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1985 Report of the Auditor General of Canada

Mission and Mandate

15.1 The Office of the Auditor General exists to serve Parliament. A fundamental responsibility of Parliament is to hold the government of the day accountable for handling the funds entrusted to it. To fulfil this responsibility, Members of Parliament require financial and related information. The mission of the Office of the Auditor General is to audit this information.

15.2 The Office thus holds a unique place in Canada's parliamentary and governmental structure. It stands independent of government and responsible to Parliament. This independence is a key element in the Auditor General's work. A second key element is the Auditor General's right to all the information he needs to provide the assurances to Parliament that the Auditor General Act requires.

15.3 Traditionally, the primary role of the Auditor General in fulfilling this mission has been to provide the House of Commons with assurance that revenues are being collected and properly accounted for and that the moneys Parliament votes have been properly expended; to report on the financial statements of Canada; and to act as auditor of certain Crown-owned entities. Over the years, however, the responsibilities of the Office have been refined and extended.

15.4 A significant change came about with the proclamation of the Auditor General Act of 1977. The major thrust of this revised Act was specifically to require that the Auditor General report to the House of Commons all instances where money had been expended without due regard to economy and efficiency, and also to inform the House where satisfactory procedures had not been established to measure and report the effectiveness of programs. The 1977 Act definitively moved the Office into the era of value-for-money auditing.

15.5 Today, the Auditor General seeks to provide Parliament with a threefold assurance: that the information in the financial statements of Canada is fairly presented; that legislative authorities have been complied with; and that due regard for value for money has been demonstrated in the expenditure of public funds. The auditing required to provide this threefold assurance has come to be known as comprehensive auditing.

15.6 A second major change in the responsibilities of the Auditor General took place last year, when amendments to the Financial Administration Act affecting control and accountability of Crown-owned corporations came into force in September. In addition to providing opinions on the financial statements and on compliance with authorities in those Crown corporations where he is the appointed auditor, the Auditor General is now also required to:

    - report, when required to do so, on the accuracy and consistency of quantitative performance information contained in Crown corporations' annual reports;
    - attest to the accuracy of quarterly reports, submitted by Treasury Board to Parliament, concerning the timely tabling of annual reports and summaries of corporate plans and budgets;
    - at least once every five years, conduct a special examination (a review of financial and management control and information systems and management practices) in as many as 33 Crown corporations; and
    - consult with other auditors carrying out audits and special examinations of Crown corporations with respect to any matter which, in the opinion of such other auditors, should be brought to the attention of Parliament.
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15.7 Further, as a result of the amendments, the Auditor General is to become the sole or joint auditor of an additional 10 corporations on and after 1 January 1989.

15.8 Although the 1977 Auditor General Act and the 1984 amendments to the Financial Administration Act have significantly extended the responsibilities of the Auditor General, the fundamental mission and mandate are unchanged.

15.9 The mission of the Auditor General is still to provide Canada's federally elected representatives - Members of Parliament - with assurance and information needed to control the public purse. The Auditor General thus supports the accountability relationship of government to Parliament.

15.10 In brief, the mandate of the Auditor General requires him to audit, and having audited, to report.

Auditing

15.11 The requirement for the Auditor General to provide appropriate audit information for use by the House of Commons in its scrutiny of government programs means that by far the largest segment of the Office's staff is engaged in auditing and its related activities.

15.12 Each year the Office conducts audits in departments and agencies. A major purpose of these audits is to enable the Auditor General to express an opinion on the summary financial statements of the Government of Canada. This annual work is carried out in accordance with generally accepted auditing standards. It includes various enquiries and tests of financial transactions, systems and controls, and any other procedures considered necessary to enable the Auditor General to express his opinion on the government's summary financial statements.

15.13 Annual audits also assess departmental and agency compliance with legislative authority. Significant matters arising from the annual audit work are investigated and, as required by section 7(2) of the Auditor General Act, are reported to the House of Commons through audit notes in the Auditor General's annual Report.

15.14 In addition to carrying out the annual audits described above, the Auditor General conducts other audits in departments and agencies to fulfil the reporting requirements of section 7(2) of the Auditor General Act. An important focus of these audits is the consideration of value for money. Accordingly, cases are reported where departments or agencies have made expenditures without due regard to economy and efficiency, or where satisfactory procedures have not been established to measure and report the effectiveness of programs. The Office carries out such audits in each major government entity at least once every five years and reports the results to the House of Commons. The Office also conducts government-wide audits when it is feasible and appropriate to examine issues common to a number of entities by means of a single audit project. Observations and recommendations resulting from these audits are included in the Auditor General's annual Report.

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15.15 The Auditor General also audits many Crown corporations and other entities. During the past several years the Office has conducted comprehensive audits in a number of Crown corporations. Annual audits support the Auditor General's opinion on the financial statements of these corporations. And, as discussed earlier, the 1984 amendments to the Financial Administration Act require the Office to perform additional audits and examinations in relation to Crown corporations.

15.16 The Auditor General reports the results of special examinations of those Crown corporations listed in Part I of Schedule C of the Financial Administration Act to the board of directors of the corporation and, where he considers it appropriate, will report items of significance to the House of Commons.

15.17 Audit work is also conducted at the request of the Governor in Council on any matter relating to the financial affairs of Canada or to public property. For example, the Auditor General audits the Oil Pricing and Compensation Programs.

The Organization of the Audit Function

15.18 The Office's Audit Operations Branch is its largest component (see Exhibit 15.1). The Branch is responsible for all audit activities. Responsible for auditing approximately 150 entities, it plans and conducts audits of federal departments, agencies, Crown corporations and other entities for which the Auditor General is the appointed auditor.

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Audit Groups

15.19 The Branch consists of six Audit Groups for Departments and Agencies, a Crown Corporations group, five Functional and Special Audit groups, a Planning and Co-ordination group, and five Regional Audit groups in seven locations. Each is headed by an Assistant Auditor General and is responsible for an area or group of entities that have similar requirements in terms of audit skills and special expertise, or entities that have strong program interrelationships. An Audit Group consists of a relatively permanent team that concentrates in the area. This concentration by area is designed to provide continuity in the audit process, sound understanding of issues and good relationships with each organization audited. Responsibility for government-wide audits and other studies, together with any special audits, is shared among the Audit Groups.

15.20 The Departments and Agencies groups are responsible for the comprehensive audit of all departments and agencies and for the audit of the majority of Crown corporations listed under the Financial Administration Act.

15.21 With the amendments to the Financial Administration Act that came into force in September 1984, the Office will be required to expand its audit work in those Crown corporations for which it is now, or will become, the auditor. The changes to the Act are requiring the development of new methodology and the delivery of new training programs.

Functional and Special Audit Groups

15.22 The Crown Corporations Audit group is responsible for providing direction and advice on general accountability issues relating to Crown corporations and other entities, and for analysing the impact on the Office of the provisions of Part XII of the Financial Administration Act in terms of policy and methodology development, operational considerations, co-ordination and liaison. Its Technical Resource unit focuses on reviewing audit reports and providing advice on them to the Auditor General and Office staff with a view to promoting greater consistency and efficiency of audits in Crown corporations. The group also conducts audits in some Crown corporations.

15.23 The Computer Audit group provides expertise and methodology for assessing whether value for money has been achieved in expenditures on electronic data processing and in the evaluation of financial controls in computerized systems within the government. The group has five main activities:

    - providing EDP audit expertise to support the Office's financial audit work; for example, the attest opinion given by the Office on the government's financial statements and those of some Crown corporations, and the assessment of the adequacy of financial controls in EDP-based systems in the government;
    - providing facilities and expertise to the Office in the areas of sampling methodology and computer audit software;
    - providing the value-for-money component for EDP management matters in comprehensive audits and government-wide studies;
    - identifying and carrying out investigations of suitable government-wide topics in the field of EDP; and
    - providing overall support to microcomputer users in the Office.
15.24 As discussed later in this chapter, the Office has undertaken a major new initiative in the computer audit area.

15.25 The Efficiency and Effectiveness Audit group provides specialist advice and assistance to audit teams. This is done by ensuring that qualified efficiency and effectiveness specialists are assigned to audits, maintaining an inventory of consultants capable of providing necessary services, providing functional guidance during the audit, and performing a quality control function. The group also develops approaches to auditing efficiency, productivity and the measurement of program effectiveness.

15.26 The Federal Government Reporting Audit group is responsible for auditing the summary financial statements of the Government of Canada contained in Volume I of the Public Accounts, giving guidance and direction to staff on reviewing and reporting on Part III of the Estimates, and for matters involving the government's reporting of financial information.

15.27 The Human Resource Management Audit group addresses value-for-money issues in the management of human resources in departments and agencies. Its responsibilities include developing audit techniques and methodology and conducting government-wide studies that address management issues, including central agency policies and directives and their impact on departmental operations and human resource management practices. The group also provides staff, functional direction and quality control to the human resource management component of comprehensive audits. These are an integral part of the comprehensive audit, examining human resource management controls and systems and their impact on the entity's capacity to deliver its programs.

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15.28 The Planning and Co-ordination group's primary function is to support the Deputy Auditors General with respect to planning, management and resource allocation within the Audit Operations Branch. The group is responsible for the operational and strategic plan for Audit Operations and the information and resource allocation system used in the general management of Audit Operations.

15.29 This group also assists the Deputy Auditors General in developing an overall human resource plan for Audit Operations and in establishing guidelines and priorities for conducting and reporting audits.

15.30 The Regional Audit groups are, to a large extent, stand-alone operations. The groups represent the Auditor General in a regional environment. They plan, conduct and report on audits of entities with head offices in their regions and contribute to the development of nation-wide audit plans for departments, agencies and Crown corporations with regional operations. As well, they participate in examining and reporting departmental audits and government-wide studies. The Regional Audit groups are located in Halifax, Montreal, Toronto, Winnipeg, Regina, Edmonton and Vancouver. Because of changing audit requirements, the Toronto regional office will be closed early in 1986.

15.31 Audit Operations Branch assigns audit work to students on staff enrolled in programs leading to the designations of Chartered Accountant, Certified General Accountant or Certified Management Accountant. During these assignments, students receive the practical experience they need to meet requirements for professional accreditation.

15.32 Audit Operations Branch staff are regularly called on to participate in special projects initiated by their own Branch or by the Professional Services and Administrative Services Branches. These projects include international audits, audit methodology development, financial and administrative tasks, and professional development courses.

Improving Productivity

15.33 A major initiative during the last two years has been to improve audit productivity. As reported in 1984, the Office adopted a revised organization structure in September of last year. This has proved most successful in bringing together all audit functions into one branch, in clarifying the roles of Deputy and Assistant Auditors General, and in developing strong groups in all the major audit areas.

15.34 These changes have contributed to an increased productivity in the Office's audit work by streamlining audit activity in similar entities and by allowing Assistant Auditors General and audit Principals greater flexibility in planning and managing their resources.

15.35 The Office has also developed a methodology that allows a greatly improved accuracy in the measurement of audit productivity. All net available hours for each individual, audit team and audit group are calculated, together with the hours that are worked on specific audit projects. The percentage of direct audit hours over the net available hours has become the audit project hour ratio. Goals have been established for each team, group and branch. At the time of this Report going to press, all areas of the Office are meeting productivity goals.

Reporting

15.36 If all this work in auditing is to have value, it must result in reports that can be acted on. Throughout the audit process, findings are discussed with managers in the entities being audited. At the conclusion of an audit, a management letter is issued. This is a formal, detailed report to the management of the audited organization on the Office's findings, conclusions and recommendations.

15.37 Throughout the planning and examination phases of audit, consideration is also being given to identifying the significant elements to be highlighted in the annual Report.

15.38 The Office's reporting to Parliament involves making decisions about what and how much to report. Although most of the findings from audit projects will have been noted in one or more management letters, matters for inclusion in the annual Report are those that will be of interest to Members of Parliament and particularly the members of the Public Accounts Committee.

15.39 Throughout this process, particular attention is paid to:

    - reporting only significant matters whether they are positive or negative;
    - ensuring that there is an equivalence between what was audited and what is reported;
    - providing enough background information to allow an interested reader to understand better our findings, conclusions and recommendations;
    - describing as far as possible the effect of deficiencies noted;
    - stating audit findings in a way that is concise, clear, complete, fair, accurate and objective; and
    - stating audit recommendations so that they indicate specifically what needs to be done, but not how to do it.
15.40 An important objective of the Office is to write balanced reports. Balanced reporting attempts to portray a realistic picture of what has been audited. In pursuing this objective, the Office identifies, describes and assesses management activity in the audit areas over the past few years. Programs and systems examined only in part must be identified to avoid misinterpretation of reported findings. And efforts made by the audited organization to identify problems and to overcome deficiencies in the audited areas are acknowledged and assessed, and an opinion is given as required.

15.41 The Auditor General takes complete responsibility for the annual Report. Throughout the auditing process and the writing of the individual chapters, he is informed of the major emerging issues. Finally, with his senior personnel, he approves the content of the annual Report, ensuring that it meets the test that all matters are of a nature that should be reported to the House of Commons.

The Organization of the Reporting Function

15.42 The process of communicating the results of the Office's auditing both to the audited entities and, more particularly, to the House of Commons has received special attention in the Office in recent years. There has been a growing recognition that auditing itself serves little purpose unless its results can be clearly and effectively reported. This issue has become an important focus for a variety of groups within the Office. While overall responsibility for all reporting, including the annual Report, is that of the Reports group, other groups make contributions in this area. These include the Career and Professional Development group, which provides formal training in writing and communication skills, and the Public Affairs, Parliamentary Liaison and Communication groups which, together with the program evaluation function, have the opportunity to assess the impact of the Office's reporting. A further recent initiative has focused on the use of photographs and graphics in the annual Report.

15.43 It is each team working to produce a high quality report that fulfills the mission of the Auditor General to bring information to the attention of the House of Commons in a readily understandable and useable form. Key to providing assistance to the audit teams in this activity is the work of the Reports group, together with a central review function.

The Reports Group

15.44 This group is responsible for editing and producing reports to Parliament and for providing reporting guidelines to audit teams and editorial advice to staff writing material for internal and external distribution. The Reports group is composed of editors and technical verifiers (who also undertake substantiation research). The editors are available to audit teams as early in the audit as possible to advise on such matters as chapter organization, the flow of logic and the use of language preferred by the Auditor General, and to provide design and production support relating to format, word processing, graphics and the use of photographs.

15.45 The reporting process also includes a central review function. This provides the reporting audit teams with a probing challenge of their observations and recommendations and accompanying evidence and the way they reflect the Auditor General's mandate.

Activities Supporting the Auditing and Reporting Functions

15.46 A variety of closely related activities supports the processes of auditing and reporting. These activities are grouped under Professional Services and Administrative Services. Although the Office favours a task-oriented approach over one that is burdened by a committee structure, there are several managerial committees. The Office also has its own program evaluation and internal audit functions. And the Auditor General solicits the counsel of two advisory bodies.

Professional Services Branch

15.47 The Professional Services Branch provides professional and technical support to the Audit Operations Branch.

15.48 The objective is to assist in assuring quality, efficiency and consistency in audit work. This is achieved through a combination of written guidance and training programs prepared for staff in Audit Operations. The Branch is also responsible for a number of matters of direct concern to the Auditor General. These include the reporting function, parliamentary liaison, public affairs, internal communications, strategic planning and legal matters. Also included are relations with international and provincial auditors general and other institutes and associations in the accounting and management consulting professions. Some of these aspects are discussed in the next section of this chapter. The services of the Branch are provided through six major groups.

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15.49 The Career and Professional Development group is responsible for designing, developing and delivering training and development courses for all Office staff in both official languages, and providing assistance in career planning and related counselling services.

15.50 The Professional Practices group assists in developing and maintaining auditing policies, standards, process and procedures; managing auditing methodology development; and conducting auditing research. Standards and procedures are assessed periodically, and resulting changes are communicated to staff through Audit Guides and Accounting and Auditing Bulletins. Research in auditing is conducted to develop ways of improving audits. This methodology is shared with other legislative auditors in Canada and around the world. A major task of this group is the current complete revision of the Comprehensive Auditing Manual.

15.51 The Library maintains a collection of auditing and accounting material, Canadian parliamentary and government documents and publications in fields related to the Office's responsibilities. It provides articles from periodicals and, on request, a quick reference service, literature searches on given subjects, an interlibrary loan service and bibliographic and other services. The Library has a computerized literature searching capability; through contacts with five major data base vendors, access is available to well over 200 data bases covering all major fields in the social sciences and arts.

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15.52 The Reports group in relation to the annual Report has been discussed in the previous section. In addition, the group has a major role in designing, editing, supervising translation and providing technical editing advice for the wide variety of Reports, Audit Guides, Bulletins, and other publications issued by the Office.

15.53 The Parliamentary Liaison group co-ordinates the Office's relations with Parliament and the Public Accounts Committee (PAC) of the House of Commons, as well as with any other committees of the House and Senate that consider the Office's work. This involves preparation for PAC hearings and assistance to Committee members and staff. The group also helps to ensure that reports to Parliament meet the information needs of Members in fulfilling their responsibility to oversee the expenditure of public funds. In addition, Parliamentary Liaison sends information to audit teams about any discussion in Parliament of concerns about specific government programs.

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15.54 The Public Affairs and Communications advisory groups are responsible for the Office's internal and external communications. These include relations with the media, responding to enquiries from the public and producing some Office publications.

Administrative Services Branch

15.55 The Administrative Services Branch provides all other central support services in the Office. It administers and provides advice on applicable policies on administration, contracting, finances, official languages and personnel. Its services are offered through four groups.

15.56 The Contract Administration group negotiates and monitors all contracts engaging people from the private sector, including those who are brought into the Office for assignments of up to two years under the Public Service Commission's Interchange Canada program.

15.57 The Comptroller's group is responsible for, and provides advice on, consolidating and reporting the Office's resource requirements, providing EDP services and systems development and establishing procedures, systems and controls for managing the financial administration activities of the Office. It also provides administrative support services including mail and messengers, office supplies and equipment, file maintenance, word processing, audio-visual services, graphics, accommodation, telecommunications and receptionist and security services.

15.58 The Official Languages group provides instruction in both official languages. It also advises senior management on interpretation of official languages policies as they apply to the Office and develops and implements the Office's official languages policies and programs.

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15.59 The Personnel group is responsible for developing and administering personnel policies, practices and programs. These include staffing, classification, compensation, pay and benefits, staff relations and human resource planning. From time to time, this group also assists the Office in government-wide audits of human resource management.

Committees

15.60 The Office has four formal committees:

    - the Executive Committee;
    - the Methodology Development Committee;
    - the Information Systems Steering Committee; and
    - the Library Committee.
15.61 The Executive Committee is the formal decision-making body responsible for the overall professional and administrative direction of the Office. It is chaired by the Auditor General, and its other members are the Deputy Auditors General.

15.62 The Methodology Development Committee co-ordinates and communicates methodology development within the Office. It is chaired by the Deputy Auditor General responsible for Professional Services. Other members, at the Deputy and Assistant Auditor General levels, are from the Audit Operations and Professional Services Branches and the Program Evaluation and Internal Audit group.

15.63 The role of this Committee is to:

    - develop and approve policies relating to development of methodology and distribution of methodology products;
    - approve and assign priorities for methodology development projects;
    - ensure that an adequate development process is followed;
    - review and approve methodology development material and make recommendations about its distribution to the Executive Committee; and
    - review and approve professional training courses with respect to technical content and policy positions relating to audit methodology.
15.64 The Information Systems Steering Committee is responsible for co-ordinating and guiding the orderly development, implementation and effective use of EDP systems and related activities throughout the Office.

15.65 The Library Committee serves as a formal liaison between Information and Library Services and Office staff. The Committee is an advisory body, concerned primarily with library policies and collection development.

Audit Advisory Committees

15.66 In addition to these formal committees, Audit Advisory Committees are established for every audit and government-wide study. They serve as senior advisory bodies, independent of the ongoing audit. Members, including experts from outside the Office, provide the Assistant Auditor General and the Principal in charge of the audit with advice as work proceeds from planning through to reporting. Advice may be sought from individual members of the Committee or from the Committee as a whole.

Program Evaluation and Internal Audit

15.67 Program Evaluation examines the effectiveness of the Office's work in terms of its usefulness in assisting the House of Commons in the scrutiny of government programs, revenues and expenditures. This evaluation involves analysing the use made of the annual Report by the Public Accounts Committee and other Committees of the House. As well, periodic interviews are held with Members of Parliament to obtain their views on the usefulness of the information provided in the annual Report and to solicit suggestions on how the Report could be improved. Finally, post-audit quality review is carried out to ensure that the work of the Office meets the highest professional standards.

15.68 Internal audit assesses the economy, efficiency and effectiveness of the Office's internal management policies, practices and controls.

15.69 The activities of the group are discussed in greater detail in the section of this chapter titled "Special Initiatives".

Advisers to the Auditor General

15.70 The Panel of Senior Advisers counsels the Auditor General on the application of comprehensive auditing, with particular emphasis on public sector corporate entities. The members of the Panel are:

Kenneth G. Belbeck, F.M.C., Thorne Stevenson & Kellogg

H. Marcel Caron, F.C.A., Clarkson Gordon

Warren Chippindale, F.C.A., Coopers & Lybrand

Gordon H. Cowperthwaite, F.C.A., Canadian Comprehensive Auditing Foundation

Frank A. Hughes, C.A., Pannell Kerr Forster

Giles R. Meikle, F.C.A., Deloitte Haskins & Sells

Edward W. Netten, F.C.A., Price Waterhouse Associates

Donald H. Page, F.C.G.A., Midland Doherty Ltd.

John R.V. Palmer, C.A., Thorne Riddell

Robert M. Rennie, F.C.A., Touche Ross & Co.

Donald C. Scott, F.C.A., Clarkson Gordon

W. Ross Walker, F.C.A., Peat, Marwick, Mitchell & Co.

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15.71 The Independent Advisory Committee to the Auditor General on Government Accounting and Auditing Standards comprises senior representatives of accounting firms, management consulting firms, and the academic community. The Committee reviews major documents such as the opinion and observations on the annual financial statements of the government and the Office's Comprehensive Auditing Manual and Audit Guides. The members are:

Kenneth M. Dye, F.C.A. (Chairman), Auditor General of Canada

Ronald G. Gage, F.C.A., Clarkson Gordon

James L. Goodfellow, F.C.A., Touche Ross & Co.

Joe Hudson, Ph.D. (Secretary), Office of the Auditor General of Canada

John J. Kelly, C.A., Canadian Institute of Chartered Accountants

Patrick D. Lafferty, C.A., Coopers & Lybrand

A.D. Lloyd, C.A., Lloyd Courey & Bruneau

Gérald Langlois, C.A., Raymond, Chabot, Martin, Paré & Associé

Don MacLean, F.C.A., Ernst & Whinney

P. Howard Lyons, F.C.A., Deloitte Haskins & Sells

L.S. Rosen, F.C.A., York University, Toronto

R.B. Robinson, F.M.C., Thorne Stevenson & Kellogg

Leonard Rutman, Ph.D., Price Waterhouse

Edward R. Rowe, C.A. (Vice-Chairman), Office of the Auditor General of Canada

George L. Stephenson, F.C.A., Thorne Riddell

W.R. Sloan, F.C.A., Arthur Andersen & Co.

Special Initiatives

Interactive Data Extraction for Auditors -IDEA

15.72 As indicated earlier in this chapter, the Office has been markedly increasing its ability in computer auditing. Microcomputers are having a huge impact on the work of the Office. Under the leadership of the Computer Audit group, the Office has moved to the forefront in the use of micro technology, including laser printers, local area networks and mass storage hard drives.

15.73 Since most government organizations are now computerized, a great deal of work must go into developing specific approaches to highly computerized government departments, agencies and Crown corporations. The approach includes internal control evaluation of systems and substantive testing using computer software to access client files.

15.74 A significant development by the Office of the Auditor General in the spring of 1985 was the design of a microcomputer-based system which the Office calls IDEA -Interactive Data Extraction for Auditors. This responds to the need to access and understand large pools of departmental financial data stored on some of the largest computer systems in the country. There has remained a profound gap in the auditor's understanding of data held on such systems. This gap is the result of many factors - huge volumes, complex processing logic, and the inability of auditors to scan and enquire into computerized data as easily as into manual records.

15.75 IDEA overcomes these difficulties. It is a set of interactive audit routines designed for use on microcomputers with large storage hard disk attached. The first step in the process is to bring the department's data down to the microcomputer. Next, the auditor sets up a description of the data on the IDEA data base: the account code field, the description field, the amount field, etc. The system automatically transfers the records into the fields set up by the auditor. The system is then indexed, and as part of this procedure, a "profile" of the data is created. The auditor can find out how many journal entries there are for each responsibility centre, how many expenditure items, and so on.

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15.76 The system is now ready to accept any type of enquiry put together by the auditor. The IDEA concept gives auditors direct access to data by bringing the data files onto a desktop microcomputer. It provides auditors with a powerful software tool for performing any logical test or selection that they can construct. Using IDEA, auditors can re-perform or check a department's calculations and verify financial statements' figures directly from the detailed transactions.

15.77 As a solution to auditors' needs, the system is, first of all, portable. Auditors can take a microcomputer with the IDEA software outside the Office. Portability is especially important when a department or agency does not want files taken off the audit site. It also integrates user-developed routines such as random number generation and statistical sampling and handles data bases of a few hundred records to those of several hundred thousand records or more. It is flexible, designed to be migrated easily to new technologies. The concept is easily transportable to a future generation of data base languages. Finally, IDEA is cost-effective. The hardware costs are offset by lower mainframe utilization costs and the absence of programming costs. The installation virtually pays for itself in the first year, and this does not take account of the impact the software has on the effectiveness of the Office's auditing.

15.78 The development of IDEA is a major achievement by the Office and a significant breakthrough in computer auditing. It is expected to have an enormous impact on audits throughout the Office and, indeed, throughout the auditing community.

Program Evaluation and Internal Audit

15.79 This group, formed during the 1983-84 fiscal year, has three objectives. Through program evaluation, it attempts to assess the effectiveness with which the Office's audit activities support the scrutiny role of the House of Commons. Through post-audit quality review (PAQR), it assesses whether the quality of the Office's audit work is such that only matters of significance are selected for audit, and whether these are audited in a professional and cost-effective manner. Through internal audit, it attempts to assess whether important management practices and procedures throughout the Office reflect due regard for value for money.

15.80 In pursuit of these objectives, the group has undertaken three major projects: evaluation of the annual reporting process; a post-audit quality review of the 1983 annual Report; and an internal audit of contracting for professional services.

15.81 Evaluation of the annual reporting process. This study was undertaken to determine the effectiveness of the annual reporting process, using the 1983 and 1984 Reports as the basis for the evaluation.

15.82 The specific objectives of the study were to determine the views of Members of Parliament about the audit information provided to them in the annual Report; to find out the views of central agencies and line departments; assess the views of journalists, since it is through the news media that the public gets most of its information on the work of the Auditor General; and to analyse the Office's internal perception of the usefulness of the audit information, its nature and its presentation in the annual Report.

15.83 Interviews with Members of Parliament revealed that the annual Report is used by members of the Public Accounts Committee (PAC) but that little attention is paid to it by other Members. Members of standing committees other than the PAC had been unaware that there were chapters on departments for which they reviewed the Estimates.

15.84 Members did make a number of suggestions about how the Office could be more helpful to them. Audit chapters could be arranged so that Members of Parliament could quickly determine findings of most significance, to which they could assign first priority. They also suggested that wherever practical, concrete examples should be used to illustrate findings in departmental and government-wide chapters. The Auditor General should continue to press for an amendment to the Auditor General Act to permit more frequent reporting so that significant issues could be brought to the attention of MPs while they were still current. Also, the Office should explore ways of providing support to the standing committees by referencing audit findings to Estimates submissions and by helping the committees relate the information contained in the Auditor General's Report, the departmental annual report, the Public Accounts and the departmental Estimates.

15.85 The Office could further assist the committees by communicating by letter that a relevant chapter had been published and outlining matters of significance, and by attending committee meetings where the Estimates are reviewed to discuss the implications of relevant audit findings.

15.86 Interviews with department and central agency heads revealed that the majority of these senior managers felt that the annual Report attempted to present a fair and balanced view of the organization being audited, that an understanding of the activities and areas covered in the audit was conveyed, and that the Report dealt with matters of significance. Two deputy heads expressed negative views. The Office is now placing increased emphasis on keeping deputy heads fully informed throughout audits so that any problems can be satisfactorily resolved before the audit is finished.

15.87 Journalists conveyed a positive impression of the annual Report, although they commented that its media life, approximately one week, is short. They suggested that more frequent reporting could allow more depth of coverage. The journalists reported that they use simple criteria for selecting which topics to focus on, such as large dollar amounts of waste, and high-profile departments. They have a preference for the Auditor General's own chapter on matters of special importance and interest and the Audit Notes chapter, because these conform to journalists' criteria.

15.88 The evaluation of the reporting process concluded that processes can be improved to make the annual Report more useful to MPs and more acceptable to deputy heads. Several recommendations are now being considered by the Auditor General.

15.89 Post-audit quality review of the 1983 Report. A post-audit quality review (PAQR) is carried out annually on a representative portion of Office audit work. This occurs in the year following the year the audit work took place. Work is currently being completed on the 1984 Report. The most recent PAQR report dealt with the 1983 Report and with selected Crown corporation audit reports on fiscal years ending between 31 March 1983 and 31 March 1984.

15.90 The PAQR work on departmental comprehensive audits found that increased attention was being paid by audit staff to the value for money with which government programs are being delivered, and less to administrative support systems. There is more concern for balanced reporting and less for citing unrepresentative "horror stories".

15.91 Along with this shift in emphasis go certain risks. There must be strict adherence to the mandate conferred on the Office by the Auditor General Act. All matters of significance, and only matters of significance, should be drawn to the attention of the House of Commons. Positive findings must be as well supported as negative findings. Important messages should not be left between the lines. Major improvement efforts on the part of departments should be acknowledged, and assessed after a reasonable period. Recommendations to departments should be practical and cost-effective.

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15.92 In examining reports on audits of Crown corporations and other entities to determine how opinions on financial statements are given, PAQR found a satisfactory adherence to generally accepted auditing standards as prescribed by the Canadian Institute of Chartered Accountants and as set out in the Office's Comprehensive Auditing Manual. A number of audit aids have since been developed to improve assurance that audit work, documentation and audit project management are of the highest quality.

15.93 Internal audit of contracting for professional services. The value-for-money audit of government departments involves examining a tremendous variety of programs and activities. Many of these audits require technical subject matter expertise which it is not economical to have on permanent staff. It is more cost-effective to engage outside consultants to act as audit team members for limited periods.

15.94 The Office's use of consultants has decreased over recent years as the permanent staff has gained more experience. However, it is still substantial and, for the reasons stated above, will remain so although some further decline is likely.

15.95 The internal audit examined how the need for consulting services was determined and how individual consultants were engaged, managed, paid and evaluated. It found that, over recent years, a significant improvement had occurred in the controls over contracting. The need for contracts is now established on the basis of more informed judgement; the approval process is more stringent and takes less time to complete; there is better definition of work to be done; and there is improved information for controlling contract resources.

15.96 The internal audit identified a number of opportunities for further improvement. The Office policy on the use of contracts should be clearly communicated to senior staff throughout the Office to ensure that practices are consistent with it. Periodic assessments should be made of which expertise it is cost-effective to maintain permanently and which should be contracted for specific short-term assignments. Consultants should be subject to the same direction, control and assessment as their permanent staff counterparts.

A Multi-talented Staff

15.97 Sixty per cent of the Office's staff are university graduates, with one-third of those graduates holding post-graduate degrees.

15.98 The disciplines in which staff members have graduated range across the whole spectrum of academic possibilities and, while commerce, accounting, administration, economics, engineering and computer science predominate, other backgrounds include political science, sociology, statistics, communications, psychology, history, library sciences, philosophy, mathematics, physics, education, agriculture, French literature, English literature, theatre, anthropology and theology.

15.99 In addition, well over half the staff hold professional designations. The majority of these are members of Canada's three major accounting bodies. But the Office also has 17 engineers, 6 certified management consultants and 3 lawyers.

15.100 The Office has found itself in an advantageous situation in carrying out its international activities and assignments because of the capability of its personnel in a wide variety of languages. Besides those speaking the two official languages, Office staff includes 16 staff members fluent in Spanish, 14 in Hindi, 13 in German, 12 in Urdu, 9 in Mandarin, 8 in Cantonese and 5 in Arabic. The ability of staff members to communicate with our Chinese colleagues has proved of immense value in the Canada-China Auditor Training Project.

Women in the Office

15.101 The Office has an objective of providing career opportunities equally to women and men throughout our organization to ensure that, within a reasonable period of time, representation of male and female employees of the Office approximates the proportion of qualified and interested persons of both sexes by occupational group and level.

15.102 In April 1985, the first woman Assistant Auditor General was appointed in the Office. Also in April, three women were among the four promotions to the level of Principal. During 1984-85, 55 per cent of those hired by the Office were women; 13 of the 20 students-in-accounts recruited were women; 32 per cent of promotions at the professional level were women; and 51 per cent of all advancements in the Office were women.

Official Languages

15.103 The Office continues to move toward a fully functional bilingualism. There were 92 employees participating in the Office's in-house French-language training and development workshops; 6 were completing full-time training; 5 were enrolled in the Public Service Commission's evening courses; and 3 were participating in other intensive language sessions. The Language Knowledge Examination was administered to 85 staff members. In English-language training, three employees were enrolled in intensive programs and nine in part-time studies.

External Relations

15.104 Canada has acquired a wide reputation in public sector auditing in countries and organizations around the world. These include the International Organization of Supreme Audit Institutions (INTOSAI), where the Auditor General serves on the governing board; the United Nations , where Canada is on the Panel of External Auditors and the Auditor General of Canada is chairman; NATO , where we had until recently a representative on the Board of Audit; and the Conference of Commonwealth Auditors General . The Conference held its twelfth triennial conference in London, England, in October 1984. Canada's Audit Office was represented by Auditor General Kenneth M. Dye.

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15.105 The Office is the external auditor of the International Civil Aviation Organization (ICAO) and the Northwest Atlantic Fisheries Organization (NAFO) .

15.106 The Office helps to support the international community through the International Audit Office Assistance Program . Announced in the United Nations in autumn 1979, the program is designed to help auditors from developing nations upgrade their public sector auditing skills and techniques, especially through the practice of value-for-money auditing. The program is a Canadian initiative, funded by the Canadian International Development Agency (CIDA) and administered by the Canadian Comprehensive Auditing Foundation. There is a training component and a fellowship program. The current year's fellows are from Brazil, Kenya, Korea, Malaysia, Mexico, Nigeria, Sri Lanka, and Trinidad and Tobago. During their year, the Fellows add an interesting dimension to the life of the Office. More important, on returning to their own countries, they apply the formal training and on-the-job experience to their home situations - where they continue to be guided by visits from Canadian advisers. There is now substantial evidence of the very significant contribution they are making to auditing in nations around the world.

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15.107 Since 1982, the Office has been involved in an international effort with CIDA , the United Nations and the Peoples' Republic of China to assist the Peoples' Republic in developing the legislative audit function called for in its new constitution.

15.108 The Chinese Audit Office will encompass some 40,000 staff auditors. With that number, plus an additional 100,000 internal auditors in various audited organizations across the vast country, training is essential. The role of our Office is, over the next three to five years, to undertake the considerable project of training those who will train the Chinese auditors. In spring 1985, the Auditor General visited China in relation to the project and took the opportunity to give several major addresses.

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15.109 The Office is also taking part in several initiatives within the Caribbean area, to strengthen the audit function of a number of nations in the Caribbean community.

15.110 Office participation in international assignments continues. Also, in 1984-85 an exchange of senior staff is taking place between this and the Audit Office of New Zealand .

15.111 The Office continues to be a major participant in the activities of the Canadian Comprehensive Auditing Foundation . The Foundation operates as a co-operative agency for audit research and a forum for exchanging and disseminating information among members. Members of the Foundation include institutions and professional organizations such as legislative audit offices, government and private sector internal audit groups, public accounting and management consulting firms, individuals and corporations. The Office of the Auditor General was well represented at the December 1984 Annual Conference held in Ottawa.

15.112 The Office also maintains an active role in the Canadian Conference of Legislative Auditors , composed of federal and provincial auditors and their deputies. The Conference, which met in June 1985 in Whitehorse, Yukon Territory, plays an important role in the development of public sector auditing and accounting practices in Canada.

Financial Resources

15.113 Parliamentarians now have available to them, in Part III of the Estimates of the Government of Canada, the detailed resource requirements of the Office of the Auditor General.

15.114 Exhibit 15.2 provides an overview of appropriations and expenditures by activity.

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15.115 In part because of the additional audit requirements flowing from the amendments to the Financial Administration Act and in part because of the Office's expanded computerized audit work, space needs have become a problem.

15.116 The solution being sought is the acquisition of sufficient space in the same building to accommodate all national capital region staff. As a temporary solution, the Audit Operations Branch has relocated certain groups.

Costs Incurred in Preparing Reports of Audits and Special Examinations in Crown Corporations

15.117 Section 149(2) of Part XII of the Financial Administration Act (FAA) requires that where the Auditor General of Canada is the auditor or examiner of a Crown corporation, the costs incurred in preparing any report under sections 139 and 143 shall be disclosed in his next annual Report and be paid out of the moneys appropriated for his Office.

15.118 The costs reported here pursuant to section 149(2) represent the full costs incurred by the Office in carrying out the audit and special examination work and preparing particular reports under section 139 or 143 of the FAA. These costs are reported here only when the work has been completed.

15.119 The total costs of Crown corporations work include costs incurred on work not specifically required under section 139 or 143. This includes, for example, work in relation to issuing prospectuses, advising on information and internal control systems, and helping to resolve accounting issues and to prepare financial statements. The costs incurred for this work are not reported in this chapter.

Annual Audit Reports

15.120 Under section 139 of the FAA, each parent Crown corporation is required to have an annual auditor's report prepared, in respect of itself and its wholly-owned subsidiaries, on the financial statements and on any quantitative information that the Treasury Board requires to be audited. Also, the auditor must prepare such other reports as the Governor in Council may require.

15.121 Exhibit 15.3 shows the costs incurred in performing the completed audits and preparing the annual auditor's reports required by section 139 for those corporations and subsidiaries audited solely or jointly by the Auditor General of Canada. The costs refer to the completed annual audits for fiscal years ending on or before 31 March 1985.

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15.122 The costs reported do not include any costs for the audit of quantitative performance information, because no such audits have been requested by the Treasury Board for any of the corporations the Office audited. Similarly, there were no other reports required by the Governor in Council under section 139.

Special Examination Reports

15.123 Under section 143 of the FAA, on completion of a special examination, the examiner is required to submit a report of the findings to the board of directors of the corporation examined. The examiner of any corporation listed in Schedule C-1 of the FAA may also make special reports to the appropriate minister or to Parliament where, in the examiner's opinion, there is information that should be brought to the attention of either.

15.124 Although work on special examinations has started in some corporations, the Office's costs will not be reported until reports have been issued to the boards of directors.