1993 Report of the Auditor General of Canada
Chapter 25—Parliamentary Control over the Raising of Revenues by Fees
Parliament Cannot Readily Scrutinize the User Fees Established by Contracts and Other Non-regulatory Means
Assistant Auditor General: Richard B. Fadden
Responsible Auditor: Alan Gilmore
25.1 In 1992, Treasury Board estimated that revenues from user fees would exceed $3 billion and were expected to increase. Individuals, companies and other jurisdictions are charged fees for the use of government facilities, services, and goods. For example, fees are charged for passports, books and maps, and making photocopies.
25.2 User fees are established pursuant to departmental legislation and the Financial Administration Act , and by contracts with users. Fees established by contracts and other non-regulatory means are not subject to the regulatory process. The process seeks to ensure adherence to such principles as providing a full opportunity for public consultation and an assessment of proposals to ensure that benefits clearly exceed costs.
25.3 We are concerned that Parliament cannot readily scrutinize the user fees established by contracts and other non-regulatory means. There does not exist a government-wide summary of the fees being charged, the revenues raised and the authorities under which they are established.
25.4 The use of contracts on a broad scale to establish fees needs to include careful consideration of such issues as:
- How would affected parties be consulted?
- How would Parliament be given the opportunity to review fees established by contracts?
- How would users be assured that they are being charged the same price for identical services or uses?
25.6 We have recommended that the Treasury Board review and report to Parliament on the adequacy of the current legislative and administrative framework for establishing user fees, and provide Parliament with government-wide summary information on fees being charged.
25.8 Parliamentary control over the raising of revenues by government is based on a constitutional and statutory framework dating back to the origins of parliamentary democracy, and codified at the time of Confederation in the Constitution Act, 1867.
25.9 The Constitution Act requires that legislation for imposing any tax or charge shall originate in the House of Commons. Parliament has granted the government legislative authority to establish and amend user fees through:
- specific legislation that established the department or agency concerned, for example, the Department of Transport Act , or legislation establishing a particular program or activity, for example, the Aeronautics Act ; and
- section 19 of the Financial Administration Act , subject to any other Act, which provides the Governor in Council with authority to set fees or to authorize ministers to set fees by order.
- clear accountability of ministers and officials;
- full opportunity for public consultation and participation in the regulatory process;
- an assessment of proposed regulations to ensure that benefits clearly exceed costs;
- clear and reliable public information on the need for regulations;
- an evaluation of the effectiveness of regulatory programs; and
- a secure foundation in law for actions of regulatory authorities.
25.12 In December 1989, Treasury Board approved a new policy on charges to external users, which requires departments and agencies to identify opportunities to establish user fees. Guidelines on the policy state that "in a limited number of cases, primarily those for special services, it may be possible to charge on the basis of a negotiated contract entered into voluntarily by a willing purchaser. Otherwise, an Act of Parliament must provide specific authority to establish user charges."
25.13 In May 1991, section 19 of the Financial Administration Act was amended to clarify the cost-recovery authority for user fees and to ensure greater fairness and uniformity. According to Treasury Board documents, one of the key objectives of the new section 19 was to make it a statutory requirement, rather than just policy, that the fees be subject to the regulatory process and published in the Canada Gazette.
25.14 In July 1991 Treasury Board circulated a draft discussion paper, entitled "User Fees: Getting Away from the Regulatory Process". According to Treasury Board officials, the paper was developed because departments were already using contracts to establish user fees and there was concern that no appropriate framework and controls existed for this alternative to the Financial Administration Act .
25.15 According to Treasury Board officials, the main reason for seeking an alternative to the Financial Administration Act to set user fees is that the regulatory process is lengthy, expensive and frustrating.
Audit Scope and Objectives25.16 We reviewed a variety of authorities and procedures used by departments and agencies to charge user and licensing fees. Since the government has not summarized them, we used existing information from our Office's audit work to select departments and agencies for review.
25.17 The objective of our review was to assess whether there was authority for, and adequate parliamentary control over, the raising of revenues by user fees.
25.18 We focussed on the disclosure of information to Parliament and the public on the basis that, in a democratic country, individuals, groups, and companies have the right to be fully informed about, and to participate in, government decisions that limit their freedom or affect their lives. This places an obligation on the government to disclose information fully rather than choosing when and what information to disclose. Although equal access to information is not alone a sufficient condition for a reasonable outcome, it is a necessary condition. These principles are recognized and accepted by the government in its Citizens' Code of Regulatory Fairness.
Parliament Cannot Readily Scrutinize the User Fees Established by Contracts and Other Non-regulatory Means25.19 Departments are establishing user fees for government services and facilities pursuant to provisions in departmental legislation, section 19 of the Financial Administration Act , and by contracts with users.
25.20 There is no government-wide summary of fees charged, revenues raised and authorities under which they are established. For example, while departments and agencies are using contracts to establish user fees, the Treasury Board does not have information on the extent to which they are doing so. Without such information, Parliament cannot easily scrutinize the raising of revenues by fees.
25.21 We are also concerned that the application of section 19 of the Financial Administration Act is unclear. In May 1991, the section of the Financial Administration Act covering user fees was amended. The December 1990 President of Treasury Board statement to the House of Commons committee reviewing amendments to the Act indicated that the amendments related to section 19 would strengthen parliamentary control by:
- enshrining in statute the current administrative requirement that fees prescribed by ministers be established by a statutory order; and
- ensuring that all fees are subject to the regulatory process, are published in the Canada Gazette, and stand referred to the Standing Joint Committee for the Scrutiny of Regulations.
25.23 The alternative of using contracts on a broad scale needs careful consideration. Among the factors to be considered are the following:
- Should contracts be used rather than section 19 of the Financial Administration Act or another statutory authority?
- How would affected parties be consulted?
- How would Parliament be given the opportunity to review fees established by contracts?
- Who would set the price for each of the individual services and uses? The advantage of using an order is that the price is not subject to bureaucratic discretion. In the absence of a fees order, a price would have to be set for each contract.
- How would uniformity or consistency of price be maintained? How would users be assured that they are being charged the same price for identical services or uses? Would a price list for the services or uses be created? How would it be kept current? How would it be communicated adequately to employees and customers and be administered and enforced? Why would it be difficult to transform such a list into a fees order pursuant to section 19 of the Financial Administration Act ?
- Are more internal control mechanisms needed if contracts are used? The use of an order tells employees and customers alike that there is no legal discretion in the matter of price.
- Is the establishment of fees by order less open to abuse? If the regulatory process is followed, there is a degree of transparency in how a price is established. If fees are established by contracts, the process could be subject unduly to political and administrative considerations.
25.24 In addition, in certain instances departments are using technical legal reasons to avoid the regulatory process or are using general regulatory powers to raise revenues to cover the costs of their regulatory activities.
Examples of departments using or considering the use of contracts to establish user fees25.25 Statistics Canada. In 1993-94, Statistics Canada expects to receive about $26.6 million from the sale of publications and CANSIM retrievals, the sale of special products and services, and for work done under cost-recovery arrangements.
25.26 With respect to publishing information, Statistics Canada has received legal advice that the Statistics Act in conjunction with the Supply and Services Act give the agency the authority to publish information concerning statistics. Its approach to setting prices for publications requires the approval of Treasury Board. The Board approves an overall approach rather than specific prices. Statistics Canada has received such approval. Prices set pursuant to these statutes and approvals are not subject to the regulatory process.
25.27 In earlier years, Statistics Canada set fees for special products and services through an order-in-council. Since 1989, on the basis of a legal opinion from the Department of Justice and guidance from the Administrative Policy Branch of Treasury Board, Statistics Canada has been using contracts to charge fees to users. This procedure is not subject to the regulatory process.
25.28 Statistics Canada is now seeking formal revocation of the order-in-council on the basis of the legal opinion from the Department of Justice. The agency has estimated that "exemptions from the regulatory policy will have a beneficial impact resulting in annual cost avoidance of in excess of $150,000 in regulation preparation and publication fees."
25.29 By way of explanation for setting fees by contract, Statistics Canada told us that using an order-in-council to set fees "is highly impractical because the unique nature of each of the thousands of requests does not lend itself to approving pre-established fees." The agency also told us that "fees were charged on the basis of costs incurred."
25.30 The Canadian Parks Service. Up to the present time the Canadian Parks Service has used the regulatory process to control fee setting. In 1992, the Canadian Parks Service generated about $34.6 million in user fees. These fees currently are dealt with in 26 separate regulations promulgated under a number of different Acts.
25.31 In response to the government's February 1992 call for individual departmental review of regulations, the Canadian Parks Service carried out a review of its regulatory regime. As a result of this review, it was estimated that approximately $300,000 to $500,000 of revenue was lost due to delays caused by the existing regulatory process.
25.32 The review highlighted difficulties, inefficiencies and loss of revenue involved in managing fees under the regulatory process. This led the Canadian Parks Service to seek legal advice, which indicates that it can consider other mechanisms for the control of user fees, including contracts or new legislation.
25.33 National Archives of Canada. The National Archives has been charging user fees for a number of years. In 1992 it charged clients about $120,000 for reprographic and other copying services and archival training services.
25.34 In August 1989, pursuant to the Financial Administration Act , the Governor in Council authorized the Minister of the Department of Communications to prescribe fees by order. The Minister has not issued such an order. Thus, in our opinion, the Archives has been charging fees without ministerial authority. The Archives states that it did not obtain the ministerial order because it is seeking to have its order-in-council revised to reflect the December 1989 Treasury Board user fee policy.
25.35 In June 1992, the Archives began the process of obtaining a new order-in-council and the required ministerial fee order. The revised fees were scheduled to be effective 1 April 1993.
25.36 In August 1992, the Regulatory Affairs Division, Treasury Board questioned why the National Archives was following the regulatory process to obtain the necessary authority to charge fees when it could use a contract. The Archives then sought legal confirmation that it could proceed using contracts.
25.37 In January 1993, the Archives was advised to revise its fee order in accordance with the requirements of the Financial Administration Act . It was believed that a contract could be used but, in the absence of a Treasury Board policy, the Archives received legal advice to follow the regulatory process.
25.38 The National Archives has advised us that the required order-in-council is expected to be approved by the end of fiscal year 1993-94, one year later than originally planned.
25.39 Department of National Defence. According to the Department, approximately $350 million in revenues were derived in 1991-92 from user fees. Examples include:
25.40 A 1973 order-in-council is the main authority that National Defence relies on to prescribe fees and charges for a wide range of services undertaken on behalf of non-defence agencies. The order-in-council authorizes the Minister of Defence to prescribe fees or charges.
25.41 In April 1992, the Standing Joint Committee of the Senate and the House of Commons for the Scrutiny of Regulations informed the Minister that the Department was not in compliance with the government's 1986 directive that all authorizing orders-in-council issued pursuant to section 19 of the Financial Administration Act should be revoked and replaced by new orders-in-council. The new orders-in-council would authorize the Minister to prescribe fees by means of an order of the Minister, which is then registered and published in the Canada Gazette.
25.42 In the fall of 1992, the Department wrote the Joint Committee and informed it that, after completing a study, the Department had concluded that it was not necessary to use ministerial orders to impose fees. The Department further stated that it planned to seek approval from Treasury Board and the Governor in Council to revoke the 1973 order-in-council, but would not be requesting a new order-in-council. According to National Defence officials, the Department is using contracts and memoranda of understanding to establish fees.
25.43 Department officials state that obtaining the required orders would lead to a proliferation of such orders and create an unmanageable administrative burden, because the types of services provided by the Canadian Forces and the Department are so diverse that it would be impractical to set fees in advance.
Use of technical legal reasons for not following the regulatory process25.44 Department of Energy, Mines and Resources. The Department of Energy, Mines and Resources charges fees (estimated at $6.4 million for 1993-94) for maps, charts, aerial photographs and survey plans. These fees are set under the authority of a 1972 order-in-council issued pursuant to the Financial Administration Act. The Department also plans to generate about $9 million in 1993-94, primarily from a combination of established charges and contracting of scientific services and testing activities. These fees are set under the authority of a 1974 order-in-council.
25.45 The Department has obtained several legal opinions from the Department of Justice. These state that, because neither of the above orders-in-council contains the words "by order", the documents used by the Minister to prescribe fees under those orders-in-council are not statutory instruments and are not subject to the regulatory process. As a result, the Department believes that, so long as it complies with the terms and conditions of the orders, there is no legal requirement to obtain new authorities. Thus, ". . . for technical reasons, the older orders-in-council escape the regulatory review process."
25.46 In its Sixth Report to Parliament in June 1984, the Standing Joint Committee for the Scrutiny of Regulations concluded that this approach was unacceptable and that it should be remedied. It recommended that every authorizing order-in-council adopted pursuant to the Financial Administration Act contain the words "by order". This would ensure that a minister's prescription of fees to be charged for a service or for the use of a facility would always be treated as a statutory instrument, and would be subject to the regulatory process.
25.47 In April 1986, in response to the Joint Committee's report, the President of the Treasury Board agreed that fees prescribed under the Financial Administration Act should be open to public scrutiny; subsequently, in December 1988, the Treasury Board's Guide on Financial Administration was so amended. However, he noted that, of the 36 "Authority to Prescribe Fees and Charges" orders known to be in effect on 31 December 1985, ten did not contain the phrase "by order". Neither of the Energy, Mines and Resources orders-in-council that did not contain the phrase "by order" was included on the list.
Questionable use of a general regulatory authority25.48 The Atomic Energy Control Board. Authority granted by Parliament for the specific purpose of regulating an economic sector is also being used as an authority to raise revenues.
25.49 The Atomic Energy Control Board (AECB) regulates the Canadian nuclear industry. In 1990, in response to the government's cost-recovery initiative, the Board began charging fees for licensing. It issued "cost-recovery fee regulations" pursuant to its general regulatory power in section 9 of the Atomic Energy Control Act . The regulatory process was followed.
25.50 The Standing Joint Committee considered these regulations in February 1991. The Committee concluded that the Atomic Energy Control Act does not expressly authorize the imposition of fees, and recommended that the Board request specific legislative approval from Parliament.
25.51 The Board believes, based on the advice of the Department of Justice, that it has the power to make cost-recovery fee regulations.
25.52 In December 1992, Cabinet agreed to proceed with the Board's proposal to seek new legislation for nuclear safety. The proposed legislation would, among other things, make explicit provision for the recovery of the costs of regulation from the users of nuclear energy. The legislation has not yet been tabled in Parliament.
25.53 In our opinion, the Board's establishment of fees by way of the general regulatory power is questionable. It converts a general regulatory power intended to ensure a safe and viable nuclear industry to one that can also be used to generate revenues for the government. This could pose a threat to Parliament's control over the government's raising of revenues.
- the adequacy of the legislative framework governing the establishment of user fees, particularly where fees are to cover the cost of requirements that the government imposes or where the government has a monopoly or quasi-monopoly on the service or facility;
- the application of section 19 of the Financial Administration Act ;
- the specific problems, if any, that lead to undue delays in the establishment of fees under the current regulatory process; and
- the advantages and disadvantages of using contracts to establish user fees.
- the minister has the authority to establish such fees;
- the fees should have been established by regulation;
- affected users have been adequately consulted;
- the cost and benefits of imposing the fees were assessed; and
- users of services and facilities are being treated equitably.
25.57 The Treasury Board should provide Parliament with a summary of fees being charged, the revenues raised, and the authorities under which they are established.
25.58 If other than statutory authority is being used to establish fees, the Treasury Board should ensure that the fees are developed in accordance with the principles of the regulatory process.
Department of Energy, Mines and Resources (NRCan) response: Further to the examination of the proposed regulatory reviews report, we concur with the facts presented in paragraphs 25.44 to 25.47.
The situation has been discussed with Treasury Board Secretariat's officials and the appropriate actions will be initiated by NRCan upon resolution of the two orders-in-council status.
Treasury Board Secretariat's response: The government has had a comprehensive user fee policy in place since 1989. It clearly sets out the legislative and accountability frameworks for establishing fees.
The policy states that the usual course for implementing fees is the regulatory process based on the legal authority conferred through departmental legislation or, in its absence, the Financial Administration Act (FAA). The application and use of the FAA was clarified when it was amended in 1991. In the user fee policy, it is recognized explicitly that in some limited circumstances, ministerial authority to enter into contracts with clients to implement fees is appropriate, but that clients must still be consulted, their feedback considered, and the impact of fees on them assessed and deemed to be acceptable.
We acknowledge there is always room for improvements to ensure the transparency of the mechanism used to establish fees, and openness to Parliamentary scrutiny. There may be some merit in reviewing the regulatory process pertaining to user fees and to consider opportunities for change.
We will remain vigilant in ensuring that departments respect the principles of the regulatory and user fee policies when using contracts, and that they report openly to Parliament on the revenues collected from contracts. We acknowledge that reiterating the precepts of the user fee policy and providing more precise directions to departments may be appropriate.