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37th PARLIAMENT, 3rd SESSION

Standing Committee on Public Accounts

EVIDENCE

CONTENTS

Thursday, February 12, 2004

0905

The Chair (Mr. John Williams (St. Albert, CPC))

Ms. Sheila Fraser (Auditor General of Canada, Office of the Auditor General of Canada)

The Chair

Ms. Sheila Fraser

0910

0915

The Chair

Mr. Philip Mayfield (Cariboo—Chilcotin, CPC)

0920

Ms. Sheila Fraser

Mr. Philip Mayfield

The Chair

Ms. Sheila Fraser

Mr. Philip Mayfield

Ms. Sheila Fraser

Mr. Philip Mayfield

Ms. Sheila Fraser

Mr. Philip Mayfield

Ms. Sheila Fraser

Mr. Philip Mayfield

Ms. Sheila Fraser

Mr. Philip Mayfield

Ms. Sheila Fraser

Mr. Philip Mayfield

0925

Ms. Sheila Fraser

Mr. Philip Mayfield

Ms. Sheila Fraser

Mr. Philip Mayfield

The Chair

Mr. Odina Desrochers (Lotbinière—L'Érable, BQ)

Hon. Joe Jordan (Leeds—Grenville, Lib.)

Mr. Benoît Sauvageau (Repentigny, BQ)

The Chair

Mr. Odina Desrochers

Ms. Sheila Fraser

Mr. Odina Desrochers

Ms. Sheila Fraser

Mr. Odina Desrochers

Ms. Sheila Fraser

Mr. Odina Desrochers

Ms. Sheila Fraser

Mr. Odina Desrochers

Ms. Sheila Fraser

0930

Mr. Odina Desrochers

Ms. Sheila Fraser

Mr. Odina Desrochers

Ms. Sheila Fraser

Mr. Odina Desrochers

Ms. Sheila Fraser

Mr. Odina Desrochers

Ms. Sheila Fraser

Mr. Odina Desrochers

Ms. Sheila Fraser

Mr. Odina Desrochers

Ms. Sheila Fraser

Mr. Odina Desrochers

Ms. Sheila Fraser

Mr. Odina Desrochers

The Chair

Mrs. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.)

0935

Ms. Sheila Fraser

Mrs. Marlene Jennings

Ms. Sheila Fraser

Mrs. Marlene Jennings

The Chair

Mrs. Marlene Jennings

0940

Ms. Sheila Fraser

Mrs. Marlene Jennings

Ms. Sheila Fraser

The Chair

Ms. Judy Wasylycia-Leis (Winnipeg North Centre, NDP)

Hon. Joe Jordan

Ms. Judy Wasylycia-Leis

The Chair

Ms. Judy Wasylycia-Leis

0945

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Judy Wasylycia-Leis

0950

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

The Chair

Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, CPC)

Ms. Sheila Fraser

Mr. Paul Forseth

Ms. Sheila Fraser

Mr. Paul Forseth

Ms. Sheila Fraser

Mr. Paul Forseth

0955

Ms. Sheila Fraser

The Chair

Mr. Benoît Sauvageau

Ms. Sheila Fraser

Mr. Benoît Sauvageau

Ms. Sheila Fraser

Mr. Benoît Sauvageau

Ms. Sheila Fraser

Mr. Benoît Sauvageau

Ms. Sheila Fraser

Mr. Benoît Sauvageau

Ms. Sheila Fraser

The Chair

Mr. Benoît Sauvageau

1000

Ms. Sheila Fraser

The Chair

Hon. Shawn Murphy (Hillsborough, Lib.)

Ms. Sheila Fraser

Hon. Shawn Murphy

Ms. Sheila Fraser

Hon. Shawn Murphy

Ms. Sheila Fraser

1005

The Chair

Mr. Derek Lee (Scarborough—Rouge River, Lib.)

Mr. Benoît Sauvageau

Mr. Derek Lee

The Chair

Mr. Derek Lee

Ms. Sheila Fraser

The Chair

Mr. Hugh McRoberts (Assistant Auditor General, Office of the Auditor General of Canada)

Mr. Derek Lee

1010

The Chair

Mr. Derek Lee

The Chair

Mrs. Diane Ablonczy (Calgary—Nose Hill, CPC)

Ms. Sheila Fraser

Mrs. Diane Ablonczy

Ms. Sheila Fraser

Mrs. Diane Ablonczy

Ms. Sheila Fraser

Mrs. Diane Ablonczy

Ms. Sheila Fraser

Mrs. Diane Ablonczy

1015

Mrs. Diane Ablonczy

The Chair

Ms. Sheila Fraser

The Chair

Mr. Alan Tonks (York South—Weston, Lib.)

Ms. Sheila Fraser

1020

The Chair

Hon. Walt Lastewka (St. Catharines, Lib.)

Ms. Sheila Fraser

Hon. Walt Lastewka

Ms. Sheila Fraser

Hon. Walt Lastewka

Ms. Sheila Fraser

Hon. Walt Lastewka

Ms. Sheila Fraser

Hon. Walt Lastewka

Ms. Sheila Fraser

Hon. Walt Lastewka

1025

Ms. Sheila Fraser

Hon. Walt Lastewka

Ms. Sheila Fraser

Hon. Walt Lastewka

The Chair

Mr. Peter Goldring (Edmonton Centre-East, CPC)

Ms. Sheila Fraser

Mr. Peter Goldring

Ms. Sheila Fraser

Mr. Peter Goldring

Ms. Sheila Fraser

Mr. Peter Goldring

Ms. Sheila Fraser

Mr. Peter Goldring

Ms. Sheila Fraser

1030

The Chair

Mr. Benoît Sauvageau

The Chair

Mr. Benoît Sauvageau

Ms. Sheila Fraser

Mr. Benoît Sauvageau

Ms. Sheila Fraser

Mr. Benoît Sauvageau

The Chair

Mr. Dominic LeBlanc (Beauséjour—Petitcodiac, Lib.)

1035

Ms. Sheila Fraser

The Chair

Ms. Judy Wasylycia-Leis

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

Ms. Sheila Fraser

1040

Ms. Judy Wasylycia-Leis

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

The Chair

Ms. Judy Wasylycia-Leis

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

The Chair

Ms. Beth Phinney (Hamilton Mountain, Lib.)

Ms. Sheila Fraser

Ms. Beth Phinney

1045

Ms. Sheila Fraser

Ms. Beth Phinney

Ms. Sheila Fraser

Ms. Beth Phinney

The Chair

Hon. Joe Jordan

Ms. Sheila Fraser

Hon. Joe Jordan

Ms. Sheila Fraser

Hon. Joe Jordan

Ms. Sheila Fraser

Hon. Joe Jordan

1050

Ms. Sheila Fraser

Hon. Joe Jordan

Ms. Sheila Fraser

Hon. Joe Jordan

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

1055

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Mr. Odina Desrochers

The Chair

Mr. Odina Desrochers

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

CANADA

Standing Committee on Public Accounts

NUMBER 002

3rd SESSION

37th PARLIAMENT

EVIDENCE

Thursday, February 12, 2004

[Recorded by Electronic Apparatus]

¿ (0905)

[English]

The Chair (Mr. John Williams (St. Albert, CPC)): Order. Good morning, everybody.

Pursuant to Standing Order 108(3)(g), we have today the November 2003 report of the Auditor General of Canada, referred to the committee on February 10, 2004.

Our witnesses this morning are from the Office of the Auditor General of Canada: Ms. Sheila Fraser, Auditor General of Canada; Mr. Shahid Minto, Assistant Auditor General; and Mr. Ronald Campbell, Assistant Auditor General.

Good morning.

Ms. Sheila Fraser (Auditor General of Canada, Office of the Auditor General of Canada): Good morning.

The Chair: This is the day you present your report, tabled in the House of Commons on Tuesday, to the public accounts committee. Therefore, Ms. Fraser, without further ado, I will turn it over to you for your opening statement.

Ms. Sheila Fraser: Thank you, Mr. Chair.

I am very pleased to be here today to give you an overview of my annual report for 2003, which was initially planned to be tabled last November.

As you mentioned, I am accompanied today by assistant auditors general Shahid Minto and Ronnie Campbell. There are several other assistant auditors general available to answer your questions.

Much of the audit work that we are reporting on was completed last summer, and since then the government has announced many changes. Not having audited these new initiatives, it would be premature for me to comment on them today. I would like, though, to go over some of the key messages in each chapter.

[Translation]

Chapter 1 deals with the Government On-Line project. Canada enjoys an enviable worldwide reputation for Government On-Line, which is the federal government's initiative to make services available on the Internet by 2005.

We noted that, with only two years left to go, many difficult issues remain to be resolved if the government is to achieve its objective of full service transformation.

For example, many departments have developed only high-level plans for service transformation and for dealing with the changes that will occur as a result of a shift to delivering services on-line.

Furthermore, long-term financing for the development of a secure channel, which the government considers the cornerstone of the program and vital to its success, is uncertain.

I urge the government to take the necessary steps to prevent Government On-Line from becoming an expensive and underused initiative.

[English]

I would like now to turn to chapter 2, “Accountability and Ethics in Government”. The government recognizes that controversies about the management of grants and contributions, the sponsorship program, and other high-profile issues can weaken public trust. In this study, we reviewed the initiatives that have been taken by government to address accountability and ethics matters, including a guide for ministers and secretaries of state, issued in June 2002; a guidance for deputy ministers, issued in June 2003, that includes a management accountability framework; and a values and ethics code for the public service, issued in September 2003.

Our study concluded that these were necessary and positive steps and that these principles need to be clarified and put into practice. I hope this study will assist parliamentarians in any future considerations of the responsibility and accountability of ministers and senior public servants.

[Translation]

Chapters 3, 4 and 5 deal with the Sponsorship Program, advertising and public opinion research.

Our findings on the government's sponsorship program from 1997 to 2001 are deeply disturbing.

Most significant was the widespread non-compliance with contracting rules, which extended beyond Public Works and Government Services Canada and into five major Crown corporations and agencies: the Business Development Bank of Canada, Canada Post Corporation, the Old Port of Montreal Corporation Inc., VIA Rail Canada Inc., and the Royal Canadian Mounted Police.

Rules were broken or ignored at every stage of the process for more than four years and there was little evidence of value received for money spent.

During that time, the Sponsorship Program consumed $250 million of taxpayers' money, and more than $100 million of that amount went to communications agencies in fees and commissions.

In a small number of very troubling cases, sponsorship funds were transferred to Crown corporations by highly questionable methods. This was not just a matter of missing documentation or bending the rules. These transfers were apparently designed to pay commissions to communications agencies while hiding the source of the funds. And the amounts were significant. These practices failed to respect both the parliamentary appropriations process and Parliament itself.

[English]

Even though the government has cancelled the sponsorship program, I am deeply disturbed that such practices were allowed to happen in the first place. There has not been an adequate explanation for the collapse of controls and oversight mechanisms. Lessons must be learned to ensure that these kinds of problems do not occur again. There are still questions that remain to be answered, but our audit could only go so far. Our audit was limited to government actions, particularly those of the Communications Coordination Services Branch of Public Works and Government Services Canada and its successor, Communications Canada, as well as crown corporations. We could not look at what happened to these funds once they left the government.

I would like to point out that under its current management, Communications Canada has made significant improvements to the operation of the sponsorship program, and I would like to take this opportunity to thank Mr. MacKenzie and his staff for their collaboration during our audit.

Public servants also broke the rules in selecting communications agencies for government advertising. In some cases we found no evidence that a selection process had even been used. Between 1998-1999 and 2002 the federal government ran more than 2,200 advertising activities, with contracts valued at about $793 million, making it one of the larger advertisers in the country. In chapter 5 we found that overall, public opinion research was managed transparently, with roles and responsibilities clearly defined. However, there were some cases in which departments did not establish a clear statement of the need to undertake a public opinion research project.

¿ (0910)

[Translation]

Chapter 6 deals with the Protection of Cultural Heritage in the federal government.

The federal government plays a key role in protecting Canada's cultural heritage, which includes national historic sites, federal heritage buildings, the federal archives, and the collections of the National Library of Canada.

This audit looked at how the government protects cultural heritage—an international first for a national audit office and an issue that is very important to me. Unfortunately, we uncovered serious problems.

More than two-thirds of the national historic sites administered by the Parks Canada Agency and federal heritage buildings are in a poor to fair condition. Over 90 per cent of the National Library's collection is housed in buildings that do not meet current standards for temperature and humidity. Our National Archives is having difficulty identifying and collecting documents of historic value.

The current protection regimes have reached their limits. The government must act now so that important parts of our cultural heritage are not lost to future generations.

[English]

In chapter 7 we looked at how the employment insurance income benefits program, a vital part of Canada's social safety net, measures and reports on its performance. The quality of service provided by the EI program is mixed. In 2002-2003 more than 95% of employment insurance payments were correct, and a 2001 opinion survey showed that a majority of respondents were generally satisfied with the service they received. However, the performance of important aspects of service, such as access to call centres and timeliness of claims processing, fell short of targets, and very considerably, among regions. Parliament needs to receive a better picture of the performance of the employment insurance benefits program, including the savings that have resulted from changes to the act in 1996 and the department's plans for addressing regional disparities in claims processing.

[Translation]

Signing land claims and transferring responsibilities to northern governments mark significant changes in the government of the North, but it is only a first step of a process leading to improved economic conditions for Aboriginal groups.

Our audit, reported in Chapter 8, showed that Indian and Northern Affairs Canada does not know if it is fulfilling all of its responsibilities spelled out in two land claim agreements in the North—the Gwich'in in the Northwest Territories and the Inuit in Nunavut.

We found that the Department generally meets its specific obligations under the land claims agreements, but does not measure its performance in achieving the objectives that were agreed upon by the federal and territorial governments and Aboriginal groups.

[English]

In response to our audit, the department fundamentally disagreed with our view of how success should be measured. The department defines success as fulfilling the specific obligations as set out in the agreements. We believe success means more than meeting the minimum legal requirements, that results matter above all. All parties have a responsibility to make land claim agreements successful, and Indian and Northern Affairs Canada must provide leadership to ensure lasting benefits.

On another issue, we noted that a number of media reports refer to the department's failure to track spending of $1.2 billion. Our audit noted that other than the capital transfer of $1.2 billion for the two land claims, the department does not report the costs of meeting the federal government's annual obligations for each of these two claims. The department indicated that it would not be possible or particularly useful to track such spending.

Chapter 9 reports on a study of the institutional arrangements in place to encourage the economic development of first nations. The right institutional arrangements can make the difference between poverty and economic success for first nations. The federal government is a key contributor to first nations economic development through its programs and its regulatory functions. Thirteen first nations and four tribal councils and governments in five provinces participated in the study. I am encouraged by their efforts and thank them for their cooperation.

Our study identified several steps that the federal government should take to strengthen its support for first nations economic development. These include consolidating administrative requirements of programs, supporting first nations to build stable institutional arrangements in a timely way, and developing a more coordinated approach.

¿ (0915)

[Translation]

Chapter 10 includes six observations that I believe deserve Parliament's attention.

We are pleased to report that the government has initiated actions to address some of the issues we had raised in our previous reports about Downsview Park.

However, for Indian and Northern Affairs Canada, we found several weaknesses in the Department's administration of the third-party management process.

We also found that Natural Resources Canada needs to improve its financial information and monitoring used to manage contribution payments and scientific equipment.

The purchase of two new Challenger 604 aircraft for the VIP fleet is another example of government's failure to follow its own rules, in this case, its procurement policies and procedures. The decision to spend close to $100 million was made in the space of nine days. This did not give any of the responsible departments a chance to look at their requirements or review how best to go about improving the capabilities of the fleet.

I do not believe the government demonstrated due diligence or due regard to economy in making this purchase. It is difficult to see how good procurement practices could have been followed in the rush to complete the purchase before the end of the fiscal year.

[English]

The government disagreed with our conclusion that policies and practices were bypassed and considered that the procurement was appropriately managed. I am concerned about this view, because it leaves the door open for the same thing to happen again.

One of our audit observations dealt with the issue of special powers granted to intelligence-gathering agencies in the interests of national security. Independent reviews by external agencies can provide assurances to Canadians that these powers are used properly and with justification. However, organizations that collect security intelligence are not all subject to the same level of external review, and review bodies provide varying degrees of detail in their reports to Parliament. I recommend that the government ensure that all agencies collecting security intelligence be subject to appropriate levels of external review and disclosure.

The final audit observation concludes that the government has not yet addressed our concerns about the surplus in the employment insurance account.

Mr. Chair, that completes my overview of the report, and we would be pleased to answer any questions the committee may have.

The Chair: Thank you very much, Ms. Fraser.

Mr. Mayfield, eight minutes, please.

Mr. Philip Mayfield (Cariboo—Chilcotin, CPC): Thank you, Mr. Chairman.

It seems we come to this committee to talk about the same things over and over again, but with a little more depth this time perhaps.

The language, Madam, you used in describing the goings-on in the sponsorship program perhaps is far too kind, but basically, we have a portrait of program people paying to have the Canadian flag waved in Quebec, a program that has no rules; the money starts flowing on a phone call. You name the players by their titles throughout the report, but on page 21, paragraph 3.44, you specifically give a list. Yesterday the Prime Minister said it's a small group of people. Can you name the senior civil servants and officials of the crown corporations involved?

¿ (0920)

Ms. Sheila Fraser: Mr. Chair, I would be glad to furnish to the committee, if you wish, an indication of the people we have named in the report by the titles and who they refer to. I obviously don't have them all with me today, but I would be glad to furnish that to the committee.

Mr. Philip Mayfield: Thank you very much.

The Chair: Perhaps you can send that over today or tomorrow. Is that possible, Ms. Fraser? Then I will have it distributed to all members.

Ms. Sheila Fraser: Yes, we will have that delivered to you immediately.

Mr. Philip Mayfield: In the same paragraph you say, while referring to transactions with crown entities, “These arrangements appear designed to provide commissions to communications agencies, while hiding the source of funds and the true nature of the transactions.” In a media report a former Auditor General, Kenneth Dye, spoke about this, saying the entire mess was a scheme carefully thought up to defraud the government, and the real question would be where the money went after it left the government. I was wondering if you could explain what you mean by your words “the true nature of the transactions”.

Ms. Sheila Fraser: Essentially, in this report we were saying we could find no business rationale for the transactions, why they were structured this way. There was no documentation. It is not unusual that crown corporations and government departments participate together in a project, but we would generally find a memorandum of understanding that would set out the responsibilities of the various parties and what they would expect to receive in return. We did not find that in any of the cases we have noted in the report. Actually, there was a general lack of sufficient documentation. We see no business reason, no rationale, for paying commissions to agencies to simply move funds from a government department to crown corporations. No services were rendered that we can see, and we questioned the true nature of this. We indicate that it appears these transactions were designed to pay significant commissions to these agencies.

Mr. Philip Mayfield: Your report usually goes to a department and there's a departmental response, but this time it was the Privy Council Office that responded. Can you tell the committee specifically which members of the Privy Council were involved in responding to this report?

Ms. Sheila Fraser: Any response from a department is always signed by the head of that department, for instance, the deputy minister. In this case it would have been the Clerk of the Privy Council who signed the response letter.

Mr. Philip Mayfield: And his name is?

Ms. Sheila Fraser: Mr. Himelfarb.

Mr. Philip Mayfield: In paragraph 3.21 of the report, Ms. Fraser, there are five bullets. It mentions that requests were made to the minister and that project files were discussed with the minister's office at various times. Can you name the minister who was involved in that?

Ms. Sheila Fraser: As we indicate in 3.21, much of this process was confirmed to us by a former minister. That former minister was Mr. Gagliano.

Mr. Philip Mayfield: You say that the minister's office and the minister's staff were making these decisions. The decisions were made by political staff also in the minister's office. Can you give us a list of the political staff in the minister's office from 1997 to 2000?

Ms. Sheila Fraser: I'm not sure, Mr. Chair, that we would have that information. I will check, and I will let the committee know whether or not we have that. Our audit work is generally limited to the actions of civil servants and not political staff, so I don't know if we would have that information.

Mr. Philip Mayfield: On May 6, 2002, you prefaced your report regarding the three contracts related to Groupaction with a letter to the then Minister of Public Works, Don Boudria, in which you state that after having seen the appalling state of affairs of the sponsorship program, you decided on two courses of action. One was a wider audit--and the reason we're here today--and the other was that you referred your findings to the RCMP because of the serious nature of the audit conclusions and in compliance with section 12 of the Auditor General Act. Did you know at this time that the government would be calling a public inquiry on the very day you tabled your report? If you did know, when did you first know?

¿ (0925)

Ms. Sheila Fraser: I obviously did not know in 2002 that the government would be calling a public inquiry. We could not have speculated on what would have been the results of the government-wide audit that we announced at that point. I knew the government was calling a public inquiry at about the same time as the tabling.

Mr. Philip Mayfield: I'm sorry, I didn't hear that.

Ms. Sheila Fraser: When it was announced by the Prime Minister.

Mr. Philip Mayfield: Thank you very much, Mr. Chairman.

The Chair: Thank you very much, Mr. Mayfield.

[Translation]

You have eight minutes, Mr. Desrochers.

Mr. Odina Desrochers (Lotbinière—L'Érable, BQ): Thank you, Mr. Chairman.

First off, I want to say how deeply disappointed I was last night to learn that the current Prime Minister, who claims to be committed to transparency and to overcoming the democratic deficit, had arranged a meeting with the Liberal members of the Public Accounts Committee. For someone who claims not to be involved in this affair, I'd say he was getting quite involved in the business of the Public Accounts Committee.

[English]

Hon. Joe Jordan (Leeds—Grenville, Lib.): I have a point of order. That's completely false. The Prime Minister never met with this committee. I think the member has a responsibility to stick to the facts.

[Translation]

Mr. Benoît Sauvageau (Repentigny, BQ): It wasn't the Prime Minister, but staff from the Prime Minister's office.

[English]

The Chair: Mr. Desrochers.

[Translation]

Mr. Odina Desrochers: Therefore, if not the Prime Minister, then someone from his office arranged the meeting. I would imagine that person informed the Prime Minister of the meeting's outcome. So much for transparency. That's all I had to say on that subject.

Ms. Fraser, would you not agree that all throughout this so-called sponsorship scandal, the federal entities involved and the Department of Public Works worked together to implement a system that benefited certain people a great deal?

Ms. Sheila Fraser: Mr. Chairman, I'm sure you understand that I am not at liberty to comment on this. We audited the actions of public servants and of certain employees of Crown corporations. We have examined transactions and have voiced our concerns and I hope that the public inquiry and the work to be carried out by this committee will provide answers to many of the questions that remain to be answered.

Mr. Odina Desrochers: At first glance, considering that the pals of the Liberal Party of Canada benefited so much from this program, do you not think they were in on it together?

Ms. Sheila Fraser: I can't comment on that.

Mr. Odina Desrochers: Fine then.

You stated in your report that some payments were based on artificial invoices and contracts and that Crown corporations had used questionable methods. In the course of your audit investigation, did you interview the heads of these Crown corporations, specifically Mr. Jean Pelletier, Mr. LeFrançois and Mr. André Ouellet?

Ms. Sheila Fraser: Yes, we met with the heads of Crown corporations as well as with the boards of directors to inform them of our audit findings.

Mr. Odina Desrochers: Were Messrs. Pelletier, LeFrançois and Ouellet as surprised as the current Prime Minister was to learn the scope of this debacle?

Ms. Sheila Fraser: In the chapter, we provide details of one or two transactions involving these Crown entities. Some individuals were aware of these incidents, while I believe others were not.

Mr. Odina Desrochers: When you interviewed Messrs. Pelletier, LeFrançois and Ouellet and learned that they had been advised of these irregularities, were you also told that they had taken steps to correct the problem or did they say they had taken no corrective action? Did they in fact say they took steps to address the problem?

Ms. Sheila Fraser: Yes, most Crown corporations responded. In fact, I believe mention is made of their responses in the chapter in question. Boards of directors also demanded explanations from Crown corporation staff. That was the case with VIA Rail, the Business Development Bank of Canada and the Old Port of Montreal Corporation Inc., since the Office of the Auditor General is responsible for auditing the operations of these Crown entities. Our audit responsibility does not extend to Canada Post, but we were mandated by the Governor in Council to audit certain very specific Canada Post transactions. Therefore, I'm not aware of what Canada Post may have done or of any follow-up actions it may have taken.

¿ (0930)

Mr. Odina Desrochers: Was there any indication given that sanctions had been imposed on public servants involved in these transactions?

Ms. Sheila Fraser: To my knowledge, no.

Mr. Odina Desrochers: When you spoke to Mr. Pelletier, Mr. LeFrançois and Mr. Ouellet and to the other Crown corporations heads, and informed that some of their employees were implicated in the sponsorship debacle, did they appear genuinely willing to cooperate or did they seem rather uncomfortable about the whole situation?

Ms. Sheila Fraser: We interviewed the staff and the management of these Crown corporations for the purposes of conducting our audit. We subsequently met with the board chairmen and with the audit committee chairs to convey our findings to them. The boards of directors were then supposed to review the action plans, but we were given access to certain documents, as we had requested. We were not prevented from finishing the business at hand.

Mr. Odina Desrochers: From the documents you consulted, were you able to establish any direct ties between the Crown corporations and Public Works and Government Services Canada?

Ms. Sheila Fraser: Yes, obviously. In the report, we describe cases where Public Works funds were transferred to Crown corporations through communications agencies. If the committee would prefer, Mr. Chairman, we could brief members in greater detail on the different transactions. Several are fairly complex and a briefing might assist the committee in its deliberations.

Mr. Odina Desrochers: That's fine, Ms. Fraser. Now then, how many incidents involving Crown corporations were you able to document?

Ms. Sheila Fraser: I could do a tally, Mr. Chairman.

Mr. Odina Desrochers: You could provide us with an answer later on. We'd like to have an idea of the overall number.

Ms. Sheila Fraser: We selected a sample of these transactions. I'll see if we can provide you with more information. What you'll find in the report is merely a select sample.

Mr. Odina Desrochers: You interviewed three different ministers of Public Works. Could you identify them for me?

Ms. Sheila Fraser: We interviewed three former Public Works ministers: Mr. Dingwall, Ms. Marleau and Mr. Gagliano.

Mr. Odina Desrochers: In light of their responses to your questions, which of the three former ministers was, in your opinion, implicated the most in the sponsorship scandal?

Ms. Sheila Fraser: Our audit covered the period from 1997 to 2001 when Mr. Gagliano was Minister. We met with the other former ministers in an attempt to broaden our understanding of the program. It was referred to as a program, but we failed to find any evidence that it was set up as a program as such, within the meaning of a federal government program. We attempted to learn how this all began and if indeed there was any kind of approval process in place. We failed to find any evidence of this.

Mr. Odina Desrochers: Thank you very much.

The Chair: Thank you very much, Mr. Desrochers.

You have eight minutes, Ms. Jennings.

[English]

Mrs. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you, Mr. Chair.

Thank you very much, Ms. Fraser, for the report and for the work of your agency.

A lot of people are asking, how is it possible that this could have happened, and how is it that the government controls and systems put into place appear to have failed?

You yourself, in your report, state that the system of control and supervision for financial management within Public Works is actually quite sophisticated. You also point out that in order to create this program and then administer it, a completely separate branch was set up that came under the deputy minister directly, rather than the way programs would usually be--internal, and so on.

Normally in the internal audits there's a system of the comptroller general, who comes under the Treasury Board, and the internal comptrollers within the various departments do not report within the department but directly to the comptroller general in Treasury Board, who is the employer. Did that system exist at the time this program was created, and if not, when did it stop existing and under what circumstances?

¿ (0935)

Ms. Sheila Fraser: Mr. Chair, I know that system did not exist during this program. I do know there was a comptroller general's office. There still is a comptroller general, but the function is now combined with the Secretary of the Treasury Board. So there is not a distinct comptroller general, and the deputy comptroller general tends to be the person who does most of the activities of the public accounts. I can give you more information. I'm not sure of the dates when those two functions were combined.

But on many of the issues we are talking about here, the Department of Public Works does have a fairly sophisticated system of control, and we note in the report that CCSB, the group that was managing the sponsorship activities, was set up in a very weak control environment. There are basic principles of segregation of duties and oversight that were missing for that particular branch, and one question that remains unanswered is, why did that occur like that? We could not find any rationale as to why that group was set up in that way.

But I will try to find the information for Madame Jennings on the role of the comptroller.

Mrs. Marlene Jennings: Thank you. But on that issue and the fact that you were not able to find any rationale for why that branch for the sponsorship program was set up in a way where it was completely separate from the normal operations of public works, you yourself say it seems--or that's one of the conclusions you appear to be moving toward--that if it had been within the department, within the normal systems, what happened either could not have happened, or if it was wilfully done, it would have come to light much sooner than in fact it did.

Ms. Sheila Fraser: I would say most definitely. I think we note in the report that based on previous audits we have obviously found weaknesses and areas for improvement within Public Works, but generally the systems of internal control are effective.

This is one of the issues that preoccupies us. Why was this group established like this, outside that normal control framework?

I think we have to appreciate that this was a very small group in a very large department, and I would suspect that most people's attention was focused on the 14,000 other employees rather than this small group of people.

Mrs. Marlene Jennings: How much time do I have left, Mr. Chair?

The Chair: You have three and a half minutes, Madam Jennings.

Mrs. Marlene Jennings: In your report and in subsequent interviews you've made the point that you hope this committee, which to a certain extent is the accountability committee for government--how government accounts to Parliament, and this committee is in fact a creature of Parliament--in doing a study of your report would look at the issues of ministerial accountability and at the issues of accountability and responsibility for public servants, in particular high-ranking public servants. Could you explain why you would like this committee to look at those issues when we are studying this report? What would be the objective of that?

¿ (0940)

Ms. Sheila Fraser: Thank you, Mr. Chair.

In our chapter 2 we did a study on values and ethics and accountability. A study is different from an audit because an audit is based on criteria that are accepted by all and a study is more of a discussion in some ways. It is not based on the same kind of criteria. We do not have, and no one has established, what are the criteria for a values and ethics code, so we couldn't do an audit.

In that review we looked at the documents the government has issued since 2002—not the most recent ones obviously because our report was completed some time last summer—and we realized there were certain inconsistencies or areas of inconsistency between the accountabilities of the minister and the accountabilities of deputy ministers. In our traditional model it is the current minister who is accountable for the actions within a department, and I question if that is still really the expectation. Is it realistic to expect a minister to know everything that is going on in a very large, very complex, organization, as some of these departments are? We are talking about thousands--

Mrs. Marlene Jennings: May I interrupt for just a second. That raises an important point. If that's the case, would it be reasonable to expect a minister of another department to be closely involved with or to have a good knowledge of what is happening in a ministry that is under another minister?

Ms. Sheila Fraser: Within our system the minister of the department has responsibility for the operations of that department. Quite frankly, I think most people would not expect even the minister to know all of the day-to-day operations. Some people would call into question how appropriate it is for a minister to become involved in day-to-day operations.

When we were raising the issue about reviewing accountabilities and responsibilities, quite apart from our audit of the sponsorship...perhaps the sponsorship case could serve as an example, but I would hope we could do this in a more thoughtful way, give it true reflection, and address as well what are the accountabilities and responsibilities of civil servants. Some of those traditional notions may need to be rethought and clarified, and there could be an open, frank discussion around them.

The Chair: Merci beaucoup, Madam Jennings.

Ms. Wasylycia-Leis, please. You have eight minutes.

Ms. Judy Wasylycia-Leis (Winnipeg North Centre, NDP): Thank you, Mr. Chairperson.

First of all, I want to thank the Auditor General and her staff for being here today and for their courage in presenting the facts as they uncovered them in a very disturbing chapter in the history of Canadian politics. It is clear that we are here today discussing this evidence of reprehensible behaviour involving contempt of Parliament and possible abuse of public funds because of your work.

The real question for us today is, why are we here? Why did it take all of this time and effort when in fact much of this was uncovered in the past couple of years and the public accounts committee tried very hard to get to the bottom of it and couldn't? In fact, the government is here, having been dragged kicking and screaming, to respond to some very serious allegations. I hope the initial response from the committee to our concern about six of the nine Liberal members on this committee meeting with the PMO last night is not evidence of further restraints being placed on this committee and the kind of stonewalling we had to endure in the past.

Hon. Joe Jordan: I have a point of order, Mr. Chair. We're here to have questions.

Ms. Judy Wasylycia-Leis: Yes.

The Chair: Excuse me. Madam Wasylycia-Leis has eight minutes. If she wants to make a statement, that is her prerogative. If she wants to ask questions, that is also her prerogative.

Ms. Judy Wasylycia-Leis: Again, Mr. Chairperson, it is very interesting that the Liberal members on this committee are so testy and defensive.

Let me follow up on Marlene Jennings's questioning. I think we need to pursue, based on what the Prime Minister said yesterday in the House about this being really the work of a small group of 14 staff in Public Works, a rogue element, as he calls them.... Do you really believe, Madam Auditor General, that it's possible for this kind of elaborate scheme to have been carried out completely by a small group of 14, a rogue element, within the department without senior officials and people on the political side knowing?

¿ (0945)

Ms. Sheila Fraser: Mr. Chair, I have said many times in the last two days that many questions remained unanswered even after our audit. The questions of who knew what and who did what I would hope would be addressed either by this committee or the commission of inquiry that has been called. Our work can only be limited to the actions of civil servants within the federal government and following certain transactions into crown corporations. Once the money goes beyond that, we do not know, and we do not search for or speculate on who may have controlled this or who directed whom.

We are presenting the facts of these cases to Parliament. I think it will be up to Parliament, then, to decide how much further it wishes to take it.

Ms. Judy Wasylycia-Leis: Madam Fraser, do you think it would have been useful for your work to have been able to talk to the present Prime Minister, Paul Martin, as part of your investigation?

Ms. Sheila Fraser: No, I don't believe so.

Ms. Judy Wasylycia-Leis: I realize this question may not be within the purview of your office, but we're trying to determine how we can play a meaningful role in this committee. I wonder if it would be important for us to call as witnesses those individuals you were not able to call because it goes beyond the public service. For example, given the questions raised and the uncertainties, would it not make sense for us as a committee to call before us the relevant political individuals and the Liberal Party officials from the province of Quebec and the heads of the corporations you have outlined as being involved in this scheme?

Ms. Sheila Fraser: Mr. Chair, if I may make a suggestion to the committee, before the committee begins to call witnesses, I think it would be useful for the committee to understand what the government has already done, because the government has taken several actions over the last 18 months in regard to this program. There have been administrative reviews and changes of practice in sponsorship. The program was cancelled, but still many changes were made to the administrative procedures. Changes have been made to advertising. I think it would be appropriate for the committee to understand what the government has already done as well as what the government is planning to do and in particular what this commission of inquiry is planning to do. I think the committee also has to consider the testimony of the witnesses who appeared in relation to the report on Groupaction. The testimony was given in a closed hearing. Then, of course, there's the whole RCMP investigation.

I would think that the committee would have to look at all of those various reviews and investigations and understand their scope and mandate and how the committee work might or might not influence them and vice versa before actually determining whom it will call as witnesses.

The Chair: I'd like to interject at this point. I'll add some time on for you, Ms. Wasylycia-Leis.

How would you suggest that would be done, Ms. Fraser? Would it be senior government officials making a presentation to the committee?

Ms. Sheila Fraser: I would think it would be senior government officials. They could certainly give information on the work that has been done to date, the mandates that have been given to various groups, and the reviews that are going on. I think we've all been informed of some of them, but I think the committee has to understand in detail the mandate of each one before it charts its own course in this.

The Chair: Thank you very much.

Ms. Wasylycia-Leis.

Ms. Judy Wasylycia-Leis: I appreciate the advice, and I think that's a good suggestion for our committee. With respect to the first point, I know it would be important for us to understand what government has done or not done since all of these audits and your report, both previous to this one and today, but as you yourself said, we're dealing not so much with the problem of new rules being required as we are rules not being followed.

How do we get to that whole malaise that appears to be there in this department, in this incident and maybe in other cases, and how do we avoid tarring the entire public service without in fact trying to get at the political connections? Would you agree that somehow, as you said in your chapter 2, we need to ask the question of why senior officials did not intervene to prevent or correct the problems you've identified?

¿ (0950)

Ms. Sheila Fraser: Obviously we've put that question forward. We believe it is appropriate. I think the committee has to understand, what were the oversight mechanisms? How did the program function? Should people have known, and if they didn't know, why didn't they know? If they did know, why did they seemingly do nothing?

So yes, I think those are valid questions.

Ms. Judy Wasylycia-Leis: It would seem to me, Mr. Chairperson, that for us to get to the very fundamental question of whether or not people knew, we have to have the freedom to call Liberal backbenchers to this committee. We have to have the freedom to call the present and former prime ministers. We have to have the freedom to call crown corporation heads. We have to have the freedom to call Liberal Party representatives from the province of Quebec, all in order to find out exactly who knew what, when, and to avoid casting aspersions on the entire public service.

I want to thank the Auditor General for that suggestion, or for her general suggestions, and suggest, Mr. Chairperson, that we discuss that in the meeting following this one.

The Chair: Thank you very much, Ms. Wasylycia-Leis. As you know, a parliamentary committee has the power to call anybody to appear before the committee. It will be the decision of the committee as to who will appear before the committee.

Now we will go to Mr. Forseth. We're moving into round two, so it will be four minutes, please.

Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, CPC): Thank you, Mr. Chair.

I'm referring to the report on page 5. At paragraph 3.14, entitled “Parliament was not informed of the Sponsorship Program's true objectives”, you say:

When it created the Sponsorship Program, the federal government did not inform Parliament of the program's real objectives; nor has it ever reported the results.

What I'm saying is that in order to measure performance, there must be a goal, there must be some objectives. Then there is the means of how to get there. Is it appropriate, legal, transparent, and so on?

I'm asking you, did you observe a structure of plausible deniability? In view of the vague goals, and then the rule-breaking in the method and means that you've pointed out, what were they trying to hide?

Ms. Sheila Fraser: I can only speculate as to why there were no written guidelines, why there was no information available to Parliament on this particular program. We found no plans. For instance, one would expect that if there was a sponsorship program to promote, as we were told, the visibility of the federal government in the province of Quebec, there would have been some visibility plan, some analysis of which events were important, which would give the most visibility, and how much should be given in sponsorship to those. We found none of that sort of analysis documentation anywhere.

Mr. Paul Forseth: You say in paragraph 3.15 that “Treasury Board approved increased funding”, but it had obligations for due diligence. Certainly the Prime Minister of the day and the current Prime Minister were part of Treasury Board and knew of these things, but yet you say in paragraph 3.19 that “we would have expected the government to provide Parliament with at least a description of the program, its objectives, its expenditures, and the results it achieved”.

First of all, I would ask, is it not reasonable to say that the current Prime Minister and the cabinet then knew what it was all about?

Ms. Sheila Fraser: I cannot answer that question. I have no information on that.

Mr. Paul Forseth: And during your investigation, did you get any indication as to when it will be done? Your expectation is that there would be a description of the objectives, of all of the results, of some kind of dollar per value, and of when it's likely to be produced. As you say, it hasn't been produced to date.

Ms. Sheila Fraser: My understanding is that the program has been cancelled, so I doubt there will be any reporting in the future on this, and I have had no indication that there would be any reporting on past activities.

Mr. Paul Forseth: I'll just give you one more chance to look at this concept of plausible deniability. It seems the structure was deliberately created in a very loose way. It's very easy, then, in the program design to say, we didn't know, there's no documentation. Everybody kind of knows what's going on, but there's no paper trail. So I'm asking you about this structure of plausible deniability.

¿ (0955)

Ms. Sheila Fraser: Obviously, the lack of documentation is very troubling to us. It is not usual that we would find no guidelines, no program objectives. I will point out that this, of course, went through Public Works' operating budget, through their regular vote, and it was for communications activities. I'm not even sure how specific a mention of sponsorship there was. I think it was just more broadly communications activities. So even though we call it everywhere the sponsorship program, there was never a program per se established that we can find anywhere.

The Chair: Thank you very much, Mr. Forseth.

Monsieur Sauvageau.

[Translation]

Mr. Benoît Sauvageau: Madam Auditor General, gentlemen, thank you very much for your report and for your presentation. To echo what Judy said, thank you as well for your courage in this matter.

I have an initial question for you, Ms. Fraser. I sense that the Prime Minister and certain Liberal members are trying to undermine your comments by saying, or by implying, that the sponsorship scandal involves only one small group. I'd like you to elaborate on your response. As I understood it, you said that since your mandate was limited in scope and your audit focused only on public servants, not on political staff, you were only able to identify this small group. However, you never said that was the end of it. Political staff are not part of the small group that you have identified, and neither are ministers and MPs, nor heads of Crown corporations or board chairmen.

Is that in fact correct?

Ms. Sheila Fraser: That is correct. In paragraph 3.24, we talk about the management of the Sponsorship Program and note that only a handful of people had participated in decision making. Therefore, as I stated earlier, our audit was limited to the activities of public servants and to the rules and procedures that apply to the management of funds.

Mr. Benoît Sauvageau: Therefore, you've identified a small group because of the restrictions on your mandate.

Ms. Sheila Fraser: We looked at the public servants who managed the program. It's important to stress that only a handful of public servants were involved, because it would be unfortunate, not to mention unfair, to generalize in this case and to tar all public servants with the same brush.

Mr. Benoît Sauvageau: You focused on the activities of public servants. However, I'm asking you specifically if you excluded from your audit operation members' or ministers' staff as well as the heads of Crown entities.

Ms. Sheila Fraser: Our audit did not extend to the actions of these individuals.

Mr. Benoît Sauvageau: I see.

I have a hypothetical question for you. Given the scope of the corruption associated with the Sponsorship Program, if you had the authority at this time to lay criminal charges, would you be able to do so, in light of the facts you have uncovered?

Ms. Sheila Fraser: You have to understand, Mr. Sauvageau, that I don't like to answer hypothetical questions. We were concerned by what our 2002 audit of three contracts revealed. We referred these files to the RCMP. It is the responsibility of the RCMP to investigate the matter and to determine if any of the transactions can be considered of a criminal nature. The decision to pursue the matter further subsequently rests with the courts. It is not the role of the Auditor General to make pronouncements of this nature.

Mr. Benoît Sauvageau: Did you refer the file to the RCMP before you discovered the agency was involved in this affair, or after?

Ms. Sheila Fraser: We sent the files to the RCMP in 2002, before we began this audit.

The Chair: Please keep it brief.

Mr. Benoît Sauvageau: Had the problem lasted one year, with accountability processes in place, steps might have been taken to rectify the problem. However, the situation dragged on for four years. Control mechanisms were truly wanting. What was the source of the $250 million spent on the program? Where did the money come from? From the Department of Finance? From Treasury Board? From the Privy Council? It had to come from somewhere.

À (1000)

Ms. Sheila Fraser: The money came out of the budgets approved for Public Works and Government Services Canada. It came out of the department's general operating fund. As we indicated in the report, Public Works requested additional funds from Treasury Board for communications activities. Therefore, the money came from Public Works' budget.

[English]

The Chair: Merci beaucoup, Monsieur Sauvageau.

Mr. Murphy.

Hon. Shawn Murphy (Hillsborough, Lib.): Thank you very much, Mr. Chairman.

There are a couple of areas I want to probe, Madam Auditor, involving the whole chain of command and the function of the internal audit department. But first of all, I think your suggestion that we go back and review the testimony that was brought in the first go-round here is very useful. We spent a lot of time on this, and I think we did a fairly good report, but there were an awful lot of unanswered questions at the end of the day. Your most recent report is much broader in scope. It deals with crown corporations and advertising agencies, which we didn't really deal with, and it is much more complex than before. At the time we had this very disturbing system of the sponsorship program being a side department answerable directly to the deputy, which has never really been explained by anyone. When we interviewed witnesses, Guité basically said his job was to save CAD, and that was the way business was done. Tremblay said he was new to government and didn't know how things worked with the Financial Administration Act. The deputy at the time, Quail, basically said he relied on Guité and Tremblay.

In the preparation of your most recent report, you interviewed the minister at the time, Mr. Gagliano. Did he give any justification or rationale as to why the system was set up the way it was, and did he give any justification or rationale as to the individual specific transactions?

Ms. Sheila Fraser: Quite frankly, anything the former minister told us that we believed was of significance is in the report. He confirmed to us our general understanding of how the operations worked, that it was the executive director and the group within CCSB that made the decisions on sponsorship. He told us that he reviewed them, that the executive director would review the request and decide which ones should receive funding, and that project files were discussed with the minister's office from time to time. That was pretty much it. We have been unable to obtain adequate explanations as to why CCSB was established the way it was.

Hon. Shawn Murphy: Did he give any answer as to why these advertising agencies were used as middlemen?

Ms. Sheila Fraser: No. We were not given adequate explanations as to why they were used. They were used in part, we understand, to manage some of the program and to ensure that the government got the proper visibility, and rather than having it done within CCSB, they contracted with the advertising agencies to run the programs, but we never received adequate explanation for why there were commissions paid simply on a transfer of funds or for the whole monitoring of the selection process. We were really told, I think, that it was basically the executive director who made those decisions.

Hon. Shawn Murphy: My second concern is with the whole area of the internal audit department. To read the whole chronology of events, we had the first internal audit, which brought this to the fore; it was posted, then the internal audit was sent back for a very detailed examination on, I believe, all the files. Correct me if I'm wrong, but my understanding was that they came back with a relatively clean report, and they missed a lot of what you picked up. The recommendation we made--and I just want you to comment on this--was that the whole department of internal audit report to the deputy minister, as does the sponsorship program, which I see as a systemic problem in and of itself. Do you have any comments on that, and has any corrective action been taken in the whole area of internal audits? Again, is the premise of my first statement correct?

Ms. Sheila Fraser: My understanding, Mr. Chair, is that the first internal audit was conducted in 2000. At that point, CCSB was part of Public Works. You are correct in saying that most of this story, if you will, began with that internal audit.

At some point after that CCSB was moved into a separate agency. The internal auditor no longer had a mandate vis-à-vis that separate agency and could not do, as he wished, a full internal audit of that agency at any time. It was a separate organization.

He was requested to do a follow-up audit, but it was of very limited scope and mainly dealt with documentation in files. So he did not conduct a full audit. He only looked to see the existence of documentation in files.

À (1005)

The Chair: Thank you, Mr. Murphy.

Mr. Lee, please. You have four minutes.

Mr. Derek Lee (Scarborough—Rouge River, Lib.): Thank you, Mr. Chairman.

Something I might have raised as a point of order earlier...Ms. Wasylycia-Leis in her remarks referred to a contempt of Parliament. I realize there is a lot of ritual hand-wringing going on here. If there is some substance to the allegation, she of course has an obligation to raise it in the House. I hope she will. If it was just hyperbole, hand-wringing, and fiction, then I'll let it stand as that.

Let me get to my issue then--

[Translation]

Mr. Benoît Sauvageau: On a point of order, Mr. Speaker. Mr. Lee should be directing his comments to the member. That's what we were told earlier.

[English]

Mr. Derek Lee: Excuse me, do I have the floor here, Mr. Chairman?

The Chair: Mr. Lee is perfectly capable and entitled to make a point of order or to make a comment during his intervention.

Mr. Lee, the floor is yours.

Mr. Derek Lee: I think I just slid it in there as a comment rather than raise it as a point of order, but I'd be happy to raise it if you wish.

I want to congratulate the Auditor General for doing yeoman's service here and taking Parliament into audit territory way beyond what we're normally able to accomplish as members.

I want to go to chapter 10, even though a lot of the focus here is on the sponsorship program, and refer to the area dealing with security and intelligence oversight. I was shocked. In the absence of the sponsorship program issue, Mr. Chairman, I would have regarded this particular section as a bit of a bombshell. In paragraph 10.136, the CCRA is identified as having an intelligence unit comprised of approximately 200 persons, who, among other things, do counter-terrorism and counter-proliferation.

In order to do intelligence gathering and counter-terrorism, you have to do some kind of surveillance and information gathering. I've worked in this envelope for Parliament for some 15 years now and I wasn't even aware that the CCRA was out there doing intelligence gathering. So I want to thank the Auditor General for that.

In relation to that issue, when CCRA does this kind of work, is the money they use for that appropriated specifically by Parliament in the estimates, or does CCRA, as the money collector for all of government, simply take what they need from the cashflow and use it for their purposes, so that Parliament doesn't actually get to see the spending? Does your office know the answer to that?

Ms. Sheila Fraser: Mr. Chairman, I would point out that what we call an audit observation tends to be a very short piece. This is an issue that came up when we were doing a national security audit, which we will be reporting on in March. It tends to be a fairly descriptive piece.

I would ask Mr. McRoberts, the assistant auditor general on national security issues, if he knows the answer to the question.

The Chair: Mr. McRoberts, assistant auditor general of the Office of the Auditor General, welcome.

Mr. Hugh McRoberts (Assistant Auditor General, Office of the Auditor General of Canada):

Mr. Chairman, the answer is that that work is funded from the funds appropriated to CCRA by Parliament for its operations as part of its operations.

Mr. Derek Lee: Okay. That's reassuring in one sense, but the other sense is that of course the finance committee obviously didn't see this or hadn't noted it, this business of creeping intelligence gathering. It's certainly a concern.

The mandate of National Defence to gather intelligence, while generally understandable, and most people will understand--

À (1010)

The Chair: Your time has run out, Mr. Lee. Do you have a very brief question, or do you want to finish your statement?

Mr. Derek Lee: I guess I could pause there, because it's an issue that's going to come up and be dealt with further anyway. Thank you, Mr. Chairman.

The Chair: Thank you very much, Mr. Lee.

Ms. Ablonczy, please. You have four minutes.

Mrs. Diane Ablonczy (Calgary—Nose Hill, CPC): Thank you, Mr. Chairman.

On page 29 of your report you make an important point: that it was a small number of officials in a special operations unit, Canada Communications, within the Department of Public Works who were the key players here. I think that is important, because we have a number of very fine public officials, and we don't want to tar them all with the same brush.

However, I might point out that given, for example, the recent revelations about how the president of the Business Development Bank was leaned on and there was an attempt to co-opt him into an agenda of abuse of taxpayers' money, I think it's fair to say that we have a reasonable apprehension that this abuse of public service for political abuse of public money is not one isolated case.

Having made that point, I assume that you talked to most of the players involved in this whole business. Is that correct?

Ms. Sheila Fraser: Yes, we would have talked to many of them. Of course the period we're dealing with goes back several years, and some may have left the public service or moved to other jobs in the meantime. But we would have talked to the people we felt could give us the information we required to do our audit.

Mrs. Diane Ablonczy: All right. When you spoke with them, did you ask them where they got their direction from to proceed in the spending of $250 million in the shocking fashion that you have outlined in your report?

Ms. Sheila Fraser: The people we spoke to who worked within that branch indicated that they received their directions from the executive director.

Mrs. Diane Ablonczy: And did you speak with the executive director?

Ms. Sheila Fraser: We spoke with the former executive director when we did our audit of the Groupaction contracts. I don't believe that we.... We did not meet him again during this audit. He had retired. We felt that the information we had received previously was confirmed by other sources and by other people we had talked to, and we felt no need to go back and interview him again.

Mrs. Diane Ablonczy: At this point, do you have any information where the executive director got his direction from to spend--or misspend--$250 million in this fashion?

Ms. Sheila Fraser: No, I do not, but I would suggest that the committee might want to go back and look at the testimony he gave in previous hearings as to how he ran this division and this branch and the way he decided on the sponsorship program.

Mrs. Diane Ablonczy: On page 33 you make some very disturbing findings--

An hon. member: What chapter are you referring to, Ms. Ablonczy?

À (1015)

Mrs. Diane Ablonczy: This would be chapter 3, page 33.

You basically say that the Department of Public Works, in its 2000 report on plans and priorities, “stated that it was managing the sponsorship program in a manner that ensured prudence and probity”. You go on to say “This was clearly not the case”. In other words, Parliament was shamelessly misled by Public Works in its report. In fact, you say that for four years the government ran the sponsorship program with little regard for Parliament and little evidence of prudence and probity.

Then you go on to say in paragraph 3.122: “The pattern we saw of non-compliance with the rules was not the result of isolated errors. It was consistent and pervasive. This was how the government ran the program.”

Now, I'm assuming from these words that it was elected officials in the government who were also part of this consistent and pervasive lack of prudence and probity, and in spite of the lack—

The Chair: We'll stop there and we'll get Ms. Fraser to answer.

Ms. Sheila Fraser: Mr. Chair, the point being raised is correct. We indicate as well in paragraph 3.100 that the role of Parliament was not respected--that it was either not informed or it was misinformed about the management of this program.

As I said earlier, we looked at the actions of public servants. In fact, the former executive director told us when we did the Groupaction contract that this was the way he ran those activities and that program. We audited those three contracts, and I think the audit we have just completed indicates that he was correct when he said that this was the way he ran the sponsorship program.

The Chair: Thank you very much, Ms. Ablonczy.

Mr. Tonks.

Mr. Alan Tonks (York South—Weston, Lib.): Thank you, Mr. Chairman, and Madam Auditor General.

The intent of my questioning is to pursue a course of action that would remedy and preclude the recurrence of what has happened. I think that is where, generally, the committee should be attempting to focus its concerns. I want to understand, then, the role your office plays within the context of the Financial Administration Act as it has been established. On page 6 you indicate that it was the oversight mechanisms and controls at Public Works that failed. Could you elaborate a little on what your office's role would have been within that complete context, the Financial Administration Act, and either the delegation of authority as part of oversight or the controls on delegation and authority beyond the Financial Administration Act?

Ms. Sheila Fraser: Our principal mandate is obviously to audit the financial statements of the government, the public accounts of Canada. We do this annually. In doing that, we select a number of transactions throughout government to audit. Members should know--and I believe when we present the plan and the results of the audit of the public accounts, we discuss this--we work to a materiality limit. It is impossible for us to look at all the transactions of government--we still wouldn't be finished auditing many years ago. We try to identify the elements that have the highest risk for presentation on the financial statements, then we do a sampling of transactions. In order to do that, we use what we call a materiality limit. Our materiality limit on the public accounts of Canada is $1 billion. We're talking about expenditures of $180 billion. So we do selected transactions throughout the government, and certainly in these years we would. We tend to focus our audit as well on areas that we believe of highest risk in estimating of liabilities, provisions, etc.

So we may or may not have picked up expenditures in this program. Quite frankly, given that it was probably about $50 million a year, the chances of picking an expenditure there would have been very small. When we do pick an expenditure, we do check to ensure that the proper signatures and procedures are followed according to the Financial Administration Act.

Beyond that, when we do what we call our performance audits, the kinds of reports that we're doing here, we select them on a risk basis. We go through each department and try to identify which of the programs are the most significant to that department in attaining its objectives. We go through, actually, quite a detailed process of planning, which involves the departments as well. Then we select, through that, about 30 audits to do each year.

In the case of the sponsorship program, we became aware of the issues through concerns that had been raised either in the House or in the media. We saw that the internal audit group had done an audit. The internal audit group at Public Works has always had a very good reputation. We were monitoring their audit. We looked at the action plan, and we even commented publicly on the action plan that was developed after that internal audit. Given the way the department seemed to be responding and what we knew of the strength of that internal audit unit, we felt at that time, which would have been, I guess, late 2000, that it was not necessary for us to do anything more then. After that, of course, the Minister of Public Works asked us to audit those three contracts, and here we are today.

À (1020)

The Chair: Thank you.

Mr. Lastewka.

Hon. Walt Lastewka (St. Catharines, Lib.): Thank you very much.

I want to concentrate my remarks and questioning on why this wasn't caught earlier. I'm glad you have expressed a number of times that this is a small group--I understood it was fourteen; you might want to confirm that--and that it wasn't the balance of Public Works. You've commented a couple of times that this was not widespread through the Public Works and that they do have a very good audit system.

My question is, following on Mr. Murphy's question, when there was a change of mandate, who approved a change of mandate that excluded the internal auditors?

Ms. Sheila Fraser: It was a new department that was created, Communications Canada. I don't know that we have the specific information.

Hon. Walt Lastewka: But they were given a mandate?

Ms. Sheila Fraser: I presume so. We can certainly get that information for the committee.

Hon. Walt Lastewka: You left me with the impression that there was some internal auditing going on, and then there was a revised mandate. I think that was the answer given to Mr. Murphy. Who would approve that mandate? Is that just done within Public Works, or was it Treasury Board?

Ms. Sheila Fraser: I presume the Treasury Board. The internal audit group can audit the activities within Public Works. Then CCSB, as we call it, which was the division within Public Works, was created as a new department, Communications Canada, and of course the internal auditors of Public Works have no authority over activities in another department. I presume Treasury Board would have approved that, but we can certainly confirm that for the committee.

Hon. Walt Lastewka: Good, because you left me with the impression that this was a nice way of leaving out the internal audit.

Ms. Sheila Fraser: I was just trying to explain that the scope of the second internal audit was not as full as the first one.

Hon. Walt Lastewka: It is my understanding that we're now talking about 1997 to 2001, because after the internal audit there had been some changes made. Then you were asked by the minister to go in and do a complete audit? Is that correct?

Ms. Sheila Fraser: We were asked to audit three contracts that had been awarded to Groupaction. We issued the report on that in May 2002. When we saw the conclusions of our audit and the findings, we decided to undertake this government-wide audit.

Hon. Walt Lastewka: When the internal audit was done, it immediately went on the web and you got copies of it, right? Was there nothing in the internal audit that would lead you to believe it needed an overall audit by your department?

À (1025)

Ms. Sheila Fraser: We do not receive copies of internal audits automatically; that is within departments. They are posted on the website, I think, as a general practice. We were aware of the internal audit. We, as I mentioned earlier, had confidence in the professionalism and strength of that internal audit department, and we were monitoring what was happening after that. We felt, because there had already been an audit done, the problems needed to be addressed before we went in and reconfirmed, probably, what an internal audit had said.

Hon. Walt Lastewka: You interviewed the Public Works employees--whatever that number was--and you're going to give us a list and so forth. Was there nothing from them? I guess the question becomes why they would not have disclosed earlier if this was wrongdoing.

Ms. Sheila Fraser: I cannot answer that question.

Hon. Walt Lastewka: Okay.

The Chair: Thank you very much, Mr. Lastewka.

Mr. Goldring.

Mr. Peter Goldring (Edmonton Centre-East, CPC): Thank you very much, Mr. Chairman.

Thank you very much, Ms. Fraser.

I'd like to take the questioning in a slightly different direction and talk about the two Challenger aircraft that were purchased. I have a couple of pertinent questions in that area. I'm seeing very clearly in your report that the Department of National Defence has been asked about, apparently, and reports that it's very satisfied with the existing fleet. They're suggesting that no replacements are needed up until the year 2010. And they continue with this by stating that there's a 100% performance rate with the fleet, which would suggest that they are right in this. But then the Privy Council goes ahead with a review for a requisition. Did the requisition for these aircraft come from the Department of National Defence at all? Normally, I would think, it would be coming through an administrative process. Was the requisition strictly a political process, or did it come through administration sources from the department itself?

Ms. Sheila Fraser: We were informed by the Privy Council Office that they were directed to conclude this purchase, and then Public Works and National Defence carried out the purchase after being directed to do so by the Privy Council Office.

Mr. Peter Goldring: In a normal process wouldn't a request for equipment and purchasing of equipment come from the Department of National Defence itself, and would that request not be documented in some type of forwarding of information, a letter of requirement of materiel, and certainly on a $100-million aircraft purchase?

Ms. Sheila Fraser: As we note in the report, the buying of the new planes was not in National Defence's capital plan. They indicated that they had no plans to replace those jets until 2010. The real issue we're trying to raise here is that we would have expected a much more complete analysis to have been done in deciding what kind of aircraft, the number, and all the rest of it. Given the size of this purchase, we would have expected to have seen much more analysis than we were able to find in the course of our audit.

Mr. Peter Goldring: Do you have a particular name of a person who would have initiated this requisition to start the process, even through Privy Council, some person who would have said we have a need, or was this strictly from the confines of Privy Council itself? In other words, was there an initiation of a request outside of Privy Council?

Ms. Sheila Fraser: We were informed that the departments were directed by the Privy Council Office to conclude that purchase, and then they began the process to complete the acquisition.

Mr. Peter Goldring: Are we privy to any of the names of those who initiated that request?

Ms. Sheila Fraser: I have no names, no.

Mr. Peter Goldring: In light of that, and understandably, these types of aircraft are not necessarily sitting on the deck somewhere waiting, has there been any thought to following the trail of the aircraft back? When I read this it seems to give less than three weeks to make a major purchase from the stock of the manufacturer itself. I rather think this might have been initiated because aircraft were sitting in somebody's inventory, as a request for somebody to pick up those aircraft.

In other words, was there any investigation to see if this is perhaps benefiting the aircraft manufacturer more than it does the government? It's more to the benefit of the aircraft manufacturer to move his sitting inventory. Secondly, were these aircraft sitting in inventory or were they destined to some other country, some other purchaser, and the Privy Council recognized that and decided to take it off their hands?

Ms. Sheila Fraser: I'm afraid, Mr. Chair, that I can't give much information on most of the questions that have been asked. The two planes were what were called green aircraft. They had been built. They were physically there. We were told that the company approached the government with an offer for purchase to be completed in a very short period of time. The government directed the departments to complete that acquisition. We did not find the analysis and the support that we would have expected to find for a purchase of $100 million.

À (1030)

The Chair: Thank you very much, Mr. Goldring.

M. Sauvageau, s'il vous plaît, quatre minutes.

[Translation]

Mr. Benoît Sauvageau: Mr. Chairman, I'm hearing our Liberal friends say that everything is fine, now that tighter rules and constraints are in place. If we were to apply the same philosophy to the Canadian justice system, when a group misappropriates or launders $250 million, instead of punishing the guilty party, we would try to find ways of preventing them for committing the same crime again. I don't know if that's the new philosophy they want to apply to our justice system, but that's what the Liberals appear to be saying.

Ms. Fraser, I have two questions for you. The first concerns paragraph 21 of your statement in which you note the following: “There are still questions that remain to be answered [...] We could not look at what happened...”.

[English]

The Chair: Chapter 3.

[Translation]

Mr. Benoît Sauvageau: No, I'm referring to her opening statement: “There are still questions that remain to be answered [...] We could not look at what happened to these funds once they left the government.”

There will be a public inquiry, and our committee will also be following up on this matter. “There are still questions that remain to be answered...”. In your opinion, what are the main questions that remain unanswered? If your mandate had included not only the Communications Co-ordination Services Branch, but other services as well, which unanswered questions would you have liked to explore further?

Ms. Sheila Fraser: Mr. Chairman, I've been asked a number of questions in recent days that I can't answer. As I said earlier, we're reviewing the actions of federal public servants and we're examining documents that may exist within departments and agencies. Several legislative auditors have a mandate to follow the money trail and to follow up with suppliers or recipients of the funds to ascertain if contracting or other conditions were met.

Obviously, I have not addressed the whole question of the RCMP investigation. Had we had a mandate to do so, I think we would have tried to see if the communications agencies had documents that could have shed more light on the transactions. Did they have information or records to indicate that the government received value for the money it spent? There is a considerable amount of missing documentation within the federal government. Had we been mandated to do so, we would probably have investigated these transactions further in an effort to see if these agencies were justified in billing the federal government like they did. However, our mandate was restricted to auditing the transactions of public servants.

Mr. Benoît Sauvageau: Thank you.

Prior to 1997, the group headed up by Mr. Charles Guité reported to the Deputy Minister of Public Works in so far as its expenditures and activities were concerned. The relationship changed in 1997, that is to say Mr. Guité began reporting directly to the Minister. Did your study uncover the reason for this shift and why he then became directly accountable to the Minister, rather than to the Deputy Minister?

Ms. Sheila Fraser: Mr. Chairman, the first year covered by our audit is 1997. Therefore, we did not look at this change in the line of accountability, if in fact there was a change.

Mr. Benoît Sauvageau: Thank you.

The Chair: Thank you very much, Mr. Sauvageau.

You have four minutes, Mr. LeBlanc.

Mr. Dominic LeBlanc (Beauséjour—Petitcodiac, Lib.): Thank you, Mr. Chairman.

Thank you, Ms. Fraser, for the excellent work that you and your colleagues have done in connection with this very important file.

You have identified several disturbing situations. It explains in part why the government and the Prime Minister have decided to call a judicial inquiry. The justice who will preside over the inquiry will have powers that you yourself do not have to trace the funds and compel persons who are not public servants to testify. In any case, we view an inquiry as one way of getting to the bottom of this affair.

À (1035)

[English]

It's along that line, Madam Fraser, that I wanted to ask you to share some advice with the committee. To my mind, this is a bit of uncharted water.

You have done a thorough and comprehensive report. Now a judicial inquiry has been convened. The committee has a role, obviously an important role. The RCMP is looking at certain situations, and a special counsel has been appointed to look at recoveries of money. I worry that with these four investigations, or four streams, under way at the same time, we could as a committee, or individuals perhaps, get into situations where eventually the RCMP process may be compromised. Individuals have a charter right to a fair trial. I worry about dragging individuals into situations where ultimately their fair trial could be compromised.

At the beginning, you said that perhaps the committee could look at some of the broader issues. You suggested that perhaps this group might begin by understanding the relationship between our work, the judicial inquiry, and the RCMP inquiry. Can you elaborate? In your view, for example, would it be useful to meet with the special counsel to understand how he intends to proceed? Would it be valuable to hear from either the justice of the Superior Court of Quebec or the counsel he appoints to help him set up the inquiry?

How do you propose that we can do our work without impeding on what are people's charter rights to a fair trial, eventually, if ultimately people are charged?

Ms. Sheila Fraser: I think Mr. LeBlanc has raised a very important issue, that there are many reviews, inquiries, and investigations going on. I do know the committee has had some experience with this, perhaps unfortunately, when you conducted the hearings into the Groupaction contracts, and I know there was legal counsel advising you. I think you should certainly go back and look at what counsel had advised, or even have legal counsel again advising the committee, to ensure that the committee does not, I guess, prejudice other investigations that may be going on.

Obviously, all I do know about the inquiry and the special investigator and all the rest is what has been reported in the news releases. I am not aware of their exact mandate and scope. It is certainly up to the commissioner of the inquiry to determine how he wishes to proceed and what areas he will want to look at.

As I said earlier, my suggestion to the committee would be to have a better understanding, first of all, as to what has already happened, because there has been much action taken within government on some of these programs, and then secondly, all these other inquiries, reviews, and investigations that are ongoing or about to begin...so that the committee well understands where it is appropriate that it conduct its overview.

The Chair: Thank you, Mr. LeBlanc.

Ms. Wasylycia-Leis, you have four minutes.

Ms. Judy Wasylycia-Leis: Let me pick up on this issue of the need for an independent public inquiry. Would it be fair to say it is something that is used when all other measures have failed and it is a last resort in terms of uncovering or getting at the root problems of an issue or responding to something that appears to be fairly pervasive?

Ms. Sheila Fraser: I am certainly not an expert as to why commissions of inquiry such as that would be used. My impression of this is that the government has taken these issues very seriously and that a commission of inquiry is a very serious response to these issues that were reported in this audit.

Ms. Judy Wasylycia-Leis: You recommended an independent review, generally, in terms of problems like this. Would you have recommended such an inquiry if you believed we were just talking about a small group of 14 or so people within one department?

Ms. Sheila Fraser: We recommended in the report that the government needed to get to the bottom of this, that the government needed to understand what had happened and why it had happened. It is then up to government to determine the best way to do that.

We would not go so far as to recommend a specific course of action to government. I think it really is up to government to decide how they should conduct that.

À (1040)

Ms. Judy Wasylycia-Leis: Could it be that perhaps we are dealing with a small group of instigators but a fairly large group of collaborators?

Ms. Sheila Fraser: I think the commission of inquiry will answer some of those questions.

Ms. Judy Wasylycia-Leis: Is it possible for us to do a proper investigation as a committee and for this independent inquiry to take place without some protection being offered public servants? That does lead to this announcement of the whistle-blower legislation, something that all parties had asked for, for a long time, and that government members have resisted.

Do you think we can conduct anything without giving some sort of guarantee to public servants that their jobs are not in jeopardy and that there is no risk to them if they come forward?

Ms. Sheila Fraser: I can't answer that question. I think it would be more appropriate to talk to legal counsel about what are the responsibilities of people who are called before a parliamentary committee and what that might entail.

Ms. Judy Wasylycia-Leis: Do you have any sense of the matter of commissions being requested and booking fees required in any other area of government, similar to the situation we are dealing with?

Ms. Sheila Fraser: No, that is not an area we have ever looked at. I have no idea about that.

Ms. Judy Wasylycia-Leis: Although you have said we don't know how widespread this issue is and whether it is beyond one department, is it fair to say we are setting the stage for similar incidents to happen just by virtue of the kind of revolving door we have between the Prime Minister's office and the corporate sector, just in terms of the number of lobbyists who have access to government from the corporate sector? Aren't we just asking for similar trouble?

Ms. Sheila Fraser: Mr. Chair, I am sure Ms. Wasylycia-Leis knows I can make no comment on her question.

Ms. Judy Wasylycia-Leis: A question based on similar problems that have come forward to the public and to parliamentarians has to do with a very similar scandal in Health Canada. That scandal appears to involve booking fees and commissions, with the assistant deputy minister actually being paid all kinds of money, fees, and gifts for the fact that he got contracts for certain groups. Given the fact that that seems so similar--

The Chair: Ms. Wasylycia-Leis, do you have a very brief question?

Ms. Judy Wasylycia-Leis: --shouldn't we have an independent inquiry that includes that issue as well, and shouldn't this committee be looking at the broad issue of a culture of deceit within the government?

Ms. Sheila Fraser: I know that in the particular instance Ms. Wasylycia-Leis is referring to an internal audit was done and an investigation by the RCMP is under way. So we have not felt it necessary to do any work in that regard given all the other reviews and investigations going on.

Ms. Judy Wasylycia-Leis: But isn't that exactly where it's at now--

The Chair: Thank you, Ms. Wasylycia-Leis. Your time has expired.

Ms. Phinney, please.

Ms. Beth Phinney (Hamilton Mountain, Lib.): Thank you, Mr. Chairman.

I'd like to thank the Auditor General for this report. It reveals a very serious situation, and it's important for us to learn how it happened so that we can develop mechanisms to prevent a repeat performance.

I'd like to ask you some questions about a paragraph on page 30 in chapter 3 under the heading “The role of Parliament was not respected”. It says Parliament was not informed about the real objectives of the sponsorship program and was misinformed about how the program was being run. It says the parliamentary process was bypassed to transfer funds to crown corporations and that the funds were used to fund the operations of the crown corporations.

There are about four questions in there. We were not informed of the real objectives. What objectives was Parliament given for this program?

Ms. Sheila Fraser: None, Mr. Chair.

Ms. Beth Phinney: It says they were misinformed about how it was being managed. I'd like to know how they were being misinformed.

Were the funds that went to the crown corporations for their regular operations, for CCSB business, or to transfer to the advertising companies? I wasn't quite sure of your answer on that.

À (1045)

Ms. Sheila Fraser: As we mentioned earlier, the Department of Public Works and Government Services, in its 1999-2000 report on plans and priorities, which is mentioned in the next paragraph, indicated it was managing this program and ensuring prudence, probity, and transparency. I think it is clearly the case that this was not accurate given this audit. That's why we said that Parliament was misinformed about how the program was being managed.

With regard to the parliamentary process being bypassed, the funds that were used for the sponsorship program were voted to the Department of Public Works for operations and maintenance, including communications activities. Then they were transferred to crown corporations and agencies. Some of the money ended up going into, for instance, the regular operating budget of the RCMP and the budget of VIA Rail. That crown and that agency have their own appropriation from Parliament. So in effect money that was voted to Public Works is now ending up in the budgets subsidizing the RCMP and VIA Rail. So we're saying the parliamentary process was bypassed. If, for example, the RCMP was having a celebration for its 125th anniversary and needed additional funding for events around that, we believe it should have gone back to Parliament and asked for a specific appropriation to the RCMP, not have it come through the Department of Public Works.

Ms. Beth Phinney: This is what I want to clarify. The funds were used for the operations of the crown corporations but not for the normal operations. Were they used for normal operations because they weren't getting enough money or were they used for communications that CCSB wanted them to do?

Ms. Sheila Fraser: In the case of VIA Rail, some of the funds were used for painting signs. So they were used for what would have been normal operating expenses of that crown corporation.

That is why, Mr. Chair, I would suggest again that we might want to take the committee members through the specific cases in more detail, because it is quite complex. We could brief you, and I think you would then understand that funds were taken from Public Works and were actually used for operating expenses of crown corporations.

Ms. Beth Phinney: Thank you, Mr. Chairman.

The Chair: Thank you very much, Ms. Phinney.

Mr. Jordan, please, for four minutes.

Hon. Joe Jordan: Thank you, Ms. Fraser.

I just want to say at the outset that much has been made of this so-called secret meeting of our side, and the press was certainly good at giving questions to the opposition on that. Mr. LeBlanc touched on what we discussed there. Essentially, we have concerns about the four streams. Your word was “unfortunate” in terms of what happened in the summer, and I think that's probably an appropriate word. We have to be careful how we go forward, but I'll commit to the members of the opposition on this committee that you'll not see any obstructionism from this side. Get your lists. We can call who we want. The issue of having special counsel present is critical, I think, and being well briefed up front, but we're going to turn every stone to get to the bottom of this.

Madam Fraser, I also want to congratulate you on your work, but since I'm at the end here, I've hopefully phrased my questions in such a way that you can answer with “yes” or “no”.

Is it fair to say that one of the reasons you see a growth in the auditing industry--internal audits, external audits, forensic audits--is that businesses set up rules to be followed, managers expect those rules to be followed, and audits check not only the rules but also compliance of the rules? Is that fair to say, yes or no?

Ms. Sheila Fraser: Yes.

Hon. Joe Jordan: Is it also common, when you have a set of rules in place that require budgets to be used by the end of the year, that the sort of “use it or lose it” mentality sets in, and that when you audit companies it's not uncommon to find rushed expenditures at year end?

Ms. Sheila Fraser: I'm afraid I can't say yes or no to that one.

Hon. Joe Jordan: Okay.

Are you aware, yes or no, of any unscheduled or emergency landings of the previous Challenger aircraft because of inflight decompression problems ?

Ms. Sheila Fraser: Yes, we do note in our report that there was an issue with decompression.

Hon. Joe Jordan: Okay, that's fine.

The role of the audit, then...or the fact that this group.... You have a lot of experience with this file, and I have a little bit more than some of the other members. When you were looking at this, and reading this, and talking to these people, did the notion or the concept of “SWAT team” ever enter your mind in terms of this group feeling that it had a mandate, that it didn't have to follow the rules, that the end justifies the means? Did that concept ever creep into your consciousness?

À (1050)

Ms. Sheila Fraser: I presume we're talking about the sponsorship group. Well, they certainly told us that this was the way they did business. And yes, I think it is quite clear that they felt they were above the rules.

Hon. Joe Jordan: I have one final question, Madam Auditor. On the national news last night, a member of the opposition said--and pardon the grammar, this isn't my quote--that you, the Auditor General, said that “the ethics of this government are the worst in a hundred years”.

Did you say that?

Ms. Sheila Fraser: No, I have never said that.

Hon. Joe Jordan: Thank you.

The Chair: Is that it, Mr. Jordan? Okay.

I'm reluctant to start another round, so I'm going to ask a few questions. Then of course we can have the wrap-up statement by the Auditor General before the meeting adjourns.

Madam Fraser, you made a trip to Denmark to visit our ambassador over there. Did you go because he was a minister in charge of the department or because you had become aware that he was involved in the files and the management of these files?

Ms. Sheila Fraser: I and one of my staff members interviewed the three former ministers. We were trying to understand how the program was created, was begun. In particular, with Mr. Gagliano, we were trying to confirm with him some of the findings of our audit. So it was as part of our audit process that we interviewed him in that.

The Chair: So he was actually, as I think you already said, somewhat aware of the files.

Did your interview with Mr. Gagliano confirm that he had participated in the administration of the program?

Ms. Sheila Fraser: Mr. Chair, as we note in the report, we found evidence of communications between the minister's office and the civil servants running this program. We also saw certain cases where decisions of bureaucrats had been overturned by the minister's office. But given the lack of documentation, we were unable to conclude if those communications and reversals of decision were appropriate or not.

The Chair: With respect to the RCMP, it seems to have been dealt around the 125th anniversary celebrations. Now, you have to audit the RCMP because they are a department of government. Were the transactions on the RCMP's side handled by the normal accounting and administration people in the RCMP, or were they handled by others?

Ms. Sheila Fraser: The case that we are reporting in the chapter, the activities of the 125th anniversary, were handled by the financial and administrative functions of the RCMP.

The Chair: There was this separate bank account. Was that bank account in the name of regular RCMP members or someone else?

Ms. Sheila Fraser: I believe the bank account was in the name of the 125th anniversary.

The Chair: Were the signing officers regular RCMP officers or someone else?

Ms. Sheila Fraser: The signing officers were RCMP officers.

The Chair: Okay.

I believe it's in the report that the president of VIA Rail authorized an expenditure directly without any documentation. Is that correct?

Ms. Sheila Fraser: Yes, that is correct.

The Chair: Was that president Mr. Marc LeFrançois?

Ms. Sheila Fraser: Yes. At the time he authorized the transaction, he was actually the chair of the board, and he subsequently became president.

The Chair: He was also the chair of the 125th anniversary of the RCMP. Am I correct?

Ms. Sheila Fraser: I do not know. I don't have that information.

The Chair: At the Business Development Bank there were also some problems, as you have identified. Again, do you have any idea if this was handled by the regular administration people or by others?

Ms. Sheila Fraser: I'm told it was through the marketing people within the bank.

The Chair: Are you aware whether the senior officers of the Business Development Bank were involved in the decision-making, the direction of these things?

Ms. Sheila Fraser: I don't have a precise answer to that, Mr. Chair.

The Chair: And you don't have the capacity to audit the Business Development Bank?

Ms. Sheila Fraser: Yes, we are the auditors of the Business Development Bank.

The Chair: So you did have the capacity to go in and take a look at the Business Development Bank.

Ms. Sheila Fraser: We audit the Business Development Bank financial statements every year.

The Chair: So did you have the capacity to go in and look at the other side of the transaction within the Business Development Bank and follow it all the way up the line as to who authorized it?

Ms. Sheila Fraser: We can. I don't have it reported in here, but I can give you that information.

The Chair: Could you tell us how high up in the bank the authorizations were coming from?

Ms. Sheila Fraser: Yes, I will be glad to.

The Chair: What about the Old Port of Montreal? Can you audit it?

À (1055)

Ms. Sheila Fraser: Yes, we are the auditors of the Old Port of Montreal.

The Chair: Did you look at the other side of the transaction?

Ms. Sheila Fraser: Yes, we did.

The Chair: How far up the chain of command did it go for the authorization?

Ms. Sheila Fraser: I will provide that information to you and the committee as well.

The Chair: Can you audit Canada Post?

Ms. Sheila Fraser: No, we are not the auditors of Canada Post.

The Chair: You were not able to determine how high a level of approval was given to this.

Ms. Sheila Fraser: We looked at the specific transactions. I can ask my group to go back and look at who approved the specific transactions we have noted in the report.

The Chair: Okay.

Do you have any indication that there was communication between the different crown corporations on this issue?

Ms. Sheila Fraser: I have no indication of that.

The Chair: Okay.

On the lack of a paper trail, we have seen in the organizational chart that was supplied to the public accounts committee at previous meetings the structure of Public Works, which has 14,000 employees. You were given no indication why, way out to the side, there was this little department that has been referred to under the leadership of Mr. Chuck Guité, who has now retired, and Pierre Tremblay?

Ms. Sheila Fraser: No, Mr. Chair.

The Chair: You mentioned that the entire audit control function completely failed over a period of four years for this particular program that seemed to be outside the realm of Public Works. Can you or whoever gives us the briefing provide information as to how the internal controls of Public Works work and how that particular department was able to get itself outside that control function? Is that possible?

Ms. Sheila Fraser: We would be glad to, to the best of our abilities and given the information we have.

The Chair: Okay.

Well, I think if we go back through the record, there is much for you to provide.

Mr. Desrochers. We're not going to start another round, unfortunately.

[Translation]

Mr. Odina Desrochers: Before I conclude my remarks, I'm wondering if in this one instance, for the sake of greater transparency, there is unanimous consent from the committee to have the steering committee meet publicly rather than behind closed doors to discuss the drawing up of a witness list.

[English]

The Chair: Is there unanimous consent that the steering committee be a public meeting? We would do it by steering committee. Is that agreed?

Some hon. members: Agreed.

[Translation]

Mr. Odina Desrochers: Thank you very much.

[English]

The Chair: Madam Fraser, I will now turn to you for your closing remarks.

[Translation]

Ms. Sheila Fraser: Thank you, Mr. Chairman. I appreciate the committee's interest in the report tabled today.

[English]

I won't make long closing statements. I will just say that I look forward to future hearings. And if I could just make perhaps a little plug, I would hope we would also have hearings on chapters other than the sponsorship and advertising activities.

The Chair: Is that advertising?

Ms. Sheila Fraser: Thank you, Mr. Chair.

The Chair: Thank you, Madam Fraser.

The meeting is adjourned.