PACC Committee Meeting

STANDING COMMITTEE ON PUBLIC ACCOUNTS

COMITÉ PERMANENT DES COMPTES PUBLICS

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, December 3, 1998

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[English]

The Chairman (Mr. John Williams (St. Albert, Ref.)): Ladies and gentlemen, pursuant to Standing Order 108(3)(e), this is a consideration of the December 1998 report of the Auditor General of Canada.

We have witnesses from the Auditor General's office: Mr. Denis Desautels, the Auditor General himself; Mr. Raymond Dubois, the Deputy Auditor General of audit operations; Mr. Michael McLaughlin, Deputy Auditor General of corporate services; and Mr. Shahid Minto, Assistant Auditor General.

Welcome, gentlemen.

Mr. Desautels, you have a statement for us.

Mr. L. Denis Desautels (Auditor General of Canada): Yes, Mr. Chairman.

My colleagues and I are pleased to have this opportunity to meet again with the committee and discuss our December report.

Before moving on to our suggested priorities, I would like to draw the committee's attention to some of the issues raised in the chapter on matters of special importance for Parliament. The chapter suggests several means to help maintain the focus on improving economy and efficiency in government in this new post-deficit environment.

These include: first, a budget process that reminds us to take the long term into account; second, internal governance frameworks that promote openness and good performance; third, a public service culture and incentive structures that encourage innovation, creativity, and continued attention to the public interest; fourth, accounting and information management systems that yield sound information for key decisions on the allocation and management of resources; fifth, effective integration of people management with other public sector functions to ensure that the workforce needed to support planned reforms is available and to accommodate worker concerns about the reforms; and finally, an open and meaningful accountability regime that gives Canadians assurance that their views matter and that their tax dollars are used wisely.

Together these elements would constitute a public management culture that would stand us in good stead generally, and particularly in this post-deficit environment.

With the rapid emergence of new mechanisms to deliver services traditionally offered by the government, I would like to bring to your attention the importance of maintaining accountability to Parliament.

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These alternative service delivery mechanisms take many forms, such as special operating agencies within government, partnership arrangements with other levels of government or non-government participants, and commercialization of services. Whatever the form of the agency used to deliver a service, when it involves federal resources and authority, Canadians have a right to expect accountability and transparency through full and fair reporting to Parliament. Canadians must be assured that the public interest and their tax dollars are protected.

To assist Parliament, my office has proposed a four-point framework for assessing proposals for new delivery arrangements. These four principles—protection of the public interest, achievement of objectives, maintenance of accountability to Parliament, and ensuring transparency—are described on page 19 of the chapter on matters of special importance. You may recall that the discussion paper on assessing alternative service delivery arrangements, provided to your committee in June of this year, elaborates on these principles.

Alternative service delivery mechanisms offer the promise of more efficient and responsive delivery through arrangements that are more focused, flexible, and client-centred. But they may also entail significant changes in the roles and responsibilities of ministers and in the relationship of service providers with central agencies and Parliament. The committee may wish to examine the accountability arrangements governing some of these delivery mechanisms.

[Translation]

Mr. Chairman, in the few minutes remaining, I will briefly touch on the suggestions included in the priorities letter. As usual, I will deal with them in the order in which they appear in the report.

Chapter 20 on Y2K preparedness concludes that despite an accelerated pace of work, many systems supporting important functions of the government continue to be at risk. I believe the committee's continued attention to preparedness for the year 2000 could help to maintain the government's focus and priority on the Y2K challenge. It will ensure that parliamentarians are kept well aware of progress.

Chapter 24 identifies problems in the management of human resources in the International Tax Directorate of Revenue Canada. In my view, failure to take urgent action on these matters will severely limit Revenue Canada's ability to manage the inherent risks that international transactions pose to Canada's tax base. Your committee may wish to review the chapter to assess the department's readiness to manage its human resources in light of the proposed new Canada Customs and Revenue Agency. Similar problems were raised in the follow-up report on enforcing the Income Tax Act for large corporations. It can be found in chapter 37 of the 1996 report and the follow-up is on pages 28-92 and 28-93 of the present report.

Chapter 25, dealing with Transport Canada's investments in highways, reveals many weaknesses in the department's performance in managing and administering its highway investments. Over the last ten years, Transport Canada spent $1.6 billion on provincial/territorial highways. Weaknesses ranged from providing flawed information to decision makers, to failure to exercise controls in negotiated agreements with provinces and territories. The committee's review of this chapter could help strengthen accountability for these important contribution programs.

Chapter 26 deals with contracting for professional services awarded without calling for competitive bids, as required by the government's own contracting regulation. These rules for contracting for services are clear. They are designed to give companies and individuals a fair chance to compete for government contracts, and to make sure that the government gets good value for its contracting dollar.

The results of our audit were not encouraging. Managers too often ignore these rules, particularly those related to sole sourcing. As a result, most of the contracts in our sample, covering the period from late August 95 to early February 98, would not stand the test of public scrutiny.

The Treasury Board Secretariat is responsible for publishing annually a report on government contracting activity. Paragraph 26.26 of the chapter indicates that the most recent government report was for 1995. Secretariat officials have confirmed that no new reports had been issued since the chapter was completed. During our audit and in the Secretariat's published response to our report, we were not advised of any recent action taken to address shortcomings noted in the chapter, nor of any turnaround of the results. A review of this area of concern by your committee could help encourage more fairness in the contract award process, as well as help ensure that the government gets good value for its contracting dollar.

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[English]

Turning to chapter 27, on grants and contributions in selected programs in Industry Canada and the Department of Canadian Heritage, I can't help but express a certain degree of frustration with the management of grant and contribution programs. Over the past 21 years, we've produced a long series of consistent audit observations. All too often, the money was awarded with little regard for the rules governing those expenditures. This report is no exception. Perhaps your committee's review of the chapter would help improve the management of these programs.

Our follow-up chapter reports on progress made in implementing the recommendations of 21 previous audits. A number of significant areas remain a concern. For example, most of the concerns reported back in 1992, related to federal government preparedness for nuclear emergencies, have not been adequately addressed. Health Canada, which is the designated lead department to deal with these emergencies, is not in a position to effectively coordinate and respond to major nuclear accidents affecting Canada. Two previous audits and subsequent follow-ups on the government's preparedness for major disasters, such as earthquakes and oil and chemical spills, showed a similar lack of action from the government.

A related concern is the government's lack of leadership and lack of a comprehensive plan to manage the risks and costs associated with more than 5,000 federal contaminated sites. The government is still unable to assure Canadians that it is aware of the potential risk to health, safety, and the environment posed by these sites. Further, the government does not have a comprehensive view of the potential liabilities, nor does it have a national plan or timetable to correct the problems at these sites.

Although I've not suggested the review of progress on the federal science and technology strategy as a priority for the committee, I believe that sufficient leadership and ongoing parliamentary oversight would help to ensure that the current strategy is implemented as the government intended when it was announced in 1996.

To conclude on a more positive note, our audit of Veterans Affairs' disability pension programs noted that there has been a significant reduction in the time it takes to reach a pension decision, from 18 months to five months. However, the department can still improve on the consistency and quality of its decisions. It must also address the impact of the growing proportion of younger disability pensioners.

Thank you, Mr. Chairman. This completes our opening statement. We'd be pleased to answer questions from the committee.

The Chairman: Thank you, Mr. Desautels.

Mr. Mayfield, you have eight minutes.

Mr. Philip Mayfield (Cariboo—Chilcotin, Ref.): Thank you very much, Mr. Chair.

I'd like to say good afternoon to the Auditor General and his colleagues.

Thank you for being here again this afternoon.

I was interested in your comments as you began the session, sir. You put a good deal of emphasis upon looking at the accountability of departments to Parliament. It seems to me it begs the question: Would you care to look at areas where you see this level of accountability either not being up to standard or perhaps slipping from what it has been in the past? Would you like to comment on that, sir? Is this an area of concern that you'd like to express in more specific terms?

Mr. Denis Desautels: Accountability is obviously a very crucial issue in public management, and there have been meaningful efforts at the federal level to improve the accountability of departments to Parliament for the spending of public funds.

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We noted the performance reports and the plans and priorities that are now available. Things are being done differently, in response in part to requests from members of Parliament. Those are positive developments that we have to keep encouraging. We have to allow a bit of time for these things to mature, but they're steps in the right direction. So efforts have been made, which I recognize and which we fully support.

There are, though, as we noted in our chapter on matters of special importance, new developments in the way public services are being provided. We all know of the creation of a number of very important agencies, which have a different relationship to Parliament in some cases. We know about government operations being transferred outside government in some cases, or to provinces through partnerships with the provinces. We also know of organizations being set up to manage government programs, such as the millennium scholarship fund.

These are all new developments, and we're not against these developments. We have to keep searching for better ways to deliver services, but they do have an impact on accountability. In some cases they could diffuse accountability. It's a phenomenon that members of Parliament have to pay attention to, and they have to ensure that the new structures are satisfactory to members of Parliament.

To summarize quickly, there have been some interesting improvements to accountability. At the same time there have been new developments in service delivery that impact on accountability and could diffuse accountability, and we have to pay close attention to that.

There are of course more specific situations that we keep running into where there is perhaps lack of accountability. An example of that in the current report would be in the chapter on contracting. We note that the government rules on contracting are very logical and very reasonable; it's in their implementation that things fall apart. So there's a need to strengthen accountability for compliance with those rules across the system.

Therefore deputy ministers have to insist with their subordinates on compliance, and they have to take the steps to do that. Similarly Treasury Board Secretariat, from the centre, has to demand the same kind of accountability from the individual departments.

I hope that helps a bit.

Mr. Philip Mayfield: My history with this committee is not long. I've been here for about a year. In the time I've been here, I recall, for example, sitting with the officials from the health department, talking about prescription drug abuse. It occurs to me that this was a problem raised by the Auditor General perhaps 10 years ago, and we're still talking about how to deal with the same problem.

In your most recent report I'm reminded of your comments about the Y2K non-compatibility and your concern in areas of law enforcement, food inspection, and social service payments. When the officials were here, we were led to believe that things would be ready in time, yet these strike me as areas of great concern. These are areas where the federal government has deep responsibility to the Canadian public. And I see you're raising the issue again for us here with regard to Health Canada.

In your most recent report, looking at the ability to respond to a nuclear emergency, it strikes me as bordering on irresponsibility that, as you're saying, we're not ready if something happens, we know we're not ready, and the advice that has been given has not been adhered to. Does that strike you as being in the area of lack of accountability to Parliament, where you report to Parliament; the committee, on behalf of Parliament, speaks to these departments; and nothing seems to happen?

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Mr. Denis Desautels: What Mr. Mayfield is describing here—a certain lack of resolve or speed in dealing with problems that have been identified—is a source of frustration for many people, including this committee and us. In a way, that could be seen as a result of lack of accountability, but it's something we have to find the means to deal with.

In our chapter on follow-up, where we talk about, for instance, Health Canada and nuclear emergencies, we do say that on the whole, although good progress has been made in certain areas, in other areas it's been too slow, and in some cases there's been very little progress. So there's a frustration on everybody's part with how quickly some of these problems get resolved.

I believe, though, that if we can continue to get the support of this committee, which has been in the habit of requesting from departments responses to how they're dealing with problems such as Y2K or first nations health issues, that is having a very good effect on the whole system. It's closing the accountability loop very nicely.

Members of Parliament have a prime role in accountability. We provide you with information that will, we hope, help you play your role in holding departments and government accountable, and by using that information and requesting responses from individual departments, we're closing that accountability loop better and better all the time.

Mr. Philip Mayfield: Thank you for ending on that positive note.

The Chairman: Thanks, Mr. Mayfield.

Mr. Myers, eight minutes, please.

Mr. Lynn Myers (Waterloo—Wellington, Lib.): Thank you, Mr. Chairman.

Mr. Auditor General, I wanted to zero in a little bit on alternative service delivery mechanisms. You point out correctly that this is a rapidly emerging area, and I wondered if you had some thoughts as to whether or not it's going too fast, whether or not the proper checks and balances are in place to keep control in this very important area. I agree with the point that this seems the way of the future.

Also, in answer to a previous question, you spoke briefly about some that you thought went well. I wondered if you could give us an example of one that you thought really was a good example—a template for others, perhaps—and one that you thought fell short and shouldn't be repeated.

Then once I hear that, I want to get into paragraph 6, where you have the four-point framework for assessing these.

Mr. Denis Desautels: To the first part of the question, I can say that we are doing some more work on the whole area of ASDs, and we hope to report back to this committee and to Parliament sometime in later 1999. We'll be doing a broad analysis of the number of ASDs that have been created and the different categories and models in which they fall, and out of that we'll try to draw some lessons that would be useful for the future.

If I can mention one preliminary reaction so far from analyzing all of this, there is not in place right now.... It's not necessarily a question of going too fast; it's more a question of not having some kind of at least philosophical model to which we could refer when creating and setting up new ones. I'm not calling for a very specific and rigid model, because that would constrain innovation to a certain extent. But if we had some sort of philosophical model with some of the basic principles that we want respected, it would help, as a point of reference to people who are working on creating new ones.

So it's not so much speed as the lack of a point of reference for the dos and don'ts in setting out those situations.

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As for those that went well, we have reported quite recently—not in this last report, but in the report before that—on the Canadian Food Inspection Agency, and the purpose of that chapter was to do just that: to try to draw lessons from that. I can say that we were consulted quite considerably by the agency as they were setting up and developing some of their operating principles, so we were quite close to that picture, and we offered feedback on what they were doing.

That chapter gives you an idea of what went well, and on the whole, it's a fairly positive chapter. One of the things we do regret there is that in fact, although they were given the flexibility to set up their own human resources system—that was one of the reasons for creating an agency—they haven't yet taken advantage of those added flexibilities that we've given them on the human resources side and on the financial administration side. But I would refer you to that.

We had a chapter not too long ago on the privatization of the CCG, the Canada Communication Group, which so far looks like a successful transfer of a government activity to another entity. So there are some good examples.

In terms of the four points we referred to, they are based on a letter we sent to this committee in response to an earlier question that you had.

Mr. Lynn Myers: Yes.

Mr. Denis Desautels: This was an attempt to move towards what I was suggesting earlier—not necessarily a rigid model, but at least some kind of philosophical framework against which to judge, or simply to use, in setting up new proposals or new agencies.

We would be quite pleased to have further discussions. It was a first attempt, and even since then new experiences have been gained. I would hope we could use that as a basis for advancing the discussion.

Mr. Lynn Myers: I'm grateful, actually, that you point out the Food Inspection Agency as one that is worthy of note in terms of having proceeded in a manner consistent with what we'd want to see. I've had the opportunity to study it at the health committee, and it seems to me it is in fact one that makes a great deal of sense.

In terms of the four principles, I wondered if perhaps you could go through and explain each one of them, underscoring the fact that these are guiding principles and their importance. But perhaps further to that, was there, on your part, a narrowing of principles to get down to these four? Did you start out with more than that and then zero in on these four, or were they from the outset the ones you thought were important, and therefore you proceeded with them?

Mr. Denis Desautels: Coming up with those four basic principles was really trying to boil things down to as few as possible. If you were setting up what I was describing as a philosophical model to guide future ones, you probably would have more than that.

At least from the perspective of parliamentarians looking at this and trying to make a judgment on whether or not it's a worthwhile or valid proposal, we thought parliamentarians could ask themselves those four questions. But if you were, let's say, a public servant working on setting up these things, you'd need more than that. You'd need a number of more operational-type guideposts.

First of all, on achieving objectives, the point there is that if we were setting up a new organization, it would be because we felt that new organization could deliver a better quality of service than existing structures. So again, the business case has to be made that this will achieve better results and better impacts.

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The second point was accountability. Do the arrangements make adequate provision for accountability to the responsible minister and to Parliament? In that case it's very important to make sure we define the relationship of the agency to the minister quite carefully and in a way that's satisfactory to members of Parliament. I think you can understand the different approaches that could be used, and if you're not careful, you might end up with a situation where in fact the minister is somewhat left out and is not capable of responding to Parliament when questions are asked. All of that has to be balanced and worked out to everybody's satisfaction.

The third question was transparency. Do the proposed arrangements ensure that Parliament and the public will receive sufficient information and key information? It can't be operated as a secret organization. It has to be operated very openly and with transparency, so that even though it's a separate agency, at least plenty of information is available on it.

The fourth question was the protection of the public interest. Does the arrangement adequately recognize and protect the essential federal public policy purpose? That's a very fundamental question, again. It has to be set up that way so that the public interest or public policy is very much at the forefront, and other objectives don't take over totally and ignore that fundamental principle.

Mr. Lynn Myers: Thank you very much.

The Chairman: Thank you, Mr. Myers and Mr. Desautels.

Now I'll turn to Mr. Bailey.

We're into the second round, Mr. Bailey, so it's only four minutes this time.

Mr. Roy Bailey (Souris—Moose Mountain, Ref.): Thank you, Mr. Chairman.

I have concerns about the terminology, not from your department, sir, but rather in what we often do. For instance, what does the term “infrastructure” mean to your particular department?

The reason I ask that question is this. I know what “infrastructure” means at the local, municipal level. I know what infrastructure means in a town. I know what it means in a city. But here we see two departments crossing over—of course this is in my own province—and something will come across my desk that says infrastructure is being spent to supplement an arts group. Two ministers claim they have contributed to the provincial welfare; one is the Minister of Canadian Heritage and the other is somebody else.

Infrastructure is not being reported as infrastructure in the normal meaning of the word. Therefore there is a great deal of suspicion every time somebody says a grant to infrastructure is building a hall for a particular select group. Then when you ask about that of a provincial minister, they say, “Look what we've spent on the infrastructure.” They meet with the people, the city, and so on, who ask, “Where did the infrastructure money go?”

I want just a clarification on that point. Does infrastructure to your department mean the same as it does to people who deal with that term regularly?

Mr. Denis Desautels: I would say yes. I believe the term “infrastructure” means infrastructure. Generally, in the sense of public assets, it would mean elements used in the conduct of services to the public, whether they be roads, hospitals, or schools. Infrastructure is, in a sense, physical assets or facilities that are used across the country.

Sometimes we confuse that, I suppose, with organizational structures, but that's not quite the same thing. To me, organizational capability is not quite the same thing. Infrastructure means our facilities that are used in the carrying out of certain activities or services.

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We see in government—and we have a chapter specifically on that and another chapter on highways—that the government contributes, through various programs, to certain organizations. Sometimes it is to help the organization put up certain infrastructure to carry out their activities, and in other cases it's to enable the organization to carry out the actual activity, to contribute to the costs of carrying out a particular cultural activity. Grants and contributions could be used for either physical infrastructure or capacity-building of a different form.

I hope that helps.

Mr. Roy Bailey: Well, okay.

The Chairman: A short question now, Mr. Bailey.

Mr. Roy Bailey: I'm really concerned about the contracting, and you've mentioned that in your report. I know what happens at the local level and I know the scrutiny that is given to contracting. I know what happens at the provincial level. For 21 years I went through contracts.

But I'm appalled at the federal government and its contracting procedure: that sometimes it has the name in place rather than the contract even being let and so on. I'm appalled that that can be hidden from the public as carefully as it is. I know you've mentioned that, but when we examine these things, sir, it's always after the fact. It makes it very difficult that the federal government is not following the same procedures in public contracting as you find in the province and at the municipal level.

Mr. Denis Desautels: As I said earlier, we are concerned ourselves about the compliance by government departments with the government's own contracting rules.

I said before and I'll say it again: the rules are okay. There's nothing wrong with the rules. They're quite reasonable. They allow for certain exceptions. They allow for sole-sourcing in emergencies or in cases where there is only one supplier. There are well-laid-out exceptions to the basic rule of competitive tendering.

What we don't like is that these exceptions, which are supposed to be exceptions, grew to the point where in 1995, if we're using those figures, they almost became the rule. That reflects the fact that people were interpreting the exception much too liberally and much too loosely. It's time to correct and adjust people's interpretation of those rules.

The Chairman: Thank you very much, Mr. Bailey.

Mr. Assad, four minutes, please.

[Translation]

M. Mark Assad (Gatineau, Lib.): Mr. Desautels, I would like to take up where Mr. Bailey left off.

You mentioned sole sourcing. You explained that there are exceptions, but that these have become the rule. According to your analysis, what percentage of the total contracts awarded would be sole source contracts? Is a large amount of money spent for these exceptions that are called sole source contracts?

Mr. Denis Desautels: Mr. Chairman, I can give you fairly accurate information on that.

In 1995, the last year for which we have a complete analysis, an amount of $4.4 billion was spent for professional service contracts. Of that amount, about $650 million were spent for contracts under $25,000, that is to say, contracts which, generally speaking, were awarded without calling for competitive bids, because that is allowed in the case where a contract is lower than $25,000. That leaves about $3.7 billion remaining for contracts that should have been subject to a competitive bid because their value was higher than $25,000.

If we remove the amendments that were made to these contracts—and here we come back to the initial value of these contracts—there were $3 billion's worth of contracts over $25,000 each when the contracts were signed. Of this $3 billion, contracts totalling $1.4 billion were awarded without calling for bids, which represents about 49% of the total.

Mr. Mark Assad: If we include the other amount of $600 million for contracts under $25,000, this represents $2 billion.

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Mr. Denis Desautels: That's correct. In fact, we can assume that almost all contracts under $25,000 were awarded without calling for competitive bids, even though it is possible to proceed in that way for a contract under $25,000.

Mr. Mark Assad: Of the $4.4 billion, about $2 billion, for all intents and purposes, was spent for what is called exceptions, that is to say, on sole source contracts.

Mr. Denis Desautels: Yes, we're talking about 49%.

Mr. Mark Assad: You say 49%. Is this lack of transparency the result of a lack of good faith?

Mr. Denis Desautels: Mr. Chairman, it is difficult to say exactly why things happen that way. There are probably two main reasons for this situation. On the one hand, there can be a lack of planning in the work that has to be carried out. Often, if you wait until the last minute, you can find yourself in a situation where you feel that there is no time for the competitive bidding process. If you want the work to be done right away, because it is urgent, then you may think that you should award a contract without calling for bids. This is often the result of a lack of planning. Better planing means more time for the competitive bidding process. So lack of planing can be a factor.

The second factor could perhaps be the fact that civil servants can develop a certain relationship or familiarity with suppliers. They might have been happy with the work done by a given supplier, they might feel comfortable with him, and therefore, they are less likely to change suppliers for a particular service. In fact, you can develop a good relationship and a certain amount of comfort with a given supplier. Often, you might even say that only this supplier can really do the job, and the fact that you use his services means that you are saving time and energy.

Mr. Mark Assad: Okay. I understand the planning aspect. However, when, year after year, the same thing continues, it might be a good idea to review the planning process. I can understand that there might be a lack of foresight once or twice, but this happens every year, and it is used as an excuse. I can also understand that you might get along well with a given supplier. This type of relationship can occur, but I think it leaves the department very open to favouritism.

Mr. Denis Desautels: Mr. Chairman, in fact, this causes two types of problems.

Government policy has two objectives. The first is to seek better prices. This is a matter of economic efficiency. The second objective is equity, which means to give everyone an equal opportunity to get government contracts.

When a department does not call for tenders, it might well be going against both objectives. Of course if tenders are not called for, everyone does not get an equal opportunity and, you often don't get the best price. Another cost of not respecting this policy is that you might pay too much, while not giving everyone an equal opportunity.

The Chairman: Thank you very much, Mr. Desautels. Mr. Cardin, you have four minutes.

Mr. Serge Cardin (Sherbrooke, BQ): Thank you. First, I have a general observation to make and then I will ask a brief question.

We have seldom seen an Auditor General's report that is so critical of the federal government, at least in my recent experience. You have certainly had the opportunity to discuss this in my absence, but I will repeat it again. We are talking about contracting activity for professional services. There are many examples like this, such as contracts initially estimated at less than $25,000 and that end up costing $300,000. We also see that contracts of $100,000 and more have been awarded. There is a multitude of examples. Take the example of international taxes. There is another one I mentioned earlier this week, namely federal subsidies. In this respect, I wonder whether the Auditor General is not tired of repeating the same thing over and over for 21 years.

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I see all this happening both in building renovation as well as in science and technology. There are a great many instances of this occurring year-in, year-out.

I'm wondering about the whole question of accountability. I had raised it at our last meeting. Is there any accountability within government apparatus and does it often play a major role in bringing about important changes so that all the things that you discover and reveal in each one of your reports can be rectified in the long term?

I am, then, wondering about the accountability of the different persons involved in planning, overseeing, structuring and awarding contracts. When they do not follow the rules, do they still keep their jobs? It seems to me that without doing some housecleaning at all those levels, you will be repeating the same important, or perhaps even very serious, remarks year in and year out.

Mr. Denis Desautels: Mr. Chairman, I think that accountability exists. However, accountability is a relative concept. There can be greater and lesser accountability. Accountability can be more or less efficient. In the massive machinery of federal government, accountability can really be different in different programs and different departments. Some departments are certainly more subject to public scrutiny and therefore more accountable than others. In my mind, accountability is a relative notion. We must always strive to improve it and to make it as efficient as possible because I think that this is very beneficial for government as a whole. We must never stop improving accountability, in my opinion.

As I said, efforts are currently being made to improve accountability. We support those efforts and we have even contributed to them at the planning stage. I think that this is a sustained effort that everyone must make. On the other hand as I said, like yourself, I am sometimes discouraged with the slowness of different departments in implementing remedial measures.

I hope to get speedier remedial measures applied to the issues we are raising and that your committee deals with on a regular basis. To get to this point, constant pressure must be applied to the government apparatus. As I said to Mr. Mayfield just now, when the committee does a follow-up using our reports, it really stirs things up in the government apparatus. Your committee has an extremely important role to play in this context, as do the other standing committees.

The Chairman: Thank you very much.

Mr. Serge Cardin: Mr. Auditor General, we will help you out.

[English]

The Chairman: Mr. Bailey, you had another question.

Mr. Roy Bailey: I just have one quick question, Mr. Chairman.

On page 3 of your presentation, in point 9, you make reference to Y2K. You mention that the important functions of government continue to be at risk. There is a perception out there, whether falsely placed within the public or not, and particularly with older people, that somehow everything is going to fall in the year 2000 and they're not going to get their old age pension cheques and so on. That question was asked by someone—I don't know what the source of the question was—but the response was, “We'll write the cheques out by hand.” I know that's a bit of a joke, but are you satisfied, with about 393 days left until the year 2000, that things are ready to go? Is that an indication your department would have?

Mr. Denis Desautels: The whole question of judging whether or not the government is ready for the year 2000 is an extremely hard question to answer, because we're talking about a huge organization, and each department is huge in itself. There are very tough calls to make.

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What we've seen—and this committee is well aware of this—is that many departments were late getting started on getting ready for Y2K compliance, and therefore they have a lot to do in a short time. There's a concern about having the people available to do this, because people will be fighting over the resources to do it.

In our chapter 20, we say that on the whole, the government has made good progress since we first reported this in October 1997; however, some departments are lagging behind. On average it looks like they were 50% ready as of last June, which could be okay if they were all 50% ready. But sometimes, as you know, averages hide people below the average, so there are certain departments with important systems that are below the average. Therefore they're at risk of not being ready, and they could be in charge of very essential, important services.

Then we looked at more specifically six departments, and out of those six, we found that three still had a lot to do and were more at risk than the other three. In my view it is still possible for those departments to be ready on time. However, for those where there's a chance that something may not work out, it's time now to develop and design alternative approaches and even test those alternative approaches so that if something should go wrong that they haven't been able to foresee, they know what to do—so that they know, for instance, how to put out cheques without having to do them manually.

You could look after the more essential things if you thought about it ahead of time.

Mr. Roy Bailey: Thank you, sir.

The Chairman: Thank you, Mr. Bailey.

Mr. Assad, you had a question.

[Translation]

Mr. Mark Assad: Mr. Cardin raised the accountability issue. I remember that when I was an MNA at the Quebec National Assembly, we had struck a committee to look into this very issue. Unfortunately, we did not solve much of anything, but we did come to the conclusion that deputy ministers and assistant deputy ministers were for all practical purposes responsible for department management.

If there are problems such as transparency or equal opportunities for everyone, etc., it is really up to them to manage the department. But the minister is responsible for the political decisions of the department.

I'd like to ask Mr. Desautels a question. Should accountability be applied above all to high officials, I mean deputy ministers, assistant deputy-ministers or directors? Is it really up to them to say: "Listen, we want to reassure the people that this is all equitable, transparent and in everyone's best interest"? I think that they are the ones to whom these questions should be put. Am I right or have I missed the point?

Mr. Denis Desautels: Mr. Chairman, Mr. Assad is raising a very valid question. In some jurisdictions, interesting debate is going on about defining ministerial responsibility in relation to the responsibilities of high officials.

I'm aware of the fact the government of Quebec has adopted a different approach. However, currently, and as I understand the situation, this approach is slightly different from the principles applied by the federal government. The minister's responsibility, as currently defined at the federal level, makes the minister basically responsible for everything. He may delegate responsibility to his deputy minister, but he still remains accountable in the end. This is a rather orthodox interpretation of ministerial responsibility, one which has always been followed at the Parliament of Westminster.

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But now you're raising an interesting point. Some, like you, may argue that it might be preferable to expect more from deputy ministers and assistant deputy-ministers and to interpret ministerial responsibility in a more flexible and less rigid way than we have done up to this time.

[English]

The Chairman: Thank you, Mr. Assad.

Just following up on that point, Mr. Desautels, is that a recommendation of yours: that DMs and ADMs should be held more accountable?

Mr. Denis Desautels: Well, Mr. Chairman, everybody should be held accountable, including deputy ministers and assistant deputy ministers. It's a chain or a pyramidal type of situation. What I was trying to say in answer to Mr. Assad's question is that in front of Parliament and the public, there's an accepted theory here in Canada, at least at the federal level, that the minister is in fact accountable to the House.

The Chairman: Well, we know that he tries to slide out of his quite often, so maybe we have to move it down to DMs and ADMs.

Anyway, talking about Y2K, Mr. Desautels, in paragraphs 20.85 and 20.86 of your report, you say that in the fall of 1997, the organizations should have been about 45% complete, and that as of June 30, 1998, they were basically 50% complete instead of 75%. Looking at exhibit 20.9, it would appear that, according to the Treasury Board Secretariat, come December 31, 1999, we're only going to be 75% complete. Therefore a problem is at hand. Why are we so far behind on Y2K when we knew it was coming, and who is accountable?

Mr. Denis Desautels: Well, Mr. Chairman, a number of departments are behind because they got started late. Initially this was not taken seriously enough, and that was the reason we reported to you back in October 1997. We felt that at the time, across the system, people weren't taking this seriously enough. Some were—there were some exceptions—but on the whole they weren't.

Since then, the situation has improved, but as we know and as we note here, there is still a lot to do in a relatively short time.

The Chairman: But as you know, this committee recommended that the Treasury Board seize control of the issue rather than just being a collector of information and a coordinator—that they take direct action. Would you agree that the Treasury Board should be doing that now?

Mr. Denis Desautels: In fact, Mr. Chairman, in our chapter on this that we just put out, chapter 20, we do recommend that Treasury Board reconsider its role in this field. They have to be ready to intervene more directly in certain situations. They also have to be ready to exercise some role of triage in certain cases. If there are situations that are more at risk and resources have to be diverted away from others into the more risky situations, Treasury Board Secretariat has to be ready to start playing that role.

So the general tone of our chapter is that as the timeframes are growing shorter, Treasury Board has to be ready to step in and do more than just gather information.

The Chairman: Moving to sole-source contracting, I note in an article in the paper that the 1995 report is all you have—that's all the Treasury Board would give to you. I'm quoting here from an article in the paper:

Treasury Board spokesman Robert Bousquet said the reports compiling the contracting records of the past two years were completed only recently. Treasury Board refused to release them until the final draft was done.

Do you think that is an adequate response?

We're finding serious problems in sole-source contracting. The Treasury Board has the responsibility to oversee that. According to your report, they have failed to do their auditing, and we're now finding that the report is two years or more behind. Is that acceptable to you?

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Mr. Denis Desautels: When we did the audit, we would have liked to have had more current information on the percentage of contracts that were given out through sole-sourcing, and conversely, those given out through competitive bids. Yes, I would have preferred to have had more current information at the time.

The Chairman: I'll go on to these advance contract award notices that they post electronically, basically giving advance notice that they intend to give a sole-source contract unless somebody says, “Wait a minute. I would like to bid on this too.” Do you feel this is working properly?

Mr. Denis Desautels: I'll ask Mr. Minto to answer that one, Mr. Chairman.

Mr. Shahid Minto (Assistant Auditor General of Canada): Thank you, Mr. Chairman.

Mr. Chairman, could I refer you to page 14 of the English version, chapter 26? You will find that we have an exhibit, 26.2, that sets out certain conditions that have to be met for the government contracts to be let on a sole-source basis. If you meet one of those conditions, you get to the advance contract award notice, which is called ACAN.

Basically all you are doing in ACAN is saying it is your intention to award a non-competitive contract. ACANs are not competitive contracts; they are non-competitive contracts.

There's been some discussion about it, so if I can just take a minute, I'll give you an example. This is an ACAN notice put out by Justice Canada, so I guess the wording will be right in this. It says:

This is a notice to solicit a bid and negotiate with only one contractor. This is not a competitive bid solicitation notice.

The Chairman: And you are quoting directly?

Mr. Shahid Minto: Yes.

Suppliers, however, on or before the closing date indicated, may identify their interest and demonstrate their capability to perform the activities identified in this notice. Suppliers' responses received as a result of this notice on or before the closing date will be considered solely for the purpose of deciding whether or not to conduct a competitive procurement. The Department of Justice reserves the right not to open this procurement to competition.

So clearly ACAN, sir, is just a statement of intention that we are not going for open bidding; we're going to give the contract to one person.

The Chairman: So ACAN has nothing to do with competitive bidding, because why would the private sector waste their time responding to an ad like that, saying, “If you respond, we may want to put it out for public bid, but we still reserve the right to ignore your inquiry and your indication of interest and continue with the sole source”? Is that what you're telling us?

Mr. Shahid Minto: This is almost exactly what the notice says.

The Chairman: And they call that a competitive bidding system?

Mr. Shahid Minto: If you look at the numbers Mr. Desautels was giving you, when we say $1.4 billion was non-competitive, we have included in that notices put out on ACAN. There was almost $100 million in there for that.

The Chairman: Okay.

I think I mentioned earlier that Treasury Board did not follow through on their obligation, and I'm referring to paragraph 26.25:

The Treasury Board Secretariat also conducts periodic reviews of contracts for the services of individuals, including those for less than $5,000.

Then when I move on to paragraph 26.26, it says, “We were informed that no such assessments and reviews exist.” So the Treasury Board are not even following their own guidelines, much less are the departments following their guidelines. Is that right?

Mr. Shahid Minto: Mr. Chairman, we cleared this chapter. The last time we got the official response back from the department was in the middle of October, and this is the situation that existed at that time. That's exactly it.

The Chairman: Moving on to grants and contributions, every time I'm on a radio program talking to people about grants and contributions, they say, “My goodness! How does this continue on? When is somebody going to take a handle on the issue and make sure that Canadians get value for money for the grants and contributions we hand out?” They're appalled when they find out the types of things we're financing.

Now you're telling us that in about 30% of the files you audited, you could not assure yourselves that Canadian Heritage officials had exercised due diligence in assessing the project. Is this what Canadians are getting: a lack of accountability, a lack of management, a lack of supervision, just grants and contributions to anybody who applies? Is that about how bad it is?

Mr. Raymond Dubois (Deputy Auditor General, Audit Operations, Office of the Auditor General of Canada): Mr. Chairman, I guess I can say we are as puzzled as you are as to why these things go on and on. We've been auditing grants and contributions for over 20 years, and we seem to be coming to the same conclusions.

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In this case what we say is that in 30% of the files, we could not satisfy ourselves that in the cases in question, the officials had exercised due diligence and had done a good analysis of the requests for contributions.

And it goes a little bit further than that. First of all, because there is so little information on the file as to what the contribution is expected to do in any particular case, it becomes almost impossible to rate the results coming out of giving the contributions once they've given the funds out. The program guidelines themselves specify some kinds of activities that are supposed to be excluded, and we found some cases where contributions were given. For every exclusion, we had examples of contributions having been given out anyway.

So you do end up, at the end of the day, wondering if they are managing the program, or if they are just acting as intermediaries for the distribution of federal funds across the country.

Because the objectives of these programs—and in this case, of this particular one—are so general, it almost gives an invitation to everyone to try their luck at getting federal funds. Due to the laxness of the way they are managed, the end result is that many of the grants and contributions given out don't fit under the particular program or they are a duplication of other programs that exist at either the federal or the provincial level.

Why does that exist? We could get into a very complex social and psychological analysis. We don't know exactly.

The Chairman: Isn't that complex social, economic analysis called lack of accountability?

Mr. Raymond Dubois: Yes, Mr. Chairman. One way to tighten up the system would be to make the whole process more transparent, especially the decision points of the process, so that the public could see what is happening, what kinds of decisions are made based on what, and people could react to what is happening. If the system went to that extent, then most probably, through the transparency, we would get automatic accountability.

Mr. Denis Desautels: Could I add one quick point?

The Chairman: Yes, Mr. Desautels.

Mr. Denis Desautels: You can't have accountability when you don't have a good starting point. In the case of some of these programs, as we say, if the objectives of the program are too vague, it's very difficult to have proper accountability.

I think we would all benefit if, when we talked about grant and contribution programs, we were a little more precise as to what objectives we're trying to achieve and what would be legitimate objectives for requests that are made under these programs. That way, you could afterwards have better reporting as to whether or not people had met the objectives of the program. When you start with loose objectives, accountability is very difficult.

The Chairman: You have loose change going everywhere with loose objectives.

I'd like to talk about your comment here:

Increasingly, departments provide funding to organizations outside the federal government that, in turn, decide on the ultimate recipients of the money and manage the funding agreements.

If I recall, the Treasury Board has a guideline on grants and contributions that basically prevents them from auditing the recipient of the funds to ensure that the funds were spent in accordance with the grant application. Are you aware of that?

Mr. Raymond Dubois: Mr. Chairman, I believe you're referring to the difference between a grant and a contribution.

The Chairman: Yes, I believe so.

Mr. Raymond Dubois: In the case of a grant, once the money is granted, there is no right of access to look into what happens to the funds. In the case of contributions, according to the Treasury Board policy, contributions must be accompanied by terms of agreement, where there should be some clauses for audit and review.

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The Chairman: But in the case of grants—and I think that's about $10 billion in total—the Treasury Board guidelines say the recipient can spend the money and the government does not have the right to audit to see that the money was spent in accordance with the application, even if the guidelines were loosey-goosey.

Mr. Raymond Dubois: That is exact. In the case of a grant, there is no access to what happens to the funds once they're gone.

The Chairman: Does that seem reasonable, that we shouldn't be able to audit to make sure the money was spent in accordance with the application?

Mr. Raymond Dubois: Well, Mr. Chairman, for 20 years our office has been making the point that we much prefer contributions, because of the possibility for audit and accountability. We're not saying grants should not be used. We're saying grants should be used only in very special circumstances, where Parliament decides it wants to grant the funds for a specific purpose and does not want to know what happens to them. The fact of granting the fund is the objective in itself.

Under that type of approach, grant programs should be very rare indeed. On the other hand, we still see quite a wide-range utilization of granting programs.

In this case, I believe they've deemed the multicultural program to be grants. They've opted to use grants more often than contributions in giving the funds to organizations, and in this way they limit themselves.

However, even accepting that they use grants in this case, because they often give the grants to the same organizations in different years, a grant still should require people to qualify for the grant. In the request for qualification, they could ask for all the information they need to ensure that the recipient is in fact in need of the grant. If a recipient comes back year after year, then you can establish an accountability process without having to go into the audit clause or things of that nature. So the granting program can work in certain circumstances.

The Chairman: But it would seem to me only reasonable that they reserve the right to audit. I'm not saying they would have to audit every grant, but knowing that there's a potential for audit would ensure more accountability by the recipient.

I have just a final question. I notice that on Transport Canada investment in highways, you say:

The Department could not trace payment approvals for a large number of projects in our sample.

We've just dealt with the fact that grants are pretty loose and open and there's not too much accountability there. We talked about contracting on sole-source contracts, where it seems to be wide open for anybody who knows their way around government. And when I talk to Canadians about these issues on talk shows and so on, they are appalled at the lack of accountability.

Who is responsible for this taxpayers' money just flowing down the huge drain by the millions and billions? How do we address this accountability factor, Mr. Desautels?

Mr. Denis Desautels: Mr. Chairman, we can have a useful discussion and debate about that, and I believe there are certain examples around government that seem to be working quite satisfactorily.

If you look in appendix A of that chapter, where we talk about grants being handed out by different departments, you'll see three interesting ones there: the Natural Sciences and Engineering Research Council, the Medical Research Council, and the Social Sciences and Humanities Research Council. Those are granting councils that have over time set up mechanisms to study and specify quite clearly the criteria for accepting requests, and they have boards to assess the requests. Those granting councils seem to function in a fairly satisfactory way.

So there are ways of doing it, and they have clear objectives as well. We can usefully talk about this and use the good examples as a way of setting principles for others to follow. Some of the problems we've noted are where there are loose objectives and not much discipline in deciding who gets what, whereas the granting councils are quite the opposite.

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The Chairman: You may want to consider one day doing a comparative analysis between a good one and a bad one, just so that we can see how bad some of them really are.

Does anybody else have any other questions?

Well, I'll call the meeting to a close. The meeting is adjourned.