1989 Report of the Auditor General of Canada

Main Points

28.1 This chapter describes the organization and activities of the Office and highlights some of our major initiatives undertaken or completed during the past year. It also describes the role of the Auditor General, the requirements of the Auditor General Act and the three types of audits the Office performs: attest, authorities and value-for-money (paragraphs 28.10 to 28.33; 28.109 to 28.119).

28.2 The Office has proposed amendments to Sections 4, 8 and 11 of the Auditor General Act (28.34 to 28.40).

28.3 Methodology development has moved ahead, with the publication of two audit guides (Auditing Financial Management and Control, and Auditing Capital Asset Projects), and research into the scoping of value-for-money audits. The scope and objectives of the Comprehensive Auditing Manual revision project have been expanded to include a comprehensive review of audit-related policies (28.41 to 28.43).

28.4 The Office has continued to upgrade its use of technology in auditing and internal communications, currently focussing on tools for analysis, creation, communication and management (28.44 to 28.63).

28.5 The Office has used alternative means of communicating audit results: videos of four annual report chapters; a booklet presenting main points of all annual report chapters; and an electronic version of the annual report with a text-retrieval software package (28.66 to 28.70).

28.6 Two outside organizations have presented awards to the Office (28.71 to 28.75).

28.7 The Program Evaluation and Internal Audit Group has assessed the work, practices and procedures of the Office through various surveys and reviews (28.79 to 28.91).

28.8 The Office participated in four major international projects this year: an international fellowship program; a review of the NATO audit system; the Sino-Canadian Auditor Training Project; and the INTOSAI (International Organization of Supreme Audit Institutions) Development Initiative, which designs and conducts training projects for groups of countries throughout the world (28.92 to 28.108).

28.9 Progress and innovations have been realized in the areas of curriculum implementation, employment equity and stress management training (28.64 to 28.65, 28.76 to 28.77, and 28.78).

28.10 The Auditor General Act stipulates that "the Auditor General shall report annually to the House of Commons on the work of his Office..." The preceding chapters of this annual report describe the results of Office audit projects completed, with reports prepared for publication, during the last 12 months.

28.11 This chapter reports on other work carried out in the Office of the Auditor General (OAG), such as methodology development and major international projects. It also describes the role and mandate of the Auditor General, including the types of auditing and reporting involved; the organization of the Office; and its use of financial resources. It describes proposed amendments to the Auditor General Act. And it reports on the Office's initiatives in information technology, staff training, communication, and employment equity, as well as on the internal evaluation of its work, practices and procedures.

Mandate, Auditing and Reporting

Principles Underlying the Role of the Auditor General

28.12 The role of the Auditor General rests on three principles. The first is that the government of the day has an obligation to account to the people of Canada for its use of public funds. It must ensure that funds are raised properly, protected from loss and spent only for the purposes approved by Parliament, and that value is obtained for money spent.

28.13 The second principle is that members of Parliament have the responsibility to scrutinize the affairs of government. To assist in that scrutiny, the government must supply parliamentarians with complete and understandable information on how it has carried out its activities.

28.14 The third principle is that there must be a knowledgeable and impartial person with a mandate to examine the information supplied to MPs by the government to make independent examinations of government departments, agencies and programs and to report significant matters to MPs, so that they can fulfil their responsibility -- rooted in history, tradition and law -- of holding the government accountable for its actions.

28.15 In our system, this independent person is the Auditor General. The information he provides to Parliament is contained primarily in his annual report. It has been said that MPs are elected to the House of Commons to serve their fellow Canadians. The Auditor General is, then, the servant of the servants of the people.

The Auditor General Act and its Requirements

28.16 The activities of the Office of the Auditor General are governed by the Auditor General Act of 1977. In essence, the Act requires the Auditor General to fulfil what may be termed a traditional financial auditing role as the auditor of the accounts of Canada. As well, it requires him to call attention to anything that he considers to be of significance and of a nature that should be brought to the attention of the House of Commons. Among other matters, the Auditor General must report "any cases in which he has observed that...money has been expended without due regard to economy and efficiency; or satisfactory procedures have not been established to measure and report the effectiveness of programs, where such procedures could appropriately and reasonably be implemented".

28.17 This chapter is not the place to spell out in detail how the Office goes about its work. However, it may be useful to say something about the activities behind this annual report.

Three Types of Auditing: Attest, Authorities, and Value-for-money

Attest auditing

28.18 To fulfil his mandate as Parliament's auditor, the Auditor General is required to examine the Public Accounts of Canada and to express an opinion as to whether they present information fairly, in accordance with the stated accounting policies of the federal government and on a basis consistent with that of the preceding year, and express any reservations that he may have.

28.19 Traditional "attest" auditing of all government departments and agencies is done each year, culminating in the "Opinion and Observations by the Auditor General on the Financial Statements of the Government of Canada", which constitute Chapter 2 of the annual report.

28.20 In addition, the Auditor General expresses a separate audit opinion on the financial statements of each Crown-owned corporation and agency for which he is named auditor.

Authorities auditing

28.21 There is a further aspect to this annual component of the Office's work. It is essential that a parliamentary auditor be able to provide assurance to members of Parliament that legislative authorities have been complied with and that public money has been spent for the purposes voted by Parliament. This extends the attest function to encompass what the Office refers to as "authorities auditing". OAG auditors identify occasions where, for example, payments have been made in advance of need, authorities have not been complied with, and similar matters. Where the Auditor General has deemed these to be significant and of a nature that should be brought to the attention of the House of Commons, they are included in the annual report.

Value-for-money auditing

28.22 The scope of the Office's auditing then widens to encompass a broader examination of selected departments, agencies and programs. For departments, this examination is performed on a cyclical basis, covering an entire department or specific programs within a department. It represents a logical extension of the attest and authorities audit, to determine whether expenditures have been made with due regard to economy and efficiency or satisfactory procedures have been established to measure and report the effectiveness of programs.

28.23 Value-for-money auditing has been steadily evolving in recent years, and its importance is recognized internationally by governments and by the accounting community. Canada is an acknowledged world leader in this field.

28.24 The value-for-money auditor establishes reasonable criteria for the efficient and economic operation of a particular entity and evaluates the organization's actual performance against those criteria. This kind of auditing requires specialized skills and, in addition to accountants, the Office employs engineers, economists, statisticians, lawyers, mathematicians, computer scientists and actuaries, together with specialists in management and effectiveness evaluation.

28.25 When an audit of a department encompasses all three components -- attest, authorities and value-for-money -- the OAG refers to it as a comprehensive audit (see Exhibit 28.1).

(Exhibit not available)

28.26 The Office also applies comprehensive auditing methods in its examinations of government-wide activities, or activities conducted in several departments. This year such examinations are reported in the chapters on Incentive Awards and Major Capital Projects and in the Special Audits chapter on Courier Services and Emergency Preparedness Canada.

28.27 Amendments to the Financial Administration Act in 1984 extended many of the elements of comprehensive auditing to the special examinations of Crown corporations. The Auditor General of Canada is solely or jointly the designated auditor and special examiner for many of these corporations. More information on this activity is included at the close of this chapter. Also Chapter 5 of this report gives a full account of the implementation of the 1984 framework for control and accountability of Crown corporations.

Organization

28.28 Exhibit 28.2 is an overview of the organizational structure of the Office, showing the functions of its three branches.

(Exhibit not available)

A description of the organization and activities of the Office's three branches

29.29 Audit Operations is the largest branch, with Department and Agency Audit Groups, a Crown Corporations Group, two Regional Audit Groups and a Planning and Co-ordination Unit. Each of the audit groups for departments and agencies is headed by an Assistant Auditor General and each is responsible for a mix of entities that require similar audit skills and special expertise or that have strong program interrelationships. The largest concentration of auditors works in the National Capital Region, but work is also carried out in the Eastern Region, with offices in Halifax and Montreal, and in the Western Region (Vancouver, Edmonton, Regina and Winnipeg). Both the Eastern and Western regions are headed by Assistant Auditors General. There are also staff from the Western Region working more or less continuously in Yellowknife, where the Office now has its own facilities, and in Whitehorse. The Planning and Co-ordination Unit, headed by a senior Principal, is responsible for strategic, operational and human resource planning and for overall co-ordination of the Branch's work.

28.30 Professional Services provides professional and technical support to Audit Operations. The Branch reviews, edits and publishes the annual report and other reports. It is also responsible for professional development, methodology development, liaison with Parliament, public affairs, communications, the Office library, and legal services. Although the Branch has provided legal services for many years, during the past year a legal section was established under a newly-appointed Principal, who has functional responsibility for providing legal services and, when necessary, engaging outside legal counsel. The section provides legal advice and opinions to the Auditor General, the Executive Committee, the Deputy Auditors General, and the Audit Operations Branch, and provides general legal support to Office activities.

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28.31 The Administrative Services Branch provides central support in finance, personnel, contracting, official languages, records, facilities, materiel, EDP services, word-processing, graphics and audio-visual services.

Financial Resources

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

28.33 Exhibit 28.3 provides an overview of appropriations and expenditures by activity.

(Exhibit not available)

Proposed Amendments to the Auditor General Act

28.34 The Office has proposed amendments to Sections 4, 8 and 11 of the Auditor General Act.

Amendment to Section 4: with respect to salary, pension and allowances for the Auditor General

28.35 At present, the Auditor General may choose a pension plan under the provisions of either the Public Service Superannuation Act, or the Diplomatic Service (Special) Superannuation Act. Under the provisions of both these Acts, pension payment is deferred until at least 60 years of age, and the benefits payable are based upon length of service. The Auditor General's term of office is limited to a statutory period of 10 years. Therefore, if appointed from the private sector, the Auditor General cannot accumulate sufficient service to provide a reasonable pension on retirement from the Office.

28.36 In many respects the appointment of an auditor general is analogous to the appointment of a judge. The Auditor General is paid a salary equal to a judge of the Supreme Court. Both judges and the Auditor General have statutory limitations placed upon the length of employment. The Judges Act contains provisions to provide relief from a reduced pension caused by a statutory limit on length of service. As the situation of the Auditor General is similar in this respect to that of a judge, the Office proposes that the provisions of the Judges Act, with necessary amendment, apply. It is desirable that adequate pension provisions be available to recruit the appropriate candidate. The matter is being seriously considered by the government.

Amendment to Section 8: to allow for completion date reporting rather than annual reporting by the Auditor General

28.37 The impetus for the requested amendment comes not only from the Office but also from the Standing Committee on Public Accounts. Two comparable audit entities, the National Audit Office of the United Kingdom and the General Accounting Office of the United States, have legislation allowing for completion date reporting. The proposed amendment would be in addition to the reporting required under subsection 7(3) of the Act, meaning the Office would continue to publish an annual report containing a summary of the work of the preceding year.

28.38 More frequent reporting would permit greater efficiency in the use of Office resources. It would allow the Auditor General to serve the House of Commons in a more timely manner. Parliament would have a better opportunity to deal with problems when they arise. More timely and effective remedial action would then be possible. Completion date reporting would also make the workload of the PAC more manageable. The PAC could deal with individual audit reports, allowing it to focus more attention on individual issues.

Amendment to Section 11: to allow the Governor in Council greater latitude with respect to the types of requests he may make of the Auditor General

28.39 Under Section 11, the Auditor General may inquire into and report on matters relating to the financial affairs of Canada, public property or any person or organization that has received or is seeking financial aid from the government of Canada if the Governor in Council so requests. On occasion, the Auditor General has been requested to provide assistance which does not fall strictly within the bounds of his authority. For example, the Office has provided assistance to the Canadian International Development Agency, the North Atlantic Treaty Organization and the United Nations. There is some uncertainty that this type of assistance could have been the subject of a Governor in Council request as the section now reads.

28.40 The Office proposes that the wording of Section 11 be changed to provide that the Governor in Council may request the Auditor General "to inquire into and report upon or assist" any of the organizations or persons covered by this provision. This change would give the Governor in Council greater scope in making requests and it would ensure that the Auditor General had the authority to perform the tasks requested.

Methodology Development

28.41 During 1988-89 the Methodology Development Committee (MDC), chaired by the Auditor General, moved energetically to implement the strategic plan developed last year. By September 1988 it had agreed upon revised operating procedures and the Committee was strengthened by adding two senior professionals.

28.42 Although methodology development and research are, by their nature, long-term activities, results are already evident from the work done during 1988-89:

• The MDC expanded the scope and objectives of the Comprehensive Auditing Manual revision project to include a comprehensive review of audit-related policies. Deputy Auditors General Edward Rowe and Raymond Dubois are directing this review. The Methodology Development Committee expects to approve all policies by the fall of 1989.
• The MDC has approved publication of audit guides reflecting up-to-date experience in auditing particular facets of government operation. The Committee has approved publication of two guides: Auditing Financial Management and Control and Auditing Capital Asset Projects. The MDC has also approved a position on how the Office will implement the value-for-money auditing standards proposed by the Canadian Institute of Chartered Accountants (CICA).
• The MDC has launched research, under the guidance of Deputy Auditor General Larry Meyers, into the scoping of value-for-money audits. This applied research project is designed to help senior management provide clearer direction for audit staff.

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28.43 During the past year, the Office has modified its approach to development projects to more effectively balance cost, time and quality. Among the changes that have been made are greater use of task forces rather than standing committees and more recognition of staff who participate in methodology development projects. Finally, there has been greater involvement of government managers, through participation on task forces and circulation of formal exposure drafts, to ensure that Office criteria and approaches provide a mutually agreed-upon basis for audit.

Information Technology

The Evolution of Information Technology in the Office

28.44 Although the Office had acquired one microcomputer in 1979 and a variety of word processors in the late 1970s and early 1980s, the adoption of general purpose personal microcomputer technology did not begin until 1983. Since then, the Office has continued to expand the use of electronic technology, acquiring additional units and extending interconnection to improve the productivity and quality of audit work.

28.45 At first, the Office acquired commercially available software for applications that business and industry as a whole found valuable: word processing, spreadsheets, data bases and communication. As early as 1984, the Office began to analyze its needs with more precision and subsequent software acquisition and development was tailored to the specific needs of auditors. Since 1985, one group in the Office has piloted new hardware and software innovations before their release for use by the rest of the Office. Now many of these products are widely used by other groups and teams.

28.46 Currently, the Office's principal focus in information technology is on tools for analysis, creation, communication and management.

Tools for Analyzing Data, Systems and Text

28.47 Auditors are concerned with the analysis of both structured data and continuous text. In addition, auditors frequently need to document complex systems graphically.

28.48 IDEA (Interactive Data Extraction and Analysis) helps auditors use microcomputers as powerful analytical tools. It is now used not only by this Office but by public and private audit organizations throughout the world. The move to laptop computers has enabled auditors to apply this, and other tools and technology, directly at client locations.

28.49 I Chart is a flowcharting program to facilitate the documentation of complex systems and processes that must be audited. This program is now used extensively by audit teams throughout the Office.

28.50 Text retrieval-Ful/Text: Text-retrieval techniques have been brought to the auditor's laptop computer to permit the quick and efficient searching of large quantities of text such as statutes, regulations and reports. Electronic versions of the Auditor General's annual reports from 1983 to 1988 are available, as are most audit guides, the Office's Comprehensive Auditing Manual and a variety of statutes and regulations. They are operated with a user-friendly text-retrieval software package called Ful/Text.

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28.51 Experimental work has begun on a compact disk (CD-ROM) that would contain all relevant material needed by field auditors and researchers.

Tools for Creating

28.52 Auditors often create spreadsheets to document the results of their work, but their principal output is usually a written report. The Office provides every auditor with access to powerful application programs for both. For authors, a program for checking grammar and style is available.

28.53 ReportRead: Annual report chapter authors, together with the Auditor General and Deputy and Assistant Auditors General and other chapter reviewers, can access the report electronically on a microcomputer as it develops. ReportRead has eliminated much of the need to photocopy and distribute hard copies of the chapters. ReportRead greatly facilitated the review of the 1988 Report, and an improved version has helped even more this year.

Tools for Communicating

28.54 Tools for internal communications: electronic mail - One of the Office's routine means of communicating, in headquarters, between audit sites in Canada, and throughout the world, is electronic mail. The Office now has close to 500 users. Electronic bulletin boards are used to exchange documents, information, comments and review.

28.55 Tools for external communications: electronic publishing - The Office experimented this year with distribution of an electronic version of the 1988 Report, with full text-retrieval capability. Copies were supplied to government departments, libraries and corporations, both in Canada and in other countries, and were installed on request in offices of several members of Parliament.

Tools for Managing

28.56 Managing an audit: the electronic briefcase - The Office is now implementing, in phases, the micro-based system AuditPro, which enables auditors to use the computer to better plan and control audit tasks and working papers. Many types of software can be linked to AuditPro. Eleven audit teams are now using the system; in field use it is proving that it can save hundreds of audit hours and should result in significant quality and effectiveness improvements over the next few years. AuditPro also provides senior auditors with an easy and structured method of reviewing electronic working papers.

Managing the Office using a new computerized management information system: MIS 2000

28.57 The Office of the Auditor General began developing a new management information system, MIS 2000, in the fall of 1988, to replace the present system which has been in use since 1982. An on-line integrated financial and operational management information system, it is expected to meet all the Office's needs until at least the turn of the century.

28.58 In the fall of 1988, the Administrative Services Branch conducted an Office-wide user needs analysis which identified the specifications and features required to tailor the new computer to Office-wide applications.

28.59 A key feature of MIS 2000 will be that the Office can use its network to create and access automated services. For example, it will provide an improved in-house electronic mail network; it will allow sharing of printing facilities; and it will create electronic filing systems.

28.60 As well as providing on-line management information for its principal users in Audit Operations, MIS 2000 will also handle the Office's financial statements and the requirements of support groups such as contract administration, professional development, materiel management and personnel. In short, it will be able to accommodate almost any identified user need.

28.61 The objective of MIS 2000 is to have an overall integration of all data bases which will contribute to a more effective and efficient audit office. The MIS 2000 project is scheduled for complete implementation in 1991.

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Training Office Staff in the Use of Information Technology

28.62 Innovation in information technology is not possible without a corresponding investment in staff training. Under the Auditor Trainee program begun in 1985-86, about 10 auditors per year spend approximately 12 months with the Computer Audit Group, acquiring practical experience in EDP auditing practices. Most groups in the Office now have a trained EDP auditor.

28.63 A more recent initiative is the Administrative Staff Microcomputer Apprenticeship Program. The program provides selected audit support staff with four months of intensive upgrading of skills, using computer tools and techniques like word processing, text retrieval, spreadsheet preparation, flowcharting and electronic mail programs, before they return to their regular audit team duties. There they are able to provide support and guidance to auditors using these tools.

Core Training Curriculum Implementation

28.64 The Professional Development and Practices Group completed a survey in 1988 on the anticipated training needs of auditors for the next three years. This survey was based on a Core Curriculum for Auditors, developed the previous year, which represents the key knowledge and skills required by audit staff to perform their work.

28.65 A training plan was drawn up based on the survey and implementation began this year. The plan includes updating some courses, developing new ones, and incorporating recently developed audit software into these courses.

Alternative Means of Communicating Audit Results

28.66 In addition to the annual report, the Office uses other means to communicate the results of its audits and make them more accessible to interested parties. In 1988, the third year of a pilot project, the Office produced videotape summaries of three audit report chapters and a fourth, outlining the Auditor General's Opinion on the Financial Statements of Canada. The three chapters selected were Well-Performing Organizations; Energy Mines and Resources - the Management of Federal-Provincial Contribution Programs; and Fisheries and Oceans - Atlantic Operations, Inspection and Corporate Functions. The videos were made available to MPs at a preview briefing, and to the media at the press "lock-up", on annual report tabling day. They were viewed continuously throughout the morning and segments were used that evening in national, regional and local news broadcasts. Immediately after the report was tabled by the Speaker, the videos were placed on the House of Commons internal cable system (OASIS) for viewing on demand by members of Parliament. The OAG received over 75 requests for complete sets of the videos as well as requests for individual video chapters. Requests came from individuals as well as from federal government departments, audit organizations, colleges and universities, television stations and cablevision outlets.

28.67 An innovation in 1988 was the production of a pocket- or purse-size booklet, which presented the main points from each of the chapters in the annual report. Paragraph references at the end of each main point provided quick access to more detailed information in the report. Reaction from the media and the public suggested that this was a needed report-in-brief that the ordinary taxpayer could find time to read.

28.68 A second innovation, previously mentioned in the section on information technology, was unveiled by the Auditor General on tabling day -- an electronic version of the annual report, with a user-friendly text-retrieval software package for quick access to desired information. It could prove to be a valuable research tool for members of Parliament and their staffs. To use the package, the software is loaded into appropriate equipment and screen prompts are followed to search the text using key words or phrases. The section of text related to the chosen topic can be displayed, or the user can "browse" through sections that appear to be interesting. The package can be mastered in a few minutes by anyone with a basic familiarity with computers.

28.69 The research use for this electronic report will be to gain fast, accurate and easy access to comments made by the Auditor General on particular departments, agencies and their related programs. The text can also be searched for comments on broader issues like efficiency, the environment or human resource management. This search capability offers obvious research applications for members of Parliament in a number of areas, including preparing for Question Period, responding to constituent queries and preparing to take part in debates.

28.70 In addition to the current year's report, the Office has converted annual reports back to 1983 to this electronic format. Primarily because of its size, this is not being distributed; however, it can be accessed through the OAG Library or the OAG Parliamentary Liaison Group. It can be used to identify quickly whether and when in the past six years the Auditor General has commented on a particular topic of interest.

Two Awards From Outside Organizations

SCOAP Award

28.71 In December 1988, the Society of Canadian Office Automation Professionals (SCOAP) selected the Office of the Auditor General to receive its annual Award of Excellence. The award is given each year to the organization that is judged to have demonstrated unusual leadership and innovation in the application of information technology. Organizations nominated for the award come from both the public and private sector.

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28.72 SCOAP selected the Office for this award in recognition of the Audit Development in Automated Processing Technology (ADAPT) project, which culminated in the implementation of the "electronic audit briefcase". Almost all of the Office's auditors now use laptop computers for a range of audit tasks. In presenting the Office with the award, the Society particularly noted the Auditor General's personal interest in and commitment to ensuring that his staff are at the forefront in using technology to make themselves more productive. The involvement of the chief executive officer was cited as a critical factor of success in office automation projects.

Elmer B. Staats Award

28.73 The International Organization of Supreme Audit Institutions (INTOSAI) chose an article written by Office staff for the Elmer B. Staats Award. This award, named after the former Comptroller General of the United States in recognition of his many and sustained contributions to INTOSAI, is awarded every three years for the best full-length article appearing during that interval in INTOSAI's quarterly publication, The International Journal of Government Auditing.

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28.74 The winning article, entitled "Methodology for Auditing Cost-Recoverable Programs: Theory and Practice", was published in the January 1988 issue. It was co-authored by Principal Vinod Sahgal, Director Neil Maxwell and former Principal David Lewis.

28.75 The Auditor General accepted the award on behalf of its authors at the INTOSAI Congress in Berlin in June.

The Activities of the Working Group on Employment Equity

28.76 The Working Group on Employment Equity addresses equality of access to employment in the Office for women, aboriginal people, visible minorities and handicapped persons.

28.77 The Group has adopted the federal government's employment equity targets and surpassed them in most occupational groupings, for handicapped persons, women and visible minorities. Opportunities remain to improve representation of aboriginal people in most occupational categories and of women in managerial ranks.

The Office is Implementing a Stress Control Program

28.78 The Executive Committee decided to implement a stress control program for all staff in the Office of the Auditor General during 1989. The goal of the program is to ensure that stress and energy remain at productive, satisfying, and healthy levels. All employees are participating in the program, which includes a confidential questionnaire on stress, with an interpretation of the results provided to the individual employee, and a 10-hour course on stress management. For managers, an additional day-long session is provided which focusses on the skills managers should be exercising on an ongoing basis to ensure the most productive levels of employee stress, work commitment and satisfaction.

The Office's Program Evaluation and Internal Audit Activities

28.79 The Program Evaluation and Internal Audit (PEIA) group has three principal objectives -- to assess:

• through program evaluation, the effectiveness of the Office's audit activities in support of the scrutiny role of the House of Commons;
• through post-audit quality review, whether the Office selects only matters of significance for audit and audits these in a professional and cost-effective manner;
• through internal audit, whether management practices and procedures throughout the Office reflect due regard for value for money.

Program Evaluation

28.80 A Survey of Chairmen of Departments of Accounting and Directors of Schools of Public Administration in all universities across Canada was carried out during the year. The objectives of the study were to find out how academics view and rate the work of the Office of the Auditor General; to ascertain whether OAG documents and publications are used in their teaching and research; and to obtain information on student awareness of career opportunities with the OAG.

28.81 The survey concluded that more professors of public administration than accounting use OAG documents and publications in their teaching and research; academics have a high regard for the work of the OAG and rate its work as very important; students in schools of public administration are more aware of career opportunities in the OAG than are students in departments of accounting.

28.82 Recommendations relating to these findings were submitted to the Executive Committee.

28.83 A project to interview a cross-section of users of the annual report was reconsidered. It was decided to change the approach of the study from that outlined in the 1988 report. This will involve exploring alternative formats for graphics and text which would make the report easier to read. These formats will be presented to report users for their comments and suggestions on how the Office can enhance the report's readability.

Post-Audit Quality Review (PAQR)

28.84 Post-audit quality reviews occur annually on a sample of the Office's audit work.

Departmental comprehensive audits

28.85 Two important aspects of comprehensive audits were reviewed this past year in two separate studies:

• the extent to which the Office is relying on the work of internal audit groups in "client" departments; and
• the sufficiency of evidence in support of findings in value-for-money audits.

28.86 Some approaches to value-for-money auditing lend themselves to reliance on internal audit, while others do not. The study on internal audit concluded that value-for-money audits complied with Office standards for reliance. It was recommended that, while the Office should continue to allow flexibility, it should require accountability for a decision to rely on internal audit, based on clarified standards and guidelines.

28.87 The study on sufficiency of evidence found that value-for-money audit findings are generally well supported by evidence. Recommendations were made to strengthen audit sampling procedures and analysis of causes of identified weaknesses in audited organizations, and to address the formulation of recommendations to deal with those causes.

Crown corporations, other entities and the Public Accounts of Canada

28.88 In 1988-89, the PEIA Group reviewed the financial statement audits of five Crown corporations and other entities and eight Public Accounts audits. The review noted that the audits complied with generally accepted auditing standards and with Office standards. Follow-up of earlier PAQR reports showed that most of the PEIA's recommendations had been carried out.

28.89 PEIA paid particular attention to cases where audit teams used innovative cost-saving techniques. Fixed-price contracting of entire audits to public accounting firms seemed to be the most cost effective technique. The long-term policy of the Office on fixed-price contracting is being reviewed.

28.90 In 1989-90, the PEIA Group will begin PAQR work on the special examinations the Office has done on various Crown corporations.

Internal Audit

28.91 The Group did a survey this past year of the Professional Services Branch to identify potential value-for-money issues.

The Office's Contributions to the International Scene

28.92 The Office is considered a world leader in comprehensive auditing, legislative auditing and computer-assisted auditing. Consequently, it is often asked to share its expertise with other countries, especially those seeking to increase their competence in government auditing. This past year the Office was involved in four major international projects.

The International Audit Office Assistance Program

28.93 A fellowship program was implemented in 1980, funded by the Canadian International Development Agency and administered by the Office of the Auditor General and the Canadian Comprehensive Auditing Foundation, to bring senior auditors from developing countries to work and study in the Office of the Auditor General.

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28.94 Fellows in 1988-89 were from Chile, China, India, Jordan, Kenya, Papua New Guinea, Senegal, Thailand, Trinidad and Tunisia.

28.95 The Fellows spend one year with the OAG, assisting in a variety of audits and enhancing their knowledge and understanding of public sector accounting and auditing, especially in the area of value for money. As well as gaining practical experience by working with audit teams, they also participate in a number of professional development activities.

The INTOSAI Development Initiative

28.96 At the Twelfth Congress of the International Organization of Supreme Audit Institutions (INTOSAI) in 1986, a proposal to formally establish the INTOSAI Development Initiative (IDI) was adopted.

28.97 The mission of IDI is to foster the advancement of public accounting and auditing, especially in developing nations. This is to be done through information exchange and training for audit practitioners and trainers of Supreme Audit Institutions (SAIs).

28.98 IDI's training program is structured in three parts, based on initial surveys of regional training needs:

• a five-day Human Resource Management seminar for Heads and Deputy Heads of audit institutions, to discuss common regional issues and needs, to develop a regional action plan and to get commitment and support;
• a two-week Training Managers Workshop, aimed at developing a network of individuals capable of organizing and managing the training function of audit institutions and of supporting regional training activities; and
• technical workshops on audit subjects selected through consultations with each region on its needs.

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28.99 Since the 1988 Report, IDI has accomplished the following: the Human Resource Management seminar was presented in Peru for Latin America; Training Managers Workshops were conducted in Tunisia and India; and an Audit Workshop for the francophone AFROSAI SAIs was developed jointly with the French, Tunisian and Ivory Coast SAIs. OAG staff participated in the design and delivery of all these training activities.

28.100 IDI was originally set up for a three-year period, with a provision for extending that period based on an assessment of the program's results. At the Thirteenth INTOSAI Congress held in Berlin in June 1989, member SAIs praised the success of IDI and approved its continuation under the same philosophy and approach to the development and delivery of its programs. It also approved the continued location of the IDI Secretariat in the Office of the Auditor General of Canada for the next three years. The Auditor General of Canada is the President of the Board; Deputy Auditor General Edward Rowe is Secretary-Treasurer; and Assistant Auditor General Yvan Gaudette is Executive Vice-President.

28.101 Funding for IDI is currently provided by CIDA, the United Nations Development Program, the Royal Norwegian Ministry of Development Co-operation, the Finnish International Development Agency, the Asian Development Bank, the Caribbean Development Bank and the Commonwealth Secretariat. Discussions on funding are also taking place with the Inter-American Development Bank, the Danish International Development Agency, and the Foreign Ministry of the Netherlands.

Sino-Canadian Auditor Training Project

28.102 Since 1982, the Office of the Auditor General has been involved in an international effort, first with the United Nations and then with the Canadian International Development Agency (CIDA), to assist the People's Republic of China in developing the legislative audit function required by its new constitution.

28.103 The objectives of the first phase of the project were to train Chinese auditors in the concepts, methods and skills practiced in Canada and to train a core of audit instructors for the Audit Administration of the People's Republic of China (AAPRC).

28.104 The first phase of the project was completed within budget in December 1988. All major planned outputs were achieved. The OAG, as an agent of the Canadian International Development Agency (CIDA), provided the necessary professional, technical, and administrative support to meet the project objectives. Both the Canadian and Chinese governments viewed the first phase as a success and a request for a second phase was made by the Chinese government. As a result, the Office of the Auditor General was requested by CIDA to conduct a Project Definition Mission to explore the feasibility of a second phase. A Mission report was presented to CIDA in February 1989 and a proposal was made to continue the project.

28.105 In June 1989 the Minister of External Affairs cancelled proposed funding for the second phase as a result of events in China.

Review of the NATO Audit System

28.106 The Office of the Auditor General has been a key player in a major review of the North Atlantic Treaty Organization (NATO) Audit System. Together with representatives from the audit offices of West Germany, the United Kingdom, the United States, Norway, Italy, Belgium, Denmark, and the Netherlands, Deputy Auditor General Edward Rowe and Principal Vinod Sahgal participated in the Study Group set up by NATO's Working Group on the Reorganization of the NATO Audit System (AC/166). The Working Group was tasked to consult with the NATO Board of Auditors and identify specific improvements to the NATO Audit System. The Group completed its work in the spring of 1989. It made 10 key recommendations that require action by the NATO Council and 10 recommendations that can be acted upon immediately by the International Board of Auditors. A report to the North Atlantic Council has been prepared and discussed with the Chairman of the AC/166, and will likely have been submitted by the publication date of this annual report.

28.107 The overall conclusion of the Group was that if the recommendations in the report are implemented quickly by Council and the Board, there will be a significant improvement in the continuity, efficiency, and effectiveness of the Board. Specific recommendations deal with a variety of topics such as: continuity of the Board members including the length of the Chairman's term of appointment; importance of Board members performing their duties on a full-time basis as required by the audit charter; need for an evaluation of the Board structure and its working arrangements after a trial period following the report of the Group to Council; importance of timely reporting by the Board and the need for quick response by audited bodies to the recommendations of the Board; improved planning of the Board's activities; more aggressive follow-up of previous recommendations made by the Board; and the need to invite the national audit bodies of member countries to participate actively in an informal advisory panel to meet at least twice a year to advise and assist the Board in establishing priorities, methodology, standards, practices and reporting formats.

28.108 Principal Alvin Dickens is currently chairman of the NATO Board of Auditors and three Office staff members have also been seconded to the Board.

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

28.109 Section 147(2) of Part X 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 132, 139, 140 and 141 shall be disclosed in his next annual report and be paid out of the moneys appropriated for his Office.

28.110 The costs reported here pursuant to Section 147(2) represent the full costs incurred by the Office in completing the audit and special examination work and preparing particular reports under Sections 132, 139, 140 or 141 of the FAA. These costs are reported here only when the work has been completed. Costs incurred on work not specifically required under Sections 132, 139, 140 or 141, for example, work in relation to issuing prospectuses, advising on information and internal control systems, and helping to resolve accounting issues, are not reported in this chapter.

Annual Audits

28.111 Under Section 132 of the FAA, annual audit reports are required on each parent Crown corporation and its wholly-owned subsidiaries, on their financial statements and on any quantitative information directed by the Treasury Board to be audited. The auditor must also prepare such other reports as the Governor in Council may require.

28.112 Exhibit 28.4 shows the costs incurred in completing the audits and preparing the annual auditor's reports required by Section 132, 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 1989.

(Exhibit not available)

28.113 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 132.

Special Examinations

28.114 Section 138 of the Financial Administration Act requires each parent Crown corporation named in Schedule III of the Act to cause a special examination to be carried out in respect of itself and, if applicable, its wholly-owned subsidiaries, at least once every five years. The legislation came into effect on 1 September 1984, with the first cycle of special examinations to be completed by 1 September this year. These examinations are separate from the annual audits referred to above and shown in Exhibit 28.4.

(Exhibit not available)

28.115 The aim of these examinations is to determine whether, in the period under review, the financial and management control and information systems and management practices of the corporation were maintained in a manner providing reasonable assurance that:

• assets were safeguarded and controlled;
• financial, human and physical resources were managed economically and efficiently; and
• operations were carried out effectively.

28.116 At the completion of a special examination, a report on the findings is submitted to the board of directors of the corporation. For corporations named in Part 1 of Schedule III, or their wholly-owned subsidiaries, the legislation provides for the examiner to draw any necessary matters to Parliament's attention.

28.117 Where, in the examiner's opinion, the special examination report contains information that should be brought to the attention of Parliament, the examiner must, after consulting the board of directors and the appropriate minister, prepare a report on the information for inclusion in the corporation's next annual report. Where an auditor other than the Auditor General of Canada is the examiner, he or she must also consult with the Auditor General and furnish him with a copy of the report on these matters.

28.118 In 1988-89, five special examinations were completed. The costs of these examinations were:

Atlantic Pilotage Authority	$ 145,600
Atomic Energy of Canada Limited	1,060,400
Canadian Commercial Corporation	324,500
Canadian Livestock Feedboard	139,500
Pacific Pilotage Authority	167,500

28.119 There were also 16 special examinations in progress in Crown corporations audited by this Office. Costs of these will be reported in future years, as they are completed.

Office Staff's Contribution to Professional Organizations

28.120 Staff of the Office of the Auditor General invest considerable time, energy and talent in the work of various professional organizations. Their contributions include serving as members on committees and task forces, occupying executive positions, teaching and developing examinations. A list of organizations and the roles played by staff follows. Organizations and staff involvement mentioned elsewhere in this chapter are excluded.

• International Federation of Accountants - Chairman, Public Sector Committee.
• Canadian Comprehensive Auditing Foundation - Vice-Chairman; Member, Board of Governors; Member, Legislative Audit Committee; Member, Reporting Research Steering Group Committee; Member, International Committee.
• Canadian Institute of Chartered Accountants - Member, Board of Governors; Chairman and Associate, Public Sector Accounting & Auditing Committee; Chairman, Physical Assets Study; Member, Professional Development Directors Advisory Committee.
• Institute of Chartered Accountants of British Columbia - First Vice-President.
• Ontario Institute of Chartered Accountants - Member, Council.
• Interprovincial Committee of Chartered Accountants to Harmonize Rules of Professional Conduct - Member.
• Ordre des comptables agréés du Québec - Member, Council; Member, Disciplinary, Comprehensive Auditing and Provincial Legislation Committees; Member, Committee of Members in Business, Government and Industry.
• Certified General Accountants Association of Canada - Member, Task Force on Comprehensive Auditing; Chairman, Primary Committee of the Final Examination for CGA; Examination Developer for CGA's Final Auditing Examination; Reviewer and Developer, Management Auditing Course; Instructor, CGA courses; Member, Management Practices Committee; Member, 1990 CGA Provincial Conference Organization Committee.
• Certified General Accountants Association of Ontario -Member, Board of Governors; Chairman, Chapter Committee; Member, Committee on Public Practice Rights; Member, Planning Committee.
• Society of Management Accountants of Canada - Member, Value for Money ManagemEnt Committee.
• Financial Management Institute of Canada - Member, Board of Directors, National Chapter; Program Adviser, Professional Development Week; President, Vancouver Chapter; Treasurer, Winnipeg Chapter.
• Institute of Internal Auditors - Vice-President, Vancouver Chapter; Treasurer, Ottawa Chapter; Member, Program Committee.
• Institute of Internal Auditors Research Foundation - Member, Board of Research Advisers.
• EDP Auditors' Association - Treasurer, Vancouver Chapter; Treasurer, Ottawa Chapter;
• Canadian Evaluation Society - Treasurer; Chairman, Administrative Committee; Panel Moderator, 1989 Annual Conference; President, National Capital Chapter; Chairman, Program Committee; Member, Board of Directors, National Capital Chairman; Member, Standards Committee.
• Management Institute of Canada - Program Adviser, Professional Development Week.
• Ottawa Chartered Accountants Association - Member, Executive Committee.
• Canadian Centre for Management Development - Faculty Member and Special Adviser.
• Planning Forum - Director.
• Canadian Study of Parliament Group - Treasurer.
• UNESCO Conference - Delegate.
• Interamerican Accounting Association - Member.
• Canadian Association of Logistics Management - Member.

Advisers to the Auditor General

Membership of the Panel of Senior Advisers

Kenneth G. Belbeck, F.M.C., Peat Marwick Stevenson & Kellogg

Marcel Caron, F.C.A., La Presse Ltée

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

Keith G. Dalglish, F.C.A., Peat Marwick Thorne

Alan J. Dilworth, F.C.A., Touche Ross & Co.

William A. Farlinger, F.C.A., Clarkson Gordon

Kenneth S. Gunning, F.C.A., Pannell Kerr MacGillivray

Ralph W. Karthein, C.A., IBM Canada Ltd.

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

Edward W. Netten, F.C.A., Price Waterhouse Management Consultants

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

Kenneth R. Stevenson, F.C.A., Coopers & Lybrand

W. Ross Walker, F.C.A., Peat Marwick Thorne

Membership of the Independent Advisory Committee to the Auditor General on Government Accounting and Auditing Standards

Morley P. Carscallen, F.C.A., Coopers & Lybrand

L. Denis Desautels, F.C.A., Clarkson Gordon

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

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

Douglas D. Graham, C.A., Pannell Kerr MacGillivray

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

Ronald E. Kiggins, C.A., Peat Marwick Thorne

David Kirkwood, Canadian Mediterranean Institute

Henry E. McCandless, C.A. (Secretary), Office of the Auditor General of Canada

Ronald B. Robinson, F.M.C., Abt Associates of Canada

Lawrence S. Rosen, Ph.D., F.C.A., York University

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

Leonard Rutman, Ph.D., Price Waterhouse Management Consultants

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

George F. Windsor, B.Eng., LL.B., Osler, Hoskin & Harcourt