[Recorded by Electronic Apparatus]
Tuesday, October 17, 1995
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[English]
The Vice-Chairman (Mr. Telegdi): I would like to start this meeting.
For the interest of members of the committee, we have a number of parliamentarians from other countries with us here today. From the state legislatures of South Africa, we have speakers and deputy speakers; we have with us the deputy auditor general from Estonia, Mr. Rein Söörd; as well as Dr. Martin Votteler from Germany. So not only is our auditor under scrutiny, the whole committee is under scrutiny.
We would like to welcome everybody. We will be hearing today from our Auditor General,Mr. Desautels. He has with him two deputy auditors general, Raymond Dubois and Larry Meyers.
Mr. Desautels.
Mr. L. Denis Desautels (Auditor General of Canada): Thank you very much, Mr. Chairman.
[Translation]
I will try to be fairly brief.
It is indeed a pleasure to appear before your committee today to talk about the October 1995 Report to the House of Commons and, more specifically, the subjects suggested for priority consideration by your committee in my letter of October 5.
We would like to discuss the suggested priority subjects with the committee and then answer your questions on the chapters or any other matter in the October Report.
As you stated, I have Deputy Auditors General Raymond Dubois and Larry Meyers here to assist today. Since your questions may touch on any aspect of the report, a few of the individuals involved in the actual audit work are available in the room to help us with additional details.
[English]
Just before we get into the substance of our suggested priority subjects from this report, I would like to say a few words about the chapter on deficits and debt, chapter 9, which has received a fair amount of attention from both parliamentarians and the print media. You may wonder why it does not appear on our list of suggested priorities when undoubtedly information for Parliament on deficits and debt is a significant issue that warrants attention by government.
I did not include chapter 9 as a priority item in my letter to your committee simply because I believe that the Standing Committee on Finance may wish to review it in the course of its pre-budget consultations. I also know that your committee's agenda is already quite full. There may be other elements in the May report that the committee may wish to consider at some point. Mr. Chairman, you may also wish to keep in mind the fact that we have planned to table the annual report only five weeks from now, and it will contain more subjects of interest to the committee.
Having said all that, however, we would be very pleased to discuss chapter 9 with this committee should it wish to consider the subject in the near future.
Mr. Chairman, my letter to Mr. Bélisle of October 5 describes each of the chapters 10, 12 and 13 in a very summary manner and provides some rationale for recommending that the committee consider them for its upcoming meetings. I don't think I should go through this information again now, but I would like to add a brief comment on each.
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Chapter 10, which was entitled ``Crown Corporations: Fulfilling Responsibilities for Governance'', deals with an important government-wide subject, crown corporations, which this committee has not discussed in the recent past. I think therefore it may be a subject of interest to the committee and also a worthwhile subject to explore.
As to chapter 12, ``Systems under Development'', we're dealing here with a subject that poses a real challenge to the federal government, but one that carries also a huge potential. The government seems to accept our conclusions in this chapter, but I think a discussion of this topic would, nevertheless, be constructive.
[Translation]
Finally, Chapter 13 respecting CIDA could be of considerable interest to the committee. In fact, the committee appeared very interested when we tabled this report in 1993 and it even expressed the hope that we would carefully follow up on the action plan presented by CIDA at that time.
Mr. Chairman, we would now be happy to answer all of your questions.
[English]
The Vice-Chairman (Mr. Telegdi): Mr. Williams.
Mr. Williams (St. Albert): Again, my congratulations to the Auditor General for tabling another fine report. Unfortunately, of course, the information that he talks about isn't always fine, because we find the government is not too good at managing the public purse.
You mentioned CIDA, Mr. Desautels. I haven't, unfortunately, had a chance to read the chapter on CIDA, but I remember we discussed CIDA with the president of the organization some time ago, and this is a follow-up to this particular report.
Has there been a significant improvement in the management of CIDA? At that time, we were highly critical of the management process in CIDA. With the new chairman, who was presumably going to get that under control, has there been an improvement?
Mr. Desautels: Mr. Chairman, the chapter included in our last report that deals with CIDA attempts to answer some of those questions Mr. Williams has raised. That chapter, of course, is essentially CIDA's own evaluation of the progress they have made since we last reported and they last appeared in front of this committee.
We looked at their self-evaluation. We concluded that the evaluation covers all of the main points we raised in a reasonable way, but it is too early to really tell to what extent this has actually taken hold and jelled.
At this point in time, the report indicates that CIDA is on the right path in terms of correcting the deficiencies we raised. We do express some concern about maintaining the momentum that was initially generated. I personally believe that publishing this self-assessment actually puts some more pressure on CIDA to maintain, I believe, their course of action.
I also happen to think that if this committee again showed an interest in that particular chapter, it would further reinforce the resolve to keep on with the reform program that they have given themselves.
Mr. Williams: Chapter 12, ``Systems under Development'', covers primarily these very expensive and complex software programs and other things.
When we looked at the military last year, I believe it was, Mr. Meyers used the phrase ``bleeding edge'' rather than ``leading edge'' technology, which meant, of course, that it was horribly expensive and we had to question the value we were getting from it.
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Now we find, for example, that we spent $60 million on developing a payroll program that is neither ``leading edge'' nor ``bleeding edge'', but basically just money down the drain.
Has there been any real appreciation by the government that smaller is better, and that when it comes to doing things like payroll programs, it could devise one department by department? We don't have to have these monstrous, expensive systems that are out of date or impossible to accomplish on time and on budget. Have they learned that lesson?
Mr. Desautels: Mr. Chairman, I don't think at this point we can say that government has all of a sudden decided that smaller is better and that it should change the basic approach to the large information technology projects.
I received an indication that the chatter is causing it to rethink its basic approach to megaprojects, but I don't think a conscious decision has been made at this point to change that approach yet.
Again, I think this is a difficult area to master from a management perspective, but also one in which the benefits are quite important if you do it properly. I think it would be useful to explore the kind of question you've just raised with this committee and hear from the government to what extent it wishes to react to that chapter.
Mr. Williams: So what you're saying is that it's not only the learning curve that's steep, but the dollars as well are steep, as part of the learning curve.
On crown corporations you talked about the accumulation of debt, the lack of focus, and so on, but you weren't very specific in speaking about any particular crown corporation. Why were you talking more in generalities of crown corporations rather than zeroing in on any particular crown corporation? Are they all at fault? Should we be picking one and looking at it?
Mr. Desautels: Mr. Chairman, we chose the approach that you saw in this chapter, which was to talk about the general framework for managing crown corporations, as opposed to specific cases, in order to focus, if you wish, more on the broad management issues, as opposed to getting sidetracked on specific crown corporations and some more of what you might want to call micro-issues within crown corporations. So it was a conscious decision on our part to try to assess how well the overall portfolio of crown corporations was being managed, how appropriate the framework was, and what kind of changes could be made to the framework to improve the quality of management.
There is an added reason why we stayed away from naming names, which some people would have maybe liked. Our mandate vis-à-vis crown corporations does not come out of the Auditor General Act but is basically defined in the Financial Administration Act. Indeed, crown corporations do enjoy a different relationship to government and to Parliament, as you know, than government departments themselves. That's another reason why we chose this approach.
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Mr. Williams: If Public Accounts were to look at the crown corporations in fulfilling the responsibilities of governance.... Let's use CN, for example. Last year it was a crown corporation and this year it's going to be a private corporation. I'm not sure if there's any real difference between the mandate it was fulfilling last year and the one it intends to fulfil next year, except it hopes to make some money from now on.
I heard that it has consumed about $96 billion of taxpayers' money since we created Canadian National back in 1915 or 1916. We're going to sell it off for about $1.5 billion. It really hasn't had much of a mandate to service small communities, make money, and deliver fast, efficient and up-to-date service. Is this the type of issue we, as a public accounts committee, should be looking into, or should we be calling for a royal commission to examine all crown corporations because we're so far in debt?
Mr. Desautels: One of the main issues we raise in our chapter on crown corporations is the lack of clarity of the objectives of a number of crown corporations. So I think this is a legitimate concern that parliamentarians and this committee may have. Quite a number of crown corporations could probably see themselves in that particular criticism we've made.
I do think it would be quite constructive for this committee to discuss crown corporations generally, in particular this one weakness we've identified in the management of the portfolio. That's a long way from recommending that there should be a royal commission on the issue. I think there is scope for improving the management of crown corporations and I think the first step would be for this committee to study the problem we've raised. Then if you feel you should go further, that would be your prerogative.
Mr. Williams: It seems like a task that would consume this committee for a long time. If we were really to take a look at the lack of focus, both financially and in public policy, by many of these crown corporations, we could still be talking about it next year. That's why I was thinking that perhaps it might be advantageous, if we're talking about focus, to get a committee focused on the subject.
Mr. Desautels: I wouldn't jump to that conclusion too quickly. I think if you had a hearing on that you might see the magnitude of the issue more clearly and what more would need to be done to reach some valid or useful conclusions.
Mr. Williams: Thank you, Mr. Chairman.
The Vice-Chairman (Mr. Telegdi): Just following up on crown corporations, would it be of some use to have members of Parliament sit on crown corporations? Obviously there would be no remuneration or anything, but they would just sit there to inject some of -
An hon. member: No remuneration.
The Vice-Chairman (Mr. Telegdi): That's right. You're already remunerated.
I'm just wondering if that's something you have given thought to, just to get some political sensitivity into some of the deliberations.
I recall we used to have a hydro commission where we appointed people at the local government. They exercised poor sensitivity as far as the environment was concerned. They chopped trees down fairly indiscriminately. Once we made some of those appointments we found greater care was taken in that area, number one, and some issues that could have been problems were dealt with before they became problems.
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Mr. Desautels: I believe the notion of appointing members of Parliament to the boards of directors of crown corporations would be a significant departure from the practices of the Canadian federal government, as I understand them.
It may not be the best place to explain the rationale for this, but let me just say I think one important principle that might explain this rationale is this notion of maintaining an arm's length relationship between the crown corporation and the core of government. You can easily appreciate why, in certain crown corporations even more than others, it's quite important to maintain that kind of relationship.
As I said, this would be a significant departure, as far as I know, from the long-standing policies of the Canadian federal government.
[Translation]
Mr. Assad (Gatineau - La Lièvre): Have we completed our discussion of Crown Corporations? Can we move on to another subject?
Mr. Desautels, I am interested more in Chapter 9 and in the need for a public debate on the repercussions of the deficit and debt on the entire country.
Do you feel such a debate would be useful? I think we should establish parameters. As you mentioned in one of your documents, the deficit and debt are not recent problems. They have emerged over the past 20 years. Admittedly, mistakes have been made in the area of financial administration, but we are now confronted with this situation. The debt is the result of wasteful or excessive government spending, of the administration of our monetary policy over the last 15 or 20 years and of our tax system which is in need of reform.
The last attempt at reform dates back to the Royal Commission on Taxation, known as the Carter Commission. Although this commission dates back to the sixties, the fact remains that its report was almost revolutionary in that it demonstrated, not only to the government but to all taxpayers, that major improvements needed to be made to the system.
Even though the Auditor General's Office cannot speak out on monetary policy or on tax policy, a public debate on this issue is nevertheless warranted. We need to understand clearly the root causes of the debt, because there is still a segment of the Canadian population that would have us believe that social programs are the root of the problem.
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Therefore, my question is as follows: Would it be possible and helpful to hold a public debate on the subject to broaden our understanding of this issue?
Mr. Desautels: Mr. Chairman, the preamble to Mr. Assad's question resembles a political statement.
On the other hand, as Mr. Assad has stated, the questions surrounding the debt and public finances are political questions, because they stem from a political philosophy. They fall outside our mandate as legislative auditor.
We must remain neutral. However, we are suggesting ways of improving the quality of the information available to parliamentarians and to those who will be making the necessary political decisions.
We have been relatively clear on the kind of information that can be useful to a political debate. We have indicated that information on the level of indebtedness that can be sustained in the long term is in itself useful to pre-budget consultations such as the ones which the Finance Committee has conducted in recent years.
Therefore, in my opinion, it would be better to focus the debate on the question identified in Chapter 9. As you pointed out, our level of indebtedness can be attributed to many other factors. We could also ask a range of questions on the longer-term policies of government finance management, but personally, I believe it would be preferable to focus pre-budget discussions on the debt level and the debt-to-GDP ratio that can be sustained in the medium and long term.
[English]
Ms Whelan (Essex - Windsor): I just want to pick up on Mr. Dubois' opening comment. You talked about how you think chapter 9 should be discussed fully, perhaps with the finance committee in its pre-budget consultations, but at the end of chapter 9 you talk about how all of the information is really not there to develop a consensus about what is an acceptable level of debt. I'm just wondering how we can have a full, open, and frank discussion if some of the information is missing. Do you think that information is coming, or how do we get that information?
Mr. Desautels: As we said in the chapter, there are certain types of information that would be useful in this kind of discussion that are not necessarily available or easily available at this stage. But I don't think it would be that difficult to generate and disseminate to members of Parliament.
I don't think we're talking here about something that would take years to develop. I believe the information we're talking about could be assembled on fairly short notice and made available to a committee of the House if it so wished. In the eyes of some I may be underestimating the difficulty of doing that, but I don't really think so. I think we're talking about something that could be put together in a matter of weeks as opposed to a year, let's say.
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Ms Whelan: I guess I misunderstood, then. I thought in your earlier comment you suggested that the finance committee would probably do better to look at chapter 9 in their pre-budget consultation. You don't mean then discuss it publicly, but amongst the committee.
I'm just trying to follow through here. Your statement is very clear that Parliament does not have the information that will help make the debate meaningful. I don't see the purpose of going ahead with the debate, although I do agree that it's necessary to talk about what is an acceptable level of debt. But if we don't have the information available to start into something, without that information at hand it's probably premature.
I take that position on other issues and I take that position on this issue. I think it's a very serious issue and if we're going to start to talk about it and if we're going to invite all parties to the table - which is in my opinion what should happen, that all Canadians should participate in the discussion on where the debt is going and what is an acceptable level of debt and what can we afford relative to our income - then it's important that we have all that information.
I just don't know what's missing. I don't really understand how long it's going to take to obtain and I don't believe it's possible to have a meaningful and frank discussion at the end of November. The minds of Canadians, unfortunately, in the month of December, are not necessarily on fiscal policy; we know that it's a family time for a lot of people. It would be a great time to have that kind of discussion, but if we're talking about three to four weeks to assemble information, we're talking about pushing it through. Or are you talking about putting it in the new year for the finance committee? If you're talking about having it in the next two or three weeks in the finance committee, then I suggest there needs to be some urgency placed on getting this information.
Mr. Desautels: Mr. Chairman, obviously I agree with Ms Whelan that you can't have a meaningful debate unless the information is available and is reliable information. Obviously as well, I think the Department of Finance would be much better placed than I am to tell you and tell all of us how long it might take them to assemble the kind of information we have in mind. I don't want to answer that question on their behalf.
As I said earlier, though, I don't think this is something that would take months and years to accumulate. It's more a question of weeks. Whether that could be done in time for this year's round of discussion, I can't answer, but I think the suggestion would still be valid. This is a long-term issue, and I think it will still be with us next year.
Ms Whelan: I don't think it's going to go away overnight. We all read one of the opening comments that said that the only time our debt ratio was higher was during the Second World War. We all recognize that different circumstances result in different things, and there have been other instances since the Second World War where Canada was in difficulty economically, which would explain an increase in our debt ratio at those times. The problem is after those times there probably isn't a really good explanation as to why things weren't changed. I think it's important that we focus on where we're going as a country. We know that we're going to have a new budget again in February with new targets. In my opinion, pre-budget consultations are meant to deal with that.
I don't know if the time to open a long-term discussion is November. I'd like to see a good discussion on where the debt is going and what's acceptable in Canada. I believe the focus is going to be on what's going to happen in individual things within the budget, because you have so many different people coming to the table.
I'd like to see a very frank and open discussion on this, but perhaps it should start in February, because we already know what our target is for 1996-97. It's already been established.
Thank you.
The Vice-Chairman (Mr. Telegdi): Just on that, I think it's a useful debate to have raised, and there's no question it's going to be continual. There was an interesting article in The Globe and Mail on Saturday that dealt with what is sustainable and what is not. Obviously it's not an exact science; it's more of an art form. But it was quite interesting, and certainly with the financial targets that the government is talking about in terms of the red book, that's looking at a sustainable number and one that we're committed to.
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Mr. Laurin.
[Translation]
Mr. Laurin (Joliette) : I would like to comment on the new mandate that the House assigned to the Auditor General when it amended the Auditor General Act last year.
The legislation was amended to give the Auditor General the opportunity to advise the House of a problem sooner than he could in his annual report. The amendments authorized the Auditor General to present a maximum of four interim reports per year in order to draw our attention to serious problems that could worsen if the report was not issued immediately.
Considering that the Auditor General is scheduled to release his annual report in five or six weeks, I would like to ask him if the interim report on chapters 9, 10, 12 and 13 tabled in October achieved the stated objective. Will the fact that the report was released in October instead of in November or December result in greater savings than if we had awaited the annual report?
Mr. Desautels: Mr. Chairman, I want to thank Mr. Laurin for his question. He raises a very important point.
The October report contains certain chapters which, in my view, deal with issues that need to be examined sooner in order that we may find solutions or bring about changes which could prevent the mismanagement of public funds.
Consider the example of Chapter 12 which deals with systems under development. We didn't wait until the systems were completed and implemented. We examined systems under development in which several hundreds of millions of dollars had been invested and we found that large amounts of money were at risk. The earlier this fact is brought to light, the sooner the government can take corrective action. This is one instance where large sums of money are involved and where it is preferable to discuss these questions at the earliest opportunity.
Chapter 14 on Industry Canada focusses on Business Assistance Programs in Transition and on the risks of undermanagement of certain programs in transition where several million dollars are at stake.
Chapter 16 on Revenue Canada and the Air Transportation Tax is a more pointed issue and here as well, substantial sums of money are involved.
Finally, we have Chapter 15 on the Northumberland Strait Crossing Project. We wanted to report as soon as possible on this important project now under way because in the case of other mega- projects, we realized that there were major management problems. We wanted to determine as soon as possible whether such problems existed with the Northumberland Strait Crossing Project. In this particular case, we did not observe the same problems, but this information is nonetheless useful to parliamentarians.
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Of the eight chapters, at least three or four deal with subjects and problems that deserve to be addressed in a more timely manner.
Getting back to Chapter 9 which others have already touched on, our intention was to focus on this issue as quickly as possible, that is several months before the next budget was tabled, in the hopes that this study would help in some way with the drafting of the next budget.
It would be better to examine all of these issues now rather than in November.
Mr. Laurin: Take, for example, Chapter 12 on systems under development. It seems rather obvious to me that quick action could probably limit the damage.
However, at this very moment, are attempts still being made to implement these systems? If we do not stop the process, by the time we have concluded our work, the systems will already be outdated and we will no longer be able to use them.
If, as we speak, these systems are still in operation, what steps do you suggest we take to minimize the damage and put an end to these expenses?
Mr. Desautels: Mr. Chairman, of the four systems examined in Chapter 12, three are still under development. The fourth, as you may already know, has been terminated.
In addition to the systems specifically discussed in this chapter, an additional 20 to 25 projects under way could benefit from the analysis of the four systems highlighted in this chapter.
The stakes are relatively high. By discussing this matter now, we can have some influence on the three systems still in operation and on the 20 or 25 others not discussed in this chapter.
Mr. Laurin: What steps can we take to stem the flow? If there are already 20 or 25 other systems under development which produce the same results as the four systems mentioned, it is clear that in one or two years' time, we will have spent hundreds of millions of dollars for nothing.
What immediate action do you suggest we take to turn the situation around? Do you have any suggestions?
Mr. Desautels: Since tabling our report on October 5, we have been advised that the government has undertaken a systematic review of all projects under way at the present time, with a view to assessing the risks associated with each project and to determining the extent to which the recommendations contained in Chapter 12 could be implemented.
I think you should put questions of this nature to the responsible officials on the government side. To begin with, did they analyze the other systems under development? What did they find and what do they intend to do to minimize the risks?
Chapter 12 could be very useful in terms of putting questions to those responsible for the development of computer systems.
Mr. Laurin: You recommend that we give priority consideration to chapters 10, 12 and 13. Is this the order in which you would like us to study the chapters?
Mr. Desautels: No, Mr. Chairman. We have simply identified these three chapters without assigning any particular priority ranking.
Mr. Laurin: I see.
Mr. Chairman, will the committee have a moment to consider what follow-up should be given to the Auditor General's recommendations regarding these matters?
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[English]
The Vice-Chairman (Mr. Telegdi): Yes, we have a subcommittee meeting tomorrow, at which point we'll come in and make a recommendation to the committee at the subsequent meeting. That way everybody will be able to give it a ranking.
[Translation]
Mr. Laurin: My final question concerns the Canadian International Development Agency. In light of the recommendations that we made last year, what prompted you to issue a report on CIDA as early as October? Do you feel that releasing the report at this early date will change much, given the nature of the agency and the fact that it is in the process of implementing new management practices, something which we had asked it to do? What prompted you to make recommendations and to release a report on this agency at this time? Your reasons for doing so are less obvious than in the other cases.
Mr. Desautels: In CIDA's case, we could have waited two months or more before reporting back to you on the agency's progress in following up on the recommendations in our chapter.
Mr. Laurin: Was this done to trim the size of your December report?
Mr. Desautels: This chapter does not have the same urgency as Chapter 12, for example, and I am the first one to admit it.
Now that we have periodic reports, we try to spread the various reports out over the year to better focus on each one and to facilitate the work of the committee and of other parliamentarians. We therefore got a head start on our study of a subject that could have been included in the November report. It was simply a case of balancing out our different reports. We could easily have waited until November.
Mr. Laurin: Is this your second or third report since the new legislation was passed?
Mr. Desautels: The second.
Mr. Laurin: Are we to understand by this then that you have decided to make this standard practice and that in future, you will be tabling at least two reports each year in an effort to reduce the size of the annual report?
Mr. Desautels: Mr. Laurin is correct. We are trying to strike a balance in our work and our reports to make each one easier to digest and to help the committee organize its work more easily.
Thus far, I have been reasonably pleased with the way in which matters have unfolded. I feel that our May report touched on very interesting subjects. The committee immediately turned its attention to at least one of these subjects and was successful in rectifying certain problems immediately. This is consistent with the aims of the legislative amendments. In my opinion, the October report deals with subjects that should be examined at the earliest opportunity.
For the time being, I plan to present at least two reports per year in addition to the annual report and to try and balance out the three reports. At a later point in time, if we feel that there is some benefit to doing so, we could release a fourth report, as provided for in the legislation.
Mr. Laurin: It is important to stress the urgency factor because a great deal of emphasis was placed on this. Given that you view this as a rule which allows you to table two reports on a regular basis, each time you will be announcing a report, we shouldn't be expecting you to outline an urgent situation, but rather a normal one, since your objective is to reduce the size of your annual report.
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I have to admit that we were somewhat disappointed in the first two reports because we were expecting you to focus on something extremely urgent. We felt that while you were exposing a serious situation, some of the matters discussed were of a less urgent nature. In my view, this is how we should approach your interim reports in the future. We should not expect every interim report to expose sensational situations.
Mr. Desautels: That is a very important point and I wouldn't want there to be any misunderstanding. The House's intent in amending our mandate was to enable us to report more often than once a year and to ensure that corrective action was taken more quickly to resolve the different problems brought to light. The long-term objective is to bring about more rapid improvements to the public administration. Ultimately, the taxpayer will benefit from all of this.
We're not saying that each chapter that we publish must be sensational. We are simply highlighting problems that need to be corrected. Some issues will require special attention from people specifically concerned about these issues. We won't always be dealing with national interest issues that will gain everyone's attention. This was not the intent of the legislative amendment.
The issues that we have reported on, in particular the environmental issues raised in our May report, are all extremely important, in my opinion. I don't know if this meets your criteria of sensationalism, but I think these are serious and important issues which we must address.
Mr. Laurin: They may be important, but not necessarily urgent!
[English]
The Vice-Chairman (Mr. Telegdi): Let me jump in here. We have greatly exceeded the time and the Auditor General has wrapped it up, so we'll leave it at that.
Mr. Williams.
Mr. Williams: Thank you, Mr. Chairman.
I was interested in Mr. Laurin's concern about the priorities of dealing with the chapters the Auditor General has brought to our attention. I thought we would be expecting his resignation by the end of the month, or just after the end of the month, because the Bloc Québécois will be gone.
But anyway, Mr. Desautels, on chapter 9, you talk about the sustainability of debt. Without talking about any particular percentages or anything like that...we started off with 18% in 1974 or 1975 or thereabouts and now we're getting close to 80%. There must obviously be an upper limit to what is sustainable. Am I right?
Mr. Desautels: Mr. Chairman, I think sustainability is a relative term. The amount of debt you are ready to sustain and the amount of money you are ready to spend on debt servicing depends on the priority that you set for yourself, or that taxpayers expect from their government -
Mr. Williams: But we have to -
Mr. Desautels: When you are carrying a heavier debt load in one year than you did a few years back, you're taking more tax money to service the debt and you have less available for providing services to taxpayers. But it's a relative thing. As I've said before, these are political choices you have to make. People have to decide if they want to spend more on debt servicing and less on services, or the other way around.
Mr. Williams: But presumably at some point, be it at 80% or 180%, we do actually pass the point of no return. At some theoretical point we pass the point of no return. You're talking about sustainability, which is being able to afford within our capacity to pay. At some point in time, even if it's projected far into the future, there is a point beyond no return.
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Mr. Desautels: Sure, Mr. Chairman. As I said, the questions of sustainability and the amount of debt that you're ready to carry are relative concepts. But if you want to stretch things to the extreme, you can see a point at which you will go past the point of no return and your own creditors will actually call you to task and call you to order.
I don't think we can say that at this stage the creditors of the Canadian government have said that. I think creditors are still lending to the Canadian government.
Mr. Williams: Do you feel the general public in Canada - and I'm talking about people whose focus isn't on government finances - have an appreciation that we have to have a debate about the sustainability of our debt? I say this because the opposite of sustainability is not sustainable. If it continues to grow, at some point in time we'll pass the point of no return. Do you think the Canadian people at large appreciate how indebted we actually are?
Mr. Desautels: Mr. Chairman, I think there's a certain amount of confusion out there as to the extent of our indebtedness. There are different people putting forward and painting different pictures and publishing different information on the level of indebtedness. That's why I think it would be beneficial for the government to basically do its own complete reporting and analysis of our level of indebtedness.
If you did that, I think you would have less chance of misinterpretation and people going off with different figures or reaching different conclusions. I think very strongly that there are also significant benefits in informing taxpayers better over time, because I think over time you can develop a consensus on remedies that may have to be taken.
In the last four or five years, I believe there has been an evolution in the degree of understanding by the general public of Canada's financial situation and that of its provinces. I think that is probably healthy and this consensus is helping us to find solutions or come up with solutions that are more acceptable. To me, there's a lot to be gained by pushing on this button.
Mr. Williams: Thank you, Mr. Chairman.
The Vice-Chairman (Mr. Telegdi): There is also no question that there will be a great deal of debate on this topic. I know in the last election we invested in the infrastructure program, about which we had great debates. Certainly, the government felt we were investing in the future. I know many of the projects I've gone to that were done through the infrastructure program were actually opening up industrial areas that took money to finance. But it also gave a capacity for industrial growth that would result in jobs, which would result in increased revenues and were arguably very good for the economy. There is no question that the government has maintained that's what happened. One party saw no virtue in that, but we did.
There's always that political side to it, and I'm sure I can predict how the Reform Party would be arguing that in the House. So be it.
Are there any further questions or comments?
Mr. Hopkins.
Mr. Hopkins (Renfrew - Nipissing - Pembroke): I just wanted to make mention of the Institute of Chartered Accountants. I note an article written by Michel Vastel, a well-known and qualified reporter, who examines how Auditor General Denis Desautels strives to convince the federal government to improve its accounting practices.
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He writes that so far Desautels has met with some success. The budget tabled last February included a response to his 1994 report's recommendations.
So it seems as though your confrères are going along well with you here on your work...congratulate you for your comments.
I'm particularly interested in your section on crown corporations. You mention in one place here that crown corporations had assets totalling $57 billion at the end of last year, and their total debt at the end of last year was $38 billion. Did any of those crown assets you examined have more debt than their assets were worth?
Mr. Desautels: Mr. Chairman, the answer to that would be no, but that's subject to verification. From memory, I think all of the crown corporations are in a situation where their recorded assets are in excess of their recorded liabilities. There may be some smaller organizations that have accumulated deficits and that have been financed by advances from the Government of Canada but not by outside creditors. To the extent that any of the crown corporations may be in a deficit situation, the Government of Canada would be advancing the necessary funds. But usually that's taken care of through the equity infusion by the Crown into these corporations.
Mr. Hopkins: You've also mentioned that in some cases the mandates of crown corporations are rather fuzzy, with no clear direction. Can you give us an example of that?
Mr. Desautels: There is one case I can mention. I think it since has been discussed by Parliament, and the legislation of that crown corporation has since been changed. I'm talking about what was called the Federal Business Development Bank.
When we carried out our special examination of that crown corporation we did make observations on that fund. But since then, as you know, over the last summer new legislation was adopted for that crown corporation, clarifying its mandate vis-à-vis small and medium-size companies.
That's one example, Mr. Hopkins, of where we felt the mandate could be made clearer. I don't have the other details with me, but I think if we were to pursue discussing that in this committee we could illustrate that more clearly.
Mr. Hopkins: Another comment you've made is that sometimes the boards of directors of crown corporations don't work as closely with management as they should to develop long-term strategy and meaningful performance measurements or objectives. If that's the case, that is a very serious matter.
Who is really responsible for setting out the internal management and workings of a crown corporation? Where does the management and the board separate? Are there clear-cut duties for each or is this some of the fuzzy area you're talking about?
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Mr. Desautels: Mr. Chairman, with your permission, I would like to call Mr. Radburn to the table to answer that question. Mr. Radburn is our expert in the field of crown corporations and I think he could answer that question.
Mr. William Radburn (Assistant Auditor General, Crown Corporations, Office of the Auditor General of Canada): I think you raise a very important point, that the role between boards of directors and management sometimes is unclear. Often we see cases where boards are captive of management. While for each corporation the relationship is worked out over time, I think it is important that the board - and we say that in the chapter - takes a leadership role with respect to strategic planning and direction and performance reporting.
Mr. Hopkins: What processes are you recommending in that instance? The board needs advice and direction. They're not professionals in everything dealing with a particular crown corporation. They're there to make judgment calls. Where does their guidance and their real mandate, as they see it, come from?
Mr. Radburn: The board's mandate comes from the Financial Administration Act. They are held responsible for all of the activities of the corporation. Obviously they can't get involved on a day-to-day basis, but I think the interfaces between senior management and the board come in at the planning stage as well as in reporting results.
On page 10-14 in exhibit 10-5, we set out that it's really not totally up to the board, that it's a shared responsibility, and we set out some suggestions for how individual players might improve their activities.
We also set out, starting in paragraph 10.53, some training and other aspects that might improve the board's understanding of their role and fulfilment of it.
Mr. Hopkins: Just one other question, Mr. Chairman.
Not so much today but certainly over the last number of years there has been a tendency for middle management in these organizations to increase. I think this would contribute to some of the fuzziness, because that level of management tends to prevent ideas from going from the bottom to the top and monitor them going from the top to the bottom.
In your examination of crown corporations have you seen some corrective measures taken where there is more direct management from the top down and communication from the bottom up without having this fat in the middle, which soaks up the ideas going both ways?
Mr. Radburn: I think I have witnessed in a number of corporations in the last several years an improvement of the issue you're raising. I think that just comes from the recession and the shortage of funding, which has caused a number of entities to streamline their operations.
In a number of our special examinations we've seen cases where we have looked at the cost of delivery. We have done comparative studies. It still seems a bit high in a number of cases, and we've reported that in special examinations, but refreshingly, a number of corporations are examining this at the very moment. Some improvements already have been incorporated.
I don't think the problem you have identified is as prevalent now as perhaps it was several years ago.
Mr. Hopkins: Thank you, Mr. Chairman.
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The Vice-Chairman (Mr. Telegdi): It looks as though we have no more questions. I would like to bring this to a close.
Thank you very much for your presentation.
The meeting is adjourned.