PACC Committee Report

Pursuant to Standing Order 108(3)(e), the Standing Committee on Public Accounts has the honour to present its

FIFTH REPORT

The Standing Committee on Public Accounts has considered Chapter 4 and Chapter 5 of the December 2001 Report of the Auditor General of Canada (Voted Grants and Contributions: Government-Wide Management and Program Management), and has agreed to table the following report.

INTRODUCTION AND BACKGROUND

Grants and contributions are transfer payments that differ mainly in the managerial requirements that government policy imposes on departments and the recipients. Grants require only that recipients fulfil eligibility requirements to receive payments. Contributions, on the other hand, subject their recipients to performance requirements that are specified in the contribution agreement. Contribution recipients must demonstrate they continue to meet their obligations as stipulated under the contribution agreement in order to be reimbursed for specific costs. Furthermore, unlike grants, the Government can audit the recipient’s use of contribution payments.

Another distinction is whether transfer payments are statutory or voted. Statutory transfers are those grant and contribution programs that have a continuing authority set by an act of Parliament and do not require annual approval; such is the case for Old Age Security (OAS) and the Guaranteed Income Supplement (GIS). Voted grants and contributions require annual parliamentary approval.

According to the 2001-2002 Budget Estimates, planned spending on grants and contributions is expected to total $43.7 billion, of which $30.2 billion is in the form of grants and $13.5 billion in contributions.

Government-wide management of grants and contributions is the responsibility of Treasury Board (TB) and its Secretariat (TBS), as well as departments and agencies. As a Cabinet committee, TB co-ordinates the management of government operations to ensure overall efficiency and assists departments in improving managerial practices. The Board is assisted by its Secretariat; whose role is to develop government-wide standards for good management, provide leadership and support the exchange of best practices.

Under the Financial Administration Act (FAA), TB is responsible for setting management policies, including financial management standards in departments. TB has statutory authority under the FAA to prescribe the way in which departments and agencies manage public monies. It sets government-wide policies for grants and contributions and approves terms and conditions for each grant and contribution program.

TBS is expected to actively monitor the status of financial and program controls in departments and intervene when serious deficiencies are identified. TBS is also expected to actively engage departments to ensure they maintain an awareness of the adequacy of their control systems. If departments detect financial and program control failures, they must promptly apply corrective measures and inform TBS about them.

Departments and agencies are themselves responsible for program delivery according to their terms and conditions, and play a key role in the management of grants and contributions. They are responsible for the design and implementation of financial and program controls, and are expected to exercise due diligence in the selection and approval of recipients and in the management and administration of the programs. They must establish accounting procedures designed to ensure that grant and contribution programs comply with FAA requirements and Payment Requisitioning Regulations, and must maintain proper records of decisions made and results achieved. Furthermore, departments and agencies must establish accountability frameworks with appropriate measuring of performance and reporting of results, and ensure the delivery capacity and effective administration of grant and contribution programs.

For over twenty years, the Office of the Auditor General (OAG) has examined and verified grant and contribution programs and formulated consistent observations about these programs. In its 1977 audit of government-wide management of grant and contribution programs, the OAG found non-compliance with program authorities, weaknesses in program design, examples of poor financial and program controls, and insufficient measuring and reporting of performance. While follow-up audits showed improvements in specific areas, the same problems persisted over the years. In 1999, the Standing Committee on Public Accounts requested the OAG to undertake a comprehensive audit of the management of grant and contribution programs in selected departments and agencies and to evaluate the role of TBS in setting policy across government, in approving grant and contribution programs and monitoring on departmental performance. The audit found the same chronic problems in the management of grant and contribution programs. Although financial controls were generally satisfactory, weaknesses were still found in program design, in the development of risk management strategies, in program audits and evaluations, in performance reporting and in due diligence. In 2000, the OAG reviewed its own work on various grant and contribution programs it had carried out between 1998 and 2000 and found the same weaknesses. However, follow-up audits did note that departments had made progress in fixing past problems.

Regardless of the noted improvements, chronic shortcomings persist. The Committee met on 30 April 2002 to consider the findings of the audit report and propose recommendations. Mrs. Sheila Fraser (Auditor General of Canada) and Mr. Peter Simioni (Principal) were present for the Office of the Auditor General of Canada. Representing Treasury Board Secretariat were Mr. Richard Neville (Deputy Comptroller General), Mr. John Morgan (Executive Director, Financial Management and Accounting Policy Directorate) and Mr. Bruce Hirst (Senior Director, Financial Management and Accounting Policy Directorate).

OBSERVATIONS AND RECOMMENDATIONS

Many outstanding issues about government-wide management of grant and contribution programs remain to be resolved. While some practices have improved, problems still persist in many aspects of their management and administration.

The area that needs the most strengthening is monitoring. TBS must strengthen its ability to assess the soundness of financial and managerial practices of grant and contribution programs across departments, TBS must also improve its ability to collect information to ensure that departments and agencies are managing these programs as expected. Another area that needs greater attention is increasing the capacity of TBS, departments and agencies to use risk management to better identify and solve problems in the management of grant and contribution programs. With effective risk management , resources can be allocated and efforts can be focussed in areas of highest risk.[1]

To address these and other shortcomings in grant and contribution programs, TBS has issued a number of new or revised policies over the last two years, notably, the revised Policy on Transfer Payments (June 2000), the Integrated Risk Management Framework (April 2001), revised policies on internal audit and evaluation (April 2001), a new policy on active monitoring (June 2001) and a comprehensive guide for departments and agencies on transfer payments (December 2001). However, full implementation of the new policies will require a number of years to complete as TBS, departments and agencies modify their own procedures and practices. Given that the full impact of these policies will only be known several years after their introduction, TBS must provide better support to departments and agencies while they adjust their practices to conform to the new policies. The Committee therefore makes the following recommendations:

RECOMMENDATION 1

That Treasury Board Secretariat prepare an action plan with an implementation timetable for the adoption of a risk management approach to its responsibilities for grant and contribution programs.That Treasury Board Secretariat table the action plan and the implementation timetable in Parliament no later than 31 March 2003.

RECOMMENDATION 2

That Treasury Board Secretariat prepare an action plan with an implementation timetable for strengthening its capacity to compile information and monitor departmental operations in order to assess the performance and integrity of grant and contribution programs.That Treasury Board Secretariat table the action plan and the implementation timetable in Parliament no later than 31 March 2003.

RECOMMENDATION 3

That Treasury Board Secretariat take all necessary steps to ensure that it receives from all departments and agencies copies of their internal audit and evaluation reports and any other relevant documentation on the management of grant and contribution programs.

Given the long-standing issues regarding departmental management of grant and contribution programs, many on the Committee raised questions about TBS’s ability to ensure that departments improve the administration and management of their grant and contribution programs. Some wondered how TBS would actively and constructively engage senior departmental managers, including internal audit and evaluation managers, to develop a government-wide understanding of the state of management practices and controls, particularly concerning departmental grant and contribution programs.[2] Others felt that TBS should focus more of its energies on enforcing existing policies and guidelines and less on developing new ones.[3]

Mr. Neville acknowledged that the new active monitoring policy was still in the process of being implemented. TBS has identified grants and contributions as the number one priority for the current fiscal year (2002-2003) and is in the process of setting up mechanisms that will enable the agency to monitor departmental management of those programs across government. The new mechanisms are expected to allow a better review and challenge of grant and contribution submissions by requiring a formal sign-off on the adequacy for the terms and conditions proposed by departments for each program prior to sending the submissions to TB for final approval. In other words, TBS will be contributing more time and effort in examining the due diligence process of grant and contribution programs.[4] Some Committee members enquired if the new process had achieved any results. Mr. Neville indicated that although there were some promising signs, it was still too early to conclude that departmental management practices and controls had been significantly changed by the implementation of the new policies.[5] Upon
learning this, some Committee members enquired about the length of time it will require to achieve full implementation of the new policies. This prompts the Committee to make the following recommendation:

RECOMMENDATION 4

That Treasury Board Secretariat prepare an action plan with an implementation timetable for its initiatives designedto improve its capacity to review and challenge terms and conditions of proposed grant and contribution programs. That Treasury Board Secretariat table the action plan and the implementation timetable in Parliament no later than 31 March 2003.

Committee members expressed interest in the results of a survey of program managers and officers carried out by the Office of the Auditor General. The survey concluded that while some areas of program operations seem to be working reasonably well, other areas demand more attention. A significant portion of program officers surveyed did not believe they had been properly trained, or had difficulty understanding certain key responsibilities, or felt they did not have enough time to do their jobs as well as they should.[6] These survey results may explain to some degree the weaknesses found in due diligence and program monitoring. Program managers and officers may lack the proper capacity to carry out their duties with due diligence owing to lack of training, lack of time or conflicting priorities between the rapid delivery of services and maintaining proper controls. To respond to this will require actions involving training and program capacity —  actions that are well within the ability of departmental managers.[7]

TBS has recently developed a comprehensive guide on transfer payments to provide support and guidance to program managers across departments. TBS has been seeking advice on grant and contribution programs from the Interdepartmental Transfer Payments Advisory Committee. The Advisory Committee identifies common transfer payment issues and provides a forum to discuss and resolve such issues. Moreover, a training sub-group is being organized to address issues related to training, the sharing of training materials across departments and maximizing the return on investments spent on training. In the last few months, several government-wide training forums have been held and department-specific training sessions have also taken place.[8] Given the importance of building capacity in due diligence, the Committee makes the following recommendation:

RECOMMENDATION 5

That Treasury Board Secretariat prepare an action plan with an implementation timetable regarding initiatives aimed at supporting departments and agencies in building capacity in due diligence, particularly in the training and guidance of program managers and officers in managing transfer programs. That Treasury Board Secretariat table the action plan and the implementation timetable in Parliament no later than 31 March 2003.

According to the observations in the audit report, Parliament receives only limited performance information on grants and contributions. This is partly due to the difficulty in assigning clear goals to grant and contribution programs. Program objectives are often stated in very broad terms and little information is provided on what the initiatives are supposed to achieve. As a result, expected outputs, outcomes and performance requirements are also poorly defined. Furthermore, as clear objectives and expected results are fundamental to developing risk management strategies, performance measurements and key controls, the quality of their definitions also affects the audit and evaluation framework at the core of the transfer payment policy.[9] TBS must develop a process for identifying and dealing with systemic problems in the management of transfer payments. To do this, TBS requires complete and accurate baseline information on how grants and contribution programs are performing in departments. It has already set up teams to monitor interdepartmental issues, including those relating to the management of grants and contributions. As well, the agency has started to track the results of departmental audits and evaluations. It will take some time, however, before TBS develops a government-wide perspective on the management of grants and contributions. This prompts the Committee to recommend:

RECOMMENDATION 6

That Treasury Board Secretariat prepare an action plan with an implementation timetable for initiatives designed to ensure that departments and agencies include in their departmental websites a section containing information on complete and clearly defined performance expectation for each grant and contribution program over $5 million.

RECOMMENDATION 7

That Treasury Board Secretariat prepare an action plan with an implementation timetable for initiatives designed to ensure that departments and agencies include in their departmental websites a section containing performance and other relevant information for each grant and contribution program of over $5 million, where the results achieved did not measure up to performance expectations.

RECOMMENDATION 8

That Treasury Board Secretariat prepare an action plan with an implementation timetable for initiatives designed to ensure that departments and agencies include in their departmental websites a section containing downloadable versions of internal audit and evaluation reports on grant and contribution programs, and that these reports remain posted on the website until superseded by the follow-up audit or evaluation report.

CONCLUSION

The Standing Committee on Public Accounts recognizes the significant efforts made by Treasury Board Secretariat and departments to address the outstanding issues related to the government-wide management of grant and contribution programs. Both TBS and departments have attempted to improve the control and supervision mechanisms of grants and contributions; however it is still too early to declare success, as much remains to be accomplished. A few years will be required to fully implement the new transfer payment policy framework, and a few more years to fully assess its impact on the management of grant and contribution programs. The success of the new policy framework will depend on the Government’s ability to maintain the momentum of its reforms. The Committee fully expects TBS to follow through on its various initiatives aimed at strengthening the government-wide management of grant and contribution programs and report back to Parliament in a timely fashion.

Pursuant to Standing Order 109, the Committee requests that the government table a comprehensive response to this report.

A copy of the relevant Minutes of Proceedings (Meeting No. 51 of the 1st Session of the 37th Parliament and Meeting No. 5 of the 2nd Session of the 37th Parliament) is tabled.

Respectfully submitted,

JOHN WILLIAMS, M.P.

Chair