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1994 Report of the Auditor General of Canada

Assistant Auditor General: Richard B. Fadden
Responsible Auditor: Vinod Sahgal

Main Points

22.1 Foreign Affairs and International Trade Canada (the Department) spent $1.4 billion in 1993-94 on programs to promote and defend Canadian interests and serve Canadians at home and abroad. Parliamentarians and this Office have long been concerned with the prudence, probity and financial management and control of these programs. Our audit was designed to monitor the degree to which the government is addressing this concern.

22.2 There have been improvements in financial management and control in many areas since our last major audit of this aspect of the Department in 1987. A substantive effort has been made over the last two years. For example, the financial accounting system has been strengthened and there is increased awareness that cost is an important element in decision making. The need to link cost with results should follow.

22.3 The war is not yet won. Further progress is needed in many areas. The Department realizes that this will require a sustained effort over a period of time. Strong leadership will be necessary to encourage acceptance of financial management and control as a management priority throughout the Department worldwide.

22.4 There are distinct opportunities to deliver programs and related services more cost-effectively through the use of information technology and a more results-oriented management style, and through changes in the way foreign service allowances and properties are managed by the Department and the Treasury Board.

22.5 Where appropriate, increased delegation of authority from the Treasury Board to the Department could facilitate the realization of these opportunities.

22.6 We propose to keep a watching brief over further progress in the areas of concern.

Introduction

Mandate

22.7 The mission of Foreign Affairs and International Trade Canada (the Department) is to portray, promote and defend the interests of Canada and the common values of Canadians; to improve Canadians' awareness and understanding of the world; and to serve Canadians at home and abroad.

22.8 The Department draws its legislative authority from the Department of External Affairs Act . The Minister of Foreign Affairs manages the broad mandate of the program with the Minister for International Trade. Below the ministerial level, the Department's senior management consists of the Deputy Minister of Foreign Affairs, the Deputy Minister for International Trade and the Associate Deputy Minister of Foreign Affairs. Support is provided to the ministers by the Secretary of State for Latin America and Africa and the Secretary of State for Asia-Pacific. (A departmental organization chart is provided in Exhibit 22.1. )

22.9 The Department represents Canada in 146 locations in 98 countries around the world. There are 111 missions plus 35 other satellite offices.

22.10 The powers, duties and functions of the Minister of Foreign Affairs are defined in the Department of External Affairs Act . This stipulates that the Minister shall:

  • "co-ordinate the direction given by the Government of Canada to the heads of Canada's diplomatic and consular missions;
  • have the management of Canada's diplomatic and consular missions; and
  • administer the foreign service of Canada."
22.11 The Department of External Affairs Act stipulates that "a head of mission shall have the management and direction of his mission and its activities and the supervision of the official activities of the various departments and agencies of the Government of Canada in the country or portion of the country or at the international organization to which he is appointed." Heads of mission are appointed by Governor in Council.

22.12 A head of mission is accountable for all mission operations. In this context, the post abroad is a microcosm of the Government of Canada as a whole. Program and administrative staff posted abroad report directly to the head of mission, who is answerable to the deputy ministers in Ottawa for program delivery and administration of the mission.

22.13 The Department provides administrative and operational support (common services) for other departments and agencies represented abroad, such as the Canadian International Development Agency (CIDA), the Department of Citizenship and Immigration and the Department of National Defence. The presence abroad of all other departments and agencies is significant. More than half of all program staff working abroad are engaged in the programs of other organizations.

22.14 Support involves providing real property, materiel management and related services; managing locally engaged support staff; managing information technology and communications facilities; managing records; and providing security and financial, personnel and general administrative support to employees and their families.

22.15 The Department has estimated the cost of providing common services to other government departments at the missions to be $176 million in 1993-94. This figure represents 20 percent of its total operating expenditures. However, it excludes an allocation for headquarters overhead expenditures, as explained in paragraph 22.67.

Departmental Expenditures

22.16 The Department's expenditures have increased from $982 million in 1988-89 to $1,421 million in 1993-94. This represents an increase of $439 million in current dollars, or 45 percent in the last five years. As shown in Exhibit 22.2 , the growth in expenditures for grants and contributions accounted for $292 million of this increase. The bulk of the increase in grants and contributions is due to the following factors:

  • Canadian involvement in peacekeeping and membership in the United Nations ($132 million);
  • contributions for assistance to Central and Eastern Europe and the former Soviet Union ($84 million); and
  • contributions toward membership in other international organizations and payment to the Canadian Broadcasting Corporation for Radio Canada International ($74 million).
22.17 The balance of the increase of $147 million is due to an increase of $151 million in operating expenditures and, at the same time, a decrease of $4 million in capital expenditures. According to the Department, the increase in operating expenditures is explained mainly by the inflation affecting departmental salaries and operations abroad. The Department has also noted that increases in workload and the cost of new policy initiatives were offset by budget cuts of $100 million in existing operations and of $40 million in program transfers to other government departments.

Organization and Resources

22.18 Decision making in the Department is heavily centralized at headquarters in Ottawa. The geographic branches and the Corporate Services Branch provide direction and support to missions to carry out policy and programs abroad.

22.19 Missions abroad fall into two categories:

  • Bilateral missions are accredited to specific countries and organized functionally. These include larger missions that manage a full range of programs, such as political relations, trade, immigration, and CIDA; they also include smaller missions that specialize in some of these programs.
  • Multilateral missions serve Canadian interests in specific international organizations, such as the United Nations, the Organization for Economic Co-operation and Development and the North Atlantic Treaty Organization.
22.20 During 1994, Foreign Affairs and International Trade Canada employed 8,183 full-time equivalents worldwide. Of these, 2,433 are at headquarters and 5,750 are abroad. The full-time equivalents abroad are either Canada-based staff or locally engaged staff representing 1,127 and 4,623 full-time equivalents respectively.

22.21 From an historical perspective, the use of locally engaged staff in missions has increased, while the number of Canada-based staff has decreased. Exhibit 22.3 outlines the change in the distribution of personnel abroad for all departments over the past five years. During this period, Canada-based full-time equivalent staff abroad were reduced by about 300 and locally engaged staff increased by about 200. However, this does not constitute a net reduction in staff for all departments but rather a shift back to headquarters of staff posted abroad in some departments such as CIDA.

22.22 Departmental staff abroad are employed in five geographic regions. The greatest concentration of staff is in Europe, where 26 percent of Canada-based and locally engaged staff abroad are located. Canada has 36 missions and offices in 30 European countries. Staff are also located in Asia and the Pacific region (25 percent), Africa and the Middle East (20 percent), Latin America and the Caribbean (14 percent) and the United States (12 percent). The remaining 3 percent are with various international organizations.

22.23 Other government departments employ a further 637 Canada-based and 27 locally engaged staff abroad. The Department estimates that 1,246 of its locally engaged staff are allocated to the program activities of other government departments.

22.24 Approximately half the Department's workforce or 4,048 full-time equivalents are engaged in providing common services in Canada and abroad. Common services include activities such as administration, finance and human resource and property management. The distribution of the Department's common services and program personnel between headquarters and abroad is illustrated in Exhibit 22.4 . There are 2,717 full-time equivalents providing common services abroad, of which 2,340 are locally engaged and 377 are Canada-based. Common services abroad support programs of the Department and programs of other government departments.

22.25 One third of the Department's Canada-based foreign service officers are dispersed around the world at any one time. Thus, the Department needs people who are rotational, that is, ready to serve abroad. Two thirds of all Canada-based staff are listed as rotational.

22.26 Canada-based staff are abroad, on average, for three years. Some post conditions allow for two-year posting cycles - 25 percent of the Canada-based staff abroad are at these missions. The remaining 75 percent of staff are on three- or four-year assignments.

22.27 Canadian missions and offices are rated according to the varying degrees of hardship to which employees are deemed to be subjected while located there. There are six hardship levels, ranking from least hardship (level 0) to most hardship (level 5). Conditions such as isolation, climate, medical care and violence/hostility are all examined by an interdepartmental Hardship Posts Committee. Exhibit 22.5 shows the number of missions and offices by hardship level worldwide in June 1994. Of the 146 missions and offices, 56 were identified as 0-level posts.

Financial Management Infrastructure

22.28 Exhibit 22.6 shows the organization of the Department's financial function. It illustrates where the key financial officers are located in the Department and their relationships with the Assistant Deputy Minister, Corporate Management (Senior Financial Officer), the Senior Full-time Financial Officer and program branches. This chart shows the many stakeholders involved in the financial function both in headquarters and in missions abroad. In addition, it shows the wide span of activities under the responsibility of the Senior Financial Officer and the limited scope of the operating responsibilities of the Senior Full-time Financial Officer.

Our Previous Financial Management and Control Audit Work at the Department (1987-93)

22.29 Issues of prudence, probity and weak financial management and control have been recurring themes in reports by our Office and the Department's Office of the Inspector General. The national audit offices of other nations, including the United States, Australia, France and Britain, have raised similar concerns about their own foreign services. This suggests that the foreign service community has had repeated systemic problems in these areas that have not been fully resolved. It also raises the question: What priority should be given to financial management and control within the foreign service environment?

22.30 Our last comprehensive examination of the Department's common administrative services was reported in our 1987 Report. We stated at that time that improvements were necessary in areas such as financial management and control; real property management; foreign service directives; telecommunications; and internal audit and program evaluation.

22.31 In our 1989 follow-up report, we stated that progress had been slow in implementing the major changes to processes and systems needed to address the issues identified in 1987. The Department responded to this concern with the statement that factors beyond its control, such as the decentralization of the aid delivery program to missions abroad, had contributed to the delays.

22.32 Section 10 of the Auditor General Act obliges us to report to the President of the Treasury Board cases where it appears that public money has been improperly retained by any person. In 1990, pursuant to this section, we wrote to the President of the Treasury Board outlining our concern about the lack of financial control over money advanced to departmental employees. We also pointed out that, based on audit work completed over the past few years in the Department in the area of financial management and control, we believed there was a need for a thorough examination of the role, authority and organization of departmental senior financial officers and of the support provided to the financial function of the Department. In the same year, we reported to Parliament on the need to improve the control of money advanced to employees.

22.33 Since 1990, we have continued to monitor the Department's efforts to resolve such concerns. Our general observation during the period 1990-92 was that progress was being made but that it was too early to assess the full impact of the changes. Meanwhile, the Department continued to pursue several initiatives to improve financial management and control and anticipated that, in due course, those initiatives would produce the desired results.

22.34 In 1993, with a growing number of reports highlighting incidents of waste and abuse in the Department, we increased our monitoring efforts in preparation for this audit.

22.35 Our monitoring work led us to the following interim conclusions at the end of 1993:

  • The Department was investing heavily in attempts to address certain known accounting and control problems.
  • The Department had implemented extensive detective procedures to identify weaknesses in financial administrative practices at Canadian missions.
  • The Department was focussing on long-standing internal accountability issues.
  • However, it was unclear how well the Department's initiatives were addressing the root causes of its financial management and control problems.
  • The link between cost and results was not a predominant feature of the Department's ongoing management information system.

Audit Objective, Scope and Approach

22.36 Objective. The primary purpose of this audit was to ascertain the degree to which both substantive and sustainable improvements have been made to financial management and control in the Department.

22.37 Scope. This audit was aimed at two distinct but related levels. The objective of the first level of the audit was to determine the extent to which the Department had carried out the recommendations made by the Standing Committee on Public Accounts in its 1990 Ninth Report to the House of Commons (Department of External Affairs Employees' Advances) . The Committee issued this report following its hearing on the 1990 Report of the Auditor General.

22.38 The intent of the second level of the audit was to assess the quality of stewardship of resources entrusted to the Department by Parliament, with particular emphasis on the comptrollership aspect of management. To this end, we examined several areas: property management, foreign service directives, information technology, and the internal audit and program evaluation functions.

22.39 The key questions raised in this audit were:

  • Comptrollership: Does the Department require a stronger comptrollership function?
  • Property management: What specific benefits will flow to taxpayers from the special operating agency set up to manage, in a businesslike manner, the large inventory of departmental properties at its missions?
  • Foreign service directives: Have the long-standing concerns over the monitoring of costs and the complexity of these directives been resolved?
  • Information technology: Is the use of information technology improving the productivity and quality of services provided by the Department?
  • Internal audit: Is there a need to further strengthen the role of this function?
22.40 Approach. We visited 10 missions to further our understanding of their financial controls and related procedures and to obtain input from heads of mission and their program managers for the design of this audit.

22.41 We did not specifically audit any missions but relied on the results of internal audits by the Department. Years of internal audit results have emphasized the importance of headquarters in resolving many of the weaknesses in financial management and control found at the missions. An essential element of our approach was to build on previous work done by our Office and the Department's Office of the Inspector General, which visits almost every mission once a year.

22.42 We focussed the majority of our work on the current corporate financial management and administrative infrastructure at headquarters and its impact on departmental and mission operations. Special emphasis was placed on examining planned and ongoing corporate initiatives to resolve long-standing problems in financial management and control.

22.43 Another key consideration was the Department's ability to promote cost-conscious behaviour and encourage efficiency. We encouraged the Department to search for and disseminate information on best practices, and we conducted a joint study with the Department of certain foreign service directives. This study includes a survey of similar public and private organizations in Canada and in other countries to determine how they provide compensation for serving abroad. We propose to provide the results of this study to the Department in due course.

Audit Observations

Follow-up to the Recommendations of the Standing Committee on Public Accounts

22.44 In 1990, as mentioned earlier, there was a hearing of the Standing Committee on Public Accounts on our 1990 audit note titled "Need to improve control of monies advanced to employees". We indicated at that time that our concern regarding advances to employees was but one example of several problems created by a lack of sound financial management and qualified financial and administrative staff in the Department.

22.45 We were convinced that there was a need for a thorough examination of the role, authority and organization of departmental senior financial officers and the support provided to the financial function of this Department. In addition, the then Auditor General informed the Committee that "the Department also needs to take a hard look at the attitudes of its employees toward financial management."

22.46 The Committee's Ninth Report to the House of Commons , issued in December 1990, made five recommendations to the Department. Exhibit 22.7 provides a summary of these recommendations together with our assessment of the actions taken by the Department.

Results of our current follow-up
22.47 The Department has addressed weaknesses in accounting controls and procedures, specifically, weaknesses in the control of money advanced to employees, in the collection of rent from employees, and in financial accounting at missions. The Department has also initiated improvements in the recruitment and training of qualified financial officers at headquarters and missions.

22.48 As encouraging as this is, it is not clear that these improvements can be sustained or that the root causes (discussed below) of many of the Department's problems have been fully dealt with.

22.49 The effectiveness of the many recently implemented organizational changes, processes and procedures can be demonstrated only over time. Lasting improvements to systems depend on how deputy heads and the Treasury Board deal with the following factors that affect sound financial management and control.

22.50 Accountability is unclear at times. For example, when monthly rents (shelter shares) remain unpaid for several months, who is accountable for ensuring that they are paid? Certainly, the employee has a responsibility to pay his or her rent on time. But surely the supervisor at the mission is also answerable in the case of a recalcitrant employee. Similarly, who is accountable if the deduction for rent is not made on a timely basis at headquarters? Finance Division? Personnel Division? or some other division? There is a need to clarify accountabilities and, wherever possible, designate a focal point for follow-up when a problem is detected.

22.51 Transactions and the accounting systems that support them are administratively complex. The unique nature of many accountable advances and the volume and complexity of the underlying transactions may at times require a different approach from that used by other government organizations. For instance, it is difficult to satisfy the Treasury Board requirement that stipulates that travel advances must be accounted for not later than 10 working days after the travel has been completed. Experience has shown that 10 working days is a difficult standard to meet in this Department; it may be possible to simplify accounting in this area to help meet the requirement. The government could learn from the many international organizations that are modernizing their systems with increased computerization, the use of credit cards and simplified per diem travel advances. For example, the Export Development Corporation uses a system that combines these features.

22.52 We recognize that in the case of foreign service directives, the Department's ability to simplify accounting is limited. The Department indicates that the underlying complexity of the foreign service directives is beyond its control, since the Treasury Board Secretariat and the unions are heavily involved. This matter is discussed in greater detail in the foreign service directives section of this report.

22.53 Geographic dispersion is a unique element that adds to the Department's administrative burden. Pressure to open new missions makes efforts to deal with the administrative implications of geographic dispersion even more essential. To help ease the administrative burden, the Department has increased delegation of accounting control and procedures to the missions in areas such as the settlement of accountable advances; it has also implemented FINEX (an on-line worldwide financial information system) and SIGNET (a department-wide computerized message system).

22.54 The attitudes of employees will have to change . The support for and commitment to improved financial management and control ultimately rests with the individual employee at all levels. If employees do not behave in a way that fully supports improved financial control, any improvements the Department has made in its "systems" will ultimately not be sustainable.

22.55 In summary, while some improvements in financial management control procedures have been implemented, their sustainability is not yet assured.

Comptrollership

22.56 The Treasury Board, in defining good financial management, control and accountability, endorses the notion that all managers are trustees of public resources and requires that they be answerable for the use of those resources. Program managers have important responsibilities in this regard, as do financial officers. The Comptroller General of Canada has defined comptrollership as "the essential, integrated business processes that must be in place in any organization to:

  • manage financial risks;
  • understand the financial implications of decisions before they are taken;
  • properly track and account for the financial transactions and operating results of all financial decisions; and
  • protect against fraud, financial negligence, violation of financial rules and principles, and losses of assets."
22.57 In our 1992 Report (Chapter 4, ``Change and Control in the Federal Government") we described the concept of "control" in its broadest sense of creating the conditions that lead to the achievement of objectives. Control is formalized in a variety of ways, including the use of mission statements, goals and objectives, policies and procedures, and standards and information reporting. It is informally exercised where the influences are ethics, values, trust or commitment and a results-oriented mindset. Having a good balance between formal and informal controls contributes to effective overall control. Furthermore, we stated that in government, sound control means having reasonable assurance that agreed standards of performance will be met while achieving probity, value for money and compliance.

22.58 In our 1993 Report (Chapter 6, ``Canada's Public Service Reform and Lessons Learned from Selected Jurisdictions") we indicated that "an important theme of Public Service 2000 is the increased delegation of authority from central agencies to departments and, within departments, to the lowest levels reasonable."

22.59 Comptrollership is as much a way of thinking and a concern for public assets and expenditures (on the part of all employees and not just financial officers) as it is a set of approved management expectations and techniques. While the senior financial officer is usually assigned the task of developing and maintaining comptrollership in organizations and often holds the title of "comptroller", the responsibility for managerial risk clearly rests with the managers making the decisions.

22.60 The deputy heads and managers at all levels in the Department are responsible for ensuring that there is sound comptrollership in their respective responsibility centres. Comptrollership is not an option. It is essential to achieving objectives and meeting the fiduciary responsibilities entrusted by Parliament.

The Department has taken steps to strengthen comptrollership
22.61 The Department has taken steps in several areas to improve financial management practices across the organization. For example, the Canadian Foreign Service Institute was established in 1992 to provide continuing education in a variety of areas, including financial management and control. The Institute's Heads of Mission Pre-departure Program is now in its second year. Approximately 60 newly appointed heads of mission have taken part in this program of participative learning and discussion, which focusses on their responsibilities abroad, typical problems at the mission (many in the areas of finance and administration) and government priorities.

22.62 Mission comptrollership also requires qualified and capable mission administrative officers. The Department has undertaken an initiative to improve the calibre of these officers abroad through enhanced recruitment and training programs.

22.63 Another of these initiatives, and perhaps the most visible, has been the internal audit of missions. More than 200 audits have been conducted in the past two years. Besides identifying specific areas for improvement, these audits sent a clear and repeated message worldwide that financial administration and control in the Department must be strengthened.

22.64 Cost awareness is becoming more prevalent throughout the Department. The Corporate Services Branch has recently undertaken initiatives to better understand the full costs of providing many of its services as well as the factors impacting on these costs. This work could be the first step toward reinforcing a sense of comptrollership at the corporate level. For example, the full costs of delivering programs and activities abroad in each mission could be provided to heads of mission, thus reinforcing current efforts to strengthen the performance review process and, ultimately, the accountability of heads of mission for measurable results. In addition, the costs of other government departments in missions abroad could be charged out to these departments. This could enhance accountability, transparency and, possibly, efficiency. We recognize that this would entail some increase in administration costs.

22.65 Until recently, the Department did not identify and report the cost of providing services abroad to other government departments. By early 1994, however, the Department had developed a costing model that has the potential to attribute the costs of various activities. Once the Department has more accurate ongoing information on the cost of its own activities, it will be in a better position to assess their costs and benefits.

22.66 The development of this costing model is a significant first step in establishing a full-cost mindset within the Department. In one of its first applications, the model was used to identify the forecasted costs of operations abroad for 1993-94. The results were then used in negotiating with other government departments their shares of the Department's budget reduction for 1994-95 and future years. Based on feedback from the Treasury Board Secretariat and other government departments, the Department believes that development of the costing model has satisfactorily met the objective of its first application.

22.67 Further steps will be required to ensure that full costing information is obtained for proper disclosure and decision making. For example, the cost allocated to operations abroad did not take account of some program delivery costs at headquarters, such as finance and administration. The allocation of all overhead costs could represent an additional $40 million to $100 million in services provided to other government departments. These services are currently estimated at $176 million for 1993-94. The Department advises us that it remains committed to extending the model to encompass the entire departmental budget. It also intends to convert the model to a data base format to enhance its accuracy and utility for program analysis, planning and reporting.

22.68 Headquarters has also improved accounting controls in areas such as the collection and recovery of accountable advances and shelter shares. Over the last few years, the Department has implemented an on-line worldwide financial information system (FINEX). Its evolution from a financial accounting information system to a fully integrated financial management information system is beginning. This advance could provide improved and more timely information to support effective financial decision making.

22.69 Headquarters has completed a study to reduce the reporting requirements that have particularly burdened small missions abroad. This study has identified many reports that are no longer required or can be simplified. The Department is currently acting on these findings. For example, of the current 121 reports being completed by missions, 12 have been eliminated for all missions and a further 13 have been eliminated and 16 simplified for small missions.

Some factors that impact upon comptrollership
22.70 Departmental officials point to just how little of their budget they can directly influence to control future cost increases. For example, they indicate that the level of support services to other government departments, the amount of peacekeeping and other contributions, and the cost of membership in international organizations are not within their discretionary authority. Decisions on the level of such expenditures, which represent some $550 million out of the Department's $1,420 million budget for 1994-95, are taken at the political level. In our view, while this may well be true, the need to manage funds with due regard to prudence, probity and value for money remains with the Department. Chapter 21 of this Report, which deals with the management of contributions for technical assistance provided to Eastern Europe and the former Soviet Union, illustrates this view.

22.71 The Department has also stated that the increase in its operating expenditures due to foreign price inflation and changes in the value of the Canadian dollar is another area outside its direct control. In our view, the Department has the ability to reassess the size of its operations in high-cost, high-inflation countries and to make appropriate adjustments.

22.72 Traditionally, foreign service operations have emphasized skills related to the development of foreign policy as opposed to those related to financial management. In the last few years, fiscal restraints, advances in information technology and a higher priority placed on measurable results have shifted this emphasis. Today, it is necessary to reinforce not only good policy development but also good management skills. The Department has introduced an individual performance appraisal system that reflects the new emphasis on management skills.

22.73 Recent changes in priorities will require strengthened comptrollership. The Department has moved to strengthen this function through the establishment of its Program Management Board, a committee of deputy ministers and the Assistant Deputy Minister, Corporate Management that approves all expenditures over $100,000 after consideration of policy and resource management issues.

22.74 The Department believes that Treasury Board is still heavily involved in micro-managing the Department's activities. Our review of 48 of 50 submissions made by the Department to Treasury Board during 1993-94 revealed a number of instances that support this view. For example, submissions had to be made for such straightforward expenditures as contracting for cleaning services in Tokyo, renting hotel rooms in Vancouver, and reimbursing the salary of a person from the private sector on interchange to the Department. This perpetuates a sense of micro-management from outside the Department. A results-oriented mindset is difficult to achieve in this environment.

Need for a stronger sense of comptrollership at missions
22.75 Comptrollership must become an essential value for each manager, including the head of mission. In a foreign service context, this implies acceptance of the need for flexibility to adjust operating procedures to local conditions. Since Canada-based managers and staff change posts regularly every two to four years, a common set of values would ensure continuity when new staff are posted.

22.76 Comptrollership at the missions is being improved. The following are some ways in which it can be further strengthened:

  • First, a results orientation needs to be institutionalized. Mission objectives do not clearly define expected outputs, outcomes or accomplishment in any measurable way against the costs incurred.
  • Second, there is a need for more cost awareness. The heads of mission do not know the full costs of running their missions. Many costs incurred at headquarters for the missions are not reflected in mission budgets. An example of this is the allocation of overhead costs from headquarters. These items represent a major proportion of the costs of running a mission. Recognizing this, the Department is further developing its costing model and is upgrading its financial system (FINEX) to provide this information to departmental management.
  • Third, responsibility to control costs needs to be matched with authority. Heads of mission have indicated to us that they have limited say in many of the decisions associated with the programs of other government departments that they are expected to supervise. If key decisions relating to other government departments abroad are the responsibility of their managers, what is the head of mission expected to supervise?
  • Fourth, some heads of mission need to set a better example to staff. The Department's Office of the Inspector General has pointed to the continued need for heads of mission to demonstrate leadership and interest in financial management and to set an example to staff concerning proper spending values and ethics.
  • Fifth, mission administrative officers and their staff need to have the stature, knowledge and experience required to ensure that employees are following appropriate standards of prudence and probity. To improve their effectiveness, the Department will convert mission administrative officers to foreign service officers as part of a larger initiative to restructure the foreign service classification system.
22.77 The head of mission and the mission administrative officer must act as a team to ensure effective comptrollership. Simultaneous transfers of the head of mission and the mission administrative officer can greatly disrupt the smooth running of mission operations. At one large and growing mission in a developing country, the Department transferred the head of mission and mission administrative officer simultaneously during the summer of 1994- perhaps there should have been as much as one year overlap. To our knowledge, there is no formal departmental policy that addresses this issue.

Alternative approaches for future consideration
22.78 A fundamental aspect of comptrollership in any organization is appropriate attitudes and behaviour on the part of its human resources. An organizational culture that reinforces concern for public funds and appreciation of the full costs of decisions is essential. We believe the Department should strengthen comptrollership through increased cost awareness in all areas of its operations.

22.79 During this audit, we were able to identify some key factors that affect cost awareness at all levels in the Department ( Exhibit 22.8 ). The Department may wish to examine and address these factors.

22.80 The Department is encouraging its heads of mission to seek out useful ideas that are emerging in other foreign ministries. The government may also wish to look to other governments for ideas on how to improve comptrollership. A start could be made by examining some approaches adopted in Australia and New Zealand.

22.81 Australian experience. As part of its Financial Management Improvement Program, the Australian government introduced the principle of "devolution" -- allowing managers more flexibility in managing their resources to achieve stated government objectives. Devolution was achieved through a less centralized structure and through greater emphasis on accountability to ministers, Parliament and the public for program performance. Further, the appropriation rules were changed so that, once administrative expenses were approved by Parliament, funds could be managed flexibly by departments according to approved priorities. For instance, Australian heads of mission have the authority and flexibility to roll over funds to, and to borrow funds from, the next year's operating budget. This gives heads of mission more opportunity to run their missions in a businesslike manner.

22.82 New Zealand experience. Similarly, changes to the New Zealand Public Finance Act have given more autonomy to the operating units of the Ministry of Foreign Affairs. The Ministry exercises wide discretion over how funds allocated to it will be spent, provided results are costed and measured. Managers under this system have a clear sense of responsibility as well as the financial resources to meet performance expectations. Stated performance deliverables and desired government outcomes eliminate doubt about what anyone should or should not be doing. The Ministry evaluates its posts twice a year, placing particular emphasis on the performance of heads of mission as it relates to the cost of meeting specific mission objectives.

22.83 In summary, the need to strengthen comptrollership warrants continued attention.

Property Management

Background
22.84 The Department estimates that the value of its Crown-owned property worldwide was between $2 billion and $3 billion in 1992-93. The annual rent, including taxes paid for Crown-leased properties abroad, was estimated at $133 million.

22.85 The Department provides office and residential accommodation to its employees and to employees of other government departments who are posted abroad. The Physical Resources Bureau, an organizational unit within the Department, manages these properties on the Department's behalf.

22.86 The Director General of the Bureau reports to the Assistant Deputy Minister, Corporate Management, who is accountable for major property decisions. The Bureau is responsible for strategic property planning, analysis and reporting and for liaison with Treasury Board, other government departments and the private sector on property matters. The Bureau also manages the Long-Term Capital Program, the buying/leasing of chanceries and official residences, major property renovations and the property requirements of other government departments.

22.87 Several other key stakeholders work with the Bureau to effect property decisions abroad. Geographic branches identify property needs, provide assistance and input to the Bureau, and manage properties abroad; that is, they manage the leasing of staff quarters, payment of rents for leased properties and routine maintenance. They, in turn, delegate appropriate authority to the heads of mission. Heads of mission play a key role in identifying their property needs and in providing the data on local property for input to the Bureau's worldwide property information system. Other government departments identify their property needs abroad and work with the Bureau to fulfil those needs.

22.88 Decision making with respect to major capital expenditures is shared among the Physical Resources Bureau, the geographic branches and the missions. Property needs are identified and agreed on by these stakeholders, then integrated into the Long-Term Capital Program. The Program is approved annually by the Departmental Program Management Board.

22.89 The departmental property-related capital and operating expenditures for 1988-89 and 1993-94 are presented in Exhibit 22.9 . Over this five-year period, expenditures rose 20 percent. However, there were significant decreases as well as increases during this period.

Progress since 1987
22.90 In 1987, we reported that roles and responsibilities for budgeting and monitoring overall departmental accommodation costs and for ensuring that accommodation standards were adhered to should be better defined. Ill-defined roles and responsibilities had resulted in weaknesses in the accommodation planning process, ad hoc monitoring of the costs of staff quarters and their adherence to standards, and delays in issuing guidelines to missions.

22.91 We therefore recommended that the Department:

  • clearly define and communicate roles and responsibilities for planning and monitoring accommodation;
  • further improve its accommodation planning process by ensuring that inputs to the Long-Term Capital Program result from a systematic review of current holdings, accommodation needs and costs; and
  • seek from Treasury Board a higher limit on its authority to acquire property, as well as authority to use disposal proceeds when acquiring property to be used for the same purpose.
22.92 We reported in our 1989 follow-up to this audit that departmental progress to address these recommendations had been slow. We also noted that the management of property abroad was still reactive; that is, accommodation planning remained inadequate.

22.93 Following the appointment of a new director general for the Bureau in 1992, a number of initiatives were undertaken to improve cost-effective management of properties worldwide. These included:

  • clarification of roles and responsibilities relative to property management;
  • reorganization of the Bureau along its main lines of business -- strategic property planning, project implementation and services to missions;
  • enhancement of a project delivery system;
  • improved communication between the Bureau and the geographic branches;
  • in collaboration with missions. introduction of a property management plan for each mission;
  • significant changes to property management information systems;
  • the use of different approaches to financing property transactions; and
  • development of a human resource and training plan for Bureau staff.
Physical Resources Bureau designated as a special operating agency
22.94 In early 1993, the Department sought and obtained Treasury Board approval (effective 1 July 1993) to transform the Bureau into a special operating agency. The objective is to allow the Bureau to operate in a more businesslike manner. The Bureau is expected to simplify and modernize its methods with a view to reducing costs and providing cost-effective accommodation and facilities.

22.95 The Treasury Board approval includes, among others, two key features. It gives the Bureau authority, in principle, to retain and reinvest revenues generated through property disposals, rentals and sublets. However, full authority to spend in future years revenues generated in the current year was not provided. The approval also allows for a transitional approach in which the Bureau will progress toward full empowerment as a special operating agency within the Department over a period of 20 months. In our view, these two features will directly enhance the Bureau's ability to manage properties in a cost-effective manner.

22.96 The Treasury Board Secretariat shares the view that the reinvestment of proceeds from the sale of surplus property is essential to strategic property management. However, given the current commitment to deficit reduction and spending controls, it requires that the Department contribute a portion of the net proceeds from the sale of properties to meet this commitment. The challenge facing the Department and the Secretariat is to adequately contribute to this commitment while reinvesting sufficient revenues to enable the Department to meet accommodation requirements abroad in a businesslike manner.

22.97 Further, Treasury Board approved, in principle, the transitional business plan for 1993-94 and 1994-95. However, the Treasury Board decision imposed some important limitations: the Department will not be entitled to 100 percent of sale proceeds but to a percentage determined each year based on government-wide affordability considerations; and this percentage of sale proceeds can generally be accessed late in the fiscal year through supplementary estimates. This restricts the availability of both time and funds. If permanent, the limitation could hinder the ability of the Bureau to make cost-effective property decisions.

The Bureau is developing a capacity to function as a special operating agency
22.98 We believe that effective property management requires, among other things, an organization structured and staffed to deliver services effectively; relevant and quantifiable performance goals that measure cost effectiveness; and access to complete, accurate and timely information for property management.

22.99 The Bureau has addressed these requirements. For example, the Bureau is completing a reorganization of its operations along its main lines of business. However, there is more work to be done.

22.100 Bureau management recognizes the value of highly trained staff in achieving its objectives and has indicated that training initiatives are planned in the following areas:

  • additional training for portfolio managers in investment management and analysis techniques;
  • more training for project officers in project management; and
  • expanded training for staff responsible for mission support services (for example, procurement, maintenance and shipping) in order to ensure a more client-focussed approach to the provision of these services.
22.101 Bureau management has informed us that some performance targets to measure cost effectiveness are already established in general terms. Targets include:

  • holding the base Long-Term Capital Program appropriations at $31 million for future years (as opposed to the previous five-year average of $43 million);
  • financing the current and future Long-Term Capital Program expenditures of over $300 million through three principal methods: appropriations of $155 million; proceeds from property sales and rentals; and new financial arrangements involving the leveraging of private sector funding; and
  • reducing the leasing costs that are being incurred at present.
22.102 We believe that other quantifiable indicators also need to be considered to measure success and illustrate progress toward more businesslike property management. For example, the cost of accommodation per employee abroad and the cost per square metre of office space provided are the kinds of indicators that could be used.

22.103 All property management information systems were recently reviewed for the Department by an informatics consultant who concluded, among other things, that:

  • a comprehensive information management plan should be developed;
  • the quality and timeliness of information needs to be improved; and
  • as yet, not all current information technology meets SIGNET standards.
22.104 Bureau management agreed with the thrust of the consultant's report and has set up a task force to implement its recommendations. Specific deliverables have been identified for both the short-term and long-term informatics plans.

Significant opportunities exist to achieve savings
22.105 Significant savings could be realized in four specific areas: property disposals, underutilized properties, leasing costs and representational housing.

22.106 Property disposals. The Bureau has identified within its Long-Term Capital Program several oversized or underutilized properties worth approximately $146 million. Two recent events that illustrate the current availability of properties for disposal are the centralization of CIDA and the rationalization of immigration offices from numerous missions to one regional mission site.

22.107 Government decisions to close certain missions, as well as specific disposals directed by Treasury Board, are also cited as reasons for selling properties. These factors have changed departmental accommodation requirements in several locations abroad.

22.108 Our concern is the length of time it will take to generate savings. Property disposals can be complex and lengthy because of market conditions abroad. Properties are located all around the world but the disposal decisions are made in Ottawa. This accounts for some delay. For example, appropriate property appraisals in certain countries are difficult to obtain and approval by the Department of Justice is required to retain legal firms abroad. Moreover, unless the Department can be assured of capital funding to replace certain high-cost properties, delays in the disposal of those properties will result. In the past, the disposal of some properties has been quite slow. For example, several properties in Port of Spain, Canberra and Dar-es-Salaam that were approved for sale in 1989, 1990 and 1991 were not sold until the middle of 1994. In 1994-95, 26 properties were sold for $14 million. Almost all properties were identified for sale after January 1993, indicating that property sales are proceeding quite quickly. Notwithstanding this, the Department continues to pursue improvements in this area.

22.109 Underutilized properties . As organizations evolve, requirements change. The Department has bought properties around the world over several decades. Some of these properties have appreciated substantially during this time and are not being used to their best market potential. The Bureau has identified properties, including official residences with substantial equity, in Brasilia, Kuala Lumpur, New Delhi and Tokyo that could be put to better use. We encourage the Department to actively pursue the opportunity for savings at such locations.

22.110 Lease costs . There is also a potential for reducing property lease costs worldwide. One way to accomplish this is by purchasing and building accommodation. Bureau management has indicated that this will reduce leasing costs; reductions are expected to be $2.3 million in 1994-95 and progress to $11 million in 1998-99. It should, however, be noted that there are significant offsetting costs attached to ownership such as interest, depreciation and maintenance. These should be taken into account in any calculation of net savings that might result. Other ways include reducing leased space and renegotiating leases where the market is favourable for reduced rents (this would save approximately $1 million a year); and leasing out vacant office space to reduce costs by $650,000 a year. Effective 1 October 1993, the Canadian mission in Jakarta reduced its office space by 16 percent when CIDA's operations were centralized. This saved about $118,000 in annual rent. Similar opportunities exist in Bangkok, Lagos and Lusaka.

22.111 Representational housing. Representational housing refers to the space allocated in staff quarters abroad for official hospitality. A representational house is generally larger and more expensive than other staff houses. In early 1994, the Department changed its eligibility criteria for representational housing. Initial feedback from the missions indicates that this change will represent significant future savings.

22.112 In summary, we believe that increased flexibility to reinvest proceeds from sales is essential for the Bureau's success. However, the Bureau needs to demonstrate its commitment to realizing financial savings by setting and meeting quantifiable performance targets for which it can be held accountable, and by completing its reorganizing and training efforts.

Foreign Service Directives

Background
22.113 Foreign service directives (FSDs) describe the supplementary compensation and conditions of employment applicable to employees serving abroad. They took their form as directives after 1969 following an intensive study by Treasury Board Secretariat and departmental officials of the particular needs of foreign service employees. Prior to 1969, compensation was provided through a series of allowances dating back to 1907, which were formalized into the Foreign Service Regulations in 1962.

22.114 In combination with salary, the foreign service directives attempt to ensure that qualified persons are recruited and retained to serve abroad effectively. Variations in conditions of employment abroad are compensated for to the extent possible. Conditions for the application of the directives are defined in the text of the FSDs, issued by the Treasury Board Secretariat and administered by the Department, both for departmental employees and for certain other public servants abroad.

22.115 The directives are based on three principles:

1) The comparability principle recognizes that employees serving abroad should be able to maintain a standard of living that is neither less nor more favourable than that in Canada. They should have access, for example, to comparable shelter, education of dependants and health care.
2) The incentive-inducement principle recognizes the importance of providing additional allowances to attract employees to serve outside Canada. There are four provisions: foreign service premium, post differential allowance, foreign service leave option, and foreign service travel assistance.
3) The program-related principle attempts to ensure that employees abroad are provided with the means to carry out the programs assigned to them; for example, they are relocated at employer expense.
22.116 In 1987, we reported on our concerns that the Department should examine ways to simplify the FSDs and make them easier to apply. The Department responded that efforts were being made to simplify the directives. We also expressed concern over the Department's monitoring of their costs and compliance with conditions. We recommended that the Department compare actual costs with estimates and improve procedures for monitoring. The Department agreed.

22.117 We also questioned the procedures for determining whether the FSDs achieved their stated intent and recommended that the Treasury Board Secretariat regularly evaluate and report the extent to which the directives do so.

22.118 In 1989, we reported that progress in implementing our recommendations had been slow. The Department responded that there had been delays in comparing actual costs with estimates. We also noted that simplification of the directives was viewed by the Deputy Minister as a matter requiring serious attention.

Progress since 1989
22.119 The Department has undertaken several initiatives to address our concerns. By 1989, it had already begun working as part of a steering committee to review individual directives. A number of recommendations were made for joint employer-employee consideration. Some of the proposals put forward were included in the 1993 revision of the directives, for example, the use of non-accountable advances.

22.120 At the same time, the Department, with the committee, examined options to simplify the existing FSD system. The committee made several proposals but there was little action.

22.121 The Department has prepared and distributed a Foreign Service Handbook to help employees and mission administrative staff use the FSDs. It is currently reorganizing its personnel and finance divisions to streamline administration and is examining ways to automate the directives to make them more user-friendly.

22.122 Among its other initiatives, the Department has begun keeping a record of interpretations of the directives for future reference. It is also offering a course at the Canadian Foreign Service Institute on the application of FSDs and is contributing to a more active interdepartmental working group on their administration.

22.123 We regard these efforts by the Department as positive and commendable. However, our long-standing concern regarding the complexity of the foreign service directives has not been fully resolved. Perhaps one indicator of the complexity of the directives is their size. Prior to becoming directives negotiated with employee representatives, the 1967 Foreign Service Regulations consisted of about 100 pages. Today, the FSD text is more than 450 pages.

The foreign service directives remain complex
22.124 The Department and the Treasury Board have been unable to address the complexity of the foreign service directives. The number of stakeholders involved and the complexity of the process to effect change have hindered progress toward achieving this goal.

22.125 The Department cannot act unilaterally. Other departments and agencies have a stake in the directives. These stakeholders include the Treasury Board, the Treasury Board Secretariat and employee representatives at the National Joint Council, the Department of National Defence, the Royal Canadian Mounted Police, the Canadian International Development Agency and the Department of Citizenship and Immigration.

22.126 Who can effect change to the Directives? The Treasury Board, as the employer, is ultimately responsible for the directives under the Financial Administration Act . Since 1967, with the onset of collective bargaining in the Public Service, compensation for serving abroad has evolved from a consultation process to a negotiation process in the National Joint Council akin to collective bargaining, but with some differences. For example, tentative agreements reached by the Treasury Board Secretariat and employee representatives do not have to be ratified by the bargaining agents' membership. The Council provides a forum where management and employees, represented by their bargaining agents, can discuss proposed changes and reach agreement on the content of the FSDs.

22.127 Every three years, the directives are reviewed and the levels of various allowances and benefits are adjusted. When agreement is reached, changes are incorporated into the FSD text and are binding on both parties. The President of the Treasury Board has the authority to approve changes to the FSDs on the recommendation of the National Joint Council.

22.128 It is interesting to note that other governments and private sector firms that we surveyed use a different approach to determining benefits for employees abroad. We observed that it is a common practice to seek employee input on allowances, but these consultations do not result in binding agreements like the FSDs. For instance, if economy becomes a priority, the employer retains the flexibility to make changes to the level of allowances if circumstances warrant.

22.129 The quality of financial information used for the negotiation process could be strengthened. As well, there needs to be greater assurance that management is negotiating from a value-for-money perspective. This assurance is particularly important to protect the integrity of a process that requires the participation of rotational individuals, among others, in determining the employer's negotiating position. While rotational employees can bring a necessary practical view to the negotiation, the fact that they may anticipate further posting abroad could invite the perception that they are too close to the package under negotiation.

22.130 The Department is required to interpret and apply the directives. It has little discretion on FSD payments. In this sense, the Department plays a custodial as opposed to a comptrollership role. Much of the total cost of FSDs is based on predetermined calculations that leave little opportunity for either interpretation or cost reduction. Application of the directives is based on conditions that an employee either does or does not meet and it is the Department's responsibility to ensure that these conditions are complied with.

Expenditures associated with the foreign service directives are rising
22.131 In our view, concerns over the complexity and costs of the directives need to be addressed. The costs associated with providing compensation to employees abroad are rising without proper review. A proper review would enable the employer to know of all costs, cost trends and factors influencing those costs and trends.

22.132 The Department of Foreign Affairs and International Trade has been given the parliamentary appropriation for compensation under the foreign service directives to Canada-based staff abroad who are administered by the Department. Exhibit 22.10 shows the costs to the Department of providing compensation for serving abroad.

22.133 In 1988-89, compensation expenditures of $112 million were incurred for 2,087 Canada-based staff abroad at an average cost of $53,666 per person. Five years later, in 1993-94, expenditures of $145 million were incurred for 1,764 personnel abroad, or $82,200 per Canada-based staff on average. We estimate that this amount, plus about $7 million in administration costs, brings the full cost to $152 million.

22.134 The Department's expenditures related to foreign service directives have been rising annually by an average of 9 percent per employee since 1988-89. The Department has had to compensate for significant expenditure increases in several directives, as shown in Exhibit 22.11 .

22.135 An examination of individual directives shows significant expenditure increases for post differential allowances (hardship), education of dependants, travel assistance and the leave option. These four areas alone account for $9.4 million of the $12 million increase in allowance and benefit costs since 1988. This $12 million represents 36 percent of the total increase of approximately $33 million in FSD expenditures.

22.136 The net cost of shelter-related provisions has risen $15 million since 1988. This represents 45 percent of the total increase of $33 million.

Several factors contribute to the increases in expenditures related to foreign service directives
22.137 The cost of compensating employees for serving abroad can vary with such factors as time abroad, family size and salary. As the profile of Canada-based staff changes abroad, so will the cost of these allowances. It appears from the limited data available to us that more senior than junior staff are filling positions abroad, which would increase costs.

22.138 Certain foreign service allowances increase automatically. Every April, the rates for the foreign service premium, salary equalization allowance and post differential allowance are adjusted with the average annual salary rise in the public service. Although salaries have been frozen, some negotiated pay raises have remained in various collective agreements. The Treasury Board Secretariat informed us that, as a result, the average public service salary has increased each year. The last of these raises was applied to several trades classifications in September 1993, for example, in the Ship Repair Group. This change raised FSD rates by almost two percent in 1993 and one percent in 1994.

22.139 Also, the triennial reviews at the National Joint Council of the FSDs (and other directives negotiated at the Council) have been interpreted to be outside the limitations and freezes on public sector collective bargaining for salaries. Therefore, despite the fact that salaries are capped, the review provides an avenue for increasing some allowances.

22.140 The directives are best defined as negotiated entitlements that supplement salary while abroad. The system offers little incentive for less costly expenditures or trade-offs resulting in savings to the taxpayer. In fact, as our exhibit on factors affecting cost awareness ( Exhibit 22.8 ) indicates, there is little flexibility to treat FSDs in a cost-conscious manner.

22.141 In summary, the Department's efforts to improve administration of the directives are noteworthy. However, our long-standing concerns remain: complexity, cost control and whether the FSDs achieve their stated intent. Effecting change in these areas would require a fundamental re-examination by the government of the FSD system, how it is managed and the controls in place to ensure value for money.

22.142 Recently, the Department has investigated fraudulent travel claims submitted by some employees under these directives. We are following up on the actions that the Department is taking to rectify this problem and the disciplinary measures taken. We will report our findings in May 1995.

Information Technology

Background
22.143 Modern information and communication systems offer the Department unprecedented opportunities to reshape its delivery processes. The Department's budget is under pressure. Sound investments in information technology can lead to higher quality services that are tailored to changing needs and delivered more effectively, faster and at lower cost.

22.144 Since the mid-1980s, the Department has increased its use of information technology. One of its major initiatives in this area was its Canadian On-line Secure Information and Communications System (COSICS) project. COSICS was expected to improve administrative efficiency and reduce person-years.

22.145 We audited COSICS in 1987 and did a follow-up audit in 1989. In 1987, we reported that the Department risked exceeding cost estimates and that predicted savings would not be realized. In 1989, we reported further cost increases, and again expressed concern that some of the expected savings in person-years would not be fully realized. Although the Department originally expected to complete Phase I of COSICS in the fall of 1989, it modified the delivery date to the fall of 1991.

22.146 In February 1991, we reported that having spent $53 million, the Department had reassessed the COSICS project and decided not to proceed with Phase II. We supported the Department's decision.

22.147 In 1992, the Standing Committee on Public Accounts held hearings on the COSICS project. By that time, the Department had revised its approach to information technology. It presented a plan to the Standing Committee on Public Accounts for implementation of its total computerization program. The Department proposed a more open architecture and the use of off-the-shelf software for systems under development. It called the new approach Secure Integrated Global Network or SIGNET. We will monitor future developments in SIGNET.

22.148 The Department continues to invest millions of dollars in information technology. In 1993-94, the Department spent approximately $100 million or 7 percent of its total budget on information technology and related activities. Like many other government departments, the Department continuously looks at how it can use information technology to reorganize and redesign its work.

22.149 The Department's investment in information technology has been having an evolutionary impact over the last few years. This changing impact will continue with SIGNET. SIGNET will have major implications for the way officers in the Department will interact worldwide and for the use of information in the Department.

Accountability needs clarification
22.150 Given the significance of the investment in information technology, our audit concentrated on an overview of the Department's information technology activities. Our main concern was how the Department is managing the proliferation of information technology in its various branches.

22.151 In our view, the Department needs to take a more consistent approach to the management of its information technology investment and provide one focal point for corporate accountability. So far, the Department has had an uneven approach to controlling its investment in information technology. As a result, it may not have realized the full benefits of its investment. For example, the lack of compatibility between the FINEX (financial) and the INFONNEL (personnel) systems creates difficulty in analyzing all aspects of the cost and numbers of persons working for the Department at any particular time or place. We believe that the Department's effectiveness in the area of information technology would be enhanced by designating a single corporate focal point that would have full authority and accountability for its informatics initiatives and expenditures.

22.152 In 1991, the Department set up a Technology Board to oversee and co-ordinate its overall technological direction. The Board met three times before it was consolidated with other committees into the Department's Management Committee. The Department has informed us that it has now reconstituted the Technology Board. This step will help clarify accountability for investments in information technology and create more consistency in managing those investments across the Department. The Department has also indicated that it will be producing an Information Management Plan that will allow for a more integrated approach to all aspects of computer applications across the Department. We view these as positive steps.

Future monitoring
22.153 We intend to follow up on our main concern - the management of the information technology investment across the Department. In 1996, we propose to report on the results of our follow-up. Particular attention will be paid to the way information technology is reshaping the delivery of departmental programs and enhancing their cost-effectiveness.

22.154 In summary, while information technology is beginning to reshape many aspects of the Department's activities, applications must be better integrated to realize the full potential of the investment in them.

The Internal Audit Function

22.155 A key component of accountability involves effective independent monitoring of all significant aspects of an organization's performance. Internal audits and evaluations provide this function by reviewing and assessing management practices and controls in major financial, administrative and operating areas, and by recommending improvements where needed.

22.156 The internal audit and program evaluation function is performed within the Department's Office of the Inspector General. The majority of the Inspector General's operating budget of about $3.4 million is dedicated to internal audits. The internal audit and program evaluation function has been reorganized several times since its inception.

22.157 In 1987, we reported that the Department had organizational units in place with clear roles and responsibilities for internal audit and program evaluation. The mandates of these units conformed to guidelines provided by Treasury Board. An Audit and Evaluation Committee oversaw the operations of these units and was responsible for following up on the extent to which major issues raised by internal audit were being addressed.

22.158 Our main concern at that time was that the scope of internal audits was not comprehensive and left out many significant aspects of the Department's operations. We pointed out that the internal audit function had not participated sufficiently in major systems development to ensure that appropriate internal controls were installed on a timely basis.

22.159 In addition, we reported that there had been few significant studies to measure the effectiveness of the Department's programs.

22.160 In 1989, our follow-up work indicated that there had been little progress.

22.161 Three significant events have occurred since 1991. First, the internal audit function began to report to the Assistant Deputy Minister, Corporate Management instead of the Associate Under-Secretary who had been responsible for the management of the Department. Second, departmental senior management refocussed the internal audit function to strengthen the audit of administration and management of missions abroad and to increase the frequency of audits by systematically auditing all missions annually. Between 1993 and 1994, more than 200 internal audits of mission administrative procedures were conducted. Third, the Audit and Evaluation Committee was in place until October 1992 when its responsibilities were assumed by the Management Committee.

22.162 Internal audit work is making a difference to administrative practices at the missions. The deterrent effect of internal audits is now recognized throughout the missions. Compliance with administrative procedures at the missions, which are stipulated by headquarters, is reportedly improving. As well, a number of weaknesses in controls at missions have been identified and are being dealt with on an ongoing basis. In 1994, in response to a number of issues raised by mission audits, the Department's administrative policies were revised to improve, for example, the hospitality directives, the allocation of representative housing and the collection of rent shares.

22.163 In our view, sufficient planning, preparation, investigation and substantiation were conducted to support the internal audit findings.

Need to expand the scope of internal audits
22.164 In 1993, we reiterated to management our long-standing concern about the limited scope of internal audits in this Department, in particular, the lack of headquarters audits. While some headquarters audits had been undertaken since 1987, mission audits of administrative practices and, more recently, the Consular program continued to consume the bulk of the available resources.

22.165 Our concern is that a significant portion of the Department's annual expenditures ($1.4 billion), and many of the activities that are key to its operational success, are not subjected to internal audit. Operational activities in such areas as international trade, political and international security, and administrative support activities at headquarters are not audited.

22.166 We maintain that expanding the scope of internal audit work to include more significant aspects of both headquarters and mission activities and operations would increase the overall effectiveness of the Office of the Inspector General. Because many of the administrative problems uncovered at missions abroad are related to headquarters issues, it is vital that internal audits not be restricted to the missions.

22.167 To expand the scope and mandate of audits effectively, the Office of the Inspector General will require a broader set of skills and expertise in the programs and subject areas it must review. Auditing program areas such as international trade or major computer systems at headquarters will require multidisciplinary teams and specialist support.

22.168 The Inspector General shares these views and has initiated plans to establish an updated audit universe comprising all major programs and organizational units. In addition to including consular activities as part of the scope of mission audits last year, in 1994 the Office of the Inspector General turned its attention to headquarters functions and operational activities such as trade promotion.

The role of the Audit and Evaluation Committee
22.169 The role, composition and activity of a department's audit and evaluation committee reflects the level of organizational commitment to the internal audit effort. More specifically, the committee can provide the internal direction and support necessary to ensure the independence of the internal audit function; approve the scope of its work; identify critical issues for review; approve the resources needed; provide quality control; and ensure that appropriate and timely action is taken to implement recommendations.

22.170 The Department's Audit and Evaluation Committee, which met on an ad hoc basis until October 1992 when its responsibilities were assumed by the Department's Management Committee, was restructured in April 1994. It is currently chaired by the Deputy Minister for International Trade.

22.171 The restructured Audit and Evaluation Committee will have the opportunity to provide the profile and direction necessary to help the Office of the Inspector General fulfil its mandate. The Committee may wish to consider the following actions:

  • assessing the overall effectiveness of the Office's efforts in terms of usefulness and timeliness and setting performance indicators for evaluating the performance of the Office;
  • ensuring that the Office's functional reporting relationship is primarily to this Committee, which would enhance the Office's independence and elevate its reporting profile to the deputy minister level; and
  • including in the Office's terms of reference the co-ordination of audit work involving other government organizations that operate under the authority of the Department of External Affairs Act.
22.172 In summary, the Department should continue in its efforts to expand and strengthen the Office of the Inspector General's review functions. The sustainability of these functions is enhanced by the recent restructuring of the Audit and Evaluation Committee. We will continue to monitor the Department's progress in this area.

Conclusions

22.173 In summary, our audit results indicate that the Department has improved its financial management practices and controls, particularly over the past two years. The Department has undertaken a proactive audit program, the development of a costing model and a management information system, an improvement in financial management and better financial training for employees. All of this activity has the potential to create a sound basis for improved comptrollership. Departmental corporate initiative, reinforced by central agency support, has brought about a flurry of activity in this area. There are, however, a few key questions that remain to be answered.

  • Have these initiatives and changes made a sustainable difference?
  • Have the improvements we found been applied consistently across the Department?
  • Has the foundation been laid to encourage and assist departmental managers to make responsible and reasonable financial decisions?
22.174 We placed a great deal of emphasis in this audit on the need for effective comptrollership at all levels and on the need for an improved sense of cost awareness among both managers and staff in this complex working environment. We recognize that such concepts require the availability of useful tools and techniques as well as an ongoing adjustment to changing priorities and values. Acceptance of the need for change and implementation of the actions required to accomplish it will take time, central agency support and continued leadership within the Department.

22.175 The Department needs to strive to build and nurture improved comptrollership and the long-term changes it will require. It is imperative, therefore, that corporate senior management continue to champion and reinforce the permanent installation of these changes. To meet this ongoing challenge, there is a need for more recognition and acceptance of the contribution made by financial officers in the Department.

22.176 Comptrollership at the mission level is not solely a departmental issue. It involves a number of other government departments that are resident in missions around the world. More than ever, given fiscal restraint, the accountability of heads of mission needs to be clarified as it relates to the activities of other government departments and the cost of providing services to them. The Department, with the assistance of other government departments, needs to settle this issue of accountability in order to improve operational effectiveness abroad.

22.177 Our reported findings have also indicated a need for the Department to simplify financial and administrative systems and processes. The Department has recognized the need and demonstrated a desire to address this pressing issue. Initiatives such as reducing out-of-date reporting requirements at smaller missions, introducing technological innovations and effecting a reorganization at headquarters can make a difference. There is, however, much more that needs to be done and, in some cases, completely new ways of approaching the issues will be required. The Department should address the challenges in co-operation with Treasury Board and other government departments. We propose to keep a watching brief in the areas of concern raised in this report.