PACP Committee Report
If you have any questions or comments regarding the accessibility of this publication, please contact us at accessible@parl.gc.ca.
INADEQUATE DOCUMENTATION AND QUESTIONABLE VALUES-FOR-MONEY
A central concern raised in the November 2003 Report of the Auditor General was the pervasive absence of adequate documentation in the administrative files maintained on individual sponsorships, including the absence of evidence that administrators had analyzed the benefits provided by sponsorships against the costs involved. Many of the files examined by the Auditor General contained no evidence that the potential contribution of individual sponsorships to the program objectives had been considered, in the course of decision-making, no assessment of the merit of individual proposals, and no evidence that criteria of merit even existed. The discussion provided in these paragraphs makes the important point that concerns about the adequacy of documentation are not merely concerns about the maintenance of files. The questions they raise are fundamental ones about the adequacy of attention by those responsible for the program to achieving value for the $250 million of taxpayers’ money that was spent.
Ms. Tremblay’s testimony provided the Committee with insights concerning the tight relation between the management and decision-making style that characterized the Sponsorship Program under Mr. Guité’s direction and the quality of records that were maintained. She testified that Mr. Guité made the decisions about which events to sponsor and that very little documentation was available to support those decisions. According to her testimony:
[t]he paper trail was not extensive. Usually orders were given verbally, either by Mr. Guité or by Mr. Tremblay, to … prepare a requisition, which would eventually generate a sponsorship contract. I was told what the event was, what the amount was, and who the advertising agency managing the event would be. It was rarely in writing.
While she claimed that there were very few irregularities in the contracting procedure, she testified that:
[t]here were no documents to support the invoices especially when it was production costs and hours worked. There was very rarely any backup documents to support the amounts charged.
Ms. Tremblay told the Committee that on the occasions when she raised problems with the executive directors, her concerns were dismissed. For example, Ms. Tremblay became concerned about the lack of supporting documents for invoices that one of the communications agencies, Groupaction, was submitting regarding sponsorships for outdoor recreation shows.
The agency was submitting bills with no justification for the amounts being charged, either for commissions or the production costs. Ms. Tremblay responded by telephoning Groupaction to ask for supporting documents; the person to whom she spoke indicated that there would be no problem in doing so. However she claimed that, a day or so afterwards, Mr. Guité called her into his office to tell her that he had had a call from the president of Groupaction to tell him that someone in Mr. Guité’s office was asking questions about the invoicing. Ms. Tremblay testified that Mr. Guité said, “Listen Huguette, just verify the invoice, pay the bill, and don’t ask questions.” Asked if she felt that this signified that there had been political interference, she answered in the affirmative, because the instruction “probably came from the Minister’s office, because that’s where the contacts were taking place.”
On another occasion, following Mr. Guité’s retirement from the public service (in September 1999), Ms. Tremblay raised concerns with his successor as executive director — Mr. Tremblay — about the contract for the Maurice Richard series because it did not contain a required scope of work:
When I questioned him on that saying, you cannot give out a production contract without giving me some kind of scope of work to work with. That has to be put into the contract, especially for that amount of money — his response to me was, Huguette, we have to do it, so just do it.
Ms. Tremblay ensured that there was a contract on file, and that there was sufficient funding available to pay for it. She testified that there was always a contract on file when it came time to issue a payment under the Sponsorship Program. Once a sponsored event had taken place, Mr. Guité and then Mr. Tremblay would verify that the work had been done and would attest to that fact as per section 34 of the Financial Administration Act.
In his appearances before the Committee, Mr. Guité strongly rejected the critical observations of the Auditor General concerning the quality of the documentation included in files. However, his description of what was included in the files did not differ significantly from that of Ms. Tremblay, and did not respond directly to the central concerns raised in the Auditor General’s report. His response to concerns about the adequacy of documentation, raised repeatedly by Committee members, was to argue that basic billing data had been included consistently, and that this was all that was possible for transactions such as sponsorships. In his words:
What you’ve got to realize here is that if you’re doing a sponsorship, and I don’t want to be sarcastic here, but I can not take a copy of the wordmark that’s on a building and put it in a file. … Sponsorship in its definition, what you’re doing is you’re getting visibility, that’s what we were doing with these files. On the files, when I was there, there was a contract, an invoice and there was an affidavit or a document that said the product has been delivered. What more can I put on file?
This argument was supplemented, and partly contradicted, by a second argument put forward by Mr. Guité. He advised the Committee that, when the sponsorship initiative was launched during the referendum period, a meeting that had included Privy Council Office officials decided that minimal information should be retained in files. This was to preclude the use of Access to Information requests by sovereignists to gain access to information about federal plans and strategies. In Mr. Guité’s words: “… as I said back in 2002, a good general doesn’t give his plans of attack to the opposition.” According to this argument, it would have been possible to include complete information, but a decision was made not to do this.
The concerns of the Auditor General about the value-for-money achieved by the Sponsorship Program were widely publicized in the course of the Committee’s work. While there are specific questions relating to the approximately $100 million that appears to have been spent on fees and commissions, concerns about value-for-money are not limited to this part of the Program’s budget. The absence of convincing evidence in the files reviewed by the Auditor General raises the possibility that the entire $250 million spent on the Program may not have provided public interest benefits sufficient to justify it.
Discussions between Committee members and the three ministers who successively exercised responsibilities for the Program and earlier sponsorship activity provide a useful perspective on the value-for-money question. Ministers Dingwall, Marleau and Gagliano each affirmed the seriousness of the challenges faced by the federal government in the post-1995 referendum environment, and the urgency of the need for higher federal visibility within the province of Quebec. (See above “The Actions of the Ministers of Public Works and Government Services Canada.”) Having established objectives and authorized funding for the Program, they remained directly involved to varying degrees, but clearly took the view that it was up to the public servants to manage the program capably. In the words of Minister Gagliano:
The objective of the program was very good. It was, yes, to keep the country united. It was a national unity strategy. … And if you look at the cabinet documents that you have before you, there is always a mention that those moneys were supposed to be spent according to the Financial Administration Act and the Treasury Board guidelines. Nobody ever gave instruction to anybody not to do the things that were supposed to be done.
In its meetings with the public servants responsible for the Program, however, the Committee has seen little evidence of specific attention to the value-for-money challenge in the early stages of the Program. According to Ms. Roy, an employee within the Program:
Initially, to my knowledge, when it was managed by Monsieur Guité, there were no guidelines in place. Decisions were made on a judgment call. These sponsorship guidelines were eventually drafted and used as a tool. There were different elements taken into consideration, but in the end, the decision was made by Mr. Tremblay, and it was a subjective decision.
In fairness, it should be noted that the development of meaningful value-for-money guidelines is an extremely difficult challenge in relation to objectives as inherently open-ended as national unity and federal visibility. However, Mr. Guité’s defence of the Program served, if anything, to underline the absence of specific value-for-money criteria that could have been used to distinguish between worthwhile sponsorships and others:
The Government of Canada in all of those projects got value-for-money, and as we often say, the proof is in the pudding. I think one committee member said, why did you do that when you knew there were going to be no more referendums? The reason there will be no more referendums, at least in the coming year, is that the popularity of the separatist movement in Quebec is way down. Why is it way down? The Sponsorship Program.
A number of the individual sponsorships that have come to the attention of the Committee in the course of this inquiry clearly reflect the absence of a value-for-money-based decision framework within the Program. Committee members remain unconvinced that support for Canada Post’s participation in the Stamping the Future contest (an international contest involving participation by primary school students) or the purchase of a large screen television by the Old Port of Montreal Corporation could have materially contributed to federal visibility or the decline of support for separatism in Quebec. Lastly, the Committee notes that there was very little hard evidence in the files used by public servants that would have allowed them to make an assessment of value-for-money. As Mr. Monette of the Quick Response Team told the Committee:
There were some cases where it was very difficult to assess [value-for-money] because of the lack of documentation and it was really hard to form a judgement. Then there were cases where it appeared that there was no value because … there were a huge number of hours billed on something that we could see would not take that long to do.
1. The Undermining of Parliamentary Control and Accountability
The Auditor General’s November 2003 report raises a further major concern about the Sponsorship Program. The reports that departments routinely provide to Parliament did not enable Parliament to make informed decisions based on accurate information about the objectives of the Program, or hold the government accountable for results. Furthermore, Parliament’s financial control, which is exercised through the annual estimates process, was circumvented. The practice of using sponsorships to transfer money to various Crown corporations that had been allocated by Parliament to Public Works and Government Services essentially did an end run around the process through which Parliament controls government spending. It also violated specific procedures that are available to departments to transfer money when there is a demonstrable need to do so. These procedures require that proposed transfers are submitted to Treasury Board for approval, in order to ensure that alterations to the spending authorities that have been approved by Parliament are made only for valid reasons, and are themselves reported to Parliament as part of the financial reporting and accountability process.
Concerns about the quality of PWGSC’s annual performance reports did not receive extensive attention by the Committee, in part because the observations made by the Auditor General point to broad deficiencies in reporting to Parliament that have been identified by other committees — including this one — over the years. According to the Auditor General, Parliament was not informed of the Sponsorship Program’s real (i.e., Quebec-focused) objectives when the Program was created, and the Department’s annual performance reports did not mention the Program until 2001, despite the fact that sponsorships accounted for more than half of the CCSB’s annual spending. When the Program finally was mentioned, there was no indication that it was substantially focused on Quebec. The Committee has verified that the first reference to sponsorship activities in departmental reports occurs in the 2001 Performance Report, where it is indicated that the CCSB “Supports Government of Canada visibility and presence,” and the sum total of information provided about performance consists of one line: “A diversity of 291 sporting, cultural and community events were sponsored across Canada.” (PWGSC Departmental Performance Report, 2001-2002) Commenting on the Department’s performance reports, Mr. Harder indicated that these reports are primarily the responsibility of the departments that prepare them, although the Treasury Board Secretariat does have a role in monitoring the quality of reporting.
The second Parliament-related concern of the Auditor General is based on the CCSB practice of using sponsorships to funnel money from the appropriations authorized by Parliament for the Department to Crown corporations, via the ad agencies that received the sponsorships. This practice avoided the requirement for Treasury Board approval that would have applied to a submission requesting a transfer of funds, and that would have ensured the reporting of the transfer to Parliament via the supplementary estimates.
The Auditor General’s November 2003 Report characterizes this practice as “inappropriate”(3.37) and states that “Senior public servants in the CCSB and some officials of the Crown corporations were knowing and willing participants in these arrangements.” (3.44) The RCMP would appear to be implicated in this statement, because the RCMP is among the organizations mentioned in a second comment that claims that “the parliamentary process was bypassed …” when funds were transferred to Crown corporations and the RCMP, and used for operational purposes. (3.100) The report indicates that sponsorship transactions involving the following Crown Corporations (as well as “other federal entities,”) were audited:36
| • | The Business Development Bank of Canada; |
| • | Canada Mortgage and Housing Corporation; |
| • | Canada Post Corporation (a limited audit, resulting in a recommendation that Canada Post carry out a wider internal audit); |
| • | The Canadian Tourism Commission; |
| • | The Old Port of Montreal Corporation Inc. and |
| • | Via Rail Canada Inc. |
The Committee heard witnesses from VIA Rail (Marc LeFrançois, President and CEO) and Canada Post (André Ouellet, President). It also met with Mr. Giuliano Zaccardelli, Commissioner of the Royal Canadian Mounted Police in connection with sponsorship money that was used in connection with 125th Anniversary activities. While the central focus of these meetings was on the value-for-money achieved for Canadians by the sponsorships in which these organizations had participated, some attention was also given to the appropriateness of the use of sponsorships to shift money from PWGSC to Crown corporations and the RCMP. (These issues are discussed in additional detail under the sections dealing with Crown corporations and the RCMP, above )
In his appearance before the Committee, Mr. LeFrançois asserted that VIA Rail had received full value, in terms of corporate visibility, for the sponsorship money that was spent. With respect to the decision to provide sponsorship money to Crown Corporations, he argued that this “broader context” of VIA Rail’s use of sponsorship funding had not received critical comments in previous audits, both internal and by the Auditor General. He argued, further, that: “Receiving funds from the Government of Canada in support of the government’s priorities is a common occurrence. The receipt of sponsorship funds directly or indirectly in aid of government policy was in the ordinary course of business.”
Mr. Ouellet, appearing before the Committee on his own behalf, focused on the value-for-money concerns of the Auditor General, affirming that Canada Post had received full value for the sponsorship funding, in terms of corporate objectives — essentially as a marketing venture. The issue of bypassing Parliament was not addressed.
Mr. Zaccardelli indicated that sponsorship money was used for only one operational expense — the purchase of additional horses for the RCMP musical ride. While he did not address specifically the Auditor General’s concern about bypassing Parliament, he did provide the Committee with the following general statement: “I have read the Auditor General’s report and I agree with the content and the recommendations as they pertain to the Royal Canadian Mounted Police.”
In his appearance before the Committee, Mr. Guité made no effort to deny that sponsorships had been used to provide Crown corporations (and at least one government department) with funds, outside the formal procedure for transferring spending authorities already voted by Parliament. On the contrary, he appears to have viewed the procedure involving Treasury Board authorization merely as an impediment to speedy action, and the use of sponsorships as a practical solution, a measure in which he actually seemed to take some pride. In his words:
In the case of VIA and Post Canada, you cannot — how would I use the words here — I cannot transfer funds from CCSB to Post Canada. To do that I have to go through Treasury Board because that’s taking funds from one portfolio, and even worse, to a Crown corporation. So there’s quite a system to go in. By using an agency, which I’ve done to every sponsorship we did, I used the agency to get that money into VIA Rail, but that money didn’t go into VIA for their operation, it went in for a sponsor …
In her report, the Auditor General indicated that the Sponsorship Program operated in:
a weak control environment: procurement and financial activities were handled within CCSB with little oversight by PWGSC’s central services, communications agencies and events to be sponsored were selected by only a few individuals, and the same individuals who approved projects also approved invoices for payment. Roles and responsibilities were not segregated to eliminate, as far as possible, any opportunities for fraud and misstatement or an override of controls by management. (3.22)
Mr. Quail said that when the Department established the CCSB, he wrote to Mr. Guité to let him know that now that he was in charge of a branch, that he “would be subject to the processes and review, contractual quality control, contract settlement, and prod awareness and prevention which reside in the audit group.” He said that he had advised Mr. Guité “that he should meet with Norm Steinberg, …, and go over the governing Treasury Board and Public Works and Government Services Canada policies and directives, and that is what I expected would be done.” But Mr. Quail added that he “did not cross-relate the two” (i.e., his decision to ask Guité to speak to Mr. Steinberg was not related to the findings of the 1996 audit). Mr. Quail could not recall whether he had followed up with Mr. Guité to see if he had spoken to Mr. Steinberg as requested.
The testimony given by these witnesses complements and confirms the observations made by the Auditor General as well as those contained in an internal audit conducted by the Department in 2000 (see above).
When asked to explain why the rules were broken, Ms. Tremblay replied that
[i]t was very hard to break rules when none were in place. When it came to sponsorships, there were no rules in place … things were done, contracts were drafted, invoices were paid and no questions were ever asked. So I come to the conclusion that you can’t break a rule if it’s not there.
Mr. Judd, however, had a somewhat different interpretation, telling the Committee that “it wasn’t because of a lack of rules being in place. There were rules. There were systems and there were processes, but they were subverted.” In a similar vein, Mr. Marshall commented that:
[n]o system is foolproof. As the Auditor General has pointed out, controls and procedures did exist at the time these activities were taking place that would have ensured good administration had they been followed. Yet in the case of sponsorship they were not followed, and a few individuals who were put in positions of power took advantage of that.
When he was asked why things had gone wrong, Mr. Steinberg seemed to recall that the 2000 internal audit made reference to:
[h]ow subjective the decisions ultimately were and about how much “discretion” the executive director ultimately had … even though there were “preliminary guidelines” and [CCSB] tried to use those preliminary guidelines, … the executive director waived them off and took a capricious decision to award sponsorships that his own advisers told him he probably shouldn’t do. … There were rules and regulations. There was simply a choice made by a group of individuals to put the rules aside and to do as they saw fit.
In 2002, Mr. Guité told the Auditor General during her audit of three contracts issued to Groupaction, with regard to absence of documentation on the files, that “this was how business was done while he was responsible for the [sponsorship] program.”37 Testifying before the Committee, Mr. Guité insisted: “I haven’t broke [sic] any rule in the book.”
| 36 | The Canada Lands Company/Parc Downsview Park Inc., the Royal Canadian Mint, the National Arts Centre Corporation and the National Capital Commission were also audited, but the report indicates that these audits did not identify significant issues. |
| 37 | Office of the Auditor General of Canada, 8 May 2002, paragraph 30. |