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1985 Report of the Auditor General of Canada

1.1 I am focusing on a single theme in this opening chapter of my annual Report. It is the issue of the appropriateness and quality of the information that Members of Parliament receive.

Information Needed to Fulfil Audit Responsibilities

1.3 At the time of writing this Report, the Federal Court decision had not been handed down.

1.4 I am able to say that I and my staff had access during the 1984-85 fiscal year to the information, documents and explanations that we required to fulfil our responsibilities to the House of Commons.

Information for Parliament

1.6 The issue does not go away. Both in formal sessions of the Public Accounts Committee and in my conversations with parliamentarians, MPs reiterate their need for digestible and timely information.

1.7 There is an urgency to their request. Every profession has its tools, and the primary tool of those who legislate is information. Without clear information, they cannot make decisions; without clear information, they cannot exercise the stewardship increasingly required of them by sceptical and pressing constituents; without clear information, they cannot tell whether the money they are asked to vote for the use of government and all its departments and agencies is really required or appropriate; without clear information, they cannot hold the government accountable for the expenditure of those funds. Without clear information, MPs can scarcely act at all.

1.8 To elect Members of Parliament and then fail to provide them with an adequate flow of information is like recruiting an orchestra, giving the members musical scores with sheets missing and garbling the orchestration.

1.9 There is, of course, an argument that the quality of information that Members of Parliament receive is immaterial, because - so the argument continues - MPs have virtually no input into the formation of policies, and their accountability role is limited to examining the stable doors long after the horses have departed.

1.10 I don't have much use for that argument. My five years in Ottawa, particularly in my work with the Public Accounts Committee, have demonstrated to me the vital role MPs can perform in our system of government. And, as Auditor General, I recognize that it is integral to my mandate both to provide and to verify information for Members of Parliament so that they will be enabled to fulfil their responsibilities even more effectively.

1.11 I am, of course, also aware that there is a move to restore to Parliament a greater role in making and shaping public policy. In the trenchant words of the Third Report of the Special Committee on Reform of the House of Commons tabled in June this year:

Years ago, Parliament was the primary source of legislative issues. Today, the legislative role of Parliament and its members is not to formulate but, at best, to refine policy.... It is time to change this situation. Private members must once again become instruments through which citizens can contribute to shaping the laws under which they live. The formulation of legislation used to be a central task for Members of Parliament, and it must become so once again.

1.13 The proposals put forward by the Special Committee include changes in the standing committee system of the House. The Special Committee envisages a structure of standing committees paralleling government departments that will

allow committee members to gain a great deal of knowledge about departments as they monitor their activities. Committees would use their new authority to study the relevant government department in sufficient depth that a committee would become familiar with and be able to analyse and comment effectively on the government's future policy and expenditure plans.

1.15 However, whether or not the House of Commons restructures its committee system along such lines, MPs should be receiving precisely this kind and quality of information. A great deal of activity has taken place during the last 10 years to provide and ensure that flow of information. These initiatives include creating the Office of the Comptroller General, introducing the Part IIIs of the Estimates, reporting program evaluation findings and conclusions, and enacting the 1984 amendments to the Financial Administration Act that provide for an annual reporting to Parliament of the activities of Crown corporations.

1.16 I am also aware that the purpose of my own Reports is to provide significant information to Parliament and to provide assurance that other information MPs are receiving is accurate and complete. I am continually striving to make the contents of my Reports and the way the material is presented as useful as possible to Parliament.

1.17 As reported in Chapter 15 of this Report, my Office's Program Evaluation and Internal Audit group has recently completed an assessment of the effectiveness of our annual reporting process. As part of the study, Members of Parliament were interviewed to obtain their views on the quality and usefulness of the audit information provided to them and their suggestions on ways to make our auditing and reporting more useful. A summary of their responses is included in Chapter 15. That response is already proving useful to us as we attempt to improve our own reporting to Parliament. The MPs' views have also contributed to my own understanding of the kind of information they need and have assisted me in writing this chapter.

1.18 A second initiative in attempting to provide the most relevant and appropriate information for MPs is the inclusion in this annual Report of a follow-up and status report on selected recommendations made in our 1982 and 1983 annual Reports. I hope this survey of the status of action taken as a result of previous observations and recommendations will prove of practical value to the Public Accounts Committee and all MPs. If their reaction is positive, a follow-up chapter will become a standard feature in our future reports.

1.19 In this first chapter, then, I discuss various kinds of information MPs can reasonably expect to be receiving. I comment on some aspects of the adequacy of that information. And I make suggestions for improvements. Throughout my discussion, I use illustrations and examples from the chapters in this year's Report and from our ongoing work.

1.20 In a moment I will be commenting on the Office's Federal Government Reporting Study. The study grew from my perception that the information contained in the Government of Canada's summary-level financial statements can be made more useful and understandable to those who need and use information about the government's financial position and operations. As Parliament's auditor, the primary users I had in mind were Members of Parliament themselves; in the course of this study we consulted a number of MPs.

1.21 It is clear that the qualities MPs want in the information provided in the financial statements are qualities they require in any and all the information they receive.

1.22 The MPs we consulted were unanimous in their desire for improved information that will allow them to be more effective in their twin roles of considering proposed legislation and of holding the government and its departments, agencies and corporations accountable for the expenditure of public money. Improved information is also vital to them in fulfilling their regional and constituency responsibilities.

1.23 Members of Parliament tell us they need clear, exact and reliable information. It must provide them with a broad perspective of policies and programs. In addition, while MPs recognize that they can never have the detailed knowledge of particular policies or the operations of specific programs that, say, a departmental specialist possesses, on occasion and for specific purposes they require direction and access to detailed information - the kind of information that allows the MP to cut through to the nucleus of the issue at hand. Whether the source of information is the financial statements, Part III of the Estimates, or the data now required to be provided to Parliament on the activities of Crown-owned corporations, MPs require information to be presented in a way that allows them to move from a summary level to a more detailed accounting of particular issues.

1.24 The solution to providing the best and most useful information is very certainly not simply providing more information. MPs already suffer from an overload of data. The answer must lie in providing MPs with the kind of summary information that permits them to grasp the key issues quickly and then leads them into the finer points and technicalities where necessary.

1.25 Also MPs are particularly concerned that information is consistent, permitting a year-by-year comparison and analysis of particular programs.

1.26 Again, information that is not linked to other information about the same program is of little use. Where, for example, a program is being implemented both by direct funds and by a selective tax incentive, Members tell us they are frustrated if there is no linkage between the information they receive on the direct expenditure and the tax expenditure.

1.27 In the long term, this fragmentation may well prove to be the most frustrating issue that MPs have to deal with in regard to the information available to them. It may also prove to be the problem most difficult to solve.

1.28 One effort to address some aspects of the problem is the Illustration of an Annual Financial Report of the Government of Canada, developed by my Office in connection with our Federal Government Reporting Study (FGRS). This document will be available in a separate Canadian report on FGRS available later this year.

1.29 The MPs to whom we showed an earlier version of the Illustration of an Annual Financial Report were most positive. Said one: "I can't help but feel that anything that is as succinct as this will become a basic working tool of Members ... it will be extremely useful." And another: "MPs will go back to the document time and time again as a source of reference. It is excellent."

1.30 Quite apart from its value as a basic financial document for MPs, in its attempt to bring together, simplify, consolidate and link financial information, it may perhaps become something of a model of how both financial information and related non-financial information can be summarized most usefully for MPs.

1.31 The particular elements of information I discuss in this chapter are:

• the Financial Statements of the Government of Canada;
• departmental accountability;
• the Estimates, with particular reference to the Part IIIs;
• information about mixed and joint enterprises, with a note on privatization; and
• tax expenditures.

The Financial Statements of the Government of Canada

1.33 Besides expressing my concerns in the Opinion and Observations attached each year to the Public Accounts, I addressed the issue in some detail in my 1983 Report. I spoke of the gap that had developed between economic reality and the information presented in the financial statements. I stressed that critical choices are made based on economic interpretations of the information contained in the summary financial statements. I concluded that improving the relevance and usefulness of the information provided in the Financial Statements of the Government of Canada was a matter of urgency for Members of Parliament and all Canadians.

1.34 However, there has been scant knowledge available about who uses federal government financial reports and what financial information users need. Who are the users? What are they doing, or trying to do, with the information? How could the information and the reports be made better to suit their needs?

1.35 The importance of these questions led me to initiate the Federal Government Reporting Study (FGRS). The time seemed right for it. The government was receptive to making changes, Canada's accounting profession was expressing an interest and, in particular, the Public Sector Accounting and Auditing Committee (PSAAC) of the Canadian Institute of Chartered Accountants was setting out to determine objectives and generally accepted accounting principles for public sector financial statements for all levels of government. One thing was certain. These objectives and principles must be based on the needs of users of the information in the government financial reports.

1.36 Thus, to identify the users and develop a thorough understanding of their information needs seemed to me to be essential both to the government as preparer and to my Office as auditor. This knowledge would assist PSAAC in establishing accounting principles, assist the government in proposing improvements in its financial reports, and assist me in assessing the proposals and reporting to Parliament.

1.37 I was delighted when The Honorable Charles Bowsher, C.P.A., Comptroller General of the United States, expressed a strong interest in our Federal Government Reporting Study and in conducting a complementary research effort in the United States. Mr. Bowsher and I both believe that the use of financial information about national governments is of interest to domestic and international organizations around the world.

1.38 As mentioned earlier, I will be publishing a separate report arising from our Canadian work later this year. It will be titled The Federal Government Reporting Study. A joint report on the combined work of our Office and the General Accounting Office in the United States will be published early next year.

1.39 Our study responds to a recognition by the government that there is a need for improving the financial statements. It complements important work by the Office of the Comptroller General of Canada and the Canadian Institute of Chartered Accountants. In a wider perspective, Mr. Bowsher and I believe that the study will prove beneficial on the international scene where critical decisions are being made, based in part on the information available about many countries' revenues, expenditures and debt.

1.40 However, as Parliament's auditor, my chief concern has been to ensure that the study will prove immediately helpful to MPs. The Illustration of an Annual Financial Report to be included with the report is based on the Government of Canada's 1984-85 fiscal year. And although it is intended only as an example of the direction in which the government could move in preparing a summary display of the Accounts of Canada, I anticipate that MPs will find it particularly useful because the Illustration pulls together in a useful way a whole spectrum of financial data and related information now scattered through various government reports.

1.41 I would like to make a general observation about the Federal Government Reporting Study and the related activity by the Office of the Comptroller General of Canada and by the Public Sector Accounting and Auditing Committee of the Canadian Institute of Chartered Accountants.

1.42 Accounting practices are in a state of change. Accounting is like language. Changes in language do not come about through theoretical discussion; they occur because successive generations have new concepts to communicate. Language must have the flexibility to respond to those needs. The same is true of accounting. In our day, accounting is being severely tested as to its ability to communicate the financial information that users require.

1.43 Essentially, accounting measures past performance. But it has also proved an extremely useful tool in making decisions for the future, because the characteristics of the immediate future are generally not too different from the immediate past.

1.44 This may be changing. Commentators point out that a feature of the information age is an accelerating pace of change. Decisions based on immediate past experience cannot be guaranteed to work out in the future.

1.45 Accounting is attempting to face up to this challenge. The problem, as expressed recently by one writer, quoting a saying of the ancient Chinese philosopher Lao Tzu, is that reliance on financial statements as indicators of the future must always be a little like "trying to understand running water by catching it in a bucket".

1.46 Those of us who are seeking to improve the display of financial and accounting information for the public sector are trying to provide a measure of the water as it flows.

1.47 It is not an easy task. But it is one that must be completed if MPs are to have relevant and timely financial information.

1.48 I am sure that our Federal Government Reporting Study will provide a fresh perspective by making the expressed needs of users the key to our approach. The work of improving the financial statements goes on. I hope that, having read the Canadian study report together with the Illustration of an Annual Financial Report, Members of Parliament will respond by providing further input to the process.

1.49 The language of the financial statements must be shaped to meet the needs of the primary user of government financial information. Parliament is that primary user.

Departmental Accountability

1.51 The issue can be pin-pointed by reference to the meetings of the Public Accounts Committee earlier this year where the Committee studied the findings of our 1984 comprehensive audit of the Department of Public Works. During the hearings, there had been a great deal of discussion about certain of the acquisition arrangements entered into by the Department. Following intense questioning by members of the PAC, an explanation for the acquisition of one of the buildings eventually emerged. The story is told in the Committee's own report to Parliament under the blunt heading "Misleading the Committee" (The Committee's Reports are reproduced in Appendix C):

With respect to the Centennial Towers building in Ottawa, your Committee compared present and past testimony (the latter in connection with the Committee's Second Report of April, 1984). In earlier testimony, senior officers of the Department explained the acquisition of Centennial Towers in terms of an urgent need to house the Canadian Security and Intelligence Service. No mention was made of ministerial involvement. In present testimony, the decision to acquire Centennial Towers has been entirely attributed to ministerial direction. Your Committee considers that it has received misleading testimony.

1.53 However, the particular observation by the PAC raises the broader issue of departmental accountability about which I am concerned. In the formal sense, it does not matter whether ministers or departmental officials spearheaded the decision to acquire the building. For, under our system, ministers are ultimately accountable and responsible for everything that happens in their departments. But, I concur with the Lambert Commission which - six years ago - stated that the full application of that formal concept of ministerial accountability only serves to cloud the real accountability of those who are in charge of day-to-day operations.

1.54 And, interestingly, the PAC Report to the House of Commons, mentioned above, provides an illustration of ministers not being fully accountable for a departmental decision because they had not been provided full information. As stated by the Committee:

In view of public servants' responsibility to fully inform their Ministers, your Committee was concerned by testimony which indicated that Ministers, individually and collectively, were not adequately informed by their officials prior to making decisions. For example, the Auditor General informed your Committee that officials of the Department did not tell Treasury Board Ministers about a "package deal" involving the re-negotiation of leases for several Ottawa buildings owned by the Campeau Corporation. The Department negotiated these leases as a package deal but sought Treasury Board approval only on a building-by-building basis. When Treasury Board authority did not correspond with the Department's negotiating position, opportunities were lost and additional costs to the Crown of $42 million were incurred.

1.56 To return to the acquisition of Centennial Towers, the Public Accounts Committee wished to know who, in fact, was responsible for the decision. The earlier information the Committee received was that officials pressed the operational need for the building. But, according to the later information the PAC received, the particular building was acquired because of ministerial intervention.

1.57 Leaving totally aside whether, in retrospect, the particular acquisition appears to have been a wise investment of public funds, the transaction raises three important issues for parliamentarians and, indeed, for all Canadians.

1.58 The first is to reaffirm the clear principle that it is without question the right and privilege of ministers to employ ministerial direction to make such an acquisition. That concept lies at the heart of our parliamentary system. Departmental officials advise. Ministers decide. Underlying that principle is the recognition that a government has many "bottom lines" to meet. Although in a particular instance it must give due consideration to the value-for-money aspects of a certain project, it may well be that a broader social factor proves more important in the ultimate decision than strictly achieving the greatest degree of thrift. The social priority could be to increase employment in a specific geographical area or in a particular sector of the economy. Our political system has grown and developed to be responsive to the broader spectrum of our nation's and its people's needs. That's why we have elected politicians. Our destiny is not in the hands of unelected bureaucrats or auditors. Nor should it be.

1.59 However, accountability is another pillar of our system, and a second issue flows from the concept of an accountability process. For MPs to carry through the accountability element of their function, they almost certainly need to know who, in fact, made a specific operational decision, because the real purpose for making a decision is so often linked to the people who make it. The crux of the Centennial Towers acquisition as noted in the PAC Report was that MPs were misled about who was responsible for the decision. And until MPs know who made the decision and why, they cannot begin to examine such questions as whether due regard has been given to economy and efficiency in completing the transaction. Specifically, the Public Accounts Committee must be permitted to know who made a particular operational decision, to know who provided the advice on which the decision was made and the nature of that advice.

1.60 This same problem of not knowing who, in practical terms, provides advice and makes decisions cuts through to the essence of my own reporting to Parliament. The Auditor General Act requires me to report when public money has been expended without due regard to economy or efficiency. It also requires me to report instances where money has been expended for purposes other than those for which it was appropriated by Parliament. The Public Accounts Committee depends on this Office to supply that information. This can prove to be a very difficult task when the true rationale for making the decision has been obscured.

1.61 An instance of this kind of difficulty can be illustrated by reference to Chapter 13 in this Report on our comprehensive audit of Transport Canada's Air Transportation Administration.

1.62 During that audit, we examined the financial performance of the supposedly self-supporting airports in the Canadian system. These are the 23 international and national airports whose financial operations are carried out within the self-supporting Airports Revolving Fund. The departmental objective, clearly communicated to Parliament in the Estimates, is for the Department to develop and operate these airports in such a way as to recover all costs.

1.63 However, based on departmental cost-recovery policy, which includes cost of capital and certain indirect costs, the findings of our audit are that not only are the airports not self-supporting - 21 of the 23 were unable to recover their costs in 1984-85 and the overall deficit was estimated at $107 million - but a whole range of significant investments in airport facilities and expansion had been made without justification from the point of view of commercial viability and with next-to-no possibility of fully recovering costs.

1.64 In all common sense, I have to conclude that many of these investments were made for other than strictly transportation needs.

1.65 Again, in the case of the expansion of Hamilton Airport, approved by Treasury Board in 1982, when our auditors questioned what appeared to be outdated and uncertain forecasts that resulted in overly optimistic projections of increased air traffic and significant underestimates of projected losses, they were informed by departmental officials that a closer analysis had not been developed because Cabinet, in 1980, had already given prior approval in principle to the expansion.

1.66 If MPs are not informed of the real reasons for decisions being made, there is no way they can judge whether they provide value for money or achieved their objectives.

1.67 Now, let me re-emphasize that I am not questioning the policy decision to develop the Airport. What troubles me is that the House of Commons was at no time advised that these expenditures were entered into for reasons additional to satisfying the needs of an air transportation system or that these investments were made, at least in part, on the basis of broader economic or policy objectives.

1.68 The area where this state of affairs affects my own reporting is the credibility of the information I provide to Parliament. If the practice is at all widespread within departments of failing to document situations where ministerial involvement has dictated a particular transaction by departmental officials and, if again, the documented rationale provided to my auditors for that transaction differs from the actual rationale, then it is likely that the information I convey to Parliament concerning the transaction may be dangerously incomplete. It should, moreover, be borne in mind that the matters that I deem to be significant enough to bring to the attention of Parliament tend to be negative cases in which our audits are critical of departmental actions. The focus of that criticism, and subsequently the attention of the Public Accounts Committee, will tend therefore to be concentrated on the seemingly responsible non-elected officials. However, if the decision was in reality the product of an undocumented ministerial intervention, and made for reasons other than those contained in the documentation the PAC has access to, then the accountability process is compromised. Unfortunately also, both my auditors and the PAC may have spent valuable public money while failing to identify the real cause of a particular situation, because the information received was incomplete.

1.69 This is equally true where the obscurity as to who in fact made the decision lies in the opposite direction - where departmental officials have been the real decision makers. MPs should have a full opportunity to demand an accounting from those officials, including deputy ministers or other senior officials who have moved to other positions. The witnesses before the PAC should be the persons most knowledgeable about the issues being examined.

1.70 The Special Committee on Reform of the House of Commons addressed this other facet of the issue of where accountability lies:

The idea of a minister being responsible for everything that goes on in a department may once have been realistic, but it has long since ceased to be so. A minister cannot possibly know everything that is going on in a department. The doctrine of ministerial accountability undermines the potential for genuine accountability on the part of the person that ought to be accountable - the senior officer of the department.

We have heard many arguments that a new doctrine of deputy ministerial responsibility relating exclusively to matters of administration should be established. In this context administration includes policy implementation. Such a doctrine would set out the obligations of senior public servants and include the obligation to testify before parliamentary committees on matters of administration. Under this system, the testimony of deputy ministers before committees would be an everyday occurrence. Furthermore, regular open contact between the senior public service and Members of Parliament should lead to a more realistic understanding of administrative practices and more precise pinpointing of accountability.

1.72 But unless there is a distinction between courses of action for which departmental officials are clearly accountable and those courses of action initiated by ministerial direction, the climate of accountability throughout the department also becomes obscured and diffused. The incentive to manage with economy and the cost-consciousness of staff at all levels are compromised.

1.73 Our audit of the Department of Regional Industrial Expansion (DRIE), reported in Chapter 12, provides a further insight into the problems that arise when there is a lack of clear criteria for specific projects and a lack of review procedures to ensure program authorities are respected.

1.74 Most of DRIE's programs are highly discretionary. The Minister has wide authority to approve or reject specific project proposals, and considerable approval authority has been delegated to departmental staff. The discretionary nature of DRIE's programs, together with its decentralized organization, places a requirement on corporate management to have in place effective procedures for guiding and reviewing program activities, and to have complete and accurate information on these activities. Yet it is in these critical areas that we found problems.

1.75 The lack of well defined program criteria and good quality information makes it difficult to ensure that there is accountability for achieving the prudent expenditure of funds.

1.76 Where so many programs are discretionary and where documentation is so incomplete, the complexity of determining accountability for specific programs becomes close to impossible.

1.77 In 1975, the Report of the Independent Review Committee of the Office of the Auditor General noted that accountability of the public service for administrative efficiency was unclear.

1.78 In 1979, the Royal Commission on Financial Management and Accountability stated that what was required, rather than the present state of confusion and diffusion of accountability, was a means of holding deputy ministers accountable. It stated that unless the responsibilities of deputies were defined, delegation of managerial authority could never adequately support the individual and collective responsibilities of ministers.

1.79 And in this year's Second Report of the PAC to the House of Commons, to which I have already referred, the Committee says that it has become increasingly evident that there is a need for stronger controls in the Treasury Board and in departments and agencies to ensure that compliance with government regulations, policies and directives is taking place.

1.80 If the responsibilities of deputy ministers are to be more precisely defined, the key requirement, it seems to me, is to spell out the deputy's obligation to ensure that all relevant financial considerations are taken into account and brought to the attention of ministers. These considerations include the need for economy and the avoidance of extravagance or waste. If a course of action is contemplated that raises an issue of prudent and economical management, it is the deputy's duty to draw this to the attention of the minister and offer appropriate advice. If this advice is overruled, the deputy has the further obligation to ensure that both the advice and the ministerial overruling of it are clearly documented. Where questioned by the Public Accounts Committee on such an issue, the deputy minister must point out that it was a decision by the minister.

1.81 Although this clarification of the deputy's responsibilities may not be a complete answer to all accountability problems, it is clear that had formal documentation on the Centennial Towers transaction been available to our auditors and to the Public Accounts Committee, a great deal of time and money would have been saved and conflicting testimony would have been avoided.

1.82 In the broader perspective, MPs would have far better information on who in government is making decisions on programs, acquisitions and transactions and why those decisions are being made.

1.83 I offer an analogy. When a ship goes aground on rocks or a sandbank, the first things the subsequent board of inquiry needs to know are who was in charge of the ship at the time and what was the purpose and direction of the voyage. Too often, when the Public Accounts Committee examines a departmental program, it is unclear who was in charge and making the decisions; it is also often unclear precisely why the program was being undertaken.

1.84 Without such information, Members of Parliament can scarcely begin their task of scrutinizing governmental policies and programs.

The Estimates

1.86 In my view, the Office of the Comptroller General has done thoughtful and valuable work for MPs in revising and implementing the new form of the Estimates.

1.87 The most significant aspect of the revision has been introducing detailed expenditure plans for each of the major programs in departments. These Part IIIs complement the total government expenditure plan (Part I) and the main departmental Estimates (Part II) by providing details of planned initiatives and actual results, related expenditures, other performance data useful in justifying resource requirements and sufficient background information to provide a basic understanding of each program. An especially important element for the MP, who is even more concerned about the future than the past, is that the Part IIIs are designed to present projections and forecasts in light of the actual program performance in previous years. These performance data have been potentially strengthened by a 1984 government commitment to include program evaluation information in the Part IIIs. This responds to a recommendation contained in our 1983 Report that the Office of the Comptroller General should ensure that the Part IIIs of the Estimates refer to and incorporate those findings of evaluation studies that are pertinent to program performance and resource management.

1.88 The enhanced Part IIIs have great potential to be useful to MPs. They have said that they need accurate, well presented information about the operations of government. They want objectives presented in such a way that results can be measured against them later. They want precise time frames for new initiatives. They want realism and accuracy when resource needs are being justified. They want performance information. Did previous programs in the same policy areas work out? Did they fulfil expectations? Did they serve the public? Did they provide value for money to the taxpayer? All this information should be found in the departmental Part IIIs of the revised Estimates.

1.89 The Part IIIs also have the potential of making a substantial impact on the work of this Office. Just as a financial audit can provide assurance on the information presented in financial statements, the comprehensive auditing practised by my Office can provide MPs with assurance on the performance information provided in the Part IIIs. When interviewed by our Program Evaluation and Internal Audit group, MPs recommended that the Auditor General should explore ways of providing support to the standing committees by relating audit findings to Estimates submissions and by helping the committees link the information contained in this Office's annual Reports, departmental annual reports and the Public Accounts.

1.90 The recommendation raises very important issues. To perform such a task annually throughout all departments would demand huge resources. Again, the concept of my Office routinely providing information to parliamentary committees other than the Public Accounts Committee is new. However, I recognize the potential in the suggestion. The government would be providing MPs with complete and reliable information in the Part IIIs, and the Office of the Auditor General could be assessing the adequacy of disclosure and the firmness of the data in the Part IIIs, especially as they relate to previous years' activities. I will be looking very carefully into the concept.

1.91 In fact, up to now in our cyclical comprehensive auditing, my Office has been holding off a little in reviewing the Part IIIs with that degree of strictness. This has been in recognition that departments are still gaining experience in presenting information in their Part IIIs.

1.92 We may have held off too long. There is evidence in our chapters this year that the information provided in the Part IIIs is falling short of what it might be.

1.93 Earlier this year, after the Public Accounts hearings on the comprehensive audit of the Department of National Defence (DND), reported in our 1984 Report, the PAC found it necessary to recommend to the House of Commons that the Department identify in Part III of the Estimates non-military objectives for each of its major capital projects. The Committee also wants DND's Part III to contain information on the extent to which non-military objectives have been achieved. The Committee seems to be indicating that the departmental Part III has fallen short in providing details of objectives.

1.94 Also by way of illustration, our audit of Public Pension Management (Chapter 4) finds that there has been an actual deterioration in the kind of financial information provided in the Department of National Health and Welfare's Part IIIs since their introduction in the 1982-83 fiscal year.

1.95 Our audit of Public Pension Management also points to two gaps in all departmental Part IIIs that detract from their usefulness to MPs. First, inflation rates and program take-up rates - which form key assumptions in forecasting future public pension costs - are not disclosed in the Part IIIs. Second, information on tax expenditures - which form a crucial element in pension benefits - is also excluded. The irony is that up to two years ago this information was included.

1.96 A major theme of our study of Mixed and Joint Enterprises (Chapter 5) is the quality of information available to Parliament, and I discuss several aspects of that study a little further on in this chapter. However, in the context of my concerns about the Estimates, it is noteworthy that the types of supporting information, such as program descriptions and the objectives of capital projects, provided in the Estimates in regard to Crown corporations is absent when it comes to mixed and joint enterprise corporations. Although there are undoubtedly decisions to be made about the appropriateness of disclosing certain information in the Estimates about enterprises in which other shareholders are involved, MPs must have sufficient information to decide on the appropriateness of the expenditure of public funds and to hold the government accountable for that expenditure.

1.97 Chapter 6 on the Public Service Commission contains a reference to the Estimates where the objectives for a key activity are not adequately described.

1.98 Our audit of the Department of Regional Industrial Expansion (DRIE) refers to problems of accountability in relation to the Canadian Industrial Renewal Board (CIRB). Among our other findings is the fact that the Department's Main Estimates did not explicitly refer to the Board until 1985-86. However, it is encouraging to see that CIRB is acknowledged in a number of places in the 1985-86 departmental Part III.

1.99 I am also pleased that our audit teams in their ongoing work are discerning a number of genuine attempts to comply with Treasury Board requirements. And while there are still shortcomings and a lack of completeness, these must be seen in the context of very large and complex programs.

1.100 This leads me to say that I know that the preparation of a good Part III is difficult. The Office of the Comptroller General has done first-class work over the last six years in defining the information to be included and the form of the Part IIIs. The task has not been easy. The problem is comparable to that of providing summary financial information for the public sector, the issue that has proved so challenging to our Federal Government Reporting Study team and to others. With the Part IIIs of the Estimates, there are even fewer precedents, and certainly the work of discovering the best way to display the non-financial information related to expenditure projections that the Part IIIs require is at least as daunting a task as preparing improved summary financial statements.

1.101 But for all the difficulty of their creation, the Part IIIs potentially represent the MPs' best instrument for grasping the nature and size of particular programs and for assessing their impact and effectiveness.

1.102 In citing the illustrations that I have from our chapters, I should make it clear that we have not engaged in any kind of in-depth review or government-wide study of Part IIIs. It may be that the shortcomings I have noted are isolated examples. I am also aware that the Office of the Comptroller General is monitoring implementation of the Part IIIs and I want it to be clear that I am not second-guessing that work. However, I remain troubled by the examples reported in this year's chapters.

1.103 I suggest that there may be a number of elements contributing to the inadequacies. In all fairness, producing the Part IIIs is still a new thing; discussion continues over the level and detail of information required. However, I have the impression that MPs seldom explore the Part IIIs in depth and in detail. Indeed, our auditors have indicated that certain departmental officials have told them they do not bother to develop complete figures and projections for the Part IIIs because no one pays much attention to them. This may encourage those preparing the Part IIIs to regard them more as advocacy documents than accountability documents. And the impression that no one is giving detailed attention to the Part IIIs may result in their not being developed at as senior a level within the departments as they might be.

1.104 Whatever the cause, any falling off in the reliability, accuracy and consistency of the Part IIIs not only blunts what is potentially one of the most effective informational tools that MPs have at hand, but also negates many years of work - and much expense - in attempting to provide Parliament with a clear and detailed understanding of contemplated programs together with information on how programs have performed, measured against the projections set out in previous Part IIIs.

1.105 It seems to me that two things are necessary to ensure that the revised Estimates, specifically the Part IIIs, fulfil their potential and justify the extensive work that has gone into developing them.

1.106 First, I am sending out the message that this Office will be regarding each Part III as an essential accountability document. In our cyclical comprehensive audits, we will continue to compare the actual programs and activities of departments with the descriptions provided in their Part IIIs. In addition, as I say, we will be looking very carefully at the ramifications of auditing specifically the performance data, including program evaluation findings and conclusions. I recognize that our work in this area has the potential of providing MPs with assurance that the data are reliable and with assurance that value for money has been achieved in programs.

1.107 The second - and even more vital - factor in assuring that the Part IIIs are made to be as good as they can be is for MPs to indicate to departments that they regard the Part IIIs as an absolutely essential information tool in their work and intend to give them their highest priority and attention.

1.108 Certainly, if the House of Commons moves at all to restructuring its standing committees, as proposed by the Special Committee on Reform of the House, the information contained in the Part IIIs will be vital. If the information is not timely, accurate and complete, the work of the proposed standing committees will be compromised. It would be like constructing a splendid new library and leaving the shelves bare.

Mixed and Joint Enterprises and a Note about Privatization

1.110 This principle was the basis of this Office's concerns, expressed in successive annual Reports - most forcefully in 1982 - that a regime should be put in place to ensure that Crown-owned corporations are accountable to Parliament.

1.111 The 1984 amendments to the Financial Administration Act (FAA) in relation to Crown-owned corporations were a giant step toward involving Parliament more clearly and more closely in the creation, financing and accountability of Crown corporations. The amendments provide that MPs are to be fully informed on the objectives of each Crown corporation and will have a systematic flow of timely and relevant information to allow them to judge whether a corporation has met its stated objectives.

1.112 However, enterprises in which the federal government shares ownership with other participants do not come under the scope of the 1984 amendments to the FAA.

1.113 This Office's 1982 Report recommended that Parliament should give attention to these mixed and joint enterprises and, in Chapter 1 of last year's Report, I observed that, because the amendments did not address - and were not intended to address - control and accountability issues in these enterprises, we had initiated a study of their accountability to Parliament and government. Our findings are in Chapter 5 of this Report.

1.114 Of particular interest in the context of any discussion of the information needs of MPs is the chapter's focus on the extent and quality of information available to Parliament on the existence, nature and significance of the mixed and joint enterprises of which the federal government is a part owner.

1.115 I am disturbed by our overall assessment "that financial and other information available to Parliament is fragmented and incomplete". And, although the extent of dollars involved is not nearly as large as is the case of the Crown corporations, I hope that the Public Accounts Committee will examine the whole issue of an appropriate accountability regime for mixed and joint enterprises.

1.116 This need to improve the nature and extent of information available to Parliament about those corporations in which the government has less than 100 per cent direct equity ownership takes on a new urgency in light of the Governments' stated intention to rationalize its corporate holdings by moving Crown corporations that no longer serve a public policy objective into the private sector.

1.117 Privatization, in some instances, may well mean that only a portion of the government's ownership in a Crown corporation is sold. Nonetheless, that will mean that the corporation would no longer be a Crown corporation governed by the control and accountability regime of the amended Financial Administration Act. Instead it would become a mixed or joint enterprise, where - as Chapter 5 makes clear - the information available to Parliament about the corporation may well be insufficient and unsatisfactory.

1.118 This potential move of entities, in which large sums of public money are invested, from a strong accountability framework into - or through - a less certain accountability status is a matter for uneasiness.

1.119 This Office provided significant input in regard to the audit provisions contained in the 1984 amendments to the FAA. It will be of great concern to me - and I am sure to MPs also - if major Crown corporations slip out from under the accountability safeguards of that legislation while substantial public funds are still invested in them. Complete privatization of course eliminates this problem. It is partial privatization that raises the accountability issue.

1.120 As other countries have discovered, both the acquisition and disposition of ownership by government are not easy. I have made it abundantly clear in the matter of the purchase of Petrofina Canada Inc. by Petro-Canada that when public money is used to acquire assets and equity, there is a need for Parliament to be assured that value for money is received.

1.121 Equally, when public assets and shares - worth hundreds of millions, possibly even billions of dollars - are to be disposed of, Parliament must be adequately informed both of the government's intentions regarding the purposes of the specific disposition and of the results achieved. MPs are entitled to precise qualitative and quantitative information about the purposes intended to be achieved by each disposition and of the results in fact achieved. As well, they are entitled to know the amount and form of the proceeds accruing or reverting to the public purse.

1.122 In view of what I report in the next section about tax expenditures, particular care has to be taken to examine any special tax remissions or arrangements that are built into the disposition of these government assets.

1.123 There is a related item of significance in the matter of information to Parliament. Volume III of the Public Accounts is to be replaced by the "Annual Report to Parliament on Crown Corporations and Other Corporate Interests of Canada".

1.124 This not only avoids the duplication involved in retaining Volume III of the Public Accounts but I note with pleasure that the government will be referring the new reports on Crown corporations to the Public Accounts Committee. This means that important information on Crown corporations will be referred to the PAC, and its essential role of overseeing all the dimensions of public expenditure will remain intact.

Tax Expenditures: Revenues Foregone

1.126 In May and June of this year, the Public Accounts Committee examined that program in detail, hearing the testimony of officials from the Departments of Finance and National Revenue-Taxation. One thing that the hearings made clear was the immense difficulty of plumbing the complexities and ramifications of the program and of its enormous costs in foregone revenues.

1.127 In surveying users' requirements in connection with the Federal Government Reporting Study, we asked individual MPs about their needs for information on tax expenditures. Their response was that it is impossible for MPs to evaluate the thrust of the government's social and economic policies unless they have such information. The suggestion was made that some method should be found to display together the direct expenditures and the tax expenditures that relate to specific policy areas and programs.

1.128 In presenting the budget in May, the Minister of Finance indicated that the Ministerial Task Force on Program Review was looking closely at the cost of tax incentives to determine, among other things, whether particular incentives are worth the revenue loss that must be made up by other taxpayers. And, in view of MPs' expressed need for more information, I welcome the Minister's intention to release a detailed accounting of the cost of targeted tax measures.

1.129 Meanwhile, my concern that MPs are not receiving adequate information on the often very complex issues surrounding the government's foregoing of tax revenues is underlined by two matters that are discussed in detail in Chapter 3 of this Report, Audit Notes.

1.130 The first involves a remission order by the Department of Finance to Dome Petroleum and its affiliates in connection with Dome's financing costs arising from its acquisition of Hudson's Bay Oil and Gas Company Limited.

1.131 Now I must make it clear - as I did in a different context earlier in this chapter - that I am not at all questioning the policy or statutory right of the Department of Finance to provide such a remission order. Section 17 of the Financial Administration Act allows for such orders. But I am in some doubt that when Parliament enacted the legislation MPs had in mind such a huge remission order as is potentially involved in the Dome situation.

1.132 That tax remission was granted on 5 February 1985. And the foregone tax revenue could eventually add up to one billion dollars.

1.133 Without questioning its legality, what disturbs me a great deal is that by using section 17 of the FAA, the Department of Finance submitted a recommendation to Treasury Board for the remission of a potential one billion dollars with almost no opportunity for the House of Commons to be informed or to be able to discuss the matter beforehand. The extent of MPs' prior knowledge was a governmental press release announcing the intention to issue the remission order.

1.134 There is something very wrong with a system that allows a one billion dollar policy decision to be made by way of a tax expenditure with Parliament having so little information on the transaction. We are, after all, talking about public money, provided by Canadian taxpayers who elect MPs to look after their interests.

1.135 But the thing does not end there. The complexities and uncertainties surrounding Dome's future viability apparently persuaded the Department of Finance not to estimate the cost to the Government of Canada in providing the tax remission. This means that, although under section 17(8) of the FAA the fact of the tax remission to Dome will be reported in the Public Accounts as supplementary information, there will be no indication of its cost implications. The remission for fiscal year 1985-86 has yet to be calculated. It is not clear whether, in the future, Revenue Canada-Taxation will indicate costs related to the tax remission in the current year. All of which leaves MPs with the scantiest of information.

1.136 And since the Financial Statements of the Government of Canada reflect only net revenue collected - excluding any reference to tax expenditures - there will be no indication in the statements of what amounts to a fiscal transaction potentially involving one billion dollars.

1.137 MPs' right and duty in regard to the government's spending of public money are twofold. First, there is the responsibility to examine and debate expenditures before they take place. In this instance, that did not happen. MPs had only the most cursory knowledge that the remission order was contemplated. Second, Members have the responsibility to ensure that, following any fiscal transaction, the government provides an accounting. Again, in this instance, no full accounting will take place.

1.138 Chapter 3 of this Report provides another illustration of my ongoing concern with the issue of tax expenditures and specifically with my emphasis that MPs are receiving insufficient information. It involves one aspect of Petro-Canada's 1981 acquisition of Petrofina.

1.139 The tax implications of the acquisition raise extremely serious questions that are fully described in the audit note in Chapter 3. But what concerns me here - in my discussion of inadequate information flowing to MPs - is that, in 1984, Parliament enacted amendments to the Income Tax Act that may well allow Petro-Canada - in connection with its 1981 acquisition of Petrofina - to reap benefits of hundreds of millions of dollars in reduced taxes. But MPs were not informed - and had no way of knowing - that these huge tax benefits might accrue to Petro-Canada when they enacted that legislation.

1.140 The concealed nature of selective tax provisions means that too often they escape the scrutiny of MPs. It can be seen that I was not exaggerating when I said last year that tax expenditures represent a huge hidden budget in the financial affairs of Canada.

1.141 A cost-conscious Parliament is in the position of a team of engineers trying to design a more fuel-efficient automobile. They think they have succeeded, but the engine seems to go on consuming as much gas as it did before. They cannot understand the problem until they notice that, hidden from view, myriad small holes have been punched through the bottom of the gas tank. This is too often the way of tax expenditures. Revenue leaks away, and MPs do not know about it until it is too late.

1.142 And while I welcome the Minister of Finance's commitment to release a detailed accounting of the cost of targeted tax measures, I suggest that, because of their indirect nature, neither the income tax advantages potentially obtainable through the remission order to Dome nor the tax benefits that may accrue in the Petro-Canada acquisition of Petrofina would show up in any such accounting.

1.143 I reported last year that I had established an audit project to examine the complex accountability and compliance issues that grow out of the use of tax expenditures. The two audit notes in Chapter 3 that I have made reference to flow from this ongoing work. Next year, I will be reporting more fully on the matter of tax expenditures.

Information and the Government of Canada

1.145 We have been steadily moving from an industrial age into the information age. Nowhere is this more obvious than in the public sector. Governments are in the information business. It is no coincidence that the increasing role of the public sector in the economies of many post-industrialized countries goes hand in hand with information becoming an ever larger resource in those societies. Nor is it coincidence that public controversy continues to surround information issues: access to information; concerns about the privacy of information held by governments; the leaking of documents containing confidential information about public policy. Other information issues of concern are the effects of high technology on employment and the effects of global telecommunications systems on cultural sovereignty. All these are symptoms of an era in which information is a dominant force in the economy.

1.146 It is therefore increasingly important to view information as a costly and valuable resource - a resource comparable in strategic importance to human resources, financial resources and physical assets.

1.147 The move into the information era and the consequent need to manage information as a resource are, in large measure, the product of the rapid advance of computer and communication technologies and their application in all phases of our society. For example, desktop microcomputers are now commonplace in the federal government. The initial excitement about their arrival is already a thing of the past. The focus now must be on the economical, efficient and effective use of these tools and the prudent management of the information they create.

1.148 To effect this stewardship where more and more information is handled electronically, those responsible for preparing reports and those who receive and review them must all be competent to handle and manage these new forms of information. The Public Archives estimates that the number of records held by the government in electronic form is about 10 times the number held in conventional paper form.

1.149 As an example, our audit of the Atmospheric Environment Service (AES), reported in Chapter 9, demonstrates that the crucial aspect of weather forecasting is the dissemination of information, and in gathering weather information and communicating it to the public, AES relies extensively on computerized processes.

1.150 My own Office, at an ever accelerating pace, is devoting a greater proportion of its resources to the application of computer and communications technology in a whole variety of areas - from computer assisted auditing and the auditing of computerized systems to word processing and graphics production and, for example, EDP assisted editing and electronic design and typesetting of this Report. And we are discovering that the initial resources directed to these areas receive an almost immediate pay-back in time saved and people employed more productively.

1.151 These kinds of economies can be realized throughout government by such means as integrating and consolidating information systems, reducing costs associated with storing and manipulating data through faster and more flexible retrievals of data, and by avoiding unnecessary duplication.

1.152 It would be a simple matter to go through the chapters of this Report and again and again find examples of the importance of the strategic role played by information and the resulting need to recognize information as a resource.

1.153 Our audit of Public Pension Management (Chapter 4) points out that the Old Age Security and Canada Pension Plan benefit delivery systems, which are among the largest record-keeping systems in the federal government, are operated on old EDP systems, using the technology of the 1960s. Departmental management considers the operational processes and systems to be costly, inefficient, limited, outdated and, in some instances, fragile and prone to error. And almost incredibly, such things as benefit calculations are still in some instances being performed manually. In fairness, it should be added that, despite the antiquity of some of these procedures, a high level of service to the public is maintained.

1.154 In the same chapter, we point out that this Office and internal auditors have made numerous observations over the last six years about the potential for fraudulent and unauthorized benefit payments in the pension programs. The potential exists because of EDP and operational weaknesses. We have pointed out, however, that more active investigations by the Department of such payments, including the use of computer assisted audit techniques, would significantly reduce the potential for their being undetected.

1.155 On a positive note, the chapter relating to our audit at Customs Canada (Chapter 7) gives high marks throughout to Customs for its success in communicating information swiftly to its clients and the public at large.

1.156 The federal government and its departments and agencies are part of the information age where value-for-money attitudes to information in its many forms and a resource management approach to information provide the means to achieve economic and efficient programs, improved delivery of services, and greater productivity.

Cash Management and Year-end Spending

1.158 Progress has been made since last year. The Office of the Comptroller General has been given responsibility for those areas of cash management that are included in Treasury Board's mandate. This excludes debt management which remains the responsibility of the Department of Finance. An Interdepartmental Cash Management Review Committee has been established to ensure good cash management co-ordination. The Committee commissioned a study to clarify further, if necessary, roles, responsibilities and relationships of all organizations that have a direct interest in cash management.

1.159 Negotiations with the financial institutions for revising the government's banking arrangements have resumed since my last Report and progress has been made toward arriving at a settlement. But no final agreement has been reached. I believe it is most important that an agreement be reached soon; my Office will continue to monitor developments.

1.160 Several Treasury Board Circulars have been issued on cash management during the past year, including topics like an overall government strategy for cash management, the collection of overdue accounts, debt write-off regulations and the release of pay cheques. The Receiver General is making improvements to speed up the transfer of payments and deposits through the use of advanced banking technology.

1.161 In July 1985, Treasury Board approved a submission on the issue of payment to suppliers when due, and a policy circular is to be issued.

1.162 In my 1984 Report, I noted that our review of year-end spending, done as part of the Cash Management Review, had uncovered some purchases and payments in advance of need. These samples were inconclusive on whether such practices were widespread. But, to determine conclusively whether there is widespread and significant waste resulting from accelerated spending at year-end, I decided that a government-wide study was required.

1.163 This study is now under way. We are reviewing the expenditures made at the end of the 1984-85 fiscal year. Since final year-end spending information was not available until late August, we could not complete the study in time for this year's Report. However, the work will be finished late this year and I will, in an appropriate manner, bring our observations, comments and recommendations to the attention of the House.

1.164 To end where I began this chapter, one vital and fundamental dimension in the flow of information is the information Parliament receives as it goes about its work on behalf of all Canadians.

1.165 I hope that my words here will contribute to the improved flow of clear, relevant and timely information to every Member of Parliament.