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37th PARLIAMENT, 3rd SESSION

Standing Committee on Public Accounts

EVIDENCE

CONTENTS

Monday, May 3, 2004

1105

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

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

The Chair

Mr. Ronald Campbell (Assistant Auditor General, Office of the Auditor General of Canada)

The Chair

Ms. Sheila Fraser

1110

1115

The Chair

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

The Chair

Ms. Sheila Fraser

Mr. Peter MacKay

Ms. Sheila Fraser

Mr. Peter MacKay

1120

Ms. Sheila Fraser

Mr. Peter MacKay

Ms. Sheila Fraser

Mr. Peter MacKay

Ms. Sheila Fraser

Mr. Peter MacKay

Ms. Sheila Fraser

Mr. Peter MacKay

Ms. Sheila Fraser

Mr. Peter MacKay

Ms. Sheila Fraser

Mr. Peter MacKay

Ms. Sheila Fraser

The Chair

1125

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

Ms. Sheila Fraser

The Chair

Mr. Ronald Campbell

The Chair

Mr. Ronald Campbell

The Chair

Mr. Ronald Campbell

The Chair

Mr. Odina Desrochers

Ms. Sheila Fraser

1130

Mr. Odina Desrochers

Ms. Sheila Fraser

Mr. Odina Desrochers

Ms. Sheila Fraser

Mr. Odina Desrochers

Ms. Sheila Fraser

The Chair

Hon. Shawn Murphy (Hillsborough, Lib.)

1135

Ms. Sheila Fraser

Hon. Shawn Murphy

1140

Ms. Sheila Fraser

Hon. Shawn Murphy

Ms. Sheila Fraser

Hon. Shawn Murphy

Ms. Sheila Fraser

The Chair

Hon. Shawn Murphy

Ms. Sheila Fraser

The Chair

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

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

1145

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

1150

Ms. Sheila Fraser

Ms. Judy Wasylycia-Leis

Ms. Sheila Fraser

The Chair

Hon. Robert Thibault (West Nova, Lib.)

The Chair

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

Ms. Sheila Fraser

1155

The Chair

Mr. Ronald Campbell

The Chair

Mrs. Diane Ablonczy

Ms. Sheila Fraser

Mrs. Diane Ablonczy

Ms. Sheila Fraser

Mrs. Diane Ablonczy

1200

Ms. Sheila Fraser

The Chair

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

Ms. Sheila Fraser

Mrs. Marlene Jennings

Ms. Sheila Fraser

Mrs. Marlene Jennings

1205

Ms. Sheila Fraser

Mrs. Marlene Jennings

Ms. Sheila Fraser

Mrs. Marlene Jennings

The Chair

Mrs. Marlene Jennings

Ms. Sheila Fraser

Mrs. Marlene Jennings

Ms. Sheila Fraser

Mrs. Marlene Jennings

The Chair

Mr. Benoît Sauvageau (Repentigny, BQ)

1210

Hon. Robert Thibault

Mr. Benoît Sauvageau

Ms. Sheila Fraser

Mr. Benoît Sauvageau

Ms. Sheila Fraser

Mr. Benoît Sauvageau

Ms. Sheila Fraser

Mr. Benoît Sauvageau

Ms. Sheila Fraser

Mr. Benoît Sauvageau

Ms. Sheila Fraser

Mr. Benoît Sauvageau

Ms. Sheila Fraser

Mr. Benoît Sauvageau

Ms. Sheila Fraser

Mr. Benoît Sauvageau

1215

Ms. Sheila Fraser

The Chair

1220

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

Ms. Sheila Fraser

1225

Mr. Dennis Mills

The Chair

Mr. Dennis Mills

Ms. Sheila Fraser

Mr. Dennis Mills

Ms. Sheila Fraser

Mr. Dennis Mills

Ms. Sheila Fraser

Mr. Dennis Mills

Ms. Sheila Fraser

The Chair

Mr. Jason Kenney (Calgary Southeast, CPC)

The Chair

Ms. Beth Phinney (Hamilton Mountain, Lib.)

The Chair

Mr. Jason Kenney

1230

Ms. Sheila Fraser

Mr. Jason Kenney

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

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

1235

The Chair

Mr. Alan Tonks

Ms. Sheila Fraser

The Chair

Ms. Beth Phinney

The Chair

Ms. Beth Phinney

1240

Ms. Sheila Fraser

Ms. Beth Phinney

Ms. Sheila Fraser

Ms. Beth Phinney

Ms. Sheila Fraser

Ms. Beth Phinney

The Chair

Hon. Robert Thibault

The Chair

Mr. Peter MacKay

Ms. Sheila Fraser

Mr. Ronald Campbell

Mr. Peter MacKay

Mr. Ronald Campbell

Mr. Peter MacKay

Ms. Sheila Fraser

Mr. Peter MacKay

Ms. Sheila Fraser

Mr. Peter MacKay

1245

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

Mr. Peter MacKay

Ms. Sheila Fraser

Mr. Peter MacKay

The Chair

Hon. Robert Thibault

Ms. Sheila Fraser

Hon. Robert Thibault

Ms. Sheila Fraser

Hon. Robert Thibault

Ms. Sheila Fraser

1250

Hon. Robert Thibault

Ms. Sheila Fraser

Hon. Robert Thibault

Ms. Sheila Fraser

Hon. Robert Thibault

Ms. Sheila Fraser

The Chair

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

Ms. Sheila Fraser

Hon. Walt Lastewka

1255

Ms. Sheila Fraser

Hon. Walt Lastewka

Ms. Sheila Fraser

Hon. Walt Lastewka

Ms. Sheila Fraser

Hon. Walt Lastewka

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

Mr. Ronald Campbell

The Chair

Mr. Ronald Campbell

The Chair

Mr. Ronald Campbell

The Chair

Mr. Ronald Campbell

The Chair

1300

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Mrs. Marlene Jennings

The Chair

Mrs. Marlene Jennings

The Chair

Mrs. Marlene Jennings

The Chair

Mrs. Marlene Jennings

The Chair

Mrs. Marlene Jennings

The Chair

Mrs. Marlene Jennings

The Chair

Mrs. Marlene Jennings

The Chair

Mrs. Marlene Jennings

The Chair

Mr. Odina Desrochers

1305

The Chair

Mrs. Marlene Jennings

The Chair

Ms. Sheila Fraser

The Chair

CANADA

Standing Committee on Public Accounts

NUMBER 038

3rd SESSION

37th PARLIAMENT

EVIDENCE

Monday, May 3, 2004

[Recorded by Electronic Apparatus]

Á (1105)

[English]

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

Our orders today are pursuant to Standing Order 108(3)(g) chapter 3, “The Sponsorship Program”; chapter 4, “Advertising Activities”; and chapter 5, “Management of Public Opinion Research”; of the November 2003 report of the Auditor General of Canada, referred to the committee on February 10, 2004.

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

I have one or two things before we get into the meeting. First, we have in our audience this morning Mr. John Wiersema. We would like to congratulate him on his appointment as Deputy Auditor General. I think this is the first time he's shown up here wearing that title, so congratulations, John.

Tomorrow afternoon, according to the motion by Ms. Jennings, we should have industry professionals here. We have been unable to obtain industry professionals, either because they're not available or they've declined to come forward. We are working to see what we can do, and will have somebody tomorrow afternoon to fill in.

On documents, we have a letter from Canada Revenue Agency signed by Mr. Alan Nymark, the commissioner, addressed to Mr. Jeremy LeBlanc, the clerk, on April 27, 2004:

Dear Sir:

In response to a letter from Mr. David Marshall, dated April 7, 2004, attached, please find the information that was requested for the Standing Committee on Public Accounts hearings.

I understand the Standing Committee is now gathering information relative to Chapter 4 (Advertising) of the Auditor General of Canada's November 2003 report. The two attachments detail the names of the individuals in the Canada Customs and Revenue Agency who authorized the financial transactions. Attachment 1 lists the names of the individuals signing requisitions for goods and services, FAA section 32.1 and FAA section 34. Attachment 2 gives details on the individuals including title and level during the period of the contract, as well as their current status. We have completed the information for the requisition phase and the invoicing phase of the contracts (the shaded areas on the chart). I understand that Public Works and Government Services Canada has already provided you with the records on the contracting phase (non-shaded areas).

I trust the information provided meets your requirements. If you need further details, please contact Jean Chartier, Assistant Commissioner, Public Affairs Branch at 957-3508.

It is signed by Mr. Alan Nymark, the commissioner, with a copy to Mr. Marshall, including attachments. That document is tabled and made public.

Of course, I read the letter from the Auditor General last week, on April 28.

Now we will turn to the Auditor General. We normally swear in our witnesses, Madam Auditor General, so please take the oath.

Ms. Sheila Fraser (Auditor General of Canada, Office of the Auditor General of Canada): Thank you, Mr. Chair.

The evidence I shall give on this examination shall be the truth, the whole truth, and nothing but the truth, so help me God.

The Chair: Thank you very much.

Mr. Campbell.

Mr. Ronald Campbell (Assistant Auditor General, Office of the Auditor General of Canada): The evidence I shall give on this examination shall be the truth, the whole truth, and nothing but the truth, so help me God.

The Chair: Thank you very much.

I read this to all witnesses appearing before the committee at this time:

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

That's from the House of Commons Procedure and Practice, Marleau and Montpetit, page 862. I don't think the other ones are relevant, because you're here in your official capacities.

Madam Fraser, I turn the floor over to you for your opening statement.

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

I'm very pleased to appear here today before the committee to further discuss chapters 3, 4, and 5 of my November 2003 report.

I am accompanied by Assistant Auditor General Ronnie Campbell.

To provide the committee with further information for its work, I sent a letter on April 28 in which I discussed my office's professional practices, as well as the audits and reviews by others that corroborate the findings of our audit. My letter also mentioned my concerns about the transfer of funds to crown corporations and other government agencies, as well as the issue of production fees and commissions and the need for appropriate documentation. It is not my intention here to repeat the contents of that letter, but I would be happy to answer any questions you may have on the points I raised in it.

I want to state again that our findings on the sponsorship program from 1997 to 2001 are serious. At the end of the day, we still do not have an explanation for why essential controls failed and why there was so little oversight of this program.

As you know, my office does not comment on the merits of government policy decisions; therefore, we do not provide an opinion on whether the sponsorship program was a good idea, nor do we assess whether the program was effective and achieved its objectives. That is the responsibility of the government.

Also, as we state in our report, our conclusions do not apply to contractors. We did not audit the records of the private sector contracts. That too is the responsibility of government.

Á (1110)

[Translation]

Mr. Chairman, my role is to assess whether the government kept essential records; whether the rules and procedures it followed were sufficient to safeguard and control public funds and ensure that expenditures were made only as authorized and with due regard to economy and efficiency; and whether it had established satisfactory procedures to measure and report on the effectiveness of the program. We assess whether those responsible for programs have complied with Treasury Board policies, applicable regulations, the provisions of the Financial Administration Act and other relevant authorities.

It should be clear to those who have read my report that in each of these areas, the Sponsorship Program had serious failings—most particularly, the failure to maintain appropriate documentation.

Let me lay out as clearly as I can the key documents that should have been present in each sponsorship file:

First, a rationale supporting the decision to sponsor the event, including a proposal or a letter from the event organizers. Had the program operated with written guidelines and criteria for funding a project, the supporting documentation could have taken the form of an assessment of the proposal against those criteria;

Second, an analysis to support the dollar amount spent on each event. The sponsorship amounts in our sample of 53 projects ranged from $5,000 to more than $4 million. The files have no information to tell us why a particular event would be awarded a particular amount;

A visibility plan describing what visibility the government was to receive in return for the money spent;

An assessment of the results, comparing the visibility plan with the visibility the event actually provided for the government;

A contract that clearly specified what goods and services were to be provided;

And finally, enough information on payments made to demonstrate that they were made in accordance with the terms and conditions of the contracts and the provisions of the Financial Administration Act.

Under section 34 of the Financial Administration Act, before authorizing payments, public servants have an obligation to certify that the work has been performed, the goods supplied, or the service rendered as specified in the contract. They need a basis for making this certification.

[English]

Mr. Chair, these are reasonable expectations, which were largely not met in the sponsorship program. The government took steps to address this. Communication Canada took these issues seriously in its management of sponsorship files from September 2001 to March 2003, as noted in paragraphs 106 to 115 of our chapter 3. We found improvements in the selection and approval of projects, better analysis of the sponsorship levels provided, better enforcement of contract terms and conditions, and improved compliance with relevant authorities. Particularly useful was an analysis sheet Communication Canada developed that considered the sponsorship program's objectives and priorities, the clientele for the program, the regional distribution of projects, and the participation of other sponsors.

Communication Canada also kept better documentation in its files, so we were able to follow how decisions had been made. There were visibility plans and final reports, and evidence to show that they had been reviewed.

The lack of documentation was an issue with regard to the whole program, particularly for the period 1997 to August 31, 2001. There was a need for documented rationale to support the decisions to sponsor events in the first place, as well as analysis to support the individual amounts spent.

In closing, I would like to reiterate that these issues are serious. This was, I believe, an unusual situation. Troubling questions remain about why the former Communications Coordination Services Branch of PWGSC was allowed to operate outside the department's regular control framework without oversight and appropriate controls. We need to understand why that happened and what will ensure that this kind of situation does not happen again.

Mr. Chair, we would be pleased to answer any questions on any aspect of our report.

Thank you.

Á (1115)

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

Mr. MacKay, please, for eight minutes.

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

Ms. Fraser and Mr. Campbell, we appreciate your being before the committee--again, in your case, Ms. Fraser. I want to assure you that we're certainly pleased to be getting on some sure, factual footing with your appearance here today.

You pointed out in your statement that there are still a number of very important outstanding questions about how this sponsorship program went awry. Ms. Fraser, much to your dismay, I'm sure, you personally and, more importantly, your report have come under considerable attack by previous witnesses who dispute the factual nature of your report. In fact, there have been aspersions cast by a number of the heads of the crown corporations and a number of the heads of the ad firms who directly dispute your findings. In a letter we received from you last week, you stood very much by your findings; you stood by the claim that $250 million in sponsorship money was spent and that over $100 million or 40% was paid to communications agencies for production fees and commissions.

So to be very clear, Mr. Fraser, I'd like right off the bat to give you the opportunity to tell us what your position is with respect to that $100 million and whether that is in fact the amount we are talking about here.

The Chair: Ms. Fraser.

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

I'd like to start by reassuring the committee that we do stand behind the report. We go to great lengths to ensure the accuracy of the facts we present. The conclusions are of course ours, but given the logic of the facts that are presented, we've arrived at a conclusion we think is balanced and accurate.

I must admit that much has been made of the issue of the $100 million. Our concerns are with the whole program, $250 million, not the $100 million. We tried to break down, if you will, the $250 million, and found $150 million was paid towards events. I guess in the large, general sense, $100 million was paid to communications agencies. It was simply a statement of fact. We were unable to break the $100 million down any further because, with respect to the information we were able to get from the database, we had no assurance about the accuracy of the numbers.

In fact, much has been made about production costs versus commissions. I would raise the issue that included in those production costs are commissions, and you cannot accurately distinguish anything further in the $100 million. I think the Deputy Minister of Public Works himself made that statement when he came here to testify. That is why we did not break the number down any further, because we had no assurance, no comfort, that we would be able to do that with any accuracy.

Mr. Peter MacKay: So any suggestion on the part of any member of Parliament, of any journalist, or of any minister, the Treasury Board minister in particular, that the figure is actually $13 million would be completely factually incorrect.

Ms. Sheila Fraser: I do not know where the $13 million came from.

Mr. Peter MacKay: With respect to the difficulties you encountered--and they're now well documented--part of the problem appears to be that files were simply not kept. Information, invoices, and documents were not in those files. Did you, in your examination, come across any evidence that documents had been either removed or shredded?

Á (1120)

Ms. Sheila Fraser: No, we did not, Mr. Chair.

Mr. Peter MacKay: With respect to the crown corporations in particular, I think what Canadians are still baffled by is the fact, as you've outlined in your report--and I don't want to oversimplify this, so please correct me if I'm wrong--that there appears to be clear evidence that rather than having money go from the government, from the public treasury, to a crown corporation for the delivery of certain services or a sponsorship program, the money was funnelled through various agencies, where 15% commissions were taken for doing little more than delivering a cheque. Is that your assessment of how this worked, in particular with crown corporations?

Ms. Sheila Fraser: That is essentially correct, Mr. Chair. We note in the report a few cases--I would highlight the “few”--that are very troubling, where funds were transferred using a communications agency and commissions were paid but we have not received any indication of the value the government received for those commissions. Equally disturbing to us is that those transactions circumvented the parliamentary appropriations process and many of the government's own rules and procedures; for example, Treasury Board policies on transfers of moneys between different entities within the government.

Mr. Peter MacKay: Ms. Fraser, I'm not asking you to attribute motives here, but there doesn't appear to be any other explanation than to suggest that this was done deliberately. This isn't something that happened by accident. This isn't a situation where documents could simply have been misplaced. It would appear quite obviously that this was done deliberately to avoid scrutiny and to avoid your office, in particular, having the ability to trace how this program was operating.

Would you agree with that?

Ms. Sheila Fraser: Mr. Chair, I think members know that we don't get into motivations; we try to simply give you what we find in our audits. But I think there has been testimony given by a former executive director of the program, certainly in a previous audit, that this was the way he ran that program, that he kept very little documentation, which of course creates great problems for us later on when we try to understand the rationale behind certain transactions.

Mr. Peter MacKay: Ms. Fraser, is it correct to say that the individual who led your audit team, in particular the individual who covered the chapter 3 element of the report, the sponsorship program, is an accountant and a lawyer, that they have that background as far as their experience in reviewing files of this nature is concerned?

Ms. Sheila Fraser: The senior, the assistant auditor general who led the audit, is a chartered accountant as well as a lawyer, or has been qualified as a lawyer. As you could expect in an audit of this size—this is a very significant audit for us, chapters 3, 4, and 5—we probably had 10 to 15 people working on it. We have a legal service that reviews it all, and we use outside advisers and others. So this audit received a great deal of scrutiny from us internally in our own quality management process.

Mr. Peter MacKay: You had a significant number of individuals involved in the preparation and presentation of this report. Is that correct?

Ms. Sheila Fraser: Yes, I would guess probably 10 to 15 would have been putting in a significant amount of time on this audit.

Mr. Peter MacKay: Ms. Fraser, my final question to you goes, I guess, to the very heart of the matter of what has become perhaps one of the biggest whodunits in political history. Where did the money go? Do you have any idea, do you have any further insights that you can share with us since the tabling of this report and, presumably, your examination of some of the deliberations of this committee? Do you have any further evidence to share with us as to where that money is or how it got into the hands of certain individuals?

Ms. Sheila Fraser: It is clear, Mr. Chair, that we know who the cheques were made out to, obviously. The records are there and we know who received what sums of money from this program. Beyond that audit...I can go no further than that. So we see, if you will, the cheques being issued by the government.

Mr. Peter MacKay: Given that scenario, did Canadians get value for that money?

Ms. Sheila Fraser: I think our report is quite clear that we have serious concerns about the lack of documentation and are unable to ascertain whether Canadians did get value for money.

The Chair: Thank you, Mr. MacKay.

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

Á (1125)

[Translation]

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

Welcome to the committee, Ms. Fraser. You know that we heard many contradictory statements in the course of our hearings, which came mainly from Liberal stars and personalities. There were many memory lapses. Some witnesses even alleged that you had misinterpreted or misunderstood what a production or a commission was.

But what sticks in my mind is the amount at stake, mainly $250 million. One hundred million dollars went to advertising agencies, and then there was another $150 million.

Did the $150 million really increase the government's profile? The committee focused on the $100 million at length, but I would like you to explain to us how the $150 million were spent.

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

The $150 million was spent on various events and specific productions—and I am using the word "event" in a very broad sense. As clearly described in the report, there were also problems associated with certain payments and supporting documentation. First, in most files, there was no indication as to why an event had been chosen and why a particular amount of money had been spent on the event. We would expect, at the very least, to find a note describing the reasons why the event was chosen. In some cases, there was not even a letter requesting funding.

If I may, I will ask my colleague Mr. Campbell to give you an example which was quoted in the report and which illustrates the problems with regard to the amount spent on sponsorships, and not on commissions or production fees.

[English]

The Chair: Mr. Campbell.

Mr. Ronald Campbell: Thank you.

I would just bring the committee's attention to paragraphs 365 and 380 in chapter 3. In that particular case, we're talking about an event for which there is evidence, Mr. Chairman, that the event did happen. There's evidence of a visibility plan and there's evidence of a post-mortem. However, there's no proposal in the file, no analysis, and no rationale that describes why the Government of Canada had chosen to contribute to this event. There's no analysis in the file to determine or show how the government came to the figure of $1.4 million.

As you know, for some of those events the sponsorship was $5,000 and for some it was much more significant than that. So as to why this one was for $1.4 million as opposed to any other amount, there's nothing in there to show why we were doing it and why that amount was chosen. But there is evidence that the event happened. There's a post-mortem, and there's a certification from the communication agency that all the elements of visibility had been met.

Subsequent to that, there was an amendment for $400,000 with no support whatsoever.

The Chair: Was the amendment to increase it or decrease it?

Mr. Ronald Campbell: It was an increase of $400,000.

The Chair: It put it up to $1.8 million?

Mr. Ronald Campbell: That's right, and that increase was not supported by anything other than saying it was for additional visibility. There was nothing in the file that said what the additional visibility was or what it was expected to be. In fact, the evidence in the file indicates the visibility elements had been met.

So in this particular case, there's evidence that this event happened and that there was a post-mortem, but we don't know why the government had decided to invest in it. There was no evidence as to why they reached the figure of $1.4 million, and there was no documentation to support an amendment after the fact, after all elements of visibility had finally been met, for another $400,000. That's an event that appears to have happened, but certainly as auditors we had huge problems with this.

The Chair: Mr. Desrochers.

[Translation]

Mr. Odina Desrochers: Ms. Fraser, some people have also questioned your sampling methods. We were told that only a small part of the entire program was audited. I imagine that there are rules and norms you must follow when you conduct a sampling and that they were no different in the case of this program.

Ms. Sheila Fraser: No. Don't forget that this program was audited and re-audited. There was an internal audit, which was fairly in-depth. In addition, the quick response team audited a certain number of files. We used the internal audit as a basis for our work, which is the usual practice, since the audit had basically covered the ground we were interested in. Therefore, in order to prepare our report, we audited a sample of files to ensure that they were in line with the conclusions of the internal audit. I think that we audited a little over 50 files within the Sponsorship Program over a period of time ending in September 2001.

After Communication Canada was created, we audited a sample of 25 files and we focused in particular on transactions with crown corporations, which was, if you will, something new. The internal audit could not look into those transactions, since its mandate was restricted to the department. We audited 46 transactions involving crown corporations.

Á (1130)

Mr. Odina Desrochers: So you followed the procedures used for the other two audits; there were no changes. You made sure that your audit followed the same rules as the previous ones.

Ms. Sheila Fraser: That's right. We had to cover enough ground to convince ourselves that the internal audit and its conclusions were reliable.

Mr. Odina Desrochers: Some representatives from crown corporations told us that documents and invoices had been lost, and so on. Mr. Ouellet even presented a letter of intent. In my opinion, a letter of intent is not a contract. You audited transactions involving crown corporations. Fingers have been pointed at some people, including at Mr. LeFrançois, who in turn pointed a finger at you.

Did you find any documents in the course of your audits? They could not just have disappeared into thin air. Some documents reappeared. You understand that this whole issue is a big mess. You also sent letters. In the course of your audit, did you find documentation, yes or no?

Ms. Sheila Fraser: As I said earlier, I maintain that the facts we revealed in our audit are accurate. In the case of Canada Post, for instance, we say, with regard to the document which was just mentioned, that a letter of intent was sent to Canada Post, but that this letter, or offer, was never signed by Canada Post.

No contract was signed. We mentioned here that a program costing $1.6 million should have a contract describing clearly the expected outcomes on behalf of both parties, and that the contract should be duly signed. However, we never received the contract, and God knows we asked for it.

Mr. Odina Desrochers: Many people have accused Chuck Guité of being the only person to carry any responsibility in this whole affair.

In your opinion, could a single individual have been able to plan and organize this type of program on his own without the cooperation of crown corporations or other individuals whose names have also been raised since the committee began its deliberations?

Ms. Sheila Fraser: Mr. Chairman, you know that I cannot answer that question. However, as I said in my opening statement, I believe that the way the Communications Coordination Services Branch was created, and the fact that it was not subject to the usual control and monitoring mechanisms within the Department of Public Works, was rather exceptional. I still don't have an answer to that question.

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

[English]

Mr. Murphy, please, eight minutes.

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

Madam Fraser, I'd like to take a whole step back here in the whole discussion we've been having for quite some time now and basically pursue a couple of areas from the general point of view of why this happened and basically who is accountable, and deal specifically with the issue of ministerial and deputy ministerial responsibility. My questions have as much to do with your audit report issued in November, “Accountability and Ethics in Government”, as they do with the sponsorship issue.

Now, we know the end product was that a department in Public Works operated outside the normal government controls and checks and Treasury Board guidelines. With the total absence of controls and the mismanagement, it shouldn't surprise anyone in Canada that the taxpayer didn't get value for money.

I know you've had probably six months to reflect on this, and I asked the same question to the quick response team. They basically said that there were cutbacks in the mid-1970s, and perhaps some of the compliance structures weren't in place as they should have been, but there was a culture of entrepreneurship trying to be developed in the public service. They were looking for innovative ways...and certainly if you're looking at innovative ways, no one can accuse Chuck Guité of not being innovative.

Again, as we look back and step back from this thing, I'd like to put it to you, why was this allowed to happen? I'm sure you've thought of that.

Á (1135)

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

I would agree with the quick response team that with the cutbacks during program review, many of the control oversight mechanisms were reduced during that period. I think people focused on the front-line delivery and the delivery of services, and in many of what are viewed as being sort of administrative procedures, there were cutbacks. When we look to many of our audits, I think we can see evidence of that.

This one, though, I quite honestly don't think is the same. This one was set up outside the normal framework of Public Works. This wasn't just a few people trying to go a little faster, reducing a few of the controls. From the very beginning of this program, it would appear to have been set up and established quite outside what is generally not a bad framework for control and oversight within the Department of Public Works and Government Services.

We have not been able to understand it. We have tried to understand how the program was established from the very beginning, and we have not been able to understand it. As I think we've discussed before, there was never even an actual program, in a technical sense, established until very late. I think it was actually 2000 when it was actually formally designated a program. So that is one of the large questions, I think. The committee may have had some insights during the hearings.

On the whole question of ministerial accountability, the question we were raising in chapter 2 is that under our current system, the current minister is accountable for actions in the current portfolio and answerable for actions of previous. This could lead some to ask if anybody is actually accountable for what happened in the past, and one could say, no, at the end of the day, nobody is actually accountable, they are answerable.

I would hope this gives some stimulus to some thoughtful discussion on the relative sharing, or whether there should be sharing, of accountabilities with deputy ministers and senior officials. Under the current system, only the minister is accountable.

Hon. Shawn Murphy: That's my next question, Ms. Fraser. Our whole democratic system is built on the concept of ministerial accountability, and I think if we throw that away, we throw away the whole foundation. I'm certainly not advocating that we go down that path; the minister has to be responsible for the management of his or her department.

Again, on the issue of deputy minister accountability, this goes back to the Lambert and McGrath reports, which recommended to Parliament that deputy ministers be responsible to Parliament. This is a poster boy example of a situation: we had the deputy minister sitting in the seat of Mr. Campbell, coming before the committee with a major problem that had occurred under his watch. In a lot of cases we had a change in deputy ministers, but in this case we didn't; he was there for a long time. He sat in that seat and said, I wasn't in the loop.

I know that in the report you issued on accountability and ethics in government you posed the question and you made the recommendation that perhaps deputy ministers ought to be responsible to government. Government, in its guidelines to deputy ministers, states clearly that deputy ministers are responsible to ministers, not to Parliament.

You know, it's so easy for us to blame Guité, but he's only a character in the whole scheme of things. That begs the question, why was it set up like this and why was it allowed to continue operating in this fashion? That is the larger question we're dealing with, not whether Guité was breaking rules and regulations.

Then we have a deputy who appears to be unaccountable to us. Do you support the recommendation that perhaps deputy ministers should be accountable to Parliament in a way more akin, perhaps, to the situation in Great Britain?

Á (1140)

Ms. Sheila Fraser: Obviously, this is a serious question of policy, and you know the Auditor General is not supposed to get into policy.

I think it is worth looking at, though, and worth considering. In Great Britain, as you mentioned, there is the accounting officer concept, where deputy ministers are held accountable for the management--not for policy decisions but for the management--of their departments. I think it certainly would be worth looking at to see what the differences are, what it produces in the system, and whether it works well. We often talk about the professional, non-partisan public service. How do we protect that? How do we make sure it works?

And there's the whole question of the relationship between the political--small p political--and the public service. I really think this could be a good case, perhaps--or others--for us to start that discussion about how the system should work. Are bureaucrats simply faceless bureaucrats who do the bidding of ministers, or should they also have some accountability, a responsibility to report wrongdoing, to bring up issues they think may not be right?

Hon. Shawn Murphy: I think this is the poster case for this discussion.

Ms. Sheila Fraser: I would hope we would be able to do it in a thoughtful, reflective way and not jump to easy conclusions about it, but I think it's certainly a question that has to be discussed.

Hon. Shawn Murphy: Here's my last question, Madam Fraser. Let's go back as early as 2002; there were a lot of remedial actions taken on this particular program. Actually, the government has taken a lot of remedial action, programs and steps, since your report was issued. Are you satisfied that everything reasonable has been done?

Ms. Sheila Fraser: Obviously the program was cancelled, so it's kind of hard to remediate a program that doesn't exist any more. But I would say that beginning in 2001, Communication Canada--and I would name specifically Mr. McKenzie--put a lot of work and did an excellent job, I think, in improving the controls and bringing some rationale into why certain events were sponsored or not sponsored and why a certain amount of money was spent, with the documentation in the file. I think the report mentions that there are still some weaknesses that need to be addressed, but we did note a marked improvement in the management of that sponsorship program by Communication Canada.

The Chair: Thank you, Mr. Murphy.

Did you have a very brief question?

Hon. Shawn Murphy: I just want one last question. Will the financial comptrollership that was recently announced be helpful?

Ms. Sheila Fraser: I think I'll have to see more of the specifics of it. It could help, but again, if you have a financial comptroller within a department yet you have a branch that's completely outside the purview of that person, it's not going to help.

The Chair: Thank you, Mr. Murphy.

Ms. Wasylycia-Leis, please.

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

Thank you, Ms. Fraser, for being here today. It's very important for our ongoing work as a committee because, as you know, a number of witnesses have really tried to smear your reputation and call into question the work of your office. I think we need some clarity on that today.

As recently as last Thursday, Mr. Gosselin from the Gosselin agency dared to suggest you weren't infallible, and maybe you--

Ms. Sheila Fraser: I know I am not infallible. That is why we put a lot of effort into making sure we check and double-check and validate our facts.

Ms. Judy Wasylycia-Leis: So I want to ask about this. In February of this year there was a peer review conducted by the International Organization of Supreme Audit Institutions of the United Kingdom, France, Norway, and the Netherlands on behalf of the international community. It found the work of your office to be suitably designed and operating effectively to achieve its objectives. We understand that in auditors' terminology, that's the equivalent of exemplary.

Is there anything about your November 2003 audit pertaining to chapters 3, 4, and 5 that sets it below the high standards that have received this international peer approval?

Á (1145)

Ms. Sheila Fraser: I would like to start by saying that we are actually very proud of that peer review. This is the first time it has been done. It was an initiative that we started. As you can imagine, we were a little nervous going into it, given that the stakes would be pretty high if it were found we had significant deficiencies in our practices. So when our very respected peers concluded that our systems were functioning well, we were very pleased. There were obviously recommendations for improvement, which come from any audit, and we are going to work on those.

I will also add that we have followed the testimony with great interest. Nothing has been said that would in any way cause us to change anything we have said in this report.

Ms. Judy Wasylycia-Leis: Thank you. Maybe I'll seek further clarification on that.

Your job as the Auditor General is to provide Parliament with factual information. So has any factual inaccuracy come to light in the testimony of this committee that you feel changes the conclusions in your report?

Ms. Sheila Fraser: No, and if committee members have any specific concerns or questions arising from previous testimony, we would be pleased to address them.

Ms. Judy Wasylycia-Leis: Thank you.

I want to go on to a couple of witnesses whose testimony we had. First, of course, was Mr. Chuck Guité, who in my estimation said a lot of incredible things. One of them was that all the documentation you described as incomplete or missing was actually at Public Works when he left.

Do you have any comment on that?

Ms. Sheila Fraser: I find that difficult to understand. Obviously I'm not sure if Mr. Guité, when he referred to all the documentation, was referring to the same kind of documentation we would have expected to see in the file. He may have been talking about invoices, and probably all the files, or most of the files anyway, had invoices. But it takes a little bit more than an invoice, in our estimation, and in fact in government policies and procedures.

Mr. Guité has also said, though, that he kept very little documentation, so I would tend to think his latter statement about keeping little documentation explains the lack of documentation we found on the files.

Ms. Judy Wasylycia-Leis: At one point he actually tried to blame our whistle-blower, Allan Cutler, for the missing documentation, and tried to suggest he may have shredded the information or tampered with it. Do you have any reason to believe that Allan Cutler would have done any such thing?

Ms. Sheila Fraser: No. I would just add that when we met with Mr. Guité when we did the initial audit of the Groupaction files, he never at any time indicated to us that there was other documentation--that documentation was missing or had been taken from files.

Ms. Judy Wasylycia-Leis: Something else that Chuck Guité said that I found quite incredible was on the business of loss leaders with respect to payments to ad agencies. He suggested that it was his job and the Government of Canada's job to try to find a balance between the contractors with which it does business, and for each of those firms, that it should try to make up for losses on some jobs with overpayment on others.

How does that fit, from an auditor's point of view, with audit expectations?

Ms. Sheila Fraser: Well, it seems like a pretty generous approach on the part of the Government of Canada.

No, on contracts, the whole process of contracting assumes, I think, that contactors, when they submit a bid for work, are knowledgeable about the work they are going to do. If they incur a loss, they will incur a loss. There is no expectation that the government will at some point in the future give them a contract and that they can recoup that loss. I certainly have never seen anything in any policies or procedures of the Government of Canada, nor would I even say in the private sector, that would support that kind of approach.

Ms. Judy Wasylycia-Leis: We asked a lot of questions about page 10 of your report, pertaining to the Maurice Richard series, trying to get from these ad agency folks and some of the other witnesses what they did in return for flowing money from Public Works to L'Information essentielle. We got a number of different answers, but all roughly the same, which was to manage the contract. No one could say they did anything specific. Of course, Chuck Guité said sometimes...this is where he mentioned loss leaders.

Can you give us any insights into how this could have worked, four different ad agencies all saying they're responsible for managing a contact? Did you see any sign of a coordinated effort among those agencies? Can you give us any reason to believe there is any factual basis for these kinds of statements at all?

Á (1150)

Ms. Sheila Fraser: The only thing I can refer you to is the interview that we had with the producer of that series, who indicated to us, and we reflected it in the report, that he had approached the executive director of CCSB and had negotiated with him, and that the executive director told him that he would indicate who to bill for the production of those series. He indicated to us as well that he had no dealings or any transactions, any business, with the communications agencies.

Ms. Judy Wasylycia-Leis: Thank you.

I have a last quick question. We have also been asked to accept that it's okay when a minister and his or her officials wish to conduct public business off the record. Where does that leave the audit function and your responsibilities to Parliament?

Ms. Sheila Fraser: Obviously, for us, in our audits, we look at the actions of civil servants. So we try to see, through the documentation in files, through interviews with people, why certain transactions happened, to see if there is evidence of the transaction being done according to rules and procedures. It is a difficulty for us, and I would think generally when there is a lack of documentation, it obviously makes things much more difficult to understand and results in a lot of questions and uncertainty about transactions.

The Chair: Thank you, Ms. Wasylycia-Leis.

Mr. Thibault.

Hon. Robert Thibault (West Nova, Lib.): I didn't want to disturb Ms. Wasylycia-Leis or the next questioner, but what Ms. Wasylycia-Leis pointed out on Mr. Cutler's testimony about the missing files, I remembered that, but I didn't remember that the files you were talking about would be the same ones that the Auditor General would have been talking about that were needed to make a complete file. Could I ask that the research staff provide us with the documentation throughout the day so that we're clear on what Mr. Cutler said?

The Chair: Are you clear on what Mr. Thibault is asking for?

Okay, thank you, Mr. Thibault.

Mrs. Ablonczy, please, for eight minutes.

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

Auditor General, as I'm sure you have become somewhat aware, you may not be the most popular person in some quarters, and I would like to direct your attention to a statement made to this committee by Mr. John Hayter. He is chairman and CEO of Vickers & Benson. He told us that you appear to have mixed up agency commissions, professional fees, and production costs. He said you confused those. He said there is a difference and Canadians deserve an explanation. So I invite you to give Canadians the explanation that Mr. Hayter said they deserve.

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

As I noted earlier, we would have liked to be able to give more information about the $100 million paid to communications agencies, but the database that was available from Public Works was not accurate. The degree of accuracy was not sufficient for us to be able to break down and present numbers in a report with the accuracy that we would require. I must admit that there are different terms used even within the billings; so there's no consistency even on billings.

Perhaps I could ask Mr. Campbell to give a couple of details that will illustrate to you the difficulties we faced, which is why we left it at that global amount paid to communications agencies.

Á (1155)

The Chair: Mr. Campbell.

Mr. Ronald Campbell: Mr. Chairman, I just note that Mr. Hayter's comment was that anyone in the industry would know the difference between production and production fees. “It's like day and like night”, is largely what he said. Well, it wasn't like day and night in the files of CCSB.

Within that production number, we found production costs that actually should have been sponsorship; we found payments that were not supported; we found invoices with no backup. So to determine specifically what was production and what was a production done was impossible to do from the files. We also found professional fees in the production. So when he said there is a distinction, a very clear, pure distinction, between production costs and production fees, that distinction was not present in the files of CCSB. That's not the way they kept that information.

We found commissions that were paid under production, commissions that were actually not provided for in the contract and, in fact, were expressly prohibited in the contract. The manner in which Public Works maintained the information on production included management fees, agency fees, agency commission, and production activities. So to say that somehow we had lumped all of those together is simply not true. That's the way that the information had been gathered by Public Works. When you try to tease it apart to find some pure production costs, it's impossible to do so. I think you'll find that the other auditors at Public Works found it impossible to do so. The Auditor General has referred to the deputy minister's comment, where they couldn't say with any assurance what exactly was the production fee.

So within there, there was a mishmash of things that were not supported or documented, and some of them shouldn't have been paid.

The Chair: Mrs. Ablonczy.

Mrs. Diane Ablonczy: Mr. Chuck Guité was questioned on your statement that he broke every rule in the book. His response was, “I haven't broken any rule in the book”.Can you explain the discrepancy between your finding and his testimony before this committee?

Ms. Sheila Fraser: I obviously came to the conclusion that he broke all of the rules because, if you go through all of the procedures that should have been respected, none of them were, such as having a transparent process for picking contractors, proper documentation on file before making payments, and evaluations of programs. There was no evidence of that anywhere.

In fact, that was actually said when we did the audit of the three Groupaction contracts in 2002. At the time, he said that he might have bent them a bit; I think that's what he said. There may be a question of semantics, but I think the point is clear that Mr. Guité did not respect the rules.

Mrs. Diane Ablonczy: We heard testimony from Mr. Gosselin, when he was questioned, about the fact that he personally billed the government for work that would have amounted to working 10 hours a day, 7 days a week, for 365 days of the year. Do you find such an amount of billing to be reasonable, credible, or acceptable? Can you comment on that, because we had a great deal of difficulty understanding how that could be defended or justified.

Ms. Sheila Fraser: That, I believe, is the finding in one of the reports of the quick response team. We didn't actually audit in the same way as they did, so they were able to produce that information.

It is obviously, I would say, highly unusual that someone would bill 3,600 hours to one client in a year, and I think they flagged that as being worthy of further investigation. I come from the private sector, and I know a lot of workaholics in the firm where I used to work, but I don't think any of them billed 3,600 hours in a year to one client.

So I couldn't affirm that it was incorrect, because we obviously didn't do the audit on it. I would say that it is extremely unusual.

Mrs. Diane Ablonczy: Madam Fraser, when the former Auditor General of Canada, Kenneth Dye, was interviewed--he was Auditor General for a decade, from 1981 to 1991--he said there's what they call a substantiation binder when an audit is done. It cross-checks every bit of evidence and every statement, and every bit of that is signed off by the department or the individual being audited. If they have a view that's different from the Auditor General's, they are given an opportunity to write their views down. Those opposing views are published at the same time as the Auditor General's report is published.

Was this substantiation binder and this process followed in the case of this report on the sponsorship program?

Â (1200)

Ms. Sheila Fraser: Yes, of course. For every audit we do, we take a copy of the report, and every line is referenced to substantiation to show on what basis we make that statement in the report. You can appreciate that given an audit with the sensitivity of this one, those files were reviewed and reviewed and reviewed, several times.

We also mention, as in the letter I sent to the committee, certain examples of what we call confirmation of facts. So any entity that we audit confirms on factual accuracy. We also give them an opportunity to discuss the tone of the report. If there is a difference of fact--as we noted in the letter I sent last week, there were a couple of cases, Canada Post being one, where they disagreed with us on our interpretation of the facts--this is reflected in the report.

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

Madame Jennings, s'il vous plaît, huit minutes.

[Translation]

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

Thank you very much, Ms. Fraser. I am pleased that you are appearing again before the committee. Your presence here today will help us clarify certain issues.

Indeed, some people have made false statements in public, which they say were based on your report, although in some cases, these statements are outright lies.

[English]

If someone were to say that Canadians are asking who stole the $100 million that they worked hard for and sent to the Parliament of Canada to be used for appropriate purposes, and so on and so forth, would that be an accurate representation of your report and the conclusions of your report?

Ms. Sheila Fraser: I think I have said, Mr. Chair, on numerous occasions that we have never said that the $100 million was missing, or stolen, or unaccounted for. We're concerned about, first of all, the management of the program, about the way it was managed, and secondly, about the fact that we can see no indication of value for money in many of the transactions we looked at. Our concerns are really with the whole program, the $250 million, not just the $100 million.

Mrs. Marlene Jennings: I understand that perfectly, but it would appear that my colleague Vic Toews, on April 1, didn't understand that, because that was a direct quote from a statement he made in this committee.

If someone were to send a document to thousands of Canadians that says, “Her report”--speaking about your report--“exposed that at least $100 million in tax dollars had gone missing”, the response you gave previously would hold again. You have never stated that $100 million was stolen or missing.

Ms. Sheila Fraser: That is correct.

Mrs. Marlene Jennings: Therefore, Mr. Stephen Harper, leader of the official opposition, who sent out a householder in April 2004 in which he claimed your report exposed that at least 100 million tax dollars had gone missing, is misrepresenting your report to the 60,000-something households to which his householder was sent, paid for by taxpayer money.

Ms. Fraser, we've had witnesses here who have been very defensive. My sense is that it's because of misrepresentations of your report. You wrote a fabulous report. You did what you were supposed to do. You came to the only conclusions you could come to. But individuals and parties have been creating mischief, putting words into your report and into your mouth, and I think they need to stop. If they wish to quote your report, they should quote your report and not misinform the Canadian public.

I'd like to table this, Madam Chair.

As I said, I'm really glad you're here. In your audit report you were able to review a little bit, if not all, of what the quick response team did. As you know, the quick response team came before the committee, and they explained their methodology and the criteria by which they pulled out 126 files to audit in-depth, versus the 721 that covered the period they looked at initially. The main difference between the quick response team's audit and your audit is that they were able to go into the offices of the advertising companies and actually examine the files that were there in order to justify the moneys that were paid to those companies. You weren't able to do that. Is that correct?

Â (1205)

Ms. Sheila Fraser: That is correct. My mandate does not allow me to go into third parties.

Mrs. Marlene Jennings: The quick response team told us on the record that they audited 126 files representing eight advertising companies and that four of those companies had very good records. I'll quote it directly: “...tended to have reasonably good records. For example, Vickers & Benson, Palmer Jarvis, Groupe Everest, Compass Communications...” And that represented $34 million. Then Mr. Monette says, “So for the companies I mentioned as having pretty good records it came to be $34 million, for the companies I said didn't have good records”--that was Lafleur Communications, Groupaction, Gosselin, and Coffin Communications--“it was $36 million.” That was the amount of money paid to those eight companies over the first three full fiscal years of the program.

Because they could go into the offices of the ad companies, they were able to determine whether those files showed that those companies actually earned what they were paid and did what they were required to do under the contract. Were you able to see any of those files, or were you only able to read the quick response team's preliminary report?

Ms. Sheila Fraser: We could have looked at the files of the quick response team. It is important to remind the committee that we looked at the government's files to see that for the payments that were made in that period, there was proper justification and proper analysis of them. So the fact that the quick response team found documentation in a supplier's office doesn't change our conclusion that the basis for making the payment in the first place--

Mrs. Marlene Jennings: I understand that fully.

The Chair: One at a time.

Mrs. Marlene Jennings: Your conclusion has to be based on the government's files.

Ms. Sheila Fraser: As I mentioned in the opening statement, a public servant has to sign off that goods and services have been received and that it's in accordance with the contract and all of that. If the necessary documentation isn't in the file, I don't know how somebody can actually do that.

Mrs. Marlene Jennings: Exactly.

A representative from an ad company that was identified by the quick response team as having very good records, Mr. Claude Boulay of Groupe Everest, said that he actually sent all of the documents in his company file to CCSB. But you didn't find them there. They disappeared either en route to CCSB or after they got to CCSB.

Ms. Sheila Fraser: One could presume so.

Mrs. Marlene Jennings: Thank you.

[Translation]

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

Mr. Sauvageau, you have eight minutes, please.

Mr. Benoît Sauvageau (Repentigny, BQ): Good morning, Ms. Fraser and Mr. Campbell.

I would like to add a quote which Ms. Jennings has forgotten, surely unintentionally. It's a quote from Jean Lapierre, Paul Martin's political lieutenant in Quebec. He said that his party would not be campaigning with dirty money: "The dirty money will be paid back". She may have forgotten about this quote, which dealt with the sponsorship scandal, but not a single penny has been paid back until now. I don't know whether this is an indication that the campaign will be delayed again.

Ms. Fraser, my question will deal with page 4 of the French version of your report...

Â (1210)

Hon. Robert Thibault: I have a point of order, Mr. Chairman.

The member has just made a serious allegation. There has been neither testimony nor evidence pointing to the existence of this dirty money. I would like the member to show us some evidence or withdraw his comments.

Mr. Benoît Sauvageau: I don't necessarily disagree; I quoted Jean Lapierre, Paul Martin's political lieutenant in Quebec. I'm not the one who said it.

In table 3.1 of your report, Ms. Fraser, you say that in 1996-97, $300,000 were spent under the Sponsorship Program. In reports made public this week with regard to the existence of the Canadian unity fund, we learned that $17 million were spent under the Sponsorship Program in 1996-97.

Did you learn at the same time that we did, that is, when the budget was tabled, of the existence of the Canadian unity fund, from which an alleged $800 million have been spent?

Can you also tell us whether the additional amount of $17 million, which was spent on sponsorships in 1996-97, came from the Canadian unity fund?

Ms. Sheila Fraser: Mr. Chairman, I have no knowledge of the Canadian unity fund. I learned about the matter by reading the papers last week, which published details, but we did not look into it. So I'm not really in a position to answer Mr. Sauvageau's question as to whether $17 million were spent on sponsorships.

Mr. Benoît Sauvageau: Did either yourself or Mr. Desautels, your predecessor, audit the Canadian unity fund? If so, it's because you were aware of its existence. But if you never audited the Canadian unity fund, perhaps it is because it appeared nowhere, not in the public accounts, not in any report, a bit like the Sponsorship Program?

Ms. Sheila Fraser: As far as I know, Mr. Chairman—and I can't vouch for this—the fund itself, or the reserve, is a budgetary reserve. There may be other amounts set aside as reserves for contingencies or unexpected events. I don't know if that was the case for the Canadian unity fund, because I did not audit it. But what often happens in the case of unexpected expenditures, when the money needs to be paid, is that it is taken from a specific program. Therefore, to my knowledge, there is no item per se in the public accounts called "Canadian unity". If money had been transferred to the fund, it would have come from various programs, including the Sponsorship Program.

Mr. Benoît Sauvageau: I have been told that if the money is reported and budgeted year after year, it is not entered as a "reserve" item, because it is another type of fund.

Ms. Sheila Fraser: Unfortunately, I cannot answer the question.

Mr. Benoît Sauvageau: So, there has never been any study or audit by the Auditor General...

Ms. Sheila Fraser: Not as far as I know. We do not audit the budget, nor the budgetary process. Therefore, as far as I know, no one has ever looked into that item.

Mr. Benoît Sauvageau: Therefore, when you state in your report that in 1996-97, $300,000 were spent under the Sponsorship Program, and when we hear that, in fact, $17 million were spent, that latter amount could have come from the Canadian unity fund, but that is something which your office has not audited.

Ms. Sheila Fraser: That's correct. As far as we are concerned, we audited the amount of $300,000, an amount which, I presume, was a particular item in the books of Public Works.

Mr. Benoît Sauvageau: The same holds true for Option Canada. Mr. Desautels had said, in one of his reports, that he had never found an amount of $4.8 million which had been allocated to Option Canada in 1995-96, or so I believe. There was never any follow-up to try to find the money.

Ms. Sheila Fraser: Unfortunately, I can't say whether Mr. Desautels did indeed say that. I'm not aware of the situation.

Mr. Benoît Sauvageau: I believe he wrote that it had been impossible for him to find the money.

Ms. Sheila Fraser: I don't know.

Mr. Benoît Sauvageau: Let's come back to someone who was here more recently. When Mr. André Ouellet appeared before the committee, he shed doubt on your report by saying, and I quote:

We have the impression that, having spent four months at Canada Post, and having closed the books without finding anything on us, was a source of considerable embarrassment to them. They therefore decided to find some problems.

That's what Mr. Ouellet said. I would like to compare his statement with your report. On page 11 in the English version, it says:

Canada Post paid L'Information essentielle $1,625,000 (plus taxes) with no signed contract. There was no signed proposal or written business case to support the decision to spend $1,625,000. Canada Post informed us that it had received a proposal from L'Information essentielle listing costs and benefits, but we found that the proposal was neither signed by L'Information essentielle nor accepted in writing by Canada Post.

So there was no documentation. That's basically the same problem associated with Mr. Guité: everything disappeared as if by magic. As for the Maurice Richard series, can you tell us a little more about the role Canada Post played and the amount of $1.6 million which was allegedly paid, an issue Mr. Ouellet claims you created because you could not find any wrongdoing and were embarrassed?

Â (1215)

Ms. Sheila Fraser: I would first like to clarify, for the committee, the nature of the work we carried out at Canada Post. As you know, I am not the auditor for Canada Post. We had to ask for an order to enter and audit the transactions related to the Sponsorship Program. As for transactions involving crown corporations, our starting point was the Department of Public Works and the trail led to the crown corporations.

Some people have said that we were there for four months. The four months represent perhaps the period of time beginning with our first meeting and ending with our final letter. We only audited five Canada Post transactions. We did not audit Canada Post's complete marketing and sponsorship program. We cited two cases in our report. We suggested to Canada Post, given that our conclusions are based on a tiny sample, that it conduct an audit of its sponsorship and marketing program as a whole, a suggestion which the president, Mr. Ouellet, told me he agreed with. The board of directors indicated that it also agreed with this recommendation. I think the audit is in the process of being carried out.

We did not audit every sponsorship and marketing transaction within Canada Post. Our goal was to audit certain transactions originating from the Department of Public Works and involving Canada Post.

As we indicated in our report, as far as L'Information essentielle is concerned, we saw that a payment of $1.6 million had been made by Canada Post. We did not find any contract. Reference was made to a letter of intent which was tabled with the committee, but if you examine things carefully, you will see that no agreement was signed by Canada Post, something we also point out in our report. In our opinion, there was no document or evidence of a contractual agreement between Canada Post and the producer of the series describing the deliverables and responsibilities of each party. We also did not find an analysis justifying Canada Post's sponsorship of the series.

This is an important issue for us, because the producer, or the representative of the production company, had indicated to us that, at the time, the entire project had been negotiated with Mr. Guité, and that Mr. Guité had said that he would indicate whom to send the invoice to. We wanted to describe the entire transaction and how it involved the Government of Canada and L'Information essentielle.

[English]

The Chair: Merci beaucoup, Monsieur Sauvageau.

Mr. Mills, please.

Â (1220)

Mr. Dennis Mills (Toronto—Danforth, Lib.): Thank you very much, Mr. Chair.

Ms. Fraser, this morning in your opening remarks you said, “...my office does not comment on the merits of government policy decisions...nor do we assess whether the program was effective and achieved its objectives”.

Last week we received a document from your office, signed by you, listing the 53 projects that were the basis of the audit. You divided the information available into “yes” and “no” columns. In paragraph 3.60, if you got a “no”, there was no assessment of the project's merits, no rationale supporting the decision to sponsor the event, and no discussion of the visibility the Government of Canada would achieve by sponsoring the event.

Then in paragraph 3.69, on the post-mortem, you analyzed the results, and if you got a “no” for this, there was no post-mortem and therefore no evidence that the government had obtained the visibility it had paid for.

Item 11 on this list is the Team Canada China project. An agency in Toronto, Vickers & Benson, received $9 million for executing a series of thirty 28-minute segments across China promoting our culture--on doing business with Canada, etc. They got a “no” for the assessment of the project's results, so they were faulty there. But then they got a “yes” that everything else was in place--they had analyzed the results of sponsored events, there was a post-mortem, etc.

Mr. Hayter, who was the chairman of the board, was here last week. He acknowledged that Vickers & Benson received $9 million for this, but there was also an independent post-evaluation showing that the Canadian taxpayers received $51.5 million in value-added.

My difficulty is that on the face of this it seems that Vickers & Benson's work and this Team Canada China project was a stained file. Yet the post-mortem and the testimony of the witness under oath yesterday--one of the most respectable ad agency leaders in our country--said there was value for the Canadian taxpayers.

So I need your help in trying to understand why a file like that would be in the stained category, or under dispute, when there was hard evidence.... He literally brought us some examples of the work that he said was delivered there. Obviously your team analyzed it and there was a post-mortem. Is it not part of the journey that maybe post-mortems, where there's value-added, should also be recognized when that happens?

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

First of all, it is important that the file contain evidence or an indication as to the merits of a particular event and why it is going to help the government achieve its objectives. Lots of programs and events can have great merit, but if they're not related to the government's objectives at the end of the day, you don't have value for money.

I can give a really simple example. If I went out and bought an airplane ticket tonight for Vancouver, flew to Vancouver, and came back tomorrow, you could say there was an airplane ticket worth however much I paid for it, but if you didn't know why I went, how could I show the Canadian taxpayers they should pay for it? So the criterion for assessing why that project was picked is critical to us.

I hope people recognize we're not saying that all the files were bad. In this one we said 64% of them didn't have assessments to say why those particular projects, why those amounts of money.... That to us is essential in order to be able to prove, after the fact, that you did receive value for money.

I'd like Mr. Campbell to give a few more details about the China project.

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Mr. Dennis Mills: How much time do I have, Mr. Chair? I realize I'm on a very tight--

The Chair: Like all of us, you're on a tight schedule. You have two and a half minutes.

Mr. Dennis Mills: I'm satisfied with your response.

Ms. Sheila Fraser: There were other issues with the China project.

Mr. Dennis Mills: But you can understand, when you say in your statement today that you don't make comments on the merits of government's policy decisions, and on your list here there were some things like the Pan Am Games and other things, where--

Ms. Sheila Fraser: This was simply the selection of the projects that we audited, and we obviously went for high-value items. The fact that we picked those particular projects is not any indication that we thought there would be problems. We picked the items that had the highest value amounts and then we took a random sample of others. We're simply giving you the results of the audit of those files.

Mr. Dennis Mills: My final point--and I realize I have less than a minute--is that I've been obsessed in this journey here for the last 10 weeks about value for money. We're not debating flaws in processing contracts or whether subsection 10.2.2 under exceptions to Treasury Board rules is valid or invalid. I'm wondering if, in the audit process, post-evaluation, where Canadians did get value for money should be on the record as well.

Ms. Sheila Fraser: Mr. Chair, I guess I'll just go back to my initial point, which is that if we don't know why an event was picked and why a certain amount of money went into it initially, it's difficult at the end of the day. Even if it was an excellent program and it got great coverage, if there's no link to the initial objectives of the program, there's always going to be that gap.

So I'm afraid in this particular file, the lack of documentation as to what the objectives of the program were--

Mr. Dennis Mills: Why we should have done it in the first place.

Ms. Sheila Fraser: What were the objectives of the program? We've never actually found any clear evidence as to what the objectives of the program were. What were these projects designed to do? Was it general visibility? Was it visibility within Quebec? There have been all kinds of statements about it.

The Chair: Thank you, Mr. Mills.

Mr. Kenney, please. We're now on a four-minute round.

Mr. Jason Kenney (Calgary Southeast, CPC): Thank you, Mr. Chairman, and thank you, Auditor General, for appearing before us.

I just want to begin by referencing the sort of preambular question of my colleague Madam Jennings, who referred to statements about money having been stolen in this. I've always taken that to be a reasonable inference based on the comments of the Right Honourable Jean Chrétien on May 30, 2002, when he said, “Perhaps there were a few million dollars that might have been stolen in the process” with respect to this program.

I think my colleague Mr. Toews made the reasonable inference that just about anybody who has followed this matter has made, which is that money was stolen. Indeed, the current Prime Minister has referred to criminal activity. I believe if money hadn't been stolen, then there probably wouldn't be some 14 RCMP investigations going on right now.

The question we're here to determine is how much was stolen.

The Chair: You have a point of order, Ms. Phinney.

Ms. Beth Phinney (Hamilton Mountain, Lib.): I'm not sure how--and maybe we can get an explanation--that could be a reasonable inference.

The Chair: He just gave you the reasonable inference--Mr. Chrétien's comments and police investigations and so on.

Mr. Kenney, continue.

Mr. Jason Kenney: Perhaps I made the mistake of assuming that Mr. Chrétien's statements were reasonable.

Mr. Chairman, I have a question for the Auditor General. We had before us the former chair of VIA Rail, Marc LeFrançois, who claimed, as you probably know, that he objected to your report.

In your report, at page 11--let me quote--you found that VIA Rail had engaged in transactions such as “the issuing of a fictitious invoice to a communications agency, Lafleur”, and you also concluded that:

It appears that these transactions were part of an elaborate process used to obtain funds from current PWGSC appropriations, in order to pay for a highly irregular and questionable expenditure incurred by VIA Rail in the previous year and also to facilitate the payment of a commission to the communications agency. In our opinion, this resulted in the circumvention of the parliamentary appropriation process.

Mr. LeFrançois said to us that “VIA Rail did not participate in a process to hide the true nature and scope of the transactions” and that your findings, which I just cited, were “unacceptably inaccurate and vague in the use of such pejorative language”.

Could you respond to Mr. LeFrançois' rejection of your findings on page 11.

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Ms. Sheila Fraser: I would be glad to, Mr. Chair.

I would point out that we gave the committee a copy of the letter from VIA Rail—

Mr. Jason Kenney: I have a copy here, dated August—

Ms. Sheila Fraser: It was in fact signed by Mr. LeFrançois, stating that he agreed with the facts.

But let me just go through the chronology of the events relating to VIA Rail and the Maurice Richard series, and I think you—

The Chair: Madam Fraser, is that already on the record? Time is of the essence.

Ms. Sheila Fraser: I don't believe so, or not all of the specifics, Mr. Chair.

The Chair: Okay.

Ms. Sheila Fraser: If Mr. Kenney doesn't mind, it won't take too long, I think.

In late 1998, Mr. Guité asked Mr. LeFrançois to advance $1 million to Public Works for the Maurice Richard series, and VIA agreed. It was a verbal agreement. In December 1998, the producer invoiced VIA for $650,000—I'll give all the amounts before tax—and two additional invoices came in August 1999, and those were paid by VIA. Again, there was no contract, no tendering, or no evidence as to what had been received.

So up until September 1999, VIA had paid those amounts to L'Information essentielle. In October 1999, the first broadcast of the Maurice Richard series was done.

In December 1999, Public Works contracted with Lafleur for some $923,000, including GST, for production work on the Maurice Richard series, but the series had already aired. Then on January 18, 2000, Lafleur certified that the work was completed for the event, which was to have been held between July 31 and August 14, 1999. On January 10, payments were approved by Public Works for somewhere over $1 million—and I can give you this detail if you'd like--based on that certification. Lafleur invoiced Public Works for $862,000, and that was approved and paid on March 16. And on March 31, 2000, VIA invoiced Lafleur, and Lafleur delivered the cheque to VIA on the same day.

We saw no indication of any support in the file as to why VIA, a railroad company, would be billing a communications agency. So we say there is no substance to this transaction. It was a mechanism. The contract and invoices were put in place to refund VIA for the amounts that it had advanced on behalf of Public Works. There should have been a memo or a letter or something between VIA and Public Works, at best. And they went though this other mechanism to get it back.

The Chair: We'll have to cut you off there, Mr. Kenney. That has taken up five and a half minutes. I know it was a long and detailed answer by the Auditor General, but it was important to get that on the record.

Mr. Tonks, please, four minutes.

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

Madam Auditor General, the part that I and also, I think, the committee are interested in relates to the challenge you gave to the committee to understand why this architecture had been set up and at what point. I think it's interesting that there was a point where the administration could have counter-checked that architecture. You indicated on May 3 that “At the end of the day, we still do not have an explanation for why essential controls failed and why there was so little oversight of this program.”

I'd like to, if I may, just relate this to some documentation that has now come out as a result of testimony we've had. Mr. Cutler indicated in his testimony that very early the checks and balances, in terms of the separating out and choosing of agencies and then the oversight that came from a separate, more accounting-related part of the process, were in fact entirely taken over by Mr. Guité, and that was in 1995-96. He made certain allegations based on his experience, and there were both an internal audit and an external audit done in 1995 and 1996. Those results were transmitted along to both Mr. Quail and Mr. Stobbe, the deputy minister and the ADM. It seems to me this whole issue of ministerial oversight--and not just ministerial oversight but the oversight that comes through the ADM and the deputy minister--is important.

Mr. Steinberg indicated when he gave his testimony that recommendations had been made through Mr. Stobbe subsequent to the internal audit. In fact, Ernst & Young made two recommendations, and the first was that the actual procurement of advertising and public opinion research be removed from the sector. That was a key recommendation from 1996; Mr. Stobbe was aware of that and Mr. Quail was aware of that.

In fact, Mr. Myer, who came before us, said that in 1998 he'd said that's what should have been done. He said to Mr. Guité, that should be done. Imagine suggesting that at that point.

My question to you is, as a result of that kind of testimony, do you not find that there's an opportunity here to really nail down what the architecture was that was established through 1995-96 and continued through the CCSB period, where the checks and balances weren't working, and that 1996 was the critical time when that in fact started to happen?

I'll just give one more point, Mr. Chairman. It's that in September 1996 Treasury Board Secretariat, with the deputy minister signing off on it, recommended that appendix Q, which required that quarterly reports go before Treasury Board Secretariat and give the competitive basis for requests for proposals for agencies, in fact was--

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The Chair: I'm going to interrupt there; you're out of time. That was a four-minute question, and we'll have less than a four-minute--

Mr. Alan Tonks: Then my question is, is that the period of time you would take under consideration to satisfy that issue of how this actually started to happen?

Ms. Sheila Fraser: I think that question is vital to understanding why the program continued for as long as it did with so little oversight and so few controls. I think the indications were obviously there much before the time period covered by our report. I think the committee members--or others--need to understand why that branch was set up in the way it was and why all of the functions were vested in one person, which is highly unusual and which allowed this to occur. If there had been a proper system of checks and balances, if it had gone through the normal financial accounting functions at Public Works, I really think a lot of this would not have occurred.

It's important that we recognize that the way it was established makes this an unusual situation. That is why this is so troubling. This wasn't part of the normal systems and processes; it wasn't just somebody not following a rule one day. It would appear that this is the way that branch was operated, and for some reason people allowed it to be set up and operated that way.

The Chair: Thank you very much.

Ms. Phinney, please, four minutes.

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

If I don't use up all of my time, Mr. Thibault has a question.

The Chair: You have only four minutes in total.

Ms. Beth Phinney: Madam Fraser, thank you for being here today.

Our role here is to find out how and why certain irregularities have occurred and how we can make sure these things don't occur again. You've stated today that essential controls failed, and we don't have enough documentation. I would think that would lead someone to ask about the document retention policies being used by the department and by the government as a whole. Were they adequate? Or do they exist at all?

Perhaps you could comment on that and tell us if we need to make some changes to those document retention policies.

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Ms. Sheila Fraser: We haven't done any work specifically on document retention policies, so I wouldn't want to comment too generally on that, but I don't think this was a question of document retention policy, quite frankly. I think the documents just weren't there. This was the way the program was managed, and the person who was managing it didn't see the need for a lot of documentation.

So quite frankly, as I've said in many of the audits, it's not a problem that we don't have enough policies and procedures; it's the fact that they're not being followed. Basically, when anybody signs off on the authorization of a payment, they should make sure they have the necessary documentation in the file to show that the government has received the goods and services for which it has contracted. And that isn't there.

Ms. Beth Phinney: One of our witnesses suggested that the documents were kept by the agencies. Could you comment on that?

Ms. Sheila Fraser: Well, I think that's just totally inappropriate. I mean, if you received your credit card statement and it showed you owed x thousand dollars for the month with no detail, would you pay it? I don't think so.

It's not good enough to hope or to think that somebody else is going to maintain these. It is an obligation that there should be proof in the file before payment is made. Otherwise, how would you ever be able to ascertain if the goods and services had ever been done?

Ms. Beth Phinney: So you're saying those policies are there but just aren't being followed.

Ms. Sheila Fraser: That's right.

Ms. Beth Phinney: Thank you.

The Chair: You used up two minutes and 25 seconds.

Mr. Thibault, you are after Mr. MacKay. Do you want to take six minutes then or do you want to take two minutes now and four minutes later?

Hon. Robert Thibault: I'll take six later.

The Chair: Mr. MacKay, you are next, please, for four minutes.

Mr. Peter MacKay: Madam Fraser, at one point you referred in your report to improper selection of the agency of record, in particular a reference to Groupe Everest, a subsidiary of Media/IDA, being selected in 1997 as the agency of record without any track record, either within the federal government or in private industry.

Can you expand on that? Because we were given contradictory evidence by Mr. Boulay, who said that Media/IDA Vision was completely on the up and up and very deserving of being awarded Government of Canada work.

Ms. Sheila Fraser: Perhaps I'll ask Mr. Campbell if he can elaborate any further on that.

Mr. Ronald Campbell: Not to any great extent, Mr. Chairman. We audited the selection processes for all of the contractors involved here and found problems with how those processes had gone. I don't think I have any further information beyond what's in the report.

Mr. Peter MacKay: So you simply stand by the fact that there was a finding that there was insufficient evidence to suggest that the award was made on criteria that should have been met.

Mr. Ronald Campbell: Yes. We went through the contracting process, as we saw it in the files, against the expectations of the documents that ought to have been there. We didn't see evidence that the process had been properly followed.

Mr. Peter MacKay: Ms. Fraser, to get back to the situation of how this is to be prevented in the future, do you feel it would be helpful for the Auditor General's office to be able to go in and specifically examine the files of crown corporations? As I understand it, you are strictly prohibited from doing that currently.

Ms. Sheila Fraser: No, in fact, Mr. Chair, we are the auditors of most of the crown corporations, so we have access to those crowns. There are certain crown corporations for which we are not the auditors, Canada Post being one. As my mandate does not extend to Canada Post, I had to receive a special authority to go in and do the work related to this.

Mr. Peter MacKay: Ms. Fraser, have you been asked to turn over any documents to the RCMP since this report was made public?

Ms. Sheila Fraser: No, we have not. We have met with the RCMP. We met with them shortly before the report was issued to ensure that they were aware of all of the information that was coming forward in our report, as they were already doing an investigation.

Mr. Peter MacKay: If, as suggested by Ms. Phinney, there was an ability to go to the agencies of record now, after the fact, would this in fact shed further light, if we were able to access the missing documents, the justification, to use your word, for the work these invoices claim was done? Would this in fact lead to some of the answers that we seem to be looking for?

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Ms. Sheila Fraser: It might in part, to explain what services or goods were received for the payments that were made and in certain of the investigations of the more questionable payments--

The Chair: Forty-five seconds.

Ms. Sheila Fraser: --but it would certainly not change our conclusions about the level of proof that existed before making the payments.

It would not answer the questions about the objectives of the program. What was government trying to accomplish in this? How did it know if it was successful or not? I would doubt very seriously that any of the suppliers or contractors to government would have any of that kind of information, and if you don't know what the objectives of the program are, then it's very hard afterwards to conclude that there is value for money.

Mr. Peter MacKay: So we could find out some of the factual information through the documents, but as to the actual purposes, the actual political motives, if you will, and how this program became so out of control, I suggest this answer lies within the Government of Canada itself and those who were at the heads of the departments, mainly ministers. Would you agree with that?

Ms. Sheila Fraser: I would hope this committee and other investigations and a commission of inquiry will have some of those answers. Certainly the answers are not in the files, and I think those questions still remain unanswered today, yes.

Mr. Peter MacKay: Thank you.

The Chair: Thank you, Mr. MacKay.

Monsieur Thibault, s'il vous plaît.That will be five minutes and 40 seconds all told.

Hon. Robert Thibault: Thank you, Mr. Chair.

Madam Fraser, thanks for coming. I do thank you for your report, and I thank the staff for giving us a copy of the act.

What you have done is clearly within your mandate and fulfills your mandate, and I make no arguments as to the facts you present or the conclusions you reach.

What I would like to do, however, is correct a few things for the Canadian public that are the impressions that were created. I'll make statements, and if I'm wrong, I would ask you to correct them.

I would suggest that what you have said is that you have not said there is $100 million missing. You have not said there is not any money missing. What you have said is that there has been some money that has been used inappropriately or administered inappropriately, or there is no way that you can guarantee to the Canadian people that they have received value for money on those expenditures.

Ms. Sheila Fraser: That is correct. We look at the process and the procedures in place on the assumption that if those procedures and processes that government sets out for itself are followed, at the end of the day Canadians will have value for money. So we look to make sure that those procedures are in place, that there is proper documentation, that there is a proper contracting process, that there is open tendering, and so on.

So we look to make sure that all of those are...and in this case, there were significant problems at all stages of the process. So we say we are unable to conclude that there was value for money. We have, as I will repeat again, not said that $100 million was missing or $100 million was stolen. There were, though, very questionable transactions in here, and I think the evidence of that is the number of RCMP investigations that are ongoing.

Hon. Robert Thibault: Absolutely agreed.

And you have also not said there was no value for money. What you have said, again, is that you could not show in each instance where there was value for money.

Ms. Sheila Fraser: That is correct.

Hon. Robert Thibault: The other thing I'd like you to clarify is the question of...and it has come in the way that you have mentioned it, but then when I look at your whole report, it becomes clear to me. But sometimes, in one-sentence statements, it can be confusing. The term has been $100 million paid to communications companies. Would it not be more accurate, Madam Fraser, if we were to say there has been $100 million that was administered by the communications companies?

Some of that amount would have been received or perceived by the communications companies for fees and services, some of those services sometimes being production costs, or commissions, or services otherwise.

Ms. Sheila Fraser: The reason we made that distinction was to indicate that $100 million were payments to the communications agencies, and $150 million were payments to events in the large sense. That's the kind of distinction we were trying to make. Included in that $100 million are, of course, commissions, production fees, costs they incurred, subcontracts, a whole series of types of costs.

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Hon. Robert Thibault: That's precisely what I wanted you to illustrate, Madam Fraser, that it wasn't $100 million in commissions.

Ms. Sheila Fraser: That's correct.

Hon. Robert Thibault: The quick response team pointed out that some companies were better administered or more transparent than others. As you explained, you're auditing the government, not the private sector. You're looking at government files. You mentioned that when you and your staff audit the government, you give them an opportunity to respond. In this case, I think some of the frustration might be coming from the fact that although the private sector is mentioned, the same opportunity to respond might not be there for them. Is there a modality by which they can respond?

Ms. Sheila Fraser: As part of our normal process, we meet and review the report with anyone who is mentioned in the report. So all of the communications agencies and anyone else who is mentioned are informed of the conclusions of the audit and are given an indication of where we are citing them. It is more a question of advising them than asking for comment. Obviously, if someone had a serious comment, we would take that into account.

Hon. Robert Thibault: It might not be possible for you to comment on this.

You indicated that we have to discover how we got to a place where we could have the operation of government without the normal controls. When Mr. Guité testified, he indicated that under previous administrations and multiple parties, political appointees would be named to the group. As the director of APORS, I believe it was at the time, he would not report to the minister in charge, the Minister of Public Works. In the case of the Mulroney government, I believe it was the practice to send it to Lowell Murray, who was the minister responsible for interprovincial relations, if I'm not mistaken. When the government changed and these political appointees were removed, could we have created a vacuum where one or two bureaucrats could have assumed all the political power and supervision that might have been there previously?

Ms. Sheila Fraser: I think Mr. Thibault was correct at the beginning in saying that I can't really respond to that because it was prior to the time covered by our audit.

There were internal audits, as Mr. Tonks mentioned, that indicated problems, and I think one of the questions is why those internal audits were not acted upon. Even if that was part of the reason for it occurring, there were flags along the way that indicated this was inappropriate. Why wasn't that responded to? I don't have the answer to that.

The Chair: Your time is up, Mr. Thibault.

Mr. Lastewka, for four minutes.

Hon. Walt Lastewka (St. Catharines, Lib.): Thank you, Ms. Fraser, for being here today.

I think it's very good that you have clarified a number of things, starting with your letter last week. I found that you were right to the point on many items that have caused some people to question things.

Nowhere in your chapter 3 is there a reference to production costs, not that I could find. Your definition of production fees includes production costs, fees, commissions, etc.

Ms. Sheila Fraser: Management fees.

Hon. Walt Lastewka: From what I've heard today and from your letter last week, it gets down to the fact that the documentation was very poor, starting with the business plan or the original proposal not having enough detail on what was expected from the project so that later on you could see whether it was good or not, to the point where the items that were required to be done in order to make a successful project were not there. The goods, the services, and whatever production was going to be done were missing. You did mention that the invoices were there, but you couldn't compare them to what was expected in the first place. Is that correct?

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Ms. Sheila Fraser: That is correct. I would even add that some of the invoices gave no details. It would be production fees and an amount, when one would expect to see times or details on the invoices. As I said, it would be like receiving a credit card statement that said x dollars for the month with no detail on what's in there.

Hon. Walt Lastewka: It would be expected that you would see goods, whatever they were, and some of the services, whatever they were.

Ms. Sheila Fraser: And they were supposed to present the people who were working on the various productions--so the person, the time, the hourly rate--and there should have been some verification or some assessment that this was reasonable. But it was just production fees and an amount.

Hon. Walt Lastewka: I can understand very clearly now why you mentioned a couple of times that assessing the results would be very difficult if you didn't have the starting point properly laid out. My concern is that, as you mentioned, this is a management issue. We had an executive director who, as far as I'm concerned, was allowed to operate a bit by the seat of his pants. And then we had a deputy minister who was out of the loop. That has really, really concerned me from the time we had that discussion.

So there wasn't an oversight on the implementation of the projects. I take it that's what you have confirmed very clearly for us.

Ms. Sheila Fraser: That is correct. This branch was set up outside the normal control and oversight framework that was established for the Department of Public Works. This group, a very small group, was allowed to select the projects and authorize the payments. In accounting terms, we talk about segregations of duties. Well, there were none in this group. They were allowed to do a lot of the functions that should have been done by others.

Hon. Walt Lastewka: I think Mr. Murphy talked about a previous report that was done concerning ministerial responsibility and, I take it, deputy ministerial responsibility. When the deputy minister sees things that are not being done exactly to the procedures as laid out by the Treasury Board and the Government of Canada, there's a procedure to highlight that and nip it in the bud.

Ms. Sheila Fraser: Well, Mr. Chair, I believe the committee is meeting with the clerk this afternoon. That might be something to discuss with him, because I'm not sure that's as clear as it might be.

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

I have a couple of questions, Madam Fraser.

You mentioned at the beginning of the meeting that there was a database but you didn't find it accurate. Michèle Tremblay or Isabelle Roy, one of them, made reference to the fact that everything was managed on a database. Did you see the database that the other witness referred to? Or the database that you saw, do you know where it came from?

Ms. Sheila Fraser: Let me ask Mr. Campbell to respond to that, Mr. Chair.

Mr. Ronald Campbell: Yes, I believe we did see that same database.

The Chair: And that's the one that you said was not accurate?

Mr. Ronald Campbell: It included a wide variety of items, some supported and many not supported.

The Chair: Okay. So it was just a lack of supporting documentation. It wasn't the fact that it was inaccurate or contained information that was just totally wrong.

Mr. Ronald Campbell: I made the comment in relation to what was production and what wasn't production. Clearly there were items in there that were not production.

The Chair: We were led to believe, by that testimony, that it was run by a database in terms of money coming and going, commitments, authorizations, and so on. I think you mentioned that with some of the contracts there were no initiation requests for proposal. If the database wasn't up to speed, and there wasn't a request for proposal, was there anything that suggested...? I mean, who was in charge? How could you manage this? How could you write a cheque for $1 million, or $50,000, or $5,000 if the database wasn't right and the documentation wasn't there? Were they just writing cheques?

Mr. Ronald Campbell: Mr. Chairman, the database reflected some of the decisions that had been made to enter into contracts and to expend moneys, but it didn't include the rationale for why people were doing that and how they got to the amounts.

The Chair: Okay.

Now, we did actually pass out the copy of the Auditor General Act, and in there it says that you have to report to the House money that “has been expended without due regard to economy or efficiency”, which quite often we refer to as the value-for-money audits that you do. You mentioned the $150 million that went to events, and Mr. Campbell talked about the $1.4 million to the “Tour Cyclist Trans Canada” event.

Did you take a look and try to determine value for money in any way, shape, or form for that $150 million that was spent on events to find out if we did get value for our money, or were these again just moneys paid without a contract?

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Ms. Sheila Fraser: It is quite clear it is not our role to assess and evaluate if there's been value for money. That is up to government. We look to see if government has the indication and the evaluation that there has been value for money. In this case, I think we can all agree that was not there.

The Chair: On my last question, we became aware of the unity fund with the budget a couple of months ago, and I believe the sponsorship fund came into legal existence in 1997. Before that, moneys were being spent on sponsorship programs.

Is there any other situation where there is a unity fund, a sponsorship fund, or any other kind of fund, without it being clearly designated in the estimates and the public accounts of Canada?

Ms. Sheila Fraser: We haven't done any work on this, so I hesitate to respond to this, but it is my understanding that there are reserves for contingencies that are established as part of the budgetary process. So if you look at the total budget of Canada and compare that to the main estimates that are tabled in Parliament, there is a difference between the two. It is set up so as the year goes along and unforeseen events occur, or certain programs require more funds, those funds can be used for that. That is a normal process and would be a normal process in most budgeting.

When I heard this discussion about the unity fund, I understood it was a reserve in the budgetary process, but when the funds were actually allocated they were allocated to specific departments and specific programs within those departments. It is my understanding that there is no account in the public accounts of Canada that says “unity” on it. So they would have been funds allocated, for instance, to Public Works for sponsorship.

I don't know if the clerk would know, but Treasury Board Secretariat would be the best....

The Chair: Okay.

Madam Jennings.

Mrs. Marlene Jennings: I have a point I'd like to raise.

The document I tabled that says “Sponsorship Scandal”, which was mailed out by Mr. Stephen Harper, MP, Leader of the Official Opposition, in the fourth paragraph says:

There are now no less than thirteen ongoing RCMP investigations into possible criminal wrongdoing by senior bureaucrats and cabinet ministers, leading journalists to speculate this could be “Canada's Watergate.”

Unless I'm mistaken, everything we've heard to date from the RCMP, from Public Works--whether it be the quick response team--is that the ad companies are the ones being investigated.

The Chair: We'll just close it off there, Mrs. Jennings, because basically you're raising--

Mrs. Marlene Jennings: Mr. Harper seems to have other--

The Chair: Is this a point of order? What is this?

You just want to get into more debate here, Madam Jennings--

Mrs. Marlene Jennings: I haven't completed my point of order.

The Chair: Madam Jennings, that is not a point of order.

Mrs. Marlene Jennings: I haven't completed it.

The Chair: So far, it's not a point of order.

Mrs. Marlene Jennings: Then let me complete it before you render a decision.

The Chair: Move quickly to your point of order, or I will rule you completely out of order.

Mrs. Marlene Jennings: We have heard from the RCMP, we have heard from other witnesses about RCMP investigations. At no time have we heard that there were--

The Chair: What's your point of order?

Mrs. Marlene Jennings: My point of order is that we have a document tabled before the committee, and the source appears to have other information.

The Chair: Well, go to the source.

Mrs. Marlene Jennings: I would ask that this committee ask Mr. Harper to provide us with the evidence or the documents that allow him to state that the RCMP is investigating wrongdoing by cabinet ministers and senior bureaucrats.

The Chair: As you know, we cannot summon members of Parliament to the committee.

Monsieur Desrochers, you have a point of order.

[Translation]

Mr. Odina Desrochers: Yes, Mr. Chairman.

First, I want to thank Ms. Fraser for having come here to testify. She gave us some excellent answers and cleared up certain issues. As you know, we have work left to do and we have to move swiftly.

Personally, I think we have gotten a great deal of information from Ms. Fraser, and unless there are unforeseen developments, I don't think it will be necessary to ask her to come back Thursday afternoon. In my opinion, this morning we have obtained all of the necessary information, Mr. Chairman. So I am requesting that we revise our agenda for this week, specifically as it concerns Ms. Fraser's presence here on Thursday afternoon.

· (1305)

[English]

The Chair: Do we have a new notice of motion?

Mrs. Marlene Jennings: Is this a notice of motion?

The Chair: No, it was a point of order saying perhaps we don't need the Auditor General. We have a motion stating she will be here on Thursday afternoon from 9 to 11. Unless that motion is rescinded, we expect Madam Fraser to be here.

Do you have any closing comments, Madam Fraser?

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

I thank the committee for the opportunity to address certain questions that have been raised in the last weeks.

I would just like to reiterate that we believe the findings of the report are serious; that in government, the process to show value for money is important, and particularly the objectives of the program--why certain events are chosen, why certain amounts of money are spent. We have seen little indication of that.

At the end of the day, as has been raised by several members, one of the troubling questions is why that branch was set up outside the normal control and oversight framework.

The Chair: Thank you.

For everybody's information, the public accounts committee from Ireland will be here on Wednesday. We're having a working lunch from 1 to 2, so please mark that on your calendars and confirm your attendance with the clerks.

This meeting is adjourned.