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2008 December Report of the Auditor General of Canada

My Eighth Annual Report

I am pleased to present my fall 2008 Report to the House of Commons. The Commissioner of the Environment and Sustainable Development is also presenting a report today.

It is an exciting time for our environment and sustainable development audit practice, for a number of reasons. We have a new Commissioner, Scott Vaughan, who brings with him an impressive background in sustainable development. In addition, the Federal Sustainable Development Act received Royal Assent in June.

The Act requires that a federal sustainable development strategy be developed and implemented. We have pointed out the need for such an overarching federal strategy and are pleased with this development.

This new Act also expands the Commissioner's mandate: He will not only examine whether individual departmental strategies comply with and contribute to the federal strategy, he will also report to Parliament on the fairness of the information in the federal government's progress report on the implementation of its federal strategy.

This Report reflects the diversity and the complexity of the government

The federal government includes hundreds of organizations, from large departments and Crown corporations to small agencies, boards, and commissions. With total spending of approximately $230 billion in areas ranging from border security to passports, food inspection, statistics, peacekeeping, fisheries, international trade, immigration, and debt management, activities of the federal government touch virtually all aspects of the daily lives of Canadians. In all of these areas, the government also has to take into account the changing needs of society, conflicting priorities, and responsibilities that overlap with those of provincial and municipal governments. The sheer magnitude of operations is impressive—the Canada Revenue Agency (CRA) processes 3 million computer transactions per hour, for example, and Public Works and Government Services Canada (PWGSC) spends more than $1 billion a year on contracts for professional services.

Our reports to Parliament reflect the diversity of the issues on the federal government's agenda and the sometimes enormous challenges that come with them. Earlier this year, we reported on National Defence's support for overseas deployments, the surveillance of infectious diseases, the detention and removal of individuals by the Canada Border Services Agency, and the management of the First Nations Child and Family Services Program by Indian and Northern Affairs Canada. Today's Report contains a study on federal transfer payments to the provinces and territories, and a chapter on the government's oversight of federal small entities—those with fewer than 500 employees, like the Canadian Radio-television and Telecommunications Commission and the Canadian Human Rights Tribunal. The Report also covers the management of environmental and economic risks to Canada's agriculture and forestry sector, and the economy and efficiency with which food, clothing, and security are provided in federal correctional institutions.

It is to be expected that an organization as large and complex as the federal government does some things very well and has difficulties in other areas. Again this year, our reports showed a range of accomplishments.

Public Works and Government Services Canada followed a fair, open, and transparent process in awarding more than a billion dollars in contracts for the professional services of consultants such as accountants, lawyers, architects, and specialists in data processing (Chapter 3). I am pleased to report that it complied with the applicable acts, regulations, and policies in awarding 95 percent of the publicly tendered contracts and 96 percent of the sole-sourced contracts that we audited. However, we did find a need for improvement in the administration of some contracts after they had been awarded.

The Canada Revenue Agency has done a lot of work in the last two years to improve the way it manages its information technology (IT) systems (Chapter 5). These systems are critical to its ability to administer taxes and benefits and to ensure that tax laws are followed. The Agency operates some of the largest IT systems in the government and spends about $500 million a year on its applications and infrastructure. We found that in many areas, it is managing its investments well. However, it needs to finish implementing the initiatives it has under way to improve IT project management. It also needs to do more to strengthen its practices in managing its IT investments. We found problems in six of the eight IT projects we examined in detail, including flawed business cases, significant delays, and, in one case, an end product that did not do the job.

The Agency is also making progress in fulfilling several of its new "employer" and staffing responsibilities (Chapter 6) formerly under the Treasury Board and the Public Service Commission. The Agency depends heavily on having a qualified workforce—tax assessors, auditors, IT specialists—in order to administer tax laws. It was granted new human resource authorities in 1999 to give it more autonomy in human resource management in order to better meet its business needs. We found that the Agency has used its new human resources authorities in areas such as job classification, employee compensation, and labour relations. Staffing, however, remains a challenge. Our audit found that staffing processes are confusing and frustrating for employees, and progress in achieving the expected efficiencies has been slow.

The Canadian Food Inspection Agency regulates imports of plants and plant products such as seeds, grain, and field crops, and forest and horticultural commodities (Chapter 4). The thousands of shipments of regulated plants and plant products imported into Canada every year could contain invasive plants, pests, and diseases that can have a serious and often irreversible impact on our ecosystems. Preventing invasive species from entering the country and detecting new species before they become established in Canada are critical to protecting the food supply as well as the agricultural and forestry sectors of the economy and the environment. We examined whether the Agency adequately manages the risks associated with invasive alien plants, pests, and diseases. We found extensive problems in the Agency's activities that compromise its ability to manage risks to Canada's plant resources.

Correctional Service Canada (CSC) provides custody and care to more than 14,000 male and female inmates in 58 federal institutions across the country. We examined whether CSC has paid sufficient attention to economy and efficiency (Chapter 7) in providing its security services, and whether it has been economical in purchasing food, clothing, and cleaning products for its institutions. We found that CSC does not analyze the total volume of food and cleaning products that it needs to buy; most purchasing decisions are made by each institution rather than at the national level. This means that CSC misses out on potential savings from buying in larger volumes. In the provision of security, overtime costs have continued to increase in recent years even though the numbers of inmates and violent incidents have remained relatively stable. We found no analysis by CSC to determine whether overtime was more economical than hiring additional staff.

Part of our ongoing work is to look at small federal entities. For this report, we looked at the regime for central oversight of small entities (Chapter 2). Our conclusion—that selected elements of central agency oversight and coordination are not working well—is in line with a recent report by the Public Accounts Committee. We found that central agencies of government—the Treasury Board of Canada Secretariat, the Canada Public Service Agency, and the Privy Council Office—have not substantively addressed two major and long-standing problems—the reporting burden on small federal organizations and the sharing of administrative services among some of these agencies.

In 2000, the Government of Canada and provincial and territorial governments reached an historic agreement on health that set out a vision, principles, and an action plan for health system renewal. The governments reached two subsequent agreements in 2003 and 2004. The agreements were accompanied by significant increases in federal transfers to the provinces and territories, first ministers jointly recognized the need to be accountable to Canadians through regular public reporting on health system performance and on the results of health system renewal. Federal, provincial, and territorial health ministers agreed to develop and report on indicators that could be compared across jurisdictions and over time in order to measure progress on renewal. In our audit of health indicators (Chapter 8), we were disappointed to find that while Health Canada has met the specific health indicator reporting commitments of the agreements, it has not provided the kind of reporting that First Ministers said Canadians were entitled to receive. Good public reporting should provide information to help Canadians understand and interpret the health indicators. Health Canada's indicator reports did not provide readers with this information, limiting their usefulness to Canadians.

Accountability provisions of transfer payment to the provinces and territories vary considerably

Federal transfers to the provinces and territories make up a significant portion of the federal government's annual spending. They represent a major source of funds for services provided to Canadians in areas such as health, post-secondary education, and social assistance. In the 2006–07 fiscal year, federal transfers amounted to approximately $50 billion, or just under 23 percent of federal spending.

This report contains a study on the three main types of transfer payments made by the federal government to provinces and territories (Chapter 1). We undertook this study to answer questions that parliamentarians have raised about federal transfers and our Office's mandate to audit them.

The nature and extent of conditions attached to transfer payments vary considerably and have changed over the years. Some transfers have specific conditions that require reporting to the federal government on how the money was spent and to what effect, while others do not.

One type of transfer, carried out through trusts, was introduced by the federal government in 1999. Transfers of this type are earmarked in public announcements by the federal government for specific purposes (for example, police officer recruitment or affordable housing), but there are no conditions that legally obligate provinces and territories to spend the funds for the announced purposes or to report subsequently to the federal government. Federal officials told us that in recent trusts, the federal government has required that provinces and territories publicly announce how they intend to use the funds, on the assumption that their legislative assemblies and citizens will hold them to account for these commitments.

The absence of reporting requirements for trusts could become a dilemma in cases such as the $1.5-billion Clean Air and Climate Change Trust Fund (discussed in the Commissioner's Report, Chapter 1), where the government includes results expected from the provinces in reporting its own expected results. In reporting under the Kyoto Protocol Implementation Act, the federal government said it expected that as a result of the Trust Fund, the provinces and territories would reduce greenhouse gas emissions by 80 megatonnes between 2008 and 2012. Environment Canada has made a claim of expected results even though the nature of this Trust Fund makes it very unlikely that it will be able to report real, measurable, and verifiable results.

We will be reporting in collaboration with the Privacy Commissioner of Canada on how the government manages identity information

The government's ability to deliver some of its largest and most significant programs to Canadians relies on information that allows federal institutions to identify the individuals applying for their services.

Our Office and the Office of the Privacy Commissioner of Canada carried out concurrent audits of four federal organizations with large databases of identity information. In our audit, we wanted to determine whether the organizations collect only identity information that is relevant to their program needs and use adequate practices to ensure the quality of the information. We also looked at the extent to which the government has worked to address common problems while respecting privacy and other legal requirements.

Our report and the Privacy Commissioner's report will be tabled in Parliament in the coming weeks.

Conclusion

In closing, I would like to thank my staff for their dedication and professionalism. The range of subjects covered in our performance audit practice and our other audit work provides us with an appreciation of the diverse and complex issues that the government manages on behalf of Canadians. I hope members of Parliament will find this report useful in holding the government to account for its management of public funds.

 

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