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37th PARLIAMENT, 3rd SESSION

Standing Committee on Public Accounts

EVIDENCE

CONTENTS

Monday, March 29, 2004

1120

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

The Chair

1125

Mr. Norman Steinberg (Director General, Audit and Ethics Branch, Department of Public Works and Government Services)

The Chair

Mr. Dennis Mills (Toronto—Danforth, Lib.)

The Chair

1130

Mr. Norman Steinberg

The Chair

Mr. Norman Steinberg

1135

1140

1145

The Chair

Mr. Peter MacKay (Pictou—Antigonish—Guysborough, CPC)

Mr. Norman Steinberg

Mr. Peter MacKay

1150

Mr. Norman Steinberg

Mr. Peter MacKay

Mr. Norman Steinberg

Mr. Peter MacKay

Mr. Norman Steinberg

Mr. Peter MacKay

Mr. Norman Steinberg

Mr. Peter MacKay

Mr. Norman Steinberg

Mr. Peter MacKay

Mr. Norman Steinberg

Mr. Peter MacKay

Mr. Norman Steinberg

Mr. Peter MacKay

Mr. Norman Steinberg

Mr. Peter MacKay

Mr. Norman Steinberg

Mr. Peter MacKay

Mr. Norman Steinberg

Mr. Peter MacKay

Mr. Norman Steinberg

Mr. Peter MacKay

Mr. Norman Steinberg

1155

Mr. Peter MacKay

Mr. Norman Steinberg

Mr. Peter MacKay

Mr. Norman Steinberg

Mr. Peter MacKay

Mr. Norman Steinberg

Mr. Peter MacKay

The Chair

Mr. Norman Steinberg

The Chair

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

Mr. Norman Steinberg

Mr. Odina Desrochers

Mr. Norman Steinberg

Mr. Odina Desrochers

Mr. Norman Steinberg

1200

Mr. Odina Desrochers

Mr. Norman Steinberg

Mr. Odina Desrochers

Mr. Norman Steinberg

Mr. Odina Desrochers

The Chair

Mr. Norman Steinberg

Mr. Odina Desrochers

Mr. Norman Steinberg

Mr. Odina Desrochers

Mr. Norman Steinberg

Mr. Odina Desrochers

Mr. Norman Steinberg

The Chair

Mr. Norman Steinberg

Mr. Odina Desrochers

Mr. Norman Steinberg

1205

Mr. Odina Desrochers

The Chair

Mr. Odina Desrochers

Mr. Norman Steinberg

The Chair

Mr. Odina Desrochers

The Chair

Hon. Shawn Murphy (Hillsborough, Lib.)

Mr. Norman Steinberg

Hon. Shawn Murphy

Mr. Norman Steinberg

Hon. Shawn Murphy

1210

Mr. Norman Steinberg

Hon. Shawn Murphy

Mr. Norman Steinberg

Hon. Shawn Murphy

Mr. Norman Steinberg

Hon. Shawn Murphy

Mr. Norman Steinberg

Hon. Shawn Murphy

Mr. Norman Steinberg

Hon. Shawn Murphy

1215

Mr. Norman Steinberg

Hon. Shawn Murphy

Mr. Norman Steinberg

Hon. Shawn Murphy

Mr. Norman Steinberg

The Chair

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

Mr. Norman Steinberg

Ms. Judy Wasylycia-Leis

Mr. Norman Steinberg

Ms. Judy Wasylycia-Leis

Mr. Norman Steinberg

Ms. Judy Wasylycia-Leis

The Chair

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

The Chair

Hon. Walt Lastewka

The Chair

Hon. Walt Lastewka

The Chair

Ms. Judy Wasylycia-Leis

1230

Mr. Norman Steinberg

The Chair

Mr. Norman Steinberg

Ms. Judy Wasylycia-Leis

Mr. Norman Steinberg

Ms. Judy Wasylycia-Leis

Mr. Norman Steinberg

Ms. Judy Wasylycia-Leis

Mr. Norman Steinberg

Ms. Judy Wasylycia-Leis

Mr. Norman Steinberg

1235

Ms. Judy Wasylycia-Leis

Mr. Norman Steinberg

Ms. Judy Wasylycia-Leis

Mr. Norman Steinberg

The Chair

Mr. Norman Steinberg

The Chair

Mr. Norman Steinberg

The Chair

Mr. Norman Steinberg

Ms. Judy Wasylycia-Leis

Mr. Norman Steinberg

Ms. Judy Wasylycia-Leis

Mr. Norman Steinberg

The Chair

Mr. Jason Kenney (Calgary Southeast, CPC)

The Chair

Mr. Jason Kenney

Mr. Norman Steinberg

Mr. Jason Kenney

Mr. Norman Steinberg

Mr. Jason Kenney

Mr. Norman Steinberg

Mr. Jason Kenney

Mr. Norman Steinberg

Mr. Jason Kenney

Mr. Norman Steinberg

1240

Mr. Jason Kenney

Mr. Norman Steinberg

Mr. Jason Kenney

Mr. Norman Steinberg

Mr. Jason Kenney

Mr. Norman Steinberg

Mr. Jason Kenney

Mr. Norman Steinberg

1245

Mr. Jason Kenney

The Chair

Mr. Norman Steinberg

Mr. Jason Kenney

Mr. Norman Steinberg

Mr. Jason Kenney

Mr. Norman Steinberg

Mr. Jason Kenney

Mr. Norman Steinberg

Mr. Jason Kenney

Mr. Norman Steinberg

The Chair

Mr. Odina Desrochers

Mr. Norman Steinberg

Mr. Odina Desrochers

Mr. Norman Steinberg

1250

Mr. Odina Desrochers

Mr. Norman Steinberg

Mr. Odina Desrochers

Mr. Norman Steinberg

The Chair

Mr. Odina Desrochers

1255

Mr. Norman Steinberg

Mr. Odina Desrochers

The Chair

Hon. Walt Lastewka

The Chair

Hon. Walt Lastewka

The Chair

Hon. Walt Lastewka

The Chair

Hon. Walt Lastewka

The Chair

CANADA

Standing Committee on Public Accounts

NUMBER 016

3rd SESSION

37th PARLIAMENT

EVIDENCE

Monday, March 29, 2004

[Recorded by Electronic Apparatus]

Á (1120)

[English]

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

The orders of the day are pursuant to Standing Order 108(3)(g), chapter 3, the sponsorship program, chapter 4, advertising activities, and chapter 5, management of public opinion research, of the November 2003 Report of the Auditor General of Canada, referred to the committee on February 10, 2004.

Our witness this morning is from the Department of Public Works and Government Services, Mr. Norman Steinberg, director general, audit and ethics branch.

Good morning, Mr. Steinberg. We welcome you to the committee.

However, before we start, we have some routine business before we go ahead.

I have a letter from Mr. David Marshall, addressed to Mr. Jeremy LeBlanc, Clerk of the committee:

This is further to a request made by the Committee to receive the documents related to the job classification of the Executive Director, Communications Co-ordination Services Branch. This request was made during the March 1, 2004 meeting and a set of relevant documents was previously provided to the Committee under cover of my letter to you dated March 10, 2004.

I am pleased to provide the Committee with an additional document related to this request. More specifically, you will find attached 40 copies of a note entitled “Memorandum to the Minister” with a captioned subject indicating “Treasury Board Submission seeking approval of the reclassification of the Executive Director, Government of Canada Communications Co-ordination Services Branch.”

It should also be noted that this document constitutes a Cabinet confidence, but as the information falls within the scope of the Order in Council (P.C. 2004-119), it is being provided to the Committee. I would also like to point out that the actual Treasury Board Submission referenced in the document was released by the Privy Council Office on February 24. The attached document was originally prepared in English only and is being tabled in its original version.

I trust that this will be satisfactory to the Committee.

We only have the one document in English. Is there unanimous consent that I table this document in one language?

Mr. Desrochers, s'il vous plaît. I have a document in the English language. Is there unanimous consent that it be tabled in one language?

Is there agreement?

(Motion agreed to)

The Chair: That document is now tabled.

This is a letter to Ms. Miriam Burke, Clerk of the Standing Committee on Government Operations and Estimates, dated March 24, again from Mr. David Marshall:

Further to the February 26, 2004 appearance of Mr. Guy Bédard, Assistant Executive Director at Communications Canada, in connection with the examination of the Supplementary Estimates (B), I am pleased to provide background information with respect to the sponsorship value of the 1999 Pan Am Games in Winnipeg.

Compass Communications was awarded a contract in connection with the Pan Am Games on April 1, 1999 (contract EP043-9-0037). The breakdown of the amounts disbursed under this contract follows:

Sponsorship value: $634,000

Commission 12%: $76,080

Commission 3%: $0

Production costs: $1,591,420

Total: $2,301,500.

A significant portion of the production costs were incurred in support of the production of the Canada Place Pavilion. It should be noted that this sponsorship contract was reviewed by auditors working for the Quick Response Team established by Public Works and Government Services Canada in May 2002 to examine all sponsorship contracts. This review included a site visit at the offices of Compass Communications. The review indicated that all disbursements were supported by adequate documentation. I would also like to point out that records on file indicate that Canadian Heritage contributed an amount in the order of $537,000 towards the sponsorship value for the Pan Am Games.

I trust that this will be satisfactory to the Committee. As with any other sponsorships, however, should Committee members or events organizers have information suggesting a discrepancy with this breakdown, that information and supporting evidence should be brought to the attention of Mr. André Gauthier, Special Counsel for Financial Recovery. Mr. Gauthier has been appointed with a mandate to review the 721 sponsorship files with a view to determining whether the Crown made overpayments to communication agencies, and to pursue all possible avenues to recover funds that would have been improperly received by parties involved in the delivery of the sponsorship program.

We have that in both languages. That is tabled.

In addition to that, we have eight or nine motions. Do we want to deal with some of these motions now, or would we rather hear from the witness?

Okay, members, we'll hear from the witness. We'll leave these motions for the moment. We'll maybe deal with them at 3:30, when we reconvene.

Moving to the orders of the day, we welcome Mr. Steinberg to the committee. I normally read a couple of opening statements, that:

...the refusal to answer questions or failure to reply truthfully may give rise to a charge of contempt of the House, whether the witness has been sworn in or not. In addition, witnesses who lie under oath may be charged with perjury.

That comes from House of Commons Procedure and Practice, Marleau and Montpetit, page 862.

That is not directed at you specifically, Mr. Steinberg. I read that statement to all witnesses who appear before the committee.

Á (1125)

Mr. Norman Steinberg (Director General, Audit and Ethics Branch, Department of Public Works and Government Services): Mr. Chairman, I have heard your statement, but I'm having trouble hearing you right now.

The Chair: You have to get the microphones right beside your table. The acoustics in this room are awful.

Mr. Dennis Mills (Toronto—Danforth, Lib.): While we're waiting, Mr. Chair, you read that letter written to Mr. Jeremy LeBlanc on the Pan-Am Games, but I notice you didn't mention the breakdown of the production costs up until the year 2000, the $70-million breakout. Is that something you....?

The Chair: I have another letter here. We have it in both languages. I was just given this letter. Let me read it into the record.

Again, this is a letter to Mr. Jeremy LeBlanc, Clerk of the Standing Committee on Public Accounts, from Mr. Marshall at Public Works:

This is further to the motion adopted by the Committee on March 23, 2004, requesting additional information on the production costs associated with the sponsorship activities.

The Committee will recall that, under cover of a letter dated March 10, 2004, I provided a table listing expenditures, including production costs of $83 million, associated with sponsorship activities funded from 1997 to 2003.

As a result of the Quick Response Team initiative, sponsorship activities funded during the period 1997 to 2000 were reviewed in detail by Consulting and Audit Canada. This review covered files totalling $70 million, or 84%, of the production costs shown in the table referred above. These specific production costs consisted of the following expenditures:

- $10.3 million in professional fees related to the management of projects;

- $23.1 million in in-house production costs, such as concepts designs, filming, etc.;

- $0.8 million in travel expenses;

- $29.8 million in subcontracted production;

- $3.0 million in production commissions; and

- $3.0 million in other costs, such as media buys, placement of ads, etc.

The attached table provides a further breakdown of this information by years and communications agencies. As requested by the Committee, I am providing the requested number of copies of this document in both official languages.

Furthermore, you will find attached forty copies, in both official languages, of the Internal Affairs Report issued by the Audit and Review Branch following its investigation of the allegations made by Mr. Allan Cutler in May 1996 relating to failure to comply with Government contracting rules.

I trust that this information is useful to the Committee.

It is signed by Mr. Marshall.

Now, we have a complete breakdown here, a background to the letter I just read. These documents are tabled and available for distribution.

Without further ado, Mr. Steinberg, since you couldn't hear, let me just mention again what I remind all witnesses:

As I said, that is not directed at you specifically. I mention that to all witnesses who appear before the committee during this investigation. However, we expect all to abide by it.

I might as well ask you the other question right now. Have you been coached in your testimony by anybody in the public service or elsewhere?

Á (1130)

Mr. Norman Steinberg: No.

The Chair: Okay. I will now turn it over to you to read your opening statement.

Mr. Norman Steinberg: Thank you, Mr. Chairman and members of the committee, for the opportunity to make some opening remarks that I hope will provide additional context for today's session.

As you are aware, I am currently director general of the audit and ethics branch of Public Works and Government Services Canada. I report directly to the deputy minister on issues arising from internal audits, evaluation, fraud investigations, internal disclosure, and ethical questions. As the director general, I have directors who lead each of the functions I have just described.

I have been DG of the audit function at PWGSC since the department was formed in June 1993, through the amalgamation of the former Public Works Canada and Supply and Services Canada. Previous to that I had similar senior positions in Supply and Services Canada and Transport Canada. I should acknowledge, however, that there were periods during this time when I was absent from the department. Specifically, I was away between October 1996 and May 1997 due to illness, and from November 1999 to June 2000 for formal language training. Despite these gaps in my direct involvement with the department, I can speak about actions that were taken in my absence with confidence.

I can also tell you from my long experience with the department that the internal audit function is central to the management of PWGSC. We have always exercised due diligence in conducting internal audits and reviews in accordance with generally accepted auditing standards. Along with the audit team, I greatly appreciated Mrs. Fraser's comments to the committee in her testimony of February 12, and I quote: “We had confidence in the professionalism and strength of that internal audit department”.

Internal audits are done at PWGSC for two reasons. First of all, every organization in the department is automatically audited on a cyclical basis. For our department that means approximately 130 entities. But we also conduct audits on a risk basis, in other words, when a specific risk or problem has been identified, or when a problem is extremely complex or has a high dollar value. Some of the audits we have conducted, for example, include the audit of bridge safety, and the review on accessibility, where we assessed the degree to which people with disabilities could access the federal buildings managed by our department.

The audit and ethics branch develops an annual risk-based audit plan in collaboration with senior program managers. On average, 25 to 30 audits are performed each year by the internal audit group. This plan is approved by the members of the audit review committee, whose mandate is to provide oversight to the audit and ethics functions, consider audit reports, and approve management action plans. This committee is chaired by the deputy minister and is composed of the ADMs of the department's major business lines.

By way of background, I would like to provide an overview of the audit process. You may wish to refer to the diagram I have provided on it.

Audits are conducted in phases. The initial phase of an audit establishes and identifies the potential issues to be examined. Formal terms of reference are then developed and forwarded to the appropriate branch head for their information. A preliminary survey, which is an initial assessment, is then conducted to determine which areas warrant more detailed examination. During the detailed examination phase, auditors must gather sufficient evidence, which forms part of the working papers, to support an assessment or an observation so that recommendations can be developed for improvement.

Á (1135)

Reporting is the final phase of the auditing process. Its purpose is to communicate to management the overall findings, conclusions, and recommendations of the audit in a clear and concise manner; and to create a compelling case for management change where required. When an internal audit is completed, the results are presented to the organization or the auditee that has been audited for factual validation and to ensure that impacts are understood so that management may develop an action plan accordingly. The report is then tabled at the audit and review committee for their approval. In keeping with the principles of transparency, the audit reports are made publicly available on the department's website.

Turning now specifically to the sponsorship program, I would like to review for the committee the activities performed by my branch in relation to this program and the unit that was responsible for managing advertising and public opinion research activities.

While it is well known that we initiated an internal audit of the sponsorship events in 2000, some questions have been raised as to what other activities may have been performed, what information was provided to senior management, and when. Going back to May 1996, four activities were led by the department's audit and review branch in relation to advertising, public opinion research, and sponsorships. These were a 1996 review by the internal affairs directorate, which was the predecessor to what is now known as the fraud investigations and internal disclosure directorate; an audit in 1996 of the advertising and public opinion research sector by Ernst & Young; the 2000 internal audit on sponsorships, with which we are all familiar; and a follow-up review of sponsorship files in 2002.

Let me begin at the beginning. I invite you to refer to the chart of the chronology of sponsorship-related activities.

In mid-May of 1996, we became aware of potential wrongdoing in the form of contract manipulation by the department's advertising and public opinion research sector. These allegations were brought to our attention by the union representative of Mr. Allan Cutler. The union contended that Mr. Cutler had been threatened with reprisals from his supervisor for having expressed concerns about the integrity of contract management within the sector.

As the committee knows, Mr. Cutler has testified that he was ordered to backdate contracts to match the dates appearing on requisitions, that appropriate signing authorities were not adhered to, and that financial authorities had not been received from the client at the time contracts were issued. These concerns were brought to the attention of the internal affairs directorate because at that time there was no formal mechanism for internal disclosure of wrongdoing. A review by the directorate, including interviews with Mr. Cutler, concluded that his concerns about contracting practices in the advertising and public opinion research sector were founded.

While Mr. Cutler raised issues of contract manipulation and management concerns, he did not allege any illegal activity. It was felt that the issues identified were systemic in nature and warranted further examination.

The ADM responsible for the sector, Mr. Stobbe, was advised of the results of the internal review in June 1996, at which time a formal audit was recommended. The allegations of contract manipulation and the upcoming internal audit were also communicated to the deputy minister in June of 1996.

The firm of Ernst & Young was subsequently hired to probe the sector's contracting activities during the period from June 1994 to June 30, 1996. In addition to the normal compliance aspects of the audit, the terms of reference also called for an examination of identifying cases where non-compliance would have led to suspected situations of personal gain or benefit. This was the second of four activities I referred to earlier.

As the advertising and public opinion research functions within the sector follow different processes, the report identified findings separately. A significant number of contract files were reviewed by Ernst & Young, and the company's findings were similar to those contained by the Auditor General's recent report and were consistent with the review by the internal affairs directorate.

Á (1140)

Specifically, Ernst & Young found that while public opinion research function was relatively well managed and complied with prescribed contracting policies and procedures, concerns were evident with regard to the contracting policies for advertising services. These included a lack of documentation that criteria had been developed and used to assess suppliers to ensure that the principle of fairness was respected. There was also evidence that requisition forms were signed by the client departments after work had already started.

In instances where Treasury Board policies would have required a legal opinion and a cost analysis review before a contract was issued, none were prepared. Ernst & Young made two recommendations, the first one being that the actual procurement of advertising and public opinion research be removed from the sector, which had been envisaged solely as an advisory group, and be incorporated into the department's normal procurement stream. The second recommendation was that the existing contracting structure be maintained but that more rigid controls be implemented.

In keeping with our normal practice, the findings of the Ernst & Young audit were reviewed with the assistant deputy minister, Jim Stobbe, responsible for the advertising and public opinion research sector. A management response, including acceptance of their recommendations and outlining the actions to be taken, was tabled with the audit and review committee in July 1997. In September of that year, the executive summary of the audit report and the management response were provided to the Treasury Board for posting on their website.

The Communications Co-ordination Services Branch, CCSB, was established in November 1997 within PWGSC in response to a perceived need for a more coordinated approach to communication across the federal government. The functions of the former advertising and public opinion research sector effectively became part of this new branch.

In early February 2000, the audit and ethics branch was directed by the deputy minister to audit two specific aspects of the sponsorship program: first, the decision-making process for entering into sponsorship agreements; and second, the contracting process for the agency of record and communications agencies that provided services for the sponsored events. At the time, other departments were directed by Treasury Board Secretariat to look at their grant and contributions programs because of the recently completed HRDC audit made public in January 2000.

In scoping the audit, our branch reviewed sponsorship events that took place between November 1997 and March 31, 2000, of a total of 580 known sponsorship files, based on risk. Our internal audit determined that there was an overall breakdown of controls for the management of sponsorship events. Specifically, the contracting process for the agency of record and communications agencies did not comply with Treasury Board rules and directives. There was also a lack of documentation and therefore evidence of how sponsorship events were approved. The decision-making process did not ensure that sponsorship contracts were transparent, that they complied with the contracting requirements, or that they were appropriate to achieve value for money for the Government of Canada.

As you know, the Auditor General's recent report on sponsorship supported and confirmed these conclusions. It also acknowledged that PWGSC was taking action to address some of the deficiencies identified by the audit. The results of our 2000 audit were tabled with the audit and review committee on August 16, 2000.

Following on the heels of the media interest around the HRDC audit and an anticipation of the internal audit being posted on the Internet, I was involved in a series of briefings to senior officials from the Treasury Board Secretariat, the Privy Council Office, and the Prime Minister's Office, on the audit findings. I also briefed Mr. Gagliano that week. During that meeting I provided him with a copy of the final internal audit report approved by the audit review committee, as well as the briefing deck that I used to brief the audit and review committee, and which I used to brief Mr. Gagliano. I'm tabling that deck with you today.

Á (1145)

Based on my recollection, Mr. Gagliano expressed that all files were not audited, and he requested that the audit work be extended to include 100% of the files. The discussion then ensued on the management action plan that CCSB had prepared, of which I was asked whether it was adequate in addressing the issues that were identified. I assured Mr. Gagliano of its adequacy and that I understood that the Treasury Board Secretariat had assisted in its development. I also understand that Mr. Gagliano and Mr. Quail then agreed to a freeze on the sponsorship programs to the end of that fiscal year to allow time for implementing the action plan.

The audit report and the management action plan were made public by posting on the web in October 2000. The additional analysis of 100% of the sponsorship files, agreed to at the September meeting, was completed in December 2000 and served to reaffirm the original assessment, findings, and conclusions.

In September 2001 Communication Canada was established as a separate department, and the sponsorship program, along with other functions performed by CCSB, was transferred to the new organization. Nevertheless, there was still a commitment, as part of the original management action plan, for the audit and ethics branch to conduct a review of sponsorship files initiated after the audit.

As Communication Canada did not yet have an internal audit capacity, the audit and ethics branch of PWGSC was asked to conduct the follow-up review in January 2002. This was to ensure that the mandatory documentation that was originally missing in the audit files was in fact being created. This was the fourth and final activity I alluded to earlier. Given that one of the major concerns identified by the 2000 audit was the lack of documentation on how the sponsorships were managed, this was, as I said, the focus of the review as directed by the deputy minister, and we concluded that the documentation of sponsorship had improved.

Mr. Chairman, members of the committee, my branch was the first to identify significant and material weaknesses in the management control framework. In each case, these problems were brought to the attention of the highest levels of management so that corrective action could be taken.

I believe, as does the department's senior management team, that proper control, accountability, and transparency are essential to the functioning of good government. I'm deeply concerned that there were perceptions that these findings had been characterized as administrative in nature. I consider these lapses to be significant and unacceptable. I never used the word “administrative”, nor would I, as these were significant managerial lapses.

I am confident that the audit and ethics branch has exercised due diligence for Public Works and Government Services Canada. We've fulfilled our responsibilities to the department and to the government and to Canadian taxpayers in a competent, independent, objective, and professional manner, and without outside interference.

That concludes my opening remarks, Mr. Chairman. I would welcome any questions.

The Chair: Thank you, Mr. Steinberg.

By the way, there will be a five-minute recess at around 12:15.

Mr. MacKay, please, eight minutes.

Mr. Peter MacKay (Pictou—Antigonish—Guysborough, CPC): Thank you, Mr. Chairman.

Mr. Steinberg, I want to begin my questions where you left off. You have just told us that you believe that proper control, accountability, and transparency are essential to the functioning of good government. Would you agree with the statement that clearly within the Department of Public Works and Government Services, none of those words could be used to describe the operation of the sponsorship program?

Mr. Norman Steinberg: I concur completely. And in my representation about the sponsorship program at the time, that's precisely what I said. But I would say that the sponsorship program is clearly the exception.

Mr. Peter MacKay: Further, Mr. Steinberg, you have essentially said in no uncertain terms that the perception that somehow what was going on being characterized as administrative in nature is patently false, and that the lapses that occurred are not only significant and unacceptable, but I would suggest to you that given the standard that was expected of your department, there was a complete disconnect with the responsibility to deliver these services in an accountable, transparent, and responsible fashion to taxpayers in this country.

Á (1150)

Mr. Norman Steinberg: What I said, to quote from the briefings I delivered at the time to both the audit and review committee and Mr. Gagliano, and at subsequent meetings, was that the management of CCSB's sponsorship process was inadequate and did not ensure that decisions were transparent, were compliant with requirements, or achieved value for money.

Mr. Peter MacKay: Mr. Steinberg, would you agree with me that if in 1996 there had been any adherence to your recommendations, and a genuine attempt had been made to follow some of the cleanup of the problems that you had quite clearly pointed out, potentially hundreds of millions of dollars of taxpayers' money could have been saved in the context of what we are now examining before this committee?

Mr. Norman Steinberg: I believe the seeds of the problem were identified by the Ernst & Young audit back in 1996.

Mr. Peter MacKay: And that audit, you've told us, was specifically brought to the attention of Mr. Gagliano, the minister, by you.

Mr. Norman Steinberg: The Ernst & Young audit?

Mr. Peter MacKay: Yes.

Mr. Norman Steinberg: No. I never briefed Mr. Gagliano on the Ernst & Young audit. The results of the Ernst & Young audit were brought to the attention of the deputy minister, Mr. Quail, and Mr. Stobbe, who was the ADM at the time.

Mr. Peter MacKay: Now, you were present when that took place? You know that Mr. Quail would have been given a copy of that audit report directly?

Mr. Norman Steinberg: It was tabled at the audit and review committee in July of 1997.

Mr. Peter MacKay: All right. Now, that particular audit, the 1996 audit, you yourself had control of. That was done under your direction.

Mr. Norman Steinberg: The audit done by Ernst & Young, yes, was done under the management of the audit branch.

Now, Mr. MacKay, I left the department, because of illness, as of the last week of October in 1996, but according to the documentation, our branch did manage that internal audit.

Mr. Peter MacKay: I understand you were ill for a period of time.

The briefing that you provided to Mr. Gagliano in 2000 dealt solely with the 2000 audit. Was there any reference made to the 1996 audit at that time?

Mr. Norman Steinberg: Absolutely none.

Mr. Peter MacKay: What other ministers, if any, were briefed at that time that you would be aware of?

Mr. Norman Steinberg: I have direct knowledge that I briefed Mr. Gagliano, and I believe Mr. Gagliano was the only minister, to my knowledge, who was ever briefed on the results of the audit of 2000.

Mr. Peter MacKay: That audit of 2000 identified many of the same problems, if not identical problems, that were discovered and outlined in the 1996 audit. Would you agree with that characterization?

Mr. Norman Steinberg: I concur with that, I think, for the most part. I think the Ernst & Young audit was not as strong in terms of some of the discoveries of some of the issues. Remember, Ernst & Young was dealing with advertising, not sponsorship, and the main focus of the 2000 audit was really on sponsorship.

Mr. Peter MacKay: Mr. Steinberg, are you aware of or in possession of any documents that relate to the 1996 audit, the supporting documents that would have been used to prepare the 1996 audit?

Mr. Norman Steinberg: I'll have to go back and see to what extent we have working papers that were created by Ernst & Young, as it was Ernst & Young who actually did the audit. So I don't know that.

Mr. Peter MacKay: Could you note that for the record, Mr. Chair?

With respect to the 2000 briefing prepared for Mr. Gagliano, were there documents that you're aware of or in possession of that would relate to that time?

Mr. Norman Steinberg: I tabled with the committee the briefing deck. In addition to that, the only other document I know of was the actual audit that was approved at the audit and review committee on August 16, which I believe is dated August 30, 2000.

Mr. Peter MacKay: And who was in the best position to take action on the recommendations of both the 1996 and 2000 audits? Who were the individuals who could have intervened and taken corrective action on those recommendations in those two audits?

Mr. Norman Steinberg: From an auditor's perspective, the auditor tables the results of his audit. Then there's a management action plan that the line manager is responsible for creating. Both are considered by the audit and review committee. Then it's the responsibility of the ADM of the day to ensure that the commitments made in the action plan are followed through on.

Á (1155)

Mr. Peter MacKay: But is it your understanding that the ADM then makes recommendations to the political minister of the day?

Mr. Norman Steinberg: No. In the normal process of auditing, ministers don't get involved. The auditor surfaces the management problem. The line ADM, who is ultimately accountable for that operation, comes forward with a response to mitigate the risk the audit has identified. The auditor is asked if the action plan, in his or her view, would serve to mitigate the risk. That's considered at the audit and review committee. Then that becomes the marching order for the ADM to get on with the job, as it were.

Mr. Peter MacKay: But what does “get on with the job” mean?

Mr. Norman Steinberg: It means implement the actions he or she agreed to that would take care of the problem identified by the audit.

Mr. Peter MacKay: Do you find it unusual that a minister of the Crown would not personally have reviewed an audit of this nature in 2000?

Mr. Norman Steinberg: I gave Minister Gagliano the results of the audit in 2000, and we tabled the final report.

I would say it is unusual for auditors to brief ministers on the results of some 30 audits in any given year. That doesn't happen. This happened because of the results that were coming forward.

Mr. Peter MacKay: In order for corrective action to occur, there certainly had to be political will, just as there had to be political will in order for this program to operate in such a way. Even the Prime Minister has said there had to be some political will for this to have operated in such a fashion. Would you agree with that? In order for the cleanup to occur--

The Chair: Okay, Mr. MacKay, let Mr. Steinberg answer the question.

Mr. Norman Steinberg: The way our system works--or should work--the manager, the ADM, is entrusted with solving the problem. The problem I surfaced was of a managerial nature. The jurisdiction, authority, and power to solve the problem lie within the public service.

The Chair: Okay.

By the way, Mr. Steinberg will be back this afternoon, so is it agreed that we continue all rounds at eight minutes, rather than going to four minutes after the first one? Yes.

[Translation]

You have the floor for eight minutes, Mr. Desrochers.

Mr. Odina Desrochers (Lotbinière—L'Érable, BQ): Good day, Mr. Steinberg.

What exactly was your mandate? What were your stated objectives?

[English]

Mr. Norman Steinberg: Do you mean my mandate as a director general of audit?

[Translation]

Mr. Odina Desrochers: I'm talking about your mandate in so far as the Sponsorship Program was concerned. What were you told initially? Surely you received written instructions or directions, not just verbal ones.

[English]

Mr. Norman Steinberg: As I indicated, in August--we're talking about the February 2000 period--the deputy minister indicated that he wanted an internal audit done. Our process then was to develop terms of reference for the internal audit that covered the issues to be considered. The terms of reference were approved and the audit began. The way we approached the audit of sponsorship was no different from how we approach any other audit, with terms of reference, a mandate--

[Translation]

Mr. Odina Desrochers: Did Mr. Quail point you in a certain direction or mention anything in particular you should focus on, or were you simply given general terms of reference for your audit?

[English]

Mr. Norman Steinberg: I was not physically there at that time, as I was on language training, but I do have an answer for you. Mr. Quail asked that a compliance audit be done of the sponsorship programs. He asked that because in that very same period, as I indicated in my opening statement, there was a concern about the way the grants and contributions programs were being managed. The HRDC audit was actually tabled in January 2000.

Mr. Quail adopted the same directives that Peter Harder, the secretary to the Treasury Board, gave to other deputy ministers who had grants and contributions. Mr. Quail basically said it seemed like a grants and contributions program, so we might as well audit it according to the compliance--

Â (1200)

[Translation]

Mr. Odina Desrochers: I understand, Mr. Steinberg, but how do you explain the fact that no mention whatsoever is made of these problems in your report? In your estimation, the problems were of an administrative nature. There was no finding of political interference or over-billing. How do you explain that fact?

As I see, there are glaring inconsistencies between your report and that of the Auditor General. In light of what you told Mr. Gagliano, either verbally or in writing, were you surprised by the Auditor General's report?

[English]

Mr. Norman Steinberg: As the Auditor General has said, she found that her report came up with many of the same conclusions that we did. As I said to you in my opening statement, I don't believe for a moment that any of my findings were administrative.

[Translation]

Mr. Odina Desrochers: Nevertheless, Mr. Steinberg, you met with Mr. Gagliano and apprised him verbally of your findings and of the fact that Crown corporations were involved. If you had come to the same conclusions as the Auditor General, don't you think action would have been taken on the political front? What transpired exactly? A thirty-seven point action plan was devised and business continued. Is that in fact what happened?

[English]

Mr. Norman Steinberg: If you read the internal audit, you will note that we didn't audit.... Our audit had nothing to do with the crown corporations. Our audit focused on the 580 files that were within--

[Translation]

Mr. Odina Desrochers: I understand, Mr. Steinberg, but...

[English]

The Chair: Let him answer, Mr. Desrochers.

Mr. Norman Steinberg: --that were within the Public Works and Government Services domain. As an internal auditor in the Government of Canada, I don't have the authority or the mandate to go beyond the walls of Public Works and Government Services Canada. That's one of the advantages that Mrs. Fraser has.

[Translation]

Mr. Odina Desrochers: Mr. Steinberg, you stated that you checked the contracts and documents made available to your department. Surely these contracts and documents contained references to transactions with Crown corporations.

I'm not asking you to describe what went on inside these corporations, but only to tell us if you were surprised to learn that things were going on within the department, and that Crown corporations were involved. That's what I want to know. Your report makes no mention of political interference, only of minor administrative problems. Correct?

[English]

Mr. Norman Steinberg: Again, we talked about significant management issues, and I believe that--

[Translation]

Mr. Odina Desrochers: Clearly the problems were serious.

[English]

Mr. Norman Steinberg: Pardon?

[Translation]

Mr. Odina Desrochers: Obviously, the problems you uncovered were serious ones.

[English]

Mr. Norman Steinberg: That's correct.

The Chair: Allow Mr. Steinberg to answer the question.

Mr. Norman Steinberg: That's what I reported to the audit review committee. That's what I reported and said to Mr. Gagliano. And that's what I subsequently said in the meetings to the Treasury Board Secretariat and at the PCO and the PMO.

[Translation]

Mr. Odina Desrochers: Mr. Steinberg, I have here a document I obtained through access to information. It identifies a certain number of problems. For instance, as early as 2000, in Mr. Lacasse's project management book, problems associated with the RCMP's 125th anniversary celebrations are identified and questions raised about the funding of this event. Yet, no mention of this is made in the report.

Ms. Tremblay testified that most files were highly political in nature. That isn't mentioned either in your report. What exactly was your mandate? Were you given specific terms of reference or on the contrary, were you simply asked to look into this department's activities?

[English]

Mr. Norman Steinberg: The terms of reference for the 2000 audit were to review the communications coordination services branch sponsorship agreements for the period 1997-2000 to determine whether they complied with the applicable policies, procedures, and authorities for the establishment of the procurement instruments with the agency of record and the communication agencies, for the approval processes for the granting and sponsorship agreements, for contractual documentation, and for evidence of receipt of services and proper procedures to authorize payments. That's what was--

Â (1205)

[Translation]

Mr. Odina Desrochers: Mr. Steinberg, I don't know how much time I have left, but between the terms of reference assigned to you...

[English]

The Chair: Half a minute--35 seconds.

[Translation]

Mr. Odina Desrochers: ... and the report produced, there are a number of inconsistencies. I just don't understand. You identified some very specific problems. The Auditor General pointed to a number of things which aren't mentioned at all in your internal audit report. To all intents and purposes, what is posted on the Internet is a summary.

What instructions were you given? Your mandate and the report's findings just don't jibe.

[English]

Mr. Norman Steinberg: The good thing was, I was given no direction except to audit as I saw fit, based on the history and the way in which we do auditing in Public Works and Government Services Canada and to come up with whatever hard-hitting evidence that I found.

You say that the findings between the Auditor General's audit and the public works department's audit were fundamentally different.

Let me quote Ms. Fraser, where she says, “Those responsible for managing the program broke the government's own rules in the way they selected communications agencies...”. She goes on to say, “...the selection process did not comply with the Government Contracts Regulations...”.

Our audit said that the processes used to select and contract with the communications agencies and agency of record did not comply with the spirit or the letter of Treasury Board rules or directives.

I could go on, but you would see, if you were to compare our audit with Ms. Fraser's audit, you wouldn't find a lot of difference.

The Chair: Mr. Desrochers, you made mention of and you were quoting from an access to information request. Are you able to table that document with the committee?

Mr. Odina Desrochers: I will.

The Chair: Okay, thank you very much.

Mr. Murphy, please, eight minutes.

We'll have a five-minute break after Mr. Murphy's intervention.

Hon. Shawn Murphy (Hillsborough, Lib.): Mr. Steinberg, I want to pursue this whole area of the bureaucratic checks and controls that often have been in this process. Now, I'm not going to in any way condone or defend what appeared to be this very cozy relationship between the sponsorship department and the Office of the Minister of Public Works and Government Services. Mr. Steinberg, as you are aware and as you see it every day of your life, in government we have a very elaborate system of rules, guidelines, checks and balances issued by Treasury Board, and I submit they generally work in the system.

Do you agree with that, sir?

Mr. Norman Steinberg: Absolutely.

Hon. Shawn Murphy: In this case those controls were not there. There was a different reporting arrangement, and Mr. Marshall, the present deputy minister, described the procurement in this case as a totally different reporting procedure that he hadn't seen in any other department--and I think I agree with him.

When I read your 2000 audit and about a lot of the discussion that has gone on since then, we don't talk about this. Do you have any evidence on why this was allowed to happen and why the controls broke down totally?

Mr. Norman Steinberg: I think the 2000 audit talks about how subjective the decisions ultimately were and about how much “discretion” the executive director ultimately had. I recall the audit mentioning how, even though there were “preliminary guidelines” and they tried to use those preliminary guidelines, even then the executive director waived them off and took a capricious decision to award sponsorships that his own advisers told him he probably shouldn't do.

They're the Treasury Board rules; they're the contracting guidelines. There were rules and regulations. There was simply a choice made by a group of individuals to put the rules aside and to do as they saw fit.

Hon. Shawn Murphy: But, Mr. Steinberg, yes, you'll find that in every public sector organization, private sector organization.

Â (1210)

Mr. Norman Steinberg: I don't think you would find in most public or private sector organizations that somebody would consciously say, okay, here are the rules, let's put them aside and let's do as we see fit.

Hon. Shawn Murphy: We had an architecture of government that was supposed to protect the public against that. We have, sir, the deputy minister. The deputy minister in this case is not hired or appointed by the minister; he is appointed by and reports to the Clerk of the Privy Council. The deputy minister here allowed this very unusual reporting arrangement to be established under his watch and to be continued under his watch.

So this is the question that I want to have answered by someone who sits in that seat. Why did the deputy minister allow this reporting arrangement? It's easy for you to say that this small group of people discounted the rules and regulations, but that's not the way government works, sir. There is a deputy minister who they report to, who in turn reports to the minister. Why did the deputy minister establish this very unusual arrangement? Why did the deputy minister allow this very unusual arrangement to continue?

Mr. Norman Steinberg: First of all, I would say about the deputy minister of the day, Mr. Quail, that in 1993, while program review was going on and audit functions in most other government departments were getting weakened--I wanted to say decimated--Mr. Quail did the opposite. He ensured that there was going to be a strong internal audit function at the time.

In 1997, in November when CCSB was created, Mr. Quail asked me...and I did, I sent my directors to talk to Mr. Guité to say, you know what, you're now going to be reporting as an ADM to the business board, and therefore there are certain expectations around how you're going to work in terms of the functions I'm responsible for. An agreement was signed with Mr. Quail to make sure that Mr. Guité understood under what rubric he was going to be operating.

Now, you're asking me...so in my view Mr. Quail did what was reasonably expected of him to ensure some control, some oversight, over this newly created unit, CCSB, in November 1997.

Hon. Shawn Murphy: Obviously, you and I have a different interpretation, because again, as I heard the evidence presented before this committee, this unusual relationship was established that way, was allowed to continue that way.

I have another issue, sir.

Mr. Norman Steinberg: Can I just say that at the end of the day it turns out that a small group of people operated outside the formal control structure, but the formal control structure was in place and efforts were made to ensure in the beginning that there would be some such control structure.

As you know, Ms. Fraser said, and it's true, that a lot of the oversight functions on sponsorship failed, but the one that worked was the internal audit function--after the fact perhaps, but it worked.

Hon. Shawn Murphy: After 2000 it worked, but again, you still haven't answered the question as to why Mr. Quail allowed this--

Mr. Norman Steinberg: You'll have to ask Mr. Quail that.

Hon. Shawn Murphy: All right, but I have a second issue I want to pursue with you, sir. I see a very systemic problem with your internal audit--and you've done a great job. This is no reflection on you.

Mr. Norman Steinberg: It sounds like it.

Hon. Shawn Murphy: No. I apologize, that's not the case.

I have a systemic problem with this, in that I have a problem with the way Mr. Quail allowed this to be set up, he allowed it to be continued. You were the internal auditor. You're doing a good job, but you report to Mr. Quail.

Â (1215)

Mr. Norman Steinberg: In 1996 the allegations came in about Mr. Cutler, and in 1996 we reported it to Mr. Stobbe and we reported it to Mr. Quail. In 1997, after Ernst & Young tabled their audit--actually it was my audit but done for us by Ernst & Young--we took the action plan and the audit, we put it to the ethics committee and there was an action plan done. And in 2000 the results of the internal audit and the action plan were tabled at the audit and review committee.

Auditors have a responsibility that managers don't have. Auditors raise issues, surface issues. As I said in my statement, we try to make the most compelling case for management to take action when action is warranted. We don't pull punches and talk about things as being administrative. We did all of that.

Mr. Quail was aware of all of that. Mr. Quail, in my view, consistent with how we responded on so many of the other audits that we tabled before him, took the responsible action and ensured that there was an action plan in place that people were going to follow.

Hon. Shawn Murphy: Again, sir, I disagree with you. I think when people look at this, whatever bureaucratic hanky-panky was going on...there was a systemic bureaucratic machinery of government breakdown under Mr. Quail's watch, and again--

Mr. Norman Steinberg: Which the audit found and identified.

Hon. Shawn Murphy: But you reported to Mr. Quail.

Mr. Norman Steinberg: I told him all about these problems on several occasions. Here, this is what I told Mr. Quail. Read the internal audit.

The Chair: Mr. Murphy, I'm afraid I have to bring that to a close.

We're going to have a five-minute recess. We will reconvene, and Ms. Wasylycia-Leis will have the next turn.

We're suspended for five minutes.

Â (1215)

Â (1226)

The Chair: We're ready to proceed. Welcome back, everybody.

We'll now turn to Ms. Wasylycia-Leis, for eight minutes, please.

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

Thank you, Mr. Steinberg, for your appearance today.

I have a number of questions relating to your opening statement and relating them to Mr. Alfonso Gagliano's statement when he appeared before our committee on March 18.

Mr. Gagliano indicated in his opening remarks--I'm going to refer just to that portion of his text that deals with the 2000 audit--that he basically initiated that audit. He directed it; he thought of it; it was his brainchild. Is that the case?

Mr. Norman Steinberg: I was not physically there at the time. I did talk to the acting director general. It's my understanding that Mr. Quail asked for the audit. Did he have a conversation with Mr. Gagliano? I don't know, but it's up to deputy ministers to direct internal audit functions.

Ms. Judy Wasylycia-Leis: To the best of your knowledge, Mr. Quail initiated the audit, one would assume, based on Mr. Gagliano's--

Mr. Norman Steinberg: In all the documents of the day...when I look at the terms of reference that were written in that period of time, they talk about the deputy minister directing the internal audit. As I indicated to you in my testimony before, that was also the time--February 3--that Peter Harder, as a result of the HRDC audit being tabled, had sent instructions to departments that had grants and contributions programs that he wanted them to assess the management of their grants and contribution programs. So it is pretty consistent with what was happening at the time that the deputy would have asked.

Ms. Judy Wasylycia-Leis: Thank you.

Mr. Gagliano then goes on to say he received this report and he asked the auditor whether he should call the police. Are you the auditor referred to in that statement?

Mr. Norman Steinberg: I am the auditor referred to in that statement, I suppose. I must be.

The only time I ever met with Mr. Gagliano was in his office, as he indicated, on September 25, and I do not have any recollection of Mr. Gagliano asking me if he should call the police.

Ms. Judy Wasylycia-Leis: Well, that's interesting, because when he was here at our committee, he actually said, I think, 13 or 14 times that he asked the question, should he call the police? He said he was told, presumably by you, that the nature of the problem was administrative, not criminal.

You clearly refuted that just now. You have just refuted it in terms of indicating whether or not this conversation even came up, but also—

The Chair: A point of order, Mr. Walt Lastewka.

Hon. Walt Lastewka (St. Catharines, Lib.): On a point of order, I understand that you weren't necessarily listening to what was going on here. I have a concern, and I would like to ask Ms. Wasylycia-Leis to go back and ask the full question, and that she be given that extra time, because I think it's important that we don't mix things.

If Mr. Steinberg is saying--

The Chair: What's your point of order, Mr. Lastewka?

Hon. Walt Lastewka: My point of order is that I think what she was getting at was out of order, but I was going to ask you--

The Chair: To rule it out of order.

What were you asking Ms. Wasylycia-Leis?

Hon. Walt Lastewka: I would just like you to go back so I could--

The Chair: Okay, if you could reiterate your question, I'll decide whether it's in order.

Ms. Judy Wasylycia-Leis: Certainly.

I'm asking about Mr. Steinberg's knowledge of, and confirmation of, Mr. Gagliano's comments to our committee when he said that he initiated the audit in 2000, that following this report he asked the auditor whether he should call the police, and what he was told in response, that it was not criminal but administrative.

So I have asked Mr. Steinberg to indicate whether he recalls that conversation. He said he didn't. Now, based on his report, his statement today, where he says that he definitely disagrees with the perception that these findings were administrative in nature, I want to ask him if in fact, since he disputes Mr. Gagliano and he says there were significant management issues at stake here, would he actually say that there was the possibility of some criminality involved in the findings of his audit?

Â (1230)

Mr. Norman Steinberg: Let me take the first part of your question first.

The Chair: I'm not a lawyer here, but we have the director general of the audit and ethics branch, who does these audits. He is being asked if he felt that his investigation uncovered criminality. I think that is a legitimate question to an auditor, as to whether or not he felt that the findings had some criminal intent.

So go ahead, Ms. Wasylycia-Leis.

Mr. Norman Steinberg: On the first part of your question, there are parts of Mr. Gagliano's testimony that I absolutely agree with. Mr. Gagliano, I believe, said that he asked us to extend the audit to 100% of the files. That is accurate. He did ask us to do that, and that's what I did say in my statement.

According to what you've asked me in the testimony on whether Mr. Gagliano specifically asked me whether or not he should call the police, and I said no, don't call the police, I don't have any recollection of that testimony.

Could you ask me the other part of the question again?

Ms. Judy Wasylycia-Leis: Given the fact that Mr. Gagliano said he was told that the nature of the problem was administrative, not criminal, you countered that in your opening remarks by saying that you would never characterize those problems as administrative. Would you go so far as to say there might have been the possibility of criminality in your findings?

Mr. Norman Steinberg: During the past five years, we've carried out over 233 investigations and referred 99 files to the RCMP. We do so when there is strong, persuasive evidence; that is to say, there are reasonable and probable grounds to believe that a criminal offence had occurred.

At that time, no one indicated that goods were not received. The information that was available from the documents, in the hands of the auditors, indicated offer, acceptance, and consideration for contracts. Based on that information, at the time, there was no evidence of fraud.

Ms. Judy Wasylycia-Leis: You would agree that the findings of the audit were far more serious than simply administrative in nature. I'm referring now to the summary of your report, where you talk about lack of compliance with Treasury Board directives, lack of appropriate processes and controls, and real questions around whether or not money was disposed of as committed.

Mr. Norman Steinberg: I leave it to you, and the members of the committee and Canadians, as to whether they can interpret my conclusion, which was that the management control framework for achieving objectives, safeguarding assets, managing risks, and reporting information to management is inadequate--how that can be translated into something administrative. We were talking about the steering wheel and the brakes of the program. We weren't talking about the air conditioning or the radio of the program. So it's beyond me how someone could take that clear message, read the audit report, and make some kind of conclusion that these were simply administrative issues.

Ms. Judy Wasylycia-Leis: You presented the deck at a meeting where Mr. Gagliano was present.

Mr. Norman Steinberg: Correct. In that September 25 briefing of Mr. Gagliano, I briefed him from this deck. We left him this deck, as well as leaving him with a copy of the final audit report, dated August 30, which I believe you all have.

Ms. Judy Wasylycia-Leis: Yes, that's this complete document.

Mr. Norman Steinberg: I can't see it, but I'm sure it is.

Â (1235)

Ms. Judy Wasylycia-Leis: It's about 18 pages in length.

Mr. Norman Steinberg: Correct.

Ms. Judy Wasylycia-Leis: Okay. Who else was at that meeting on September 25?

Mr. Norman Steinberg: It is my recollection that Mr. Quail accompanied me. Mr. Gagliano was there. I may not have all the people. The DG of communications for Public Works at the time was there.

The Chair: Do you know his name?

Mr. Norman Steinberg: I'm not 100% certain who it was. I can get back to you on that.

Jean-Marc Bard was there. The deputy minister's EA was there.

The Chair: Do you know her name?

Mr. Norman Steinberg: The deputy minister's EA? I think that her name was Joanne Stasiuk. I think that the minister's press secretary was there as well.

The Chair: Do you know her name?

Mr. Norman Steinberg: No. I think it was a him, actually.

I'm not sure whether there was a representative from CCSB at that meeting or not.

Ms. Judy Wasylycia-Leis: Presumably, if the director general of CCSB was there, it would have been Pierre Tremblay.

Mr. Norman Steinberg: There is correspondence in the file, as I went back to research it, that Mr. Tremblay was the acting director at the time. But as for whether or not there is correspondence in e-mails back and forth as to whether he would have been able to make the meeting or he was going to send somebody else, at the end of the day I relied on our scheduling calendars. I don't actually know for certain who from CCSB, if anybody, appeared in that hour meeting in Mr. Gagliano's office.

Ms. Judy Wasylycia-Leis: This is my last question since time is running out.

How did you deal with the fact that there was this group that had a special reporting relationship to the minister? How did you deal with that group, as the auditor for the department? Was it unusual in any way, in your mind?

Were there special requests or statements made by Mr. Guité or Mr. Tremblay? How did you relate to those two?

Mr. Norman Steinberg: As a result of the decision that Mr. Quail took in 1997, we had an accord, which said that Mr. Guité's directorate would be subject to the audit process--and they were. So I had that document, if I ever needed it, to say I'm coming in to audit if I need to audit. And we audited them.

The Chair: Mr. Kenney, you're next, please, for eight minutes.

Mr. Jason Kenney (Calgary Southeast, CPC): Thank you.

The Chair: I would note that because we're going on in the afternoon, all interventions will be eight minutes.

Mr. Kenney.

Mr. Jason Kenney: Thank you, Mr. Chairman.

Mr. Steinberg, I want to continue on the line of questioning that Ms. Wasylycia-Leis was pursuing with respect to the gap, the contradiction between your testimony and Mr. Gagliano's, and for that matter I believe Mr. Quail's.

You said in your statement to us that, “I'm deeply concerned that there were perceptions that these findings had been characterized as administrative in nature. I consider these lapses to be significant and unacceptable.” You then went on off the text to underscore this point, that you'd never used the term that these were merely administrative problems. Is that your testimony?

Mr. Norman Steinberg: Absolutely. I would never characterize those findings as administrative.

Mr. Jason Kenney: Well, Mr. Steinberg, let me quote to you from Mr. Gagliano's testimony to this committee ten days ago, when he said, “Following the presentation of the report”--your report--“I asked the auditor”, that would be you, “whether I should call the police, but I was told that the nature of the problems was administrative.”

Is that testimony of Mr. Gagliano's accurate?

Mr. Norman Steinberg: To the extent that Mr. Gagliano never asked me, “Should I call the police?”, then you make the judgment. He never asked me, “Mr. Steinberg, should I call the police?”

Mr. Jason Kenney: He did not ask you. So this testimony is not accurate?

Mr. Norman Steinberg: I come back and tell you what he didn't ask me. You can come to the conclusion.

Mr. Jason Kenney: All right, so I will make the conclusion that Mr. Gagliano again has been caught in a fib here. You did not tell him that these problems were administrative?

Mr. Norman Steinberg: Absolutely not. What I did was take him through this complete deck and leave him with a copy of the complete audit report, which was approved August 16, so about a month before, at the audit and review committee.

Mr. Jason Kenney: Okay.

[Translation]

On March 7, 2004, while being interviewed on RDI, Mr. Gagliano stated the following: I didn't find out that there were serious administrative problems until the spring of 2000.

[English]

Is that accurate, that Mr. Gagliano learned that there were merely serious administrative problems? That's not what you're testifying.

Mr. Norman Steinberg: To the extent that Mr. Gagliano was briefed on the results of the audit, he only heard about those in 2000. That I agree with him about. The characterization of the problems as administrative, how many times can I say it this morning: I never would characterize significant managerial lapses, as I just said--problems with the steering of the program and the brakes of the program--as administrative.

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Mr. Jason Kenney: All right.

Mr. Steinberg, I'd like to quote from page 15, paragraph 2.3.2 of the internal audit from 2000, which says:

The invoices charged against production budgets for most of the files audited did not contain a sufficiently detailed breakdown of the amounts charged or the services provided. For those invoices which did provide some details on the breakdown of amounts being billed, we concluded the amounts being charged were for products/services more appropriately considered management of a sponsorship (and therefore to be included in the 12% commission fee paid), and not for the products/services appropriate to the use of the production budget.

Now, several people, including Mr. Gagliano, when I read this to him, concluded that this finding points to essentially double-invoicing, where ad firms were being paid essentially twice, once through their production invoice and once through their commission fee, for the same service. Is that an accurate interpretation of that paragraph?

Mr. Norman Steinberg: Well, first of all, as you acknowledge, we never used double-billing. And I think it's important to realize that the contracts were actually structured in a way that it was not illegal for the ad agencies to bill in that fashion. It may not have been value for money, but it wasn't illegal. If you read a little further down in that paragraph, the audit also states there are no clauses in the contracts with the communication agencies that prohibit the communication agency from invoicing CCSB in this manner.

In the absence of clear guidance on this issue, it's unclear as to whether the production of post-mortem reports is paid through their production budgets, the 12% management fee, or supplementary allocations above the 12% management fee limit.

Look, you and I might agree that you could have driven a truck through the contract, but inherently the contract allowed for that to be happening. And as auditors we were questioning that.

Mr. Jason Kenney: The problem, Mr. Steinberg, is not just that you or I may have been able to drive a truck through the contract; it's that several firms did drive many huge trucks filled with tax dollars through these contracts. The problem we're having here is that on the one hand you're telling us that you did not testify, contrary to Mr. Gagliano's testimony, that these were merely administrative problems, and on the other hand, we have your evidence in your audit of at least, shall we say, sleight of hand with respect to invoicing. Yet, apparently you didn't think any of these contracts could even potentially be criminal and therefore would warrant flagging for the deputy minister or the minister in terms of criminal investigation.

Why was that action not taken, in your view?

Mr. Norman Steinberg: I have two points. First of all, back to the contracts, what was happening was legal within the confines of the contracts. That's fact. As for the issue of whether or not we didn't find anything illegal or criminal at the time, in my branch there is a group of individuals who are now called fraud investigators, who work in the fraud investigation unit. We have a threshold. When evidence surfaces that reaches the threshold, we will refer that information over to the RCMP commercial crime, as we have done in 99 cases, and they will pursue the investigation.

We're not shy. I'm not reluctant about referring cases over to the RCMP.

An hon. member: But--

Mr. Norman Steinberg: Let me finish. Over the last five years, 99 cases went over. At the time, based on the expert advice I got from professionals who were ex-members of the force, they said there was no indication of criminal or illegal activity. That's the judgment we made at the time.

Mr. Jason Kenney: Apparently the judgment was wrong.

Mr. Norman Steinberg: I'm not sure if the judgment--

Mr. Jason Kenney: Well, evidently it was wrong.

Mr. Norman Steinberg: Well, let's put it this way. Subsequent to people coming forward in the communications agencies, we had the allegations around Groupaction. I would remind members of the committee that those Groupaction contracts were not part of the 580 that we looked at. They were not offered as sponsorship files. As a result of that investigation and people coming forward almost two years later from agencies, it became apparent that the government was paying for goods or services it hadn't received. But there was no evidence in 2000 that was happening.

Â (1245)

Mr. Jason Kenney: Didn't you look at any files dealing--

The Chair: Mr. Kenney, let Mr. Steinberg finish.

Mr. Norman Steinberg: That's okay. I'm done.

Mr. Jason Kenney: Didn't you look at any files dealing with Coffin Communications in your 2000 audit, and didn't any of those files indicate that Coffin Communications received payments for services that were not rendered?

Mr. Norman Steinberg: I don't believe so.

Mr. Jason Kenney: You also testified this morning, Mr. Steinberg, that the 2004 audit of the Auditor General made many of the same findings, essentially the same findings as yours--

Mr. Norman Steinberg: I didn't say, “essentially”, but “many of the same”.

Mr. Jason Kenney: Many of the same findings as yours in 2000. The difference is that there now appear to be, I think at last count, 14 criminal investigations flowing from this program. How are we to believe that there were services being paid for that were never rendered by these firms, that there were effectively firms being paid twice for doing the same work?

These were not merely administrative problems, you've testified.

Mr. Norman Steinberg: We agree.

Mr. Jason Kenney: If they weren't administrative and they weren't criminal, just what were they? How would you characterize the nature of these problems?

Mr. Norman Steinberg: I come back, Mr. Kenney.... At the time the internal audit in 2000 was conducted and the results of the fieldwork were being put together, these factors that you're alluding to now had not been noticed, were not available in the evidence that was coming forward. If it had come forward, if there had been that kind of evidence, we would have happily looked at it, considered it, investigated it, as we investigated many of the other issues around fraud, and we would have sent it to the RCMP. There was no evidence at the time that there was anything criminal or illegal.

The Chair: Thank you very much.

We're going to have Mr. Desrochers, and then we'll break. Then we'll start with Ms. Phinney after question period at 3:30 this afternoon.

Monsieur Desrochers, s'il vous plaît, pour huit minutes.

[Translation]

Mr. Odina Desrochers: Thank you, Mr. Chairman.

Getting back to my original question, Mr. Steinberg, when you were assigned your mandate by Mr. Quail, did he tell you that he had been informed of the contract or over-billing situation, that is of the problems identified by the Auditor General in her 2004 report? Were the terms of reference of your audit sufficiently broad to allow you to explore all avenues or, on the contrary, were you mandated to examine a specific sector?

[English]

Mr. Norman Steinberg: First of all, as I indicated before, I was not physically in the department. I was on language training at the time. So the conversation that Mr. Quail had, he had with the acting director general.

But I can tell you with confidence that Mr. Quail said, audit the sponsorship program; Mr. Harder had indicated by that time that there were issues around the management of grants and contributions, so at minimum, use a compliance audit to determine whether or not the sponsorship program, which was the closest thing we had to grants and contributions, was complying. He didn't have to give me, as an auditor, any other kind of mandate. As an auditor, I could go down a certain line of inquiry, and if I determined there was wrongdoing, I could pursue that line of inquiry. If I determined that there was lack of compliance, or if I determined that there were objectives not being achieved...I don't have any restrictions as an auditor. So in a way, Mr. Quail said, go audit the sponsorship program, but at minimum, give me the answers to the issues around compliance.

Also, Mr. Quail never would have come forward with the allegations that you're talking about, because they weren't known at the time.

[Translation]

Mr. Odina Desrochers: If Mr. Quail wasn't aware of the problems, then who was, Mr. Steinberg? You're the internal auditor. Who knew of these problems?

[English]

Mr. Norman Steinberg: That's precisely the point. The internal audit process in 2000 started to surface these very problems. So in some sense the audit function worked. Mrs. Fraser said the audit function worked. Mr. Shahid Minto, in his testimony to you a couple of years ago, said the audit function worked. We surfaced the problems, and that was the basis upon which other actions began to happen--a new action plan. Other people probably came forward at that moment in time, recognizing that the audit had surfaced serious problems.

Â (1250)

[Translation]

Mr. Odina Desrochers: Mr. Steinberg, I can't quite understand why you failed to detect these problems in 2000 when you did your internal audit and why no one at Public Works seemed to be aware of what was happening. You weren't there when Mr. Quail assigned the terms of reference for the audit. Moreover, the report that you presented is not very consistent with the mandate you were given. It's not clear to us what transpired exactly.

When you met with Mr. Gagliano, was it in regards to the summary or to the actual report? Who received a copy of the final report? Again, I have to wonder why you failed to explore the Crown corporation connection when clearly they were implicated in this matter. I need you to clarify some things for me, Mr. Steinberg.

[English]

Mr. Norman Steinberg: Well, the simple answer to your last question is, I don't have the authority to look into crown corporations.

You asked a number of other questions back there, and I don't remember them all. What did I give Mr. Gagliano with certainty? I gave him the briefing deck and I gave him the complete audit.

I'm an auditor. There are 130 audit entities in Public Works. I can't know; I'm not expected to know; no auditor is expected to know what goes on in the depths, in the bowels, of any corporation or any entity. Once we use a systematic method, then we come up with conclusions and recommendations. That began in December of 2000--February actually--and by May of 2000, all of the findings and conclusions were available. By June of 2000, the problems with respect to sponsorship, as we identified in the audit, were known. Moreover, by October they were known to the Canadian public, because they were posted on the Internet.

[Translation]

Mr. Odina Desrochers: It all depends on the mandate you were given, sir. Were you assigned broad terms of reference to look at operations throughout the department, or was your mandate more specific? Your report would then have been more substantive that it in fact was.

I'm having trouble reconciling your findings with those of the Auditor General, with Mr. Gagliano's testimony and with that of Ms. Tremblay. Since you were in charge of the internal audit, I want to know who knew what.

[English]

Mr. Norman Steinberg: There is no fundamental gap, in terms of the findings and conclusions, between our audit and that of Mrs. Fraser. She did have two advantages that we don't have. She did go into the crown corporations. We didn't do that. And she did have, in her hands, which I believe was actually given to her by Minister Boudria at the time, the Groupaction accusations. She was able to go into that line of inquiry.

As internal auditors—you might want to change the act for internal auditors in the Government of Canada—we're limited to work and to pursue lines of inquiry within our own organization. That's a good thing for you. I don't have a restricted mandate, I can audit whatever I like, but there's an issue of scoping here. You can't audit this much in the beginning. We only have $6.2 million to audit about $2 billion worth of programs and activity in Public Works and Government Services Canada, so we start with the scope. The scope, in this particular case, in a way, was pre-defined by the centre, which said there were problems with respect to compliance on grants and contributions and asked if we could at least begin there.

My point is that I was not limited. I am not limited as an auditor. If I go down a line of inquiry and I find that there are other things that are unacceptable or objectionable that require me to pursue it, that's what we do. That's what internal auditing is in the Government of Canada.

The Chair: You have 45 seconds.

[Translation]

Mr. Odina Desrochers: In conclusion, when you received this report, you went to see Mr. Gagliano. You've told us that you held briefings for senior officials in the Treasury Board Secretariat, the Privy Council Office and the Prime Minister's Office. I'd like you to name one person from each of these services who was briefed by you.

Â (1255)

[English]

Mr. Norman Steinberg: On September 22—I'm trying to find the paper—we briefed Rick Neville, who was, I think, the deputy comptroller general at the Treasury Board.

On September 25, I've already alluded to the briefings with Mr. Gagliano and the people present in the room.

On September 27, along with the deputy minister, I briefed Mr. Bilodeau and, I believe, Dick Fadden.

On September 28, with the deputy, it was a combined meeting of PCO and PMO, and the members there included Ron Bilodeau, Dick Fadden, Mario Lague, Françoise Ducros, John Malloy, and Eddie Goldenberg. There may have been others, but that's my written recollection.

[Translation]

Mr. Odina Desrochers: Thank you very much.

[English]

The Chair: Merci beaucoup, Monsieur Desrochers.

Before we move on, I'll only say that in the way that I have the interventions, from here on in, it would be Ms. Phinney, Ms. Jennings, Ms. Ablonczy, Mr. Thibault, Mr. Mills, Mr. Toews, Mr. Tonks, Mr. Lastewka, and from there on.

Mr. Lastewka.

Hon. Walt Lastewka: I only want to confirm that in the questioning this morning there has been 40 minutes of questioning by the opposition and only eight by the government. Is that correct?

The Chair: There has been one intervention. We're halfway through the second round. You're correct, yes.

Hon. Walt Lastewka: Thank you very much, Mr. Chairman.

The Chair: I will point out, only to finish the story, Mr. Lastewka, that from here on in, we'll start off with, as I said, Ms. Phinney and Ms. Jennings; immediately after, when we reconvene, it will be Ms. Ablonczy; followed by two Liberals, Mr. Thibault and Mr. Mills; followed by Mr. Toews; followed by two Liberals, Mr. Tonks and Mr. Lastewka.

By the end of the day, all people at the table will have had a chance to speak. It's the way that I do it here, and the way that we've agreed and have done for years.

Hon. Walt Lastewka: My only--

The Chair: No, let me finish. It is the official opposition, first, followed by the Bloc, followed by the Liberals, followed by the NDP. The NDP have only one seat at the table, so they are now finished.

The second round is the Conservatives, the Bloc, two Liberals. The Bloc only have two seats at the table, so they are now finished.

We're now back to the Conservatives and two Liberals, the Conservatives again because they have four seats at the table, and two Liberals.

That way every party gets to question in accordance with the number of seats they have at the table. Of course, we ensure that every person at the table gets a chance to speak.

I have done that for years, Mr. Lastewka, to ensure fairness and an opportunity for everybody to speak. That's the way we have done it and that's the way we'll continue to do it.

Hon. Walt Lastewka: My only remark is that there's a perception that no questions came from the government in the first hour of questioning.

The Chair: I could quite easily have kept everybody to four minutes, Mr. Lastewka, so everybody could have had it. But since we are going to have one witness for four hours, in this investigation we have basically agreed, so there can be a line of questioning, that each member can have eight minutes. When we have had only two hours with a witness, I have reverted to the four minutes. I thought that was fair to everybody--and I insist that I be as fair as I can to everybody.

The meeting is now adjourned. We will reconvene at 3:30 this afternoon.