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2007 February Status Report of the Auditor General of Canada

The regular reports we present to Parliament on our performance audits provide information about how well the government is performing against its own yardstick—its own objectives, legal requirements, and other relevant standards. We report what is working well and what needs improvement.

We use the same yardstick to assess departments' performance when we return two or three years later to look at whether they have improved. Have they narrowed the gap between the relevant operational standards and their actual performance? And is this progress satisfactory in light of how much time has elapsed between the original audit and our follow-up work? In our yearly Status Report to Parliament, we provide this assessment of what the government has done to address our recommendations from a selection of previously reported performance audits.

We are pleased to note satisfactory progress in five of the seven chapters in this year's Status Report. Our follow-up audit of the government's advertising activities in particular found significant progress in the selection of advertising agencies and the Agency of Record (the private sector supplier that purchases media time and space for the government's advertising). Given the serious weaknesses that we identified in our original audit of government advertising activities, this year's findings are good news.

Progress was unsatisfactory on two fronts: the management of the Social Insurance Number and the management of the Coast Guard's fleet and marine navigational services. Each area involves long-standing problems that we are now reporting for the fourth time since 1998 in one case and the third time since 2000 in the other.

Satisfactory progress

Advertising and Public Opinion Research

The government uses advertising to inform Canadians not only about government services, programs, initiatives, and policies but also about their rights and responsibilities. It is also an important tool for informing the public about dangers or risks to the environment or to public health and safety, for example. Public opinion research plays an important role in developing policies and programs that affect the public. It is a critical tool for gathering information on the public's opinions, perceptions, and reactions or views.

We looked at a sample of advertising campaigns and public opinion research projects to see whether the departments administering them were exercising adequate management and control and whether changes made in response to our 2003 audit recommendations had resolved our concerns. We also looked at the role played by PWGSC.

Our follow-up audit found that PWGSC has made satisfactory progress toward ensuring that it awards advertising and public opinion research contracts in a fair and transparent manner. It used a competitive process to establish standing offers and supply-arrangement lists that represent a pool of qualified firms who can provide advertising and public opinion research services. We found that the process for choosing the Agency of Record was fair and transparent.

We also found that the audited departments properly administered their advertising campaigns, authorized their placement in the media, and evaluated and reported the results.

In public opinion research, however, departments did not always document the need for planned research and notify PWGSC, before they contacted a potential supplier, that they intended to conduct research.

International Taxation—Canada Revenue Agency

The globalization of the workforce and growth in international investment have significant impacts on the taxes owed to Canada, both by Canadian residents earning income and doing business abroad and by non-residents earning income in Canada. The amounts involved are significant—by the Agency's estimate, transactions conducted by Canadian corporations with related parties in foreign jurisdictions totalled $1.5 trillion in 2005. Non-residents paid over $4.9 billion last year in taxes on income earned in Canada.

We found that the Agency has made satisfactory progress in addressing the recommendations we made in our 2001 and 2002 audits of non-resident taxation and the taxation of international transactions by Canadians. It is better able to identify potential non-compliance with the tax rules for international transactions. It improved most of its risk assessment tools, and it introduced initiatives to detect aggressive international tax planning schemes

The Agency has also given tax services offices clearer guidance on non-resident tax administration policies and has issued new manuals and communication bulletins to auditors and taxpayers.

It has yet to deal with the low level of expertise in international tax audit at some of the tax services offices that handle the highest-risk files. This lack of expertise could result in inconsistencies across the country in the audit approach to and coverage of international transactions, and a loss of tax revenue. Problems also remain in the matching of non-resident tax data, hampering compliance efforts.

Passport Services—Passport Canada

In 2005, we reported that the Passport Office (now Passport Canada) was struggling to meet higher expectations for security and growing demands for service. Since then, it has dealt with an unprecedented demand, issuing over three million passports in 2005–06.

In the relatively short time since our 2005 audit, Passport Canada has made satisfactory progress in addressing our recommendations. Examiners now have appropriate tools and training to determine whether identity documents provided with passport applications are authentic. Almost all key employees with access to critical assets have been cleared to the "secret" level. Missions abroad now print only emergency travel documents and temporary passports with added security features. Related training has been developed for consular staff.

Passport Canada has also significantly enlarged its "watch list" containing names of people who are on parole or incarcerated—information it has used to refuse applications or to investigate them further.

Weaknesses remain, however, in the critical areas of security and verification of identity. Controls over the system are still weak, so unauthorized persons could trigger the passport issuance process. Most important, to preserve the integrity of passports it is critical that the Agency establish electronic links to partner organizations' databases on vital statistics and criminality. To do so, it will need the cooperation of other departments and agencies in both the federal and the provincial or territorial governments.

It is worth noting that, while its recently established Project Management Bureau has brought appropriate discipline to the way improvement projects are managed, Passport Canada is attempting to carry out simultaneously several substantial projects that will significantly reform the way it does business. It will need the continued support of Foreign Affairs and International Trade Canada, the Treasury Board Secretariat, and its partner government departments to reach its goals.

Management of Leading-Edge Research—National Research Council Canada

The National Research Council (NRC) is the federal government's largest research organization. Its science and technology activities support the government in areas such as health and safety, protection of the environment, communications, and economic development. The NRC also supports efforts by Canadian small and medium-sized enterprises to improve their technological competitiveness and innovation.

Since our audit in 2004, the NRC has made satisfactory progress with the steps it has taken to address our recommendations on corporate governance, research management, and management of human resources. The appointed Council that governs its operations has strengthened its role and, since June 2005, has been involved in major policy and budgetary decisions. It also adopted a new committee structure. We are concerned, however, that the number of continuing vacancies on the Council hampers its ability to govern effectively.

The NRC's research institutes have taken steps to improve the way they manage research projects. We observed the widespread use of clear criteria to determine priorities and guide project selection. We also noted several good practices used in selecting and reviewing research projects. The NRC also implemented several human resource management initiatives.

Action on some of our recommendations was delayed in order to put new management systems and processes in place to implement the NRC's new corporate strategy.

The Conservation of Federal Built Heritage

Federal built heritage consists mainly of buildings, battlegrounds, forts, archaeological sites, and canals of historic significance. When important parts of Canada's built heritage are lost, future generations lose their access to key moments of Canadian history.

We found that Parks Canada has made satisfactory progress in responding to our 2003 audit recommendations on the need for better protection of our built heritage. The Agency has proposed a policy to strengthen the legal protection of built heritage and has made progress in developing key management documents for national historic sites. The government gave it additional capital funds for infrastructure, and the Agency has allocated part of that funding to the conservation of cultural resources at the national historic sites in its custody.

In other departments that have custody of built heritage, however, the news is not good. Unlike Parks Canada, whose custodial responsibilities are established in the Parks Canada Act as well as in the Treasury Board Heritage Buildings Policy, other departments manage only under the policy. The policy applies to heritage buildings only, and so national historic sites and other heritage elements such as archaeological sites, canals, and cultural landscapes are not getting the level of protection they need.

Furthermore, the policy deals with the designation of heritage buildings and their conservation as two separate processes, with no provision for planning and managing them together. As a result, while the number of designated heritage buildings is growing, there is no parallel growth in the funding of custodial departments and agencies for heritage conservation.

Unsatisfactory progress

The Management of the Social Insurance Number—Human Resources and Social Development Canada

Social Insurance Numbers (SINs) are issued and administered under the Employment Insurance Act, largely by Service Canada within Human Resources and Social Development Canada. How federal departments may collect and use the SIN is governed by legislation and Treasury Board policies.

While the government has made significant improvements in the management of the SIN since our last audit, we consider its progress to be unsatisfactory because of two serious and long-standing problems not yet resolved—uncertainty about the quality of information in the Social Insurance Register, and lack of clarity in the policies on how federal departments may use the SIN.

In 2002, we reported that we were concerned about the quality of information in the Social Insurance Register—the database containing the basic personal information provided by individuals who apply for a SIN. In our follow-up, we found that while the Department has made efforts to improve data quality, it has not established goals for quality and does not measure it systematically. Therefore, it cannot be sure of the quality of information it retains in the Register.

We also found that the continuing lack of clarity in the policies on how federal organizations may use the SIN has led to inconsistent interpretation of the rules. This makes it difficult for departments to be sure they use the SIN appropriately.

Service Canada has made satisfactory progress in many areas to strengthen the management of the SIN. It developed the SIN code of practice, redesigned the SIN issuance process, changed its proof-of-identity standards, and improved the way it identifies and investigates SIN-related fraud.

Strong management of the Social Insurance Number—including clear policy guidance on its use in the federal government—is more important than ever, given the growing global incidence of identity theft, fraud, and security risks.

Managing the Coast Guard Fleet and Marine Navigational Services—Fisheries and Oceans Canada

In 2000 and 2002, we reported that Fisheries and Oceans Canada had not managed the Canadian Coast Guard fleet and marine navigational services cost-effectively. The Coast Guard has since been made a special operating agency within the Department, headed by a Commissioner, to give it more autonomy and flexibility.

Canadian mariners, like others around the world, are increasing their reliance on electronic navigation rather than traditional aids such as buoys and light stations. As the main Canadian provider of marine navigational services, the Coast Guard must make the same transition.

Our follow-up audit found that the Coast Guard has not developed the national policies and national service standards or the integrated planning, management, and performance information systems that are needed to transform itself into a strong national institution. It still operates largely as five regional coast guards, each with its own way of doing things.

The Coast Guard fleet is aging, and it is costly to maintain and operate. Based on the current schedule for replacing vessels, many will not be replaced until long past their estimated useful lives. The growing unreliability of the vessels is hampering the Coast Guard's ability to support the programs of Fisheries and Oceans Canada and other client departments. For example, key annual fish stock surveys have had to be cancelled or postponed when vessels were not available.

The Coast Guard has a history of failing to complete planned initiatives. Implementation of the special operating agency—a key government initiative designed to change the way the Coast Guard operates—is behind schedule. And as the Coast Guard has modernized its aids to navigation with new technologies, it has been unable to shed old facilities it no longer needs.

Our chapter on the Coast Guard identifies three fundamental reasons for that organization's continuing lack of progress on the issues we are again raising. First, its "can do" philosophy leads it to accept assigned duties even when, realistically, there is no way it can deliver. Second, the organization does not prioritize—after our 2000 audit, the Coast Guard addressed all of our recommendations at once, despite the large number of issues involved and its limited management capacity. As a result, the initiatives stalled at various stages of completion. And third, there is a lack of organizational and individual accountability in the Coast Guard for the commitments it makes.

Conclusion

Audit, by nature, focuses on areas in need of improvement. Sometimes people ask if anything changes as a result of our reports. Does government take action? This year, I am pleased to be able to answer that question affirmatively in the majority of the areas we revisited in this report.

Where progress was satisfactory, what were the success factors that made the difference? Mostly, they were the setting of priorities, strong commitment from senior management to achieving them, clear action plans, and support in the form of adequate resources to achieve the goals.

Passport Canada, for example, was able to achieve satisfactory progress in a relatively short time under the strong leadership and commitment of its senior management. It translated plans into action and was open to our recommendations and the suggestions of both the Public Accounts Committee and Passport Canada staff.

Parks Canada was able to improve its management of built heritage also because of senior management's commitment, as demonstrated by its continuous efforts to strengthen the conservation regime.

Public Works and Government Services Canada, National Research Council Canada, and the Canada Revenue Agency also deserve recognition for the satisfactory progress they have achieved in the specific areas we looked at.

Several times in the past, we have highlighted the absence of strong leadership as a root cause of slow progress in fixing problems that our audits have found. This report clearly shows the difference made when strong commitment is present at the top of the organization.