditures, potential problems with cash flow, the extent of their forthcoming financial requirements. Without that information, no individual should plunge into future financial commitments.

1.26 But the plight of individual Canadians would be made much the worse if they believed that the necessary inventory of financial information had been fully and accurately assembled and, only after entering into new commitments, discovered that their existing expenditures were much higher, lines of credit less adequate, cash flow needs much greater, and long-term requirements vastly more extensive than they had understood them to be.

1.27 As with an individual, so it is with the nation. I cannot emphasize too strongly that critical choices must be and are being made, based on economic interpretations of the summary information contained in Canada's financial statements. If the gap between what is recorded in the accounts and actual economic reality continues to increase, it will become more and more difficult to form judgements on the impact of the deficit and the national debt on the economy.

1.28 Interest rates are being established, the extent of tax revenues are being estimated, decisions on the deployment of resources both in the public and private sector are being contemplated. Each is dependent, to an important degree, on the credibility and completeness of the financial information available.

1.29 In unsure economic times, Canadians have a right to the most relevant and reliable financial map that can be made. If they cannot be assured that the quality of information they are receiving faithfully represents what it purports to represent, they are being denied the financial map they need to have.

1.30 Improving the relevance and usefulness of the information provided in the Financial Statements of the Government of Canada is a matter of urgency for Members of Parliament and all Canadians.

Accountability of Crown-owned Corporations

1.32 Last year, I concluded that:

Parliament is becoming further isolated from an increasing portion of government activities. The growing practice of using Crown-owned corporations to conduct a widening range of government activities has so strained the capability of the existing accountability framework that Parliament may not be able to exercise its fundamental responsibility for overseeing receipts and expenditures of public funds.

Broad legislation for the accountability of Crown-owned corporations should be developed that will include provisions relating to each of the elements of authorizing and mandate, financing, directing, controlling and reporting. Such legislation should provide that these corporations be subject to comprehensive audits.

Parliament should give attention to issues surrounding control and accountability of those mixed enterprises and other entities and associates in which the Crown is a shareholder.

1.35 In addressing this issue again, I am aware that there is a discussion of the appropriateness of employing Crown corporations as organizational forms for achieving public policy. I stress that while that discussion is of importance to everyone, my focus, as Auditor General, is solely on the issue of accountability.

1.36 The Public Accounts Committee. Since the tabling of my 1982 annual Report, the Public Accounts Committee has spent a lot of time and effort in investigating the overall accountability of Crown corporations and in examining accountability in specific Crown corporations.

1.37 During November 1982, the Public Accounts Committee considered my Report to the Minister of Agriculture on the comprehensive audit of the Canadian Dairy Commission.

1.38 Between 15 February and 30 June 1983, the Public Accounts Committee held 15 public hearings relating to Crown corporations. The Committee's investigation of the general accountability framework for Crown corporations included testimony from the President of the Treasury Board and from senior executives of Via Rail, CN Marine Inc., Canada Post Corporation and Canadair Limited.

1.39 The Committee issued three reports. The Eighteenth related to the Canadian Dairy Commission. The Nineteenth re-endorsed the previous recommendations made in five major reports to the House of Commons on the subject of the accountability of government-controlled corporations. The Twentieth Report focused on the activities of the Canada Post Corporation, using the accountability framework developed in Chapter 2 of my 1982 Report.

1.40 These reports - which are included in Appendix C - highlight the immediate need for broad legislation to improve the accountability of Crown-owned corporations.

1.41 I anticipate that by the time this annual Report is tabled, a further report, focusing on the activities of Canadair Limited, will have been issued by the Public Accounts Committee.

1.42 The need for improved accountability. I remain concerned about the Government's and Parliament's monitoring and controlling of Crown-owned corporations. During the past year, circumstances in a number of Crown-owned corporations have further illustrated the existing deficiencies. For simplicity, I describe only the events involving Canadair Limited and the Canada Development Investment Corporation (CDIC) to illustrate the continuing accountability deficiencies.

1.43 In 1982, I outlined an accountability framework for legislation comprising the main elements of:

- authorizing and mandate;

- financing;

- directing;

- controlling;

- reporting; and

- auditing.

1.45 Authorizing and mandate. For appropriate accountability, it is essential that Government and Parliament review and approve the major purposes of a Crown-owned corporation at its creation and that they periodically review the appropriateness of the assigned mandate.

- After accepting ownership of CDIC on 15 September 1982, the Government assigned powers which allow the corporation to participate in almost any economic activity. At present, CDIC manages the affairs of three previously autonomous Crown corporations - Canadair Limited, The de Havilland Aircraft of Canada, Limited and Eldorado Nuclear Limited. Bill C-158, which was tabled for first reading on 25 May 1983, indicates an intent to transfer other Government investments to CDIC. I am concerned that Parliament has had insufficient opportunity to approve the acquisition and the mandate of CDIC or to directly debate how it will function.

- Canadair was acquired in January 1976 for $46.6 million. Since then, it embarked on the Challenger aircraft program costing a total of $1.9 billion to December 1982. Except for recent hearings before the Public Accounts Committee, the Finance, Trade and Economic Affairs Committee and the Senate Committee on National Finance, there has been no timely parliamentary review of whether the purposes for which Canadair Limited was acquired are being achieved.

- Canadair's Challenger program was financed by the use of Letters of Comfort in excess of $1 billion, without the prior approval of Parliament. Only after the money was spent did Parliament receive an opportunity to review and discuss this commitment of funds from the public purse. In testimony before the Senate Committee on National Finance, in June 1982, the President of the Treasury Board stated that, in his view, Canadair's use of Letters of Comfort was not appropriate.

- Details of how CDIC will obtain and use required capital and operating funds have not been made clear to Parliament. For example, it is not clear whether proceeds from the possible disposal of any investments that have been transferred to CDIC would be returned direct to the Consolidated Revenue Fund.

- With respect to Canadair, testimony before the Public Accounts Committee clearly indicated that, when they were appointed, the members of its Board of Directors received no instructions on their role and responsibilities from the Government. Testimony indicated that throughout the period 1976-1982, there was confusion over the role and responsibility of Board members vis-à-vis the Government representative on the Board. In my view, further study of the functioning of boards of directors in Crown corporations is required.

- With respect to CDIC, I am concerned over the possible inappropriate use of the "unanimous shareholder agreement" provision of the Canada Business Corporation Act (CBCA). I believe this provision of the CBCA is intended for and is suitable for use in sole shareholder or closely-held corporations. I think it is not suitable for multi-million dollar corporations owned by the citizens of Canada. The Government has authorized the Minister of State for Social Development to make a written declaration restricting the rights, powers and duties of the Board of Directors of CDIC to manage its business and affairs. The Minister has done so. All rights, powers and duties of the Board of Directors to manage the business and affairs of CDIC, and all obligations and liabilities relating to such rights, powers and duties were effectively transferred to, and assumed by, the Minister. This transfer would appear to eliminate any autonomous functioning of the Board of Directors.

1.49 Controlling. Appropriate control ensures that means exist for the Government to monitor the activities of Crown-owned corporations on an ongoing basis and to be able to exert control in the event of departures from stated objectives. Classification under the Financial Administration Act should be consistent with the appropriate level of direction, control and accountability required, and clear criteria for such classification should be established. All corporations should be classified according to the criteria, and each corporation's classification should be reviewed periodically.

- Canadair's reported loss of $1.4 billion for 1982 illustrates the inadequacy of existing controls. Testimony before the Public Accounts Committee indicates that the Government did not adequately monitor and control the activities of Canadair from 1976 to 1981. Part of this lack of control may be attributable to the fact that Canadair, as a wholly-owned corporation, was never scheduled in the Financial Administration Act and, as a result, was never subject even to that limited level of accountability.

- As a subsidiary of CDIC, it is unclear how Canadair and the other subsidiaries of CDIC will be accountable to the Government and Parliament.

1.51 Reporting. An essential component of the accountability framework lies in providing Parliament with timely, adequate and relevant information on the plans, resource requirements and performance of each Crown-owned corporation.

- Parliament did not receive any report or financial statement from Canadair during the period 1976 to 1982. If such reports had been tabled, Parliament would have been informed and would have had some opportunity to question the investment underlying the guarantees issued by the Government of Canada.

- I am encouraged by the recent quarterly reports issued for Canadair and de Havilland as subsidiaries of CDIC. These reports now present a level of financial disclosure which compares favourably to the standards for conventional public corporations. I am confident that they provide a solid basis for further improvements which will better satisfy Parliament's needs.

- The audit mandate relating to Canadair consisted of an attest of financial matters only similar to that prescribed for private sector corporations. This type of audit makes no reference to compliance with government authorities, nor to identifying and reporting "other matters" uncovered during the audit that might be judged to be of interest to Parliament. Audits of "compliance" and "other matters" are requirements of a legislative audit of a corporation scheduled under the Financial Administration Act. Had Canadair been subject to such an audit, the Government and Parliament might have received earlier warning of the economic and technical problems of the corporation. In my opinion, these problems would certainly have been identified earlier had Canadair been subject to a comprehensive audit with its additional value-for-money focus.

- CDIC is, in effect, a holding company for other large government-owned corporations. The audit mandate for CDIC is prescribed in the FAA. However, the audit mandate for each of its subsidiaries is unclear. It is important that they have an audit mandate at least as broad as CDIC's.

1.54 I have given special attention to the standards and consistency of audit practices in Crown-owned corporations. On 17 January 1983, close to 200 senior professionals associated with the audits of Crown corporations met in Ottawa, under the auspices of my Office, for a one-day Workshop, to discuss "Legislative Auditing in Crown Corporations". Private sector auditors of Crown corporations, internal auditors of Crown corporations, representatives from my Office, and provincial auditors, including four provincial Auditors General, frankly discussed and shared their views, experiences and responsibilities in performing and reporting legislative audits of government-owned corporations. I am confident that the Workshop will lead to an increased involvement by the profession in the further development of standards and to a greater consistency in the ways in which legislative audits are performed and reported.

1.55 Last year, I concluded that comprehensive auditing for all wholly-owned Crown corporations was required to ensure a consistent form of independent review for this important and growing part of the public purse. This has not happened. There have been, however, some signs of progress with respect to achieving a broader audit mandate for both internal and external auditors of Crown-owned corporations.

1.56 I have noted during the year that a number of Crown corporations have expanded the audit mandate of their internal auditors to encompass a value-for-money component.

1.57 With respect to external comprehensive audits, the Act creating Canagrex as a Crown corporation includes a section which allows the Auditor General to conduct a comprehensive audit of the affairs of the corporation where he deems it necessary. I think more Crown corporation legislation should have similar provisions.

1.58 I am not suggesting that my Office is the only organization which can perform such audits. My Office has very extensive experience with comprehensive auditing, but a number of private sector audit firms are also capable of doing this work. There are occasions when Parliament's auditor needs to obtain information and assurances from the management of Crown corporations and their private sector auditors. In those circumstances, I am confident that such information and co-operation will be forthcoming.

1.59 On 29 March 1983, the President of the Canadian Institute of Chartered Accountants (CICA) informed the Public Accounts Committee (PAC) of the CICA's views on the suitability of comprehensive auditing for Crown-owned corporations. CICA's position can be summarized by the following quotation from the letter of the President of CICA to the Chairman of PAC:

The CICA continues to support comprehensive auditing of those Crown corporations for which profit accountability and competitive analysis do not adequately measure performance.

Legislation requiring comprehensive auditing for such Crown corporations would help to improve the accountability of these entities to Parliament, as well as to boards of directors and the government who already have the power to request comprehensive audits.

1.61 The sheer size of the Crown-owned corporations makes the matter of accountability important. Crown-owned corporations employ over a quarter of a million people. With revenues of $40 billion in the fiscal year ended 31 March 1983 (up from $31.9 billion in the previous year) and expenses of $44.2 billion ($33.7 billion in the previous year), Crown-owned corporations form a huge segment of Canada's total affairs. Their very massiveness demands a proper accountability framework.

Exhibit 1.2 not available

1.62 The situation parallels what I have said earlier about the financial statements. There, my concern is with the integrity of the financial information Parliament is receiving. With Crown-owned corporations, my concern is that the information that Government and Parliament are receiving can be incomplete and untimely, and these inadequacies can and do exist in the creation, operation and reporting of Crown-owned corporations which are consuming large amounts of tax-raised dollars.

1.63 In my view, it is a situation which must not be permitted to continue. While it does continue, parliamentarians are losing part of their fundamental right to be the representatives of their constituents in the crucial decisions of how tax dollars are to be deployed and accounted for.

1.64 Taken together with my earlier words about the Financial Statements of the Government of Canada, the result is nothing less than the fragmentation of the sovereignty of Parliament.

1.65 Letters of Comfort. Last year, I expressed my concern about actions by the Government which had the effect of committing Parliament to supporting troubled companies before Parliament could consider the issues involved. I was particularly concerned with the use of Letters of Comfort to support borrowing by corporations. These letters are documents used by departments and agencies to expedite loans by financial institutions to corporations before formal guarantee by Her Majesty. In practice, they amount to guarantees issued without parliamentary approval.

1.66 I am pleased that our audit work this year disclosed that no new letters of comfort in support of troubled companies had been issued.

1.67 However, I draw attention to two agreements which provide a form of comfort to financial institutions.

1.68 The first relates to Dome Petroleum Ltd.. On 29 September 1982, an agreement in principle was signed by the Government of Canada, four of the major Canadian banks, and Dome Petroleum. The agreement provides, subject to certain preconditions, for purchase by the Government of Canada of $500 million of debentures of Dome Petroleum through a new Crown corporation to be established with parliamentary approval. The preconditions include approval by Parliament, as well as agreement from the other lenders to Dome Petroleum, approval by the shareholders of Dome Petroleum and significant restructuring of the company's debt.

1.69 Our audit of the Department of Energy, Mines and Resources brought to light another example of comfort. This pertains to Mechron Energy Ltd. (Mechron), a subsidiary of Canertech Inc., which is itself a subsidiary of Petro-Canada.

1.70 The amount involved is, in comparison to the Dome Petroleum agreement, small. But the matter provides a revealing glimpse into the affairs of a company which is only one of a number of subsidiaries of Canertech. It is a reminder of how far removed from public scrutiny these subsidiaries of a subsidiary of a parent Crown-owned corporation may become.

1.71 As collateral for a bank loan, Mechron has pledged its accounts receivable and inventories and given a debenture of $1,000,000 on all its assets in favour of the bank. The Corporation (Canertech, wholly-owned by the Government of Canada) has agreed to maintain majority ownership of the Company (Mechron) unless prior written consent is received from the bank. By agreeing to maintain majority ownership of Mechron, comfort is provided to the bank by a corporation wholly-owned by the Government.

Constraints to Productive Management in the Public Service

1.73 This year, we report on 4 government-wide audits and other studies and 11 comprehensive audits. The main messages from these chapters are at the close of this chapter.

1.74 One of our studies breaks new ground for this Office. It appears as Chapter 2 in this annual Report, entitled "Constraints to Productive Management in the Public Service".

1.75 I believe that this study will be of great interest to all who are concerned about the management of government.

1.76 The study grows out of a concern that was recognized by this Office as long ago as 1978:

As the Public Service Commissioners recently remarked in a public statement, part of the management problems of today "is due to the lesser incentives towards good management that generally characterizes public services, relative to the private sector". The present system of personnel management seems to offer few rewards and incentives - tangible or intangible - for economies in using human resources. In fact, the system appears to provide actual disincentives for managers to promote the economical and efficient use of resources - human and financial. (My emphasis)

1.78 I believe that parliamentarians, representing the mind of the people of Canada, are asking of me not only whether Government is spending tax dollars with the care and prudence that individual Canadians bring to the expenditure of their own income, but also whether that sense of leanness, frugality and urgency in achieving results as efficiently and economically as possible has had any real impact on the management of government.

1.79 The blunt conclusion of our study is that there are indeed serious constraints which make it difficult to improve productive management within the bureaucracy. It identifies three main areas of constraint. First, political priorities have a major impact on productive management. Second, management feels burdened with many administrative and procedural tasks. Third, there are few incentives and many disincentives for productive management.

1.80 The study also makes clear that, underlying these three constraints and contributing to them, is the inescapable complexity of government; a complexity which not only has to do with bigness but with those diverse objectives which are inevitable in the public sector.

1.81 It is important that the reasons underlying this complexity should not be misunderstood. For example, in terms of the political process, two very different kinds of political objectives can contribute to a level of productivity which may be lower than in the private sector.

1.82 The first are political objectives which, one may hope, reflect a Canadian consensus. Federal bilingualism is integral to Canada. Equal opportunity is essential. Canadians recognize the importance of regional parity. The Government of Canada must be a model in its hiring and firing practices.

1.83 However, our study also reports that managers in the public sector, who seek to reduce costs through what would be logical economic proposals in the private sector, claim they frequently find those proposals resisted by a political mind-set that sees such economies as a reduction in government services rather than an improvement in government productivity. A theme common to the interviews on which much of the study is based is that recommendations by departments for a more thrifty use of resources often meet political resistance.

1.84 If productive management is to improve, then this state of affairs must change. And in this Report, which is addressed to Parliament, I remind parliamentarians that such a change requires an act of political will.

1.85 But it must be definitively understood that this Office is not advocating that all political and social priorities should be sacrificed on some altar of a narrowly-defined productivity. Our study makes it clear that it is the nature of government to fulfil a spectrum of objectives. Value for money is one such objective and one which the mandate of my Office requires me to examine. But I recognize that value for money, in governmental terms, is not measurable in terms of any simple definition of productivity alone. Value is also achieved in social, cultural and broad political imperatives which, by a narrower measure, might be accounted as detracting from productivity. I fully recognize, as does our study and all our auditing, that government, by its very nature, serves a multiplicity of purposes. It is within the context of achieving all those purposes that the productivity of the public service must be measured.

1.86 The second constraint to more productive management identified in the study is the burden placed on management to comply with a very large number of administrative procedures. Many of those interviewed allege that the effective and efficient delivery of services is compromised by the time and energy required to conform with regulations and to meet the expectations of central agencies and other departments.

1.87 The key to understanding the importance of this segment of the study lies in recognizing the need for balancing the requirements of systems for reporting and accountability against the need of the managers to have space to make decisions.

1.88 Through the late 1970s, very important initiatives were taken by government to redress what were perceived as serious inadequacies in its financial management and control systems. Three important factors were involved.

1.89 First, there was a continuing emphasis in this Office's successive annual Reports, from the mid-1970s on, that the provision of adequate financial management and control systems was an urgent and essential requirement. Second, the Office of the Comptroller General was created and a Comptroller General was appointed. Third, the Lambert Commission, with its significant recommendations for improvements in financial management and accountability, reported in March 1979. It is not an exaggeration to say that these three initiatives resulted in a quiet revolution within the bureaucracy.

1.90 Key changes included the establishment of a multi-year fiscal plan, the new Policy and Expenditure Management System and the introduction of the envelope system; and the launching of the Comptroller General's initiative for Improvement in Management Practices and Controls.

1.91 There is no question that these represent important steps toward much improved levels of financial management and accountability.

1.92 However, what our study clearly concludes is that the imposition of largely centralized systems and controls has other consequences. They may not stifle the individual manager's initiative, but they inescapably absorb large amounts of his or her time and energy.

1.93 Now, in fairness, the Lambert Commission - as did the Glassco Commission in the early 1960s - recognized that a balance must be achieved between the constraints imposed on senior managements by the imposition of measurement systems and the counter-balancing need for good managers to have freedom and space to make their own decisions. Our own study recognizes that both sides of the equation are important. However, what the study also reveals is that the balance is difficult to achieve.

1.94 As this Office so clearly recognized through the 1970s - and still recognizes - those systems for compiling information, for measuring, for reporting are crucial and necessary.

1.95 But equally crucial and necessary to productivity and the achievement of results are managers whose time and energy are not consumed by the bureaucratic and time-consuming procedures which the feeding of these systems demands.

1.96 What is clear from the study is that conflicting demands on the time, energy and resources of managers contribute to a morale problem within the public service. The quotations contained in our study reveal high levels of frustration.

1.97 Productive management is, of course, inescapably linked to morale. It may well be that this Office should, within its mandate to monitor whether Parliament is receiving value for money, attempt to report on factors that encourage a sense of worth within individuals.

1.98 The human factor is the crucial factor in achieving value for money - crucial to achieving economy, efficiency and effectiveness in any organization.

1.99 However, that in itself is a mere truism; that men and women are the key resource whether in the public or the private sector. It is the next step which is so difficult to achieve - the creation of a working environment in which individuals can arrive at their greatest level of productivity.

1.100 In that context, our observations on incentives and disincentives toward productive management - the third area of the study - are most important, as are the suggestions at the close of the study.

1.101 I particularly emphasize the observation that if Government wishes to improve value for money and productive management within the public service, it must conclusively demonstrate that that is truly a priority of the Government. The suggestion within the study that Government should consciously set out to establish the core or critical mass of the management talent it will require over the next 20 years is also important. Improvement in productive management, as the study states, ultimately depends on people.

1.102 In this regard, I wish to make clear that my decision to publish this study implies no criticism of individual public servants. Indeed, I believe, our study serves to clarify their role.

1.103 One of the ongoing mysteries to me, since coming to Ottawa three years ago, is that I constantly meet individual public servants, at all levels, who are clearly intelligent, hard-working and imaginative; while, at the same time, I know through the work of my Office that, in too many instances, their energy and intelligence are not resulting in a level of productivity commensurate with their numbers and their ability.

1.104 Our study this year does not supply all the answers to the mystery. But it does point the way. It not only explains the reason for these constraints to productive management but it also emphasizes that the very nature of the public sector must generate different expectations in regard to productive management than are found in the private sector.

1.105 The federal government is huge and complex. Its corridors are a labyrinth. The public servant must learn to operate successfully within all this complexity; a complexity which, as our study makes clear, is, in large measure, integral to the very nature of the governmental process. Other factors contributing to that complexity can be diminished or eliminated. I hope they shall be and that my Office will soon be able to report that some of these constraints are being lifted from the shoulders of our federal public servants.

1.106 Meanwhile, they must continue to do their work, often subject to harsh external criticism to which they cannot respond, amid a never-lessening complexity of demands on their time and energy.

1.107 In summary, while our study of constraints to productive management represents only a modest attempt to probe for the underlying causes of managerial weaknesses in the public service, it provides real insight into the difficulties and challenges of improving productive management in the public service. In particular, it may come to represent the moment when we came fully to understand that the imposition of central controls and government-wide systems, however admirable in intent, can become significantly counter-productive.

1.108 But, while our study suggests that the pendulum can swing too far in the direction of imposing controls and measurement systems, and thus limit or negate the individual manager's ability to innovate, it does not prove that thesis nor even attempt to prove it. It offers suggestions.

1.109 Whether in the public or the private sector, there must be a measuring of the extent to which objectives are achieved. Because of the complexity of objectives in the public sector, the machinery to measure must also be complex. The task is extremely difficult. There is plenty of ammunition for the critics to say it is impossible, that it can never be made cost-effective, that the whole process demands too much time on the part of the departments. But that is to admit defeat before the battle begins.

1.110 The role of government is not going to become less important in our lives; the machinery of government is not going to become less complex; the need to measure how economically, efficiently and effectively the departments and agencies of government and the Crown-owned corporations are achieving their objectives is not going to disappear. However difficult to achieve, the machinery for making those measures must be put in place.

Program Evaluation

1.112 The government-wide audit in Chapter 3 of this year's Report examines program evaluation. Since my Office last reported in 1978 on program effectiveness evaluation, there have been a number of encouraging developments.

1.113 First, the Comptroller General of Canada has established a Program Evaluation Branch which has set out a policy framework for managing and conducting program evaluation in government. This policy framework represents an attempt to make program evaluation a standard tool for public service management and accountability. As far as I am aware, no other industrial society has attempted to implement so comprehensive a policy framework.

1.114 Second, our audit found that considerable progress has been made in setting up departmental evaluation units. This has been done in the 19 departments and agencies included in our government-wide study, and in nearly all the major departments of the government.

1.115 Third, those departments with units have begun to do evaluations of their programs. We found that many of their studies are not as good as they could have been; however, as units do more studies, there is steady improvement.

1.116 Establishing a function like program evaluation on a government-wide basis is not an easy task nor can it be accomplished quickly. Still, the progress to date has been significant. Most evaluation units are in place and carrying out studies. If the progress achieved thus far is to be consolidated and built upon, there must be a renewed emphasis on and support for this function in government. Specifically, this will come in the form of even greater efforts to find and train people in the skills required to do program evaluations. It will come in the form of a willingness on the part of senior managers to devote the time, attention and resources required to ensure that evaluations are relevant and well done. However, the most important catalyst toward speeding and improving the process will come from a demand by deputy ministers, ministers and parliamentarians for quality evaluations. They must not tolerate any fudging of the evaluations. They must further make it seen and known that they are using the evaluations in establishing significant public policies.

1.117 I continue to be concerned about the lack of evaluation of public objectives in Crown-owned corporations. Program evaluation can play an important role in clarifying and assessing the degree to which these bodies are achieving the objectives for which public funds are being used.

1.118 In our work, we encountered instances where programs of an interdepartmental or inter-agency nature are not being evaluated because it is unclear who is accountable for them. Steps must be taken to remedy this, and my Office will be considering whether the broader issues of general accountability for such programs warrant further investigation.

1.119 Finally, I am very concerned that the results of the evaluations of government programs are not getting to Parliament. Since the recommendation on this matter by the Public Accounts Committee in 1980, we can find only one case in which an evaluation report has been tabled in the House. Accordingly, I am making further recommendations this year in an effort to ensure that Parliament receives this vital information. My conviction is that the results of these evaluations are necessary to parliamentarians as they make decisions on behalf of their constituents.

1.120 Nonetheless, I am encouraged by the findings of our audit concerning program evaluation. There are clearly many miles yet to go. But what has already been done in nearly all departments represents a brave attempt to do something vastly complex.

IMPAC Progress Review

1.122 Our progress report is included in Chapter 17. It indicates that steady improvements in management systems are taking place within departments and agencies. As in the case of program evaluation, the task is complex. I welcome the Comptroller General's plan to conduct a formal evaluation of IMPAC in 1984.

A Lack of a Sense of Urgency

1.124 My first example is drawn from our audit of the Department of Energy, Mines and Resources, reported in Chapter 9. It involves the Petroleum Incentive Administration (PIA) which administers two key pieces of the National Energy Program (NEP), the Canadian Ownership and Control Determination Act and the Petroleum Incentives Program.

1.125 An evaluation of PIA with a completion date of 1986 has been scheduled, but will be too late to provide information for use by management at key points in the life of various programs. By April 1985, it is expected that more than $4.6 billion will have been paid out in incentives.

1.126 Further, monitoring the effects of the incentives program is needed for such an evaluation. This was not being done. Issues that should be monitored include:

- the total costs and benefits of Canadianization and progress toward achieving security of oil supply;

- the net effect of incentives on the level of exploration activity and the success rate of discovery of economic oil reserves since the inception of the program;

- the success of the program in attracting small investors and other sources of Canadian investments to the energy industry;

- the relative costs and expected contribution to oil self-sufficiency of the Beaufort and Hibernia fields;

- the impact on Canadian control in the oil and gas industry of substituting foreign debt for equity; and

- the relative effectiveness of NEP funds invested in exploration incentives and conservation measures.

1.127 Another example also occurs in our audit of the Department of Energy, Mines and Resources. A program with which many people are familiar is the Canadian Home Insulation Program (CHIP). A necessity for a formal quality assurance system, monitoring such things as workmanship, has been recognized as a pre-requisite for the program since its inception in 1977. Yet, a 1983 CHIP evaluation comments that there is no such system. Again, the requirement to ensure that desired energy savings were being achieved was integral to the establishment of CHIP, as were the development of benchmark prices for materials used in the program and the need for improved consumer information. The recognition of these needs dates back to 1978. During all that time, however, little happened.

1.128 In fairness, corrective action in these areas is now under way. But the average Canadian must surely ask, what took them so long?

1.129 Our audit of Parks Canada - a program which again directly affects the lives of Canadians - reveals long-standing problems, identified over a number of years, where no apparent sense of urgency exists to take necessary remedial action. These problems include parks where sewage effluent has been polluting local waters. At Banff, it took a serious outbreak of an intestinal disorder to trigger decisive corrective action in regard to water quality and testing.

1.130 Once again, in terms of a service on which Canadians rely, this year's audit of the Department of Transport - Marine Transportation Administration comments on the placement of Vessel Traffic Services (VTS) systems which perform a parallel function for commercial vessels to that which air traffic control systems do for aircraft.

1.131 As long ago as 1973, a Marine Administration study noted a need for an analytical framework that would allow an assessment of the need and an identification of costs and benefits for locating these VTS systems. The assessment was to include where the VTS systems should be located, and in what priority.

1.132 That 1973 requirement was reiterated by Treasury Board in 1975, was raised in this Office's 1979 Report and corroborated by a departmental review in 1979. Action only began in 1980. Meanwhile, over $100 million had been spent on 12 VTS systems, without adequate analysis of which ports could benefit most.

1.133 I cite these examples of a pervasive lack of any real sense of urgency almost at random from this year's Report. Other instances can be found in our audits of the Department of Communications, Statistics Canada, and the Secretariat of the Department of the Solicitor General.

1.134 The consequences can be disturbing. Another major study in this year's Report examines the Management of Computing in the Federal Government. In an era where electronic data processing (EDP) is indispensable to the provision of a multitude of governmental services, our study notes "signs that bring into question the government's ability to take prompt and full advantage of the new technology."

1.135 In brief, the question of urgency is itself urgent. I am instructing my auditors to continue to report on all instances where significant delays have occurred, after situations have been identified as requiring prompt action.

Information Needed to Fulfil Audit Responsibilities

1.137 If I am to fulfil those responsibilities, I must be given the opportunity to consider all relevant facts before forming and reporting my opinion. This includes, where I believe it essential, factual information submitted by public servants to ministers for decision-making and ministerial directives to public servants. Without access to such information, where it is necessary, I may not be able to report as required by the Auditor General Act.

1.138 As in 1981 and 1982, my staff continues to encounter some difficulties and delays in obtaining required information. As a result, many more hours of departmental time and of our own time were spent to avoid reporting that I have been denied essential information.

1.139 I have instructed my auditors to continue to request all information necessary for the fulfilment of the responsibilities of the Auditor General Act. If, in the course of the work of my Office, I am denied information which I deem essential to the fulfilment of my statutory audit duties, I will report it to the House of Commons.

Information Resources Management

1.141 One of our government-wide studies - The Management of Computing in the Federal Government - and three of our comprehensive audits - National Library, Public Archives, and Statistics Canada - are directly related to the management of information. In addition, two other studies, Program Evaluation and Management of the Forecasting Process, as well as three additional comprehensive audits, Official Languages, Communications, and Labour, have significant information management components.

1.142 In a philosophical perspective, it is indicative of a strong current within contemporary industrialized societies that information issues should emerge throughout our annual Report. It is a widespread speculation, amounting to a platitude, among some thinkers and writers of our time that our world is moving from an economy based on producing goods to an economy based on producing, disseminating and storing information.

1.143 It is also widely recognized that governments are more and more in the business of compiling and communicating information. Indeed, I am conscious that my own Office is primarily engaged in gathering, processing and publishing information.

1.144 Integral to that information explosion is society's - and Government's - increasing dependence on electronic data processing. It is this dependence which, I believe, makes Chapter 4, "The Management of Computing in the Federal Government", interesting and important.

1.145 I am concerned that, while many of the Government's programs and services are now dependent on the use of computers, there is a serious question as to whether government will be able to take advantage of the new technology which is developing in these years. Our findings reveal that more and more time is being tied up in maintaining and extending systems based on conventional computer technology; that in the area of office automation - so fundamental to the whole apparatus of government - initiatives are sporadic and tentative; that the time may be rapidly approaching when constraints upon the resources available for new EDP development projects can leave the government far behind the private sector; and that a shortage of experienced EDP personnel is probable.

1.146 In such a context, the recommendations included in Chapter 4 become, to my mind, urgent. I welcome the establishment of the Treasury Board's Task Force on Informatics. This is a bold step by Government in addressing a most formidable and complex problem; and, in intent, goes a long way toward responding to the perceived needs for strategic planning for EDP in government.

1.147 The conclusions and recommendations of our study and the establishment of the Task Force are based, in part, on the recognition that improvements in gathering, disseminating and managing information can save significant amounts of money and also improve the efficiency and effectiveness of departments and agencies.

1.148 However, to my mind, there is a broader issue involved, one that has been recognized in the United States and that has affected the audit approach of their General Accounting Office. This is the recognition that managing information resources is no different from managing other traditional resources such as money, people, supplies and materiel.

1.149 Because, in the Canadian context, information has not been specifically recognized as a costly and valuable resource, it has not been subject to principles of resource management. Consequently, there has been little assurance of value for money in federal expenditures for information. This situation virtually guarantees that there exist costly duplication, and an expensive isolationism in terms of the information systems at the federal level.

1.150 As they perform their audits in individual entities, my auditors will be examining whether value for money is being achieved in the management of information resources.

The Role of the Senior Financial Officers

1.152 This study does not appear as a chapter in the Report; however, I am summarizing its conclusions here, because I believe them to be of interest and significance.

1.153 The Glassco Commission, our 1975 Financial Management and Control Study and the Lambert Commission all concluded that the Senior Financial Officers in departments did not always play an effective role, and their function did not contribute adequately to senior management decisions.

1.154 However, the increasing emphasis on accountability in government and the new Policy and Expenditure Management System (PEMS) are making it necessary for Senior Financial Officers to play an expanded role. There is now an urgent need for them to provide advice to senior management on the implications of new policy and resource allocation proposals and to ensure the integration of the departmental planning and financial management processes as well as the compatibility of the various information systems.

1.155 Our 1982-1983 study reveals that, in most of the traditional areas of financial management, there has been a marked improvement in the organization and responsibilities of the financial function. For example, in the 35 entities included in our examination, all Senior Financial Officers are members of the Senior Management Committee and report direct to the Deputy Head. In all cases, they are fully responsible for the design, implementation and maintenance of the financial management and control systems. They also advise management on the application of legislation, directives and policies on financial matters. In addition, Senior Financial Officers are providing more guidance and direction to staff performing financial management and control duties within departments. They also participate in selecting, training and evaluating most of the staff involved in the financial function.

1.156 However, we noted that, for the most part, Senior Financial Officers are providing only a limited independent review and analysis of the various planning and resource proposals prepared within departments. I do not question that the responsibility for the substance of these proposals belongs to the individual operating managers. However, Senior Financial Officers are able to review and provide objective advice on the validity of assumptions, data and cost for the individual proposals as well as implications for the department as a whole.

1.157 In most of the entities reviewed, we found that Senior Financial Officers are responsible for preparing the Budget-year Operational Plan and the Estimates. However, responsibility for preparing the Multi-year Operational Plans often rests with planning units outside finance. As a result, there is no assurance that the operational plans are sufficiently integrated with the financial control and reporting processes. Only the integration of the two can guarantee that relevant costs are matched with expected and actual outputs. Senior Financial Officers, because of their responsibilities for the Budget-year Operational Plan and financial systems, are well qualified to achieve and maintain this integration. They should, therefore, normally be responsible for ensuring that appropriate planning procedures are in place. This responsibility would not extend to preparing plans but would include issuing guidelines, formatting, timetabling, assembling information, costing inputs and reviewing the assumptions and productivity measures listed in the plans.

1.158 At the overall department level, variance analysis, for the most part, is restricted to comparing expenditures to budgets. In only a few instances was this analysis extended to include comparisons with planned results, outputs achieved and measures of performance. However, we found that there is an increased awareness of the need to make such comparisons and to monitor and evaluate the effects of managerial decisions. For example, PEMS is forcing managers to provide a lot of cost and performance-based information. To meet these increased demands for data, many new computer-based information systems have been set up in most departments. Although responsibility for financial systems is clearly vested with Senior Financial Officers, the responsibility for developing, operating and maintaining other information systems is fragmented and often unclear. This situation exemplifies my concern about the failure to recognize information as a resource.

1.159 As a result, there is no guarantee that the various systems being developed are compatible, avoid duplication, use valid data and provide the appropriate information. Since Senior Financial Officers already have responsibility for the financial systems, they are in the best position to ensure that the systems being developed will provide for integrating financial and non-financial data. This will facilitate the production of meaningful performance reports. It is, therefore, appropriate that Senior Financial Officers should be consulted on and have input into the development of all management information systems.

1.160 The Office of the Comptroller General has recognized the need for a restructured role for the Senior Financial Officer and has circulated a discussion paper titled, "The Comptrollership Concept in Departments and Agencies of the Government of Canada". If implemented, the expanded role of the departmental comptroller, as defined in this paper, would serve as a benchmark for departments and agencies and would help to overcome most of the weaknesses noted above.

The Office of the Auditor General and the House of Commons

1.162 Our follow-up included interviews with 31 Members and a meeting with the Management and Members' Services Committee.

1.163 In sending the Report of the follow-up to Madame Speaker on 25 May 1983, I was pleased to be able to say:

It is gratifying to note the significant improvements that have occurred since our 1980 comprehensive audit. You must be as pleased as I with this rapid progress toward improved management practices and increased concern for value for money in the administration of the House of Commons.

It is my hope that, with the guidance and direction provided through this evaluation, we can continue to initiate reform and consolidate our progress so as to best utilize those resources available within the House of Commons.

Boards

1.166 Our audit of the National Library of Canada - Chapter 14 in this Report - reveals a rather different concern about the function of a board. Here we have a different kind of board whose role needs clarifying.

1.167 Our audit of Parks Canada, reported in Chapter 10, found that the Historic Sites and Monuments Board of Canada, yet another type of board, has become so integrated with the affairs of Parks Canada that "the independence of the Board could be jeopardized" and the Minister and Parliament cannot "know the full costs of operating the Board and, therefore, cannot hold it accountable."

1.168 These instances, together with those in previous reports of my Office, suggest that there are some fundamental aspects of board operations in entities that are instruments of governmental policy about which Members of Parliament could well be asking value-for-money and accountability questions. These include questions about boards' roles, criteria for appointment to boards and criteria for assessing their performance.

1.169 Because of the significance of boards to the achievement of value for money, we plan to make boards the subject of review in the next year.

Main Messages in the 1983 Report

1.171 Where, in our opinion, findings of the auditors warrant, we devote a chapter of this annual Report to the work of each team. I am, however, aware that it may be helpful to those reading our Report to have the main messages in one place. Therefore, as I did last year, I conclude this chapter on matters of special importance and interest with the main messages from the Report. A main message is, of course, a very short summary. The synopsis toward the beginning of each chapter provides an overview. However, I caution the reader that, for an in-depth analysis and to understand the context and implications of the main messages, the chapter itself must be read.

Program Evaluation (Chapter 3)

• The government has made significant progress in establishing program evaluation functions in departments and agencies. All 19 departments and agencies in our audit sample have established corporate program evaluation units. Most have developed policies, had them approved by the deputy head and prepared plans to evaluate their programs on a cyclical basis.

• Departments and agencies have made considerable progress in planning and carrying out corporate program evaluations. Seventeen of the 19 in our sample have evaluation studies in progress. The corporate evaluation units in 15 of the departments have completed at least one program evaluation study; in total they have completed 86. Government-wide, 174 have been completed. Most of this has been accomplished in the past three years. Of the 19 departments and agencies in our audit, only the National Parole Board and the Solicitor General Secretariat have not attempted any corporate evaluation assessments (the planning documents for a study) or studies.

• In departments with relatively longer experience and in which a trend can be examined, there have been improvements in the quality of evaluation initiatives undertaken.

• However, over half of the evaluation assessments audited did not form an adequate basis for sound advice to the deputy for planning evaluation studies. In a number of cases, limitations in the study could be traced to deficiencies in the assessment.

• Moreover, in a substantial number of the evaluation studies, there were significant weaknesses in the methods used to accomplish the work planned for them. This was particularly so with respect to measuring program effectiveness. Most of the study reports gave some, but not always full, recognition to these weaknesses in the way in which the findings were qualified.

• Even where difficulties were encountered in planning and carrying them out, in most cases, parts of the assessments and studies have produced information that is sound and has been found useful by departmental managers. In most instances, senior management has accepted and acted on the recommendations arising from these studies.

• To give direction to departments in establishing a program evaluation function, the Office of the Comptroller General has published detailed guidelines for organizing, planning and conducting evaluations. In our opinion, this policy framework represents a reasonable standard.

The Management of Computing in the Federal Government (Chapter 4)

• Most government electronic data processing (EDP) is based on the conventional technology of the 1970s. Examining the way that kind of EDP is managed in a sample of departments, we found:

- some budget overruns and many late deliveries in systems development projects;

- a need for strengthened management controls over the systems development process, especially in project monitoring and cost accounting;

- improvement required in the methods used to determine the EDP needs of government programs which depend on the computer;

- a lack of preparedness to run critically important computer systems on alternative computer sites, when a prolonged computer outage occurs at a main site;

- a need for strategic planning to be carried out within the longer time frame required to meet the long lead times needed to develop software, acquire hardware, and build up an expert staff.

• Looking to the future, we found reason for concern that the government will not be able to make selective and appropriate use of the new microprocessor and telecommunications-based EDP technology emerging in the 1980s, unless a better co-ordinated and more determined approach can be made to the problem. Much of our concern centres on the availability of experienced EDP staff to adapt this new technology to the government's needs. The present staff is very largely involved in maintaining and enhancing existing computer applications, and this involvement increases as new conventional systems are developed and extended.

Management of the Forecasting Process - Department of Finance (Chapter 5)

• The Department of Finance prepares regular forecasts of the Canadian economy. Variables from the forecasts are used in calculating interim fiscal transfer payments to the provinces that will amount to over $24 billion in 1983-84. The forecasts prepared by the Department are also key inputs into the federal budgets and are viewed by governments and the private sector as authoritative statements on the direction of the Canadian economy.

• The forecasting process of the Department of Finance is informal. The individuals involved in the process have a clear and consistent understanding of the steps involved, but there was no evidence that such steps are actually followed. At the time of the audit, there were no written procedures setting out the process or the management controls over the process, which would include reviewing assumptions and inputs, reviewing the forecasts prior to using them, or periodically evaluating forecast results. For the most part, management assumes that all steps of the process, including verification, are carried out in an efficient way. Therefore, in the absence of any formal management controls, the consistency, integrity and efficiency of the process depend almost completely on individuals performing their responsibilities in a totally professional manner and on staff continuity. Failure to perform all necessary procedures at the required time could precipitate errors that could affect the quality of the forecasts.

• Security over confidential information relating to the latest forecast of the Canadian economy is weak, because the Department does not have adequate security arrangements. Unauthorized persons could access this information. Premature release of these data could have an impact on financial markets. Many deficiencies in this area, identified by the RCMP in 1979-80, have not been addressed.

• There is no departmental EDP policy or EDP co-ordinator. This could be a contributing factor in deficiencies noted in the co-ordination of EDP activities and also in EDP security.

Commissioner of Official Languages (Chapter 6)

• The nature of the Commissioner's mandate, as set out in the Official Languages Act, and the evolution and growth of the activities of his Office over the years are the causes of overlap of responsibilities with other federal agencies dealing with official languages, some of which is inevitable to preserve the independence of the Commissioner. However, the Commissioner keeps Parliament well informed of his activities and new initiatives through his Annual Report and through the Parliamentary Committee on Official Languages.

• The Commissioner's Office does not have sufficient information on the utilization and performance of its human resources. It is consequently not in a position to determine adequately the efficiency of its activities.

• The Office has not established a policy or plan for evaluating the effectiveness of its programs. Nevertheless, evaluations of a limited scope have been done on the language kits, to which $7 million has been committed since 1975. For an entity of this size, these evaluations represent an acceptable achievement.

Department of Communications (Chapter 7)

• In our 1978 Report, we identified weaknesses in several areas of the Communications program. Some of these have been corrected. However, there are significant areas where weaknesses previously observed still exist or are just now being addressed. These include cost recovery practices, internal audit and inventory control.

• Controls over the policy development process are incomplete. Specific activities necessary to support the development of policy issues are not systematically planned and monitored.

• The deficit for the Radio Frequency Spectrum Management activity in 1981-82 was $23.4 million, despite Cabinet direction that it operate on a full-cost-recovery basis.

• Clear and measurable objectives were not defined for the Arts and Culture program either before or after its transfer to the Department from the Department of the Secretary of State in July 1980.

• The 1982-83 Estimates for the Arts and Culture program provided for a subsidy of $220 million to Canada Post Corporation to cover losses incurred as a result of preferential rates for publication mailings. No clear objectives have been set by the Department for this subsidy. In 1983-84, the Department will be responsible for only $53 million of this subsidy, with the remainder provided from the Consolidated Revenue Fund.

• No significant effort to evaluate departmental programs was begun until 1982. Despite the absence of evaluation information requested by Cabinet, the Department has requested and obtained renewal of two programs originally scheduled for termination. These are the Canadian Book Publishing Development Program and the Special Program of Cultural Initiatives.

• The Space Sector met the criteria used to assess project planning and control.

Employment and Immigration Canada (Chapter 8)

• The Canada Employment and Immigration Commission has adopted action plans and undertaken corrective action in many of the sectors we audited. It is too early to determine the extent to which these actions will have the desired effect.

• Functional managers have not always ensured that there was a continuous monitoring of operations. The organizational structure makes it difficult to co-ordinate promotion of programs offered to the public.

• Quality control and quality assurance are not applied to unemployment insurance benefit claims in all regions. In addition, we found that the Commission was not analysing the overall cause of errors detected by this control. Investigation and control systems implemented to reduce the number of overpayments are centred mainly on detection; the preventive aspect is neglected.

• Based on our examination of some contribution programs, the selection of projects meets program objectives and criteria. However, the monitoring of projects was not properly supervised, and the results of the monitoring activities were not adequately documented.

• The National Employment Services group exercises little direction and co-ordination over the regions.

• The Commission does not determine its future human resource needs in a detailed and systematic manner. In addition, it does not have in place the mechanisms needed to co-ordinate its training activities.

• The Systems and Procedures group carries out well its responsibilities for issuing Unemployment Insurance cheques. However, policies, directives and data processing standards are too general and not up to date.

• CEIC has developed standards, productivity measures and an information system; however, the system does not measure efficiency.

• The quality of evaluation studies has improved over the past few years. The Internal Audit Bureau should improve its staffing plan so it will provide for its needs.

• The Unemployment Insurance Account deficit for the 1982 period exceeds $2.5 billion, and forecasts indicate another major deficit for 1983.

Energy, Mines and Resources - Energy Program (Chapter 9)

• The 1980 National Energy Program (NEP) is a major government initiative comprising a collection of over 40 programs and involving some $5.3 billion of expenditures in 1982-83. A tremendous variety of programs is included within the initiative - new and old programs; large and small; simple and complex. Some deal with a limited number of participants (individuals and groups involved in oil exploration), others, such as the Canadian Home Insulation Program (CHIP) and the Canada Oil Substitution Program (COSP), involve hundreds of thousands of claimants in a year.

• The implementation and operation of such a large number and variety of programs, in rapidly changing circumstances and under strong time pressures, have proven to be a major management challenge. With some exceptions, the challenge has been met. A contributing factor has been the enthusiasm and dedication of managers and staff who have worked long and hard during the period since 1980. Most programs we audited are now up and running and are generally well administered. However, improvements are needed in some areas.

• Our audit of selected programs showed that pre-implementation planning, monitoring, proper assignment of resources, and the will and ability to take corrective action are important factors in successful program delivery. We observed that, although programs such as the Distribution System Expansion Program, the Canada Oil Substitution Program, and the Industrial Conversion Assistance Program have been well implemented in this respect, other programs such as the Canadian Home Insulation Program, the Forest Industry Renewable Energy Program, and the Conservation and Renewable Energy Demonstration Agreements and Propane Vehicle Grants have not. In particular:

- pre-implementation planning has been inadequate in some cases, and the links between the policy-setting and program operating levels have sometimes been weak;

- ongoing monitoring of program procedures needs improvement in a number of cases, and evaluation of early effects and impacts should be carried out for most programs;

- the resources assigned to some programs have been so limited that due regard for economy, efficiency and effectiveness in program delivery has not been possible; and

- there have been delays in taking corrective action in some cases, even after repeated indications of a need for such action.

• The Department has adopted a policy for program evaluation and has established evaluation procedures that conform to government guidelines. Now that the function is established, there is a need to plan and carry out evaluations on a timely basis so that such evaluations can contribute to improving the management and effectiveness of the energy programs.

• The Canadian Ownership Account was established in 1980 by the National Energy Program. In our 1982 Report, we commented, in connection with the $1.7 billion acquisition of Petrofina Canada Inc. by Petro-Canada, that there is "a serious weakness in the management of public funds when departmental and central agency officials have had no responsibility to ensure that due regard to economy is demonstrated and value for money achieved." We have continued our investigation into this matter during the last year and are still unable to assure Parliament that due regard for economy was demonstrated and value for money achieved in regard to this major acquisition.

Department of the Environment - Parks Canada Program (Chapter 10)

• Parks Canada employees at individual parks, historic sites and canals display a high degree of commitment to both meeting the needs of visitors and preserving the natural and historical heritage within the parks and sites under their jurisdiction.

• Initiatives taken by Parks Canada toward completion of the Cabinet-approved National Parks System and the establishment of national historic parks recommended by the Historic Sites and Monuments Board have been implemented without sufficient consideration of the total future cost implications. As a consequence, funding and appropriation decisions for expenditures on the acquisition, development, operation and maintenance of new assets have not and cannot be considered within the context of total future financial requirements.

• Parks Canada does not provide the information necessary to indicate how well it is fulfilling its mandate, nor does it have formal procedures to hold its employees accountable for producing the results necessary for delivering its program.

• Parks Canada has not managed certain of its professional staff resources in a manner that would ensure their most effective use in program delivery.

• Parks Canada has not determined the most appropriate approach to follow in dealing with the future of the townsites of Banff and Jasper in the context of their impact on program resources and objectives.

• Parks Canada's philosophy and policy relating to visitor-generated revenue result in visitors being treated inconsistently and receiving subsidized services.

• Parks Canada management was aware of several of the problems observed during our audit and, in some instances, had either initiated corrective action or was contemplating doing so.

Department of Labour (Chapter 11)

• During the course of our audit, substantial changes were made in the Department's senior management. The Department has indicated, in response to our recommendations, that it is taking positive action to resolve the problems noted.

• One of the Department's responsibilities is to ensure that workers under federal jurisdiction have a safe and healthy workplace. In carrying out this mandate, Regional Operations responds to all complaints concerning unsafe and unhealthy working conditions and, as far as resources allow, performs planned safety inspections. We found that Regional Operations had inaccurate, incomplete and out-of-date information on its clientele, was not fully aware of where its resources were expended, did not ensure that serious hazards identified had been rectified, and did not know whether the frequency and severity of accidents were actually being affected by its efforts. In addition, when performing planned safety inspections, Regional Operations did not focus on those industries with the highest risk of accidents.

• Management had not demonstrated due regard for efficiency in administering the Government Employees Compensation Act. We noted that computerizing the processing of claims would save at least $375,000 annually.

• The Department has a responsibility to help resolve industrial disputes in the federal jurisdiction. We determined that there were no major problems in the management controls in place to ensure economy and efficiency.

Secretariat of the Solicitor General (Chapter 12)

• The role of the Secretariat of the Solicitor General is complex in that it is required to interact with all the major participants in the Canadian criminal justice system in carrying out its mandate to provide policy advice to the Solicitor General as well as develop and participate in major criminal justice and national security initiatives. Following its creation in 1973, there was some uncertainty concerning the most appropriate role for the Secretariat, and it is only recently that a clearer role has emerged.

• With its role clarified, the Secretariat is now starting to address weaknesses in its planning, control and evaluation systems. For example, it has recently established long-term goals and short-term objectives and identified departmental priorities. However, it has not yet developed appropriate criteria or procedures for allocating its resources or monitoring progress in relation to these objectives and priorities.

Department of Transport - Marine Transportation Program (Chapter 13)

• The Department has made substantial efforts to provide Canadian mariners with an extensive, reliable and safe system of marine navigation. Although the Department has identified many of the areas requiring improvement noted in this chapter, its actions have not yet resulted in significant change.

• The Department is spending more than $525 million annually on Coast Guard activities to provide a variety of services to mariners, such as operating marine navigation aids and providing ice breaking services. It has neither adequately analysed the needs of mariners for these services nor defined the level of service to be provided. As a result, the Department's ability to plan and control Coast Guard activities is weakened.

• Marine transportation is a heavily subsidized means of transport in Canada. The implications of adopting a policy of cost recovery for the Coast Guard were evaluated in 1981. Cost recovery could have an important influence on the demand for marine services and, as a result, on the levels of service. We were informed that the Government has not yet agreed to implement such a policy.

• The Department's Fleet Capital Investment Plan indicates that approximately $2.5 billion will be required over 30 years to replace 49 major vessels. We have serious concerns that this plan is not yet founded on sufficient analysis of need, defined levels of service and the most cost-effective approaches to program delivery.

• In 1982-83, the Canadian Coast Guard spent $250 million on aids to navigation, of which $185 million was operating costs. There is an opportunity to reduce these costs by $10 million to $20 million annually by accelerating the unmanning of lighthouses, by revising standards and methods for checking and maintaining buoys and by re-examining the need for each of the 12 vessel traffic service systems. Further substantial savings would be possible if defining levels of service in concert with these improved efficiencies indicated that a reduction in the size of the fleet was possible.

• Although the Department collects data on the accidents it investigates, it does not systematically analyse all the data to monitor relative levels of marine safety by type of traffic and degree of risk. Such analysis could assist the Department in recognizing accident patterns and in planning appropriate and timely action.

National Library of Canada (Chapter 14)

• The National Library has an effective means of collecting all Canadian published work, one of its prime responsibilities. The Library now needs to assess the adequacy of its resources and effort committed to preservation, to counteract physical deterioration of its collection.

• The Library has lacked an adequate planning process that provides clear statements of National Library objectives to guide its managers and serve as a basis for senior management control and accountability. Management is taking steps to address the problem. The issues include the leadership role of the National Library in the development of networks in Canada for inter-library lending and information exchange, and its co-ordinating role for library services in the federal government.

• The Library has a complex computer system that has been a major expense in the Library's budget and has experienced significant development problems. Management needs to reassess the scope and role of the system in the light of current needs and EDP technology and develop a realistic plan for providing future automation service for the National Library and other federal libraries. As Chapter 4 suggests, the National Library is not alone with EDP systems problems.

• In our view, the National Library Advisory Board should have a clearer and stronger review role within its advisory mandate to help ensure value for money in the Library's operations.

Public Archives of Canada (Chapter 15)

• For greater accountability to Parliament, the Archives needs to clarify its role in relation to other archival institutions in Canada and clarify its own acquisition policies. This has become increasingly necessary with changes in user needs and resource limitations.

• The Archives has taken important initiatives in developing techniques for the long-term preservation of its records, but management lacks information on the condition of the Archives' collections and needs to develop long-term plans that ensure a co-ordinated approach to preservation.

• The Public Archives of Canada plays a central role in the management of government records. The quality of records management in government affects not only the safeguarding of historically valuable government records but also efficiency in government operations and public access to information. Under a 1966 Order in Council, the Archives has had a duty to evaluate and report annually to Treasury Board on the state of records management in government. It submitted only three reports between 1966 and 1983. The latest survey, reported in 1983, found that 19 per cent of the departments had no schedules governing records maintenance and disposal, and 48 per cent did not have a majority of their records scheduled. The Archives needs to sort out with Treasury Board how it will carry out its government-wide evaluation and advisory responsibilities under the new 1983 Treasury Board administrative policy for departmental records management.

Statistics Canada (Chapter 16)

• Statistics Canada has a sound international reputation for its professional work. Nonetheless, there is a need to strengthen controls over the quality of its statistics and disclosure of their limitations to users.

• The Agency's statistics are objectively prepared and its products are generally relevant. However, the Agency's means for ensuring balance in its programs need improvement.

• The Agency has made commendable efforts to control the burden placed on the business community and on individuals for information.

• Statistics Canada takes precautions to protect the confidentiality of respondents.

• Management practices need further significant improvement in the key areas of planning, allocating resources, measuring the performance of programs, and internal audit.

• Largely because of a lack of appropriate management practices, the productivity of clerical staff tested in our audit was well below acceptable levels. The Agency has recognized the problem and appears to be taking steps to address it.

• There is evidence that a large number of clerical positions throughout the Agency may not be properly classified. This matter is under review by management and the Treasury Board.

• The Agency has recently prepared a plan which calls for major improvements in its management practices by December 1984. Based on past experience, we believe that the implementation of the plan will need to be closely monitored if this target date is to be met.

Additional Audit Observations (Chapter 17)

• This chapter contains additional matters of significance that I believe should be drawn to the attention of the House of Commons. They have not been reported in either the departmental chapters or the government-wide studies, but have come to our attention during our audits of the accounts of Canada. They deserve close scrutiny.