2009 March Status Report of the Auditor General of Canada

The Status Report tabled today revisits seven issues that have been discussed in my recent reports or those of the Commissioner of the Environment and Sustainable Development. Status reports are tabled once a year and are a way for us to find out—and for parliamentarians to assess—whether government organizations are meeting commitments they made in response to our previous recommendations. In doing so, we re-audit selected recommendations and findings from prior reports to determine if progress in addressing them has been satisfactory. When we make that determination, we consider the time elapsed since our original report and the complexity and degree of difficulty of remedial action by government.

I am pleased to report that of the seven topics revisited this year, we found satisfactory progress in five.

Satisfactory progress

Passport Services

Our follow-up focused on Passport Canada’s progress in preparing for any rise in the volume of passport applications leading up to 1 June 2009, when the US requirement for a passport will extend to Canadians entering the United States by land or sea. In 2007, the first phase of the United States Western Hemisphere Travel Initiative required Canadians to carry a passport when crossing into the US by air. This triggered an overwhelming increase in passport applications, resulting in delays and increased waiting times for a passport. The Standing Committee on Public Accounts issued a report that criticized the Agency’s planning for the surge in applications and asked for a plan detailing how Passport Canada would prepare for the next phase in 2009.

We found that Passport Canada has developed an extensive response to better prepare itself for increasing demands. It carried out two “lessons learned” exercises, through which it determined the root causes of problems experienced in 2007, and it identified improvements to address them. It opened a new processing and printing centre for mail-in applications and took steps to streamline the processing of walk-in applications. It developed a contingency plan with specific actions to be triggered by changes such as excessive line-ups or delays in standard turnaround times.

Passport Canada also launched a major campaign to encourage Canadians to apply for passports well before the US deadline and spread out the demand over a longer period. Whether this effort is successful and whether Canadians heed the Agency’s advice remains to be seen.

National Security: Intelligence and Information Sharing

Security intelligence is the collection, analysis, and interpretation of all information used to inform a government about activities that may threaten the country’s security. Certain federal departments and agencies are involved in the collection of information, while others use it to deliver their programs or enforce the law. Because of the powers of agencies and departments involved in intelligence gathering and law enforcement, there are also organizations that review and publicly report their findings on the activities of these security and intelligence agencies.

For Canadians to have confidence in security and intelligence organizations, they need to know that the government maintains a balance between protecting the privacy of citizens and ensuring national security. The challenges to security posed by such events as G-8 summit meetings and the upcoming 2010 Olympics in Vancouver underline the need for adequate management of intelligence activities.

Our audit in 2004 found that intelligence management across the government was deficient in many areas, from setting intelligence priorities to coordinating and sharing information between departments and agencies.

In this Status Report, our examination of the progress made by 14 departments and agencies and three review organizations tells a story of uneven progress. For example, the federal government has taken measures to improve the reliability of watch lists of individuals considered of interest to intelligence organizations. The government reduced its fingerprint backlog and is progressing in its development of a computerized system to analyse digitized fingerprints. We also found progress in the organization and coordination of priorities among federal departments and agencies involved in security.

However, much work remains. Transport Canada and the RCMP are still not sharing criminal intelligence information effectively. As a result, Transport Canada could still be allowing high-risk individuals with criminal records to be cleared for access to restricted areas at airports. In addition, at the time of our audit, security and intelligence agencies were still not undergoing a level of independent review proportionate to their intrusion into peoples’ lives.

Treaty Land Entitlement Obligations

Treaty land entitlement agreements are modern legal commitments that recognize the government’s failure to comply with century-old treaty obligations. These agreements provide First Nations with the right to select Crown land or with funds to buy private land or both. The lands are then converted to reserve status. Indian and Northern Affairs Canada (INAC) is responsible for managing the implementation of these agreements on behalf of the federal government.

Our 2005 audit found limited progress in converting to reserve status the large number of acres selected in Saskatchewan and Manitoba. First Nations of those provinces are among the most impoverished in Canada and acquiring land could serve as a means of improving their standard of living.

In this follow-up audit, we found that since 2005, INAC has converted more than 315,000 acres to reserves in Manitoba and Saskatchewan, an increase of 42 percent. In both provinces, the Department has also made satisfactory progress in working more closely with First Nations on plans to convert their outstanding selections of land. It also increased its efforts to coordinate environmental assessments and land surveys of selected land and it made efforts to improve its capture and processing of data.

But we also identified weaknesses in the way INAC manages these land entitlement obligations. Without sustained attention to correct them, the Department risks being unable to sustain its progress in converting selected land to reserve status.

The two other chapters in which we report satisfactory progress are part of the Commissioner’s report, also being tabled today.

Safety of Drinking Water

Although the safety of drinking water is a shared responsibility, the federal government plays an important role by developing guidelines on water quality, which the provinces and territories can use in regulating water within their jurisdictions. The federally issued guidelines are science-based and set important criteria for water quality.

Our audit examined federal progress toward implementing our recommendations from 2005, when we reported that Health Canada was slow to develop and review the guidelines. At the time, there was a backlog of about 50 guidelines that needed to be reviewed and, if necessary, updated to reflect current science. We are pleased to report that the Department now has a process in place to set priorities with plans and timelines for regularly updating the Guidelines for Canadian Drinking Water Quality and to produce new guidelines as appropriate. It has also addressed the backlog of old guidelines in need of review.

In 2005, we had also found gaps in Health Canada’s approach to monitoring the safety of drinking water on federally regulated public transportation. This time, we found that Health Canada has resumed routine inspection of drinking water on passenger aircraft belonging to the major Canadian airlines. However, there are still gaps in its inspection of drinking water on common carriers and facilities that provide the food and beverages that are served onboard.

Air Quality Health Index

An Air Quality Health Index is intended as a tool to give a measure of air quality based on levels of air pollutants known to harm human health. The use of such an index—a snapshot of the air quality at a given location—would alert Canadians not only to high levels of air pollution but also to the potential health effects, allowing them to take appropriate precautions in planning outdoor activities.

At the 2001 Toronto Smog Summit, Environment Canada and Health Canada committed to developing a Canada-wide air quality index based on health risks. They reiterated that commitment in 2002 and 2003 in response to petitions submitted through the Commissioner of the Environment and Sustainable Development. The air quality index to be replaced provides information on air quality but not on potential health effects.

The Commissioner’s report notes that Environment Canada and Health Canada have made satisfactory progress on their commitment to develop an air quality health index. The new index is currently being pilot-tested in several locations. When it is fully operating across the country, Canadians will be able to make informed decisions about the health implications of outdoor activities in their specific locations.

Unsatisfactory Progress

The two remaining chapters conclude that the government’s progress on our recommendations has been unsatisfactory.

Governor in Council Appointments Process

Governor in Council (GIC) appointees occupy senior positions in Crown corporations and federal agencies, boards, tribunals, commissions, granting councils and departmental corporations. They are appointed by the Governor in Council (the Governor General acting on the advice of Cabinet) on the recommendation of the responsible minister. The Privy Council Office oversees the GIC appointment process.

Problems related to GIC appointments have manifested themselves in several of our audits of federal entities in the last decade. In 1997, we reported on problems with the process of appointing Board members to the Immigration and Refugee Board. In 2000 and 2005, we made specific recommendations to the government about the process of appointments to Crown corporations.

In revisiting these issues, we conclude that while, overall, the government has systems and procedures to provide for the timely appointment of qualified individuals to Crown corporations, small entities, and the Immigration and Refugee Board, results are disappointing. There are still lengthy delays that lead to a high number of vacancies, potentially compromising the effective governance and functioning of these government organizations. In particular, the high number of continuing vacancies on the Immigration and Review Board has contributed significantly to the growing inventory of refugee claims waiting to be heard.

The appointment process and the results are not sufficiently clear. The lack of communication among the Privy Council Office, ministers’ offices, the organizations, and appointees has led to considerable dissatisfaction among the individuals and organizations involved.

These issues matter not only because they can compromise the governance of these boards, agencies, and Crown corporations but also because the problems we identified could discourage qualified individuals from accepting appointments or renewals of their terms.

Auditing Small and Medium Enterprises—Canada Revenue Agency

The Canada Revenue Agency has a range of programs aimed at promoting compliance with Canada’s tax laws. The Small and Medium Enterprises Program carries out a number of compliance activities, including the Underground Economy Initiative designed to identify unreported income from “hidden” legal transactions. Like illegal activities such as smuggling, drug trafficking, and money laundering, “hidden” legal transactions contribute to the underground economy and deprive the government of revenues to fund programs for all Canadians.

For this Status Report, we followed up on recommendations from our 1999 audit of the Underground Economy Initiative and our 2004 audit of the Small and Medium Enterprises Program.

We found that since our previous audit, the Agency conducted a major review to identify all threats to the tax base. One of the four biggest threats is the underground economy, and the Agency has developed an action plan to address it. It has also taken steps to improve its monitoring of compliance. In addition, the Agency has increased its outreach activities to promote compliance and taxpayer awareness of what the underground economy costs society.

However, the Agency has not made satisfactory progress in assessing the risks of non-compliance and targeting small and medium enterprises to audit for unreported income. It selected a far higher proportion of low-risk files than those rated as high-risk by its own computerized system. About half of its underground economy audits over the past five years did not detect unreported income, and the amount of unreported income that has been detected has remained relatively constant. The Agency’s risk assessment systems need to be significantly improved.

The Agency has also made little progress in developing indicators to measure and report the results of the full range of underground economy activities. Despite having committed to do so, it still does not report additional taxes assessed on unreported income separately from other tax adjustments identified by its audit activities.

The Canada Revenue Agency needs to correct these long-standing weaknesses. Non-compliance with tax laws has an impact on the economic and social well-being of all Canadians. Furthermore, businesses that do not report all the income they earn put businesses that do at a competitive disadvantage and cause honest taxpayers to bear the tax load of those who cheat.

I hope that parliamentarians find the information in this report useful in their scrutiny of these important areas of government activity.


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