2011 June Status Report of the Auditor General of Canada

Since I issued my first Report to the House of Commons in 2001, our audits have taken my Office into a wide range of government programs and activities. I continue to be impressed by the professionalism, commitment, and resilience of public servants and by their efforts to ensure that Canadians are well served by their government. I believe that, in their public service, Canadians have a world-class institution that should be a source of pride.

My first Status Report to the House was tabled in September 2002. Our status reports tell parliamentarians what steps the government has taken to meet commitments made in response to our previous recommendations and whether, in our view, those steps represent satisfactory progress. In my view, there are numerous things that the federal government does well, particularly the ongoing activities on which many Canadians rely, including processing Canada Pension Plan, Old Age Security, and employment insurance benefits.

In an organization as large and complex as our federal government, however, it is not surprising that we have also found areas that need attention. Many of the issues we audit are complex, and making progress takes sustained effort over time. A rating of satisfactory does not necessarily mean that no further action is needed, but rather that the action taken so far is reasonable over the period since our previous audit.

I would like to use this Status Report—my last as Parliament’s Auditor General—to reflect on some examples of progress and also to underscore two challenges that remain of particular concern to me as my term comes to a close.

Progress made

One of the most satisfying aspects of my work has been the opportunity to point to good practices and real progress in a number of government programs. Taken together, our reports have included many examples of efforts by federal departments and agencies to make changes that will be of lasting benefit to Canadians.

Actions taken toward improvement

Foundations. The accountability of foundations is an example of progress arrived at in the past decade. In 1999 and for a number of successive years, the Auditor General’s observations on the government’s financial statements expressed concerns about the way foundations were funded, the way their funding was accounted for, and their inadequate accountability for billions of dollars transferred to them by the government.

Given the amount of money involved, I am very pleased that accountability to Parliament has been strengthened to the point where foundations now appear before parliamentary committees to discuss the management of their programs. The government has also strengthened its funding agreements with foundations to increase their accountability.

I was pleased when Parliament amended the Auditor General Act, in June 2005, to give my Office a mandate to audit foundations. Where we have conducted audits of foundations—for example, Canada Health Infoway and the Canada Millennium Scholarship Foundation—we have generally reported positive observations.

Passport Canada. Passport Canada had struggled in 2005 to meet service demands that were growing even as security requirements increased. In 2007, it faced a surge in applications for passports needed to fly to the United States, resulting in prolonged waits and delays for travelling Canadians. By 2009, we could report that Passport Canada had made satisfactory progress in addressing the problem and was preparing for any subsequent increase in passport applications leading up to June 2009, when Canadians would also need passports to enter the US by land or sea.

The Canadian Food Inspection Agency. I have also noted the considerable efforts that the Canadian Food Inspection Agency has made since the 2004 avian influenza outbreak to improve its readiness for animal disease emergencies. The Agency developed policies, plans, and procedures to manage such emergencies and adjusted its approach based on lessons learned. While every animal disease emergency brings specific challenges that cannot always be anticipated, the Agency’s established procedures enabled it to manage the 2007 and 2009 avian influenza emergencies and minimize the costs of lost production and the threats to animal health.

Social insurance number (SIN). The management of the social insurance number is an area where we found limited progress in 2002. In 2007, we reported that, while Service Canada was heading in the right direction to improve data quality in the Social Insurance Register, overall progress was still unsatisfactory. I was pleased to note in our 2009 Report, Managing Identity Information, that Service Canada had taken significant steps to implement a system for measuring and reporting on the quality of data in the Register. It also implemented a national quality control process to verify that new information being added to the Social Insurance Register at the time of a SIN application is complete, accurate, and valid.

I hope that these few examples, selected from our reports over the years, will serve to assure Canadians that government does indeed take action to improve. I would like to turn now to an area of government where this has been particularly evident—the government’s financial management.

Significantly improved financial management practices

I am pleased that I was able to provide a clean opinion on the government’s summary financial statements, the Public Accounts of Canada, for each of my 10 years as Auditor General. A clean opinion, that is, without qualification, tells users of the financial statements that they can trust the figures presented and that they depict fairly the financial position. I congratulate the government on this accomplishment—an unqualified audit opinion is achieved by few governments in other countries.

Another improvement I have noted during my term is the increased attention given by deputy heads to financial management. This may be due to the 2006 Federal Accountability Act, which designated deputy heads as the accounting officers of their departments. As such, they are accountable to the appropriate committee of Parliament to answer questions related to the management of their organizations.

Another significant development was the creation of departmental audit committees, which advise the deputy heads. As we recommended in 2004, these committees are required to include experts from outside government, who have diverse professional backgrounds. These include academics, former deputy ministers, or distinguished individuals from the private sector. Departments have attracted Canadians with impressive credentials to serve on their departmental audit committees, and deputy heads have told us that the committees provide valuable, objective advice on the management of their organizations.

As highlighted in Chapter 1 of this Status Report, another notable improvement in financial management is the recent requirement that departmental chief financial officers or their deputy chiefs have a recognized accounting designation. In 2003, when we first reported on the qualifications of senior financial officers, only 33 percent had accounting designations; in 2010, we found that 82 percent of chief financial officers in the 22 largest departments had professional accounting designations. This has increased the capability for effective management of financial matters in those departments.

I am impressed by the progress shown in the short time since 2004 by internal audit, a key financial management tool discussed in Chapter 3 of this Status Report. We said in 2004 that the success of internal audit would depend on its professionalism and the value it added to the department. A capable internal audit function provides senior management with objective, independent assurance that its financial, administrative, and operational controls and its management practices are effective.

This year, I am pleased to report that there is greater appreciation of the role that internal audit can play; and, as a result, there is stronger senior management support for it across government. Departmental chief audit executives are now expected to have professional designations, and their audit staff are encouraged to seek their formal designations as certified internal auditors.

The maturity and professionalism of the internal audit community was highlighted in our first phase of auditing the Economic Action Plan (reported in fall 2010). In that audit, we were able to rely on the work of internal audits completed in three departments and to incorporate the audit findings and conclusions into our own audit work. This coordination of work done by internal and external auditors enhanced the support that audit was able to provide to government operations.

Remaining challenges

While progress in many areas has been noteworthy, the government faces some significant challenges. The following two, in particular, concern me:

  • Long-term fiscal pressures facing Canadians
  • Conditions on First Nations reserves

Fiscal pressures

Like governments in most countries, Canada’s federal government faces long-term fiscal pressures, such as those arising from the debt and deficit situation and an aging population.

Under existing programs, an aging population will inevitably increase government spending on health care. Health care as a percentage of total program spending has risen in many jurisdictions. According to Statistics Canada, seniors aged 65 and older form the fastest-growing segment of the population and will represent more than 25 percent of Canada’s population in 2056.

As populations age, downward pressures will be brought to bear on labour force growth, economic growth, and tax revenues. The same people who will be needing more health care services, as they age, will also be drawing from the Canada Pension Plan, Old Age Security, and Guaranteed Income Supplement. Together, the growing cost of health care, increased retirement payments, and potentially lower tax revenues will present a major challenge.

As noted by the Commissioner of the Environment and Sustainable Development, another looming fiscal pressure facing Canada is the cost of managing the potential impacts of climate change. Extreme weather events are increasing in number and severity; other impacts include threats to human health from extreme heat and the spread of diseases, such as the West Nile virus. The most extreme impacts are already occurring in Canada’s North where, for example, the thawing of permafrost is affecting the stability of roads, buildings, pipelines, and other infrastructure. Climate change will potentially have major impacts on key economic sectors as well, such as forestry, mining, fisheries, and agriculture.

Adapting to climate impacts will be important to limit losses or to take advantage of opportunities that may accompany changing climate conditions. A national long-term strategy and action plan are needed to plan for adaptation, estimate the costs, and engage Canadians in adjusting their activities and their thinking.

Several of our audits in the past decade have shown that the government will also face the challenge of replacing federal infrastructure—the Parliament buildings, bridges and ferries, mail handling facilities and equipment, research facilities and laboratory equipment, and the information technology systems that Canadians depend on for a variety of services and payments are but a few examples. Infrastructure replacement costs will add to the government’s long-term fiscal pressures. The cost of not developing and funding a long-term replacement plan will be far higher.

I believe Canadians need sound, long-term fiscal information to understand the implications of policy choices, especially changes in spending, taxation, and debt levels. They need to know how these choices will affect the financial burden on present and future generations. Fiscal projections that look only a few years into the future will not give them what they need to meet the challenges ahead.

Nearly 30 countries and some Canadian provinces publish long-term fiscal projections, ranging from 25 to 100 years into the future. For example, for the last 20 years, the United States has produced fiscal projections that extend 75 years. In Canada, the Department of Finance Canada last published long-term projections 9 years ago as informal working papers, which are long since outdated.

I recognize the scale, complexity, and difficulty of managing these financial challenges. I encourage the government to publish the long-term financial projections needed to fully assess the impact of the challenges facing us and to inform Canadians and engage them in discussion about the difficult choices that need to be made. Success will require strong leadership and the ability to maintain focus and momentum over long periods of time. Resolving these long-standing challenges will take renewed vigour and clear plans and strategies. I encourage the government to engage Canadians in these decisions.

Conditions on First Nations reserves

Between 2001 and spring 2010, my reports included 16 chapters addressing First Nations and Inuit issues directly. Another 15 chapters dealt with issues of importance to Aboriginal people. I am profoundly disappointed to note in Chapter 4 of this Status Report that despite federal action in response to our recommendations over the years, a disproportionate number of First Nations people still lack the most basic services that other Canadians take for granted.

It is clear that living conditions are poorer on First Nations reserves than elsewhere in Canada. In 2010, Indian and Northern Affairs Canada (INAC) reported that the average well-being of those communities continued to rank significantly below that of other Canadian communities. For example, the high school graduation rate for residents of reserves is 41 percent, compared with 77 percent for Canadians as a whole; and INAC data shows that more than half of the drinking water systems on reserves still pose a health risk to people who use them. In a country as rich as Canada, this disparity is unacceptable.

On the surface, it may appear that the government simply needs to work harder to make existing programs work better. However, after 10 years in this job, it has become clear to me that if First Nations communities on reserves are going to see meaningful progress in their well-being, a fundamental change is needed.

In my view, many of the problems faced by First Nations communities on reserves are due to structural impediments that severely limit the delivery of public services and hinder improvements in well-being. In Chapter 4 of this Status Report, we identify and provide details on four such impediments: a lack of clarity about service levels to First Nations, the lack of a legislative base, the lack of an appropriate funding mechanism, and a lack of organizations to support local service delivery.

Real improvement will depend on the full participation of First Nations and the federal government; addressing the structural impediments will be a challenge for both parties. They will have to work together to address many obstacles. Unless they rise to this challenge, however, living conditions may continue to be poorer on First Nations reserves than elsewhere in Canada for generations to come.

Conclusion

I believe that Canadians have a strong and highly capable public service. In ten years of serving as Auditor General, I have observed many things it does well—an important factor in why most Canadians enjoy an enviable standard of living.

In terms of the future fiscal pressures we face as Canadians, I encourage the federal government to publish longer-term forecasts and to engage Canadians in discussions about choices that will have to be made.

I also encourage the government and First Nations to recognize the need for a changed approach to services on First Nations reserves and to work together to improve the well-being of those communities.

In closing, I thank my Office colleagues for their enthusiasm and commitment and their ability to deal with the many challenges we have faced together. I feel privileged to have worked with people who are so competent and so dedicated to serving Parliament and Canadians. I also acknowledge the excellent cooperation and assistance we received from the departments and agencies we audited, sometimes under trying circumstances. Finally, I want to express appreciation for the work of the committees of Parliament who reviewed our reports in committee hearings. With the continued combined efforts of these groups, I am confident that our democratic institutions will remain strong.

 


Definition:

Foundations—Organizations that received significant amounts of federal funding in advance to carry out public policy objectives. (Return)

 

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