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Results: 1 - 85 of 85
Michael Ferguson
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Michael Ferguson
2014-03-31 15:53
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I think that very much is our prime function.
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Michael Ferguson
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Michael Ferguson
2014-03-31 15:53
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As we see our role, our role is to do the work, present the work to parliamentarians, and then parliamentarians can use it to hold government accountable.
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Michael Ferguson
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Michael Ferguson
2014-03-31 16:12
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We're looking at the spending of each and every senator, at every dollar that was spent by each and every senator over a two-year time period. I'd be going by memory to give the exact start and end date. I don't want to get it wrong. But it's a two-year time period for all of the spending of each and every senator that we're going through.
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Michael Ferguson
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Michael Ferguson
2014-03-31 16:25
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Again, what we are looking at is whether the spending was incurred for Senate business. I am not going to go down into the particular examples that might be outside of that, but what the money was spent for has to meet the test of being for Senate business for all of the spending that occurred in that two-year time period.
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Michael Ferguson
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Michael Ferguson
2014-03-31 16:31
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Certainly for us to do any audit it's always imperative that we get the information we ask for. If we do not get the information we've asked for, we have an obligation to report that to Parliament.
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Michael Ferguson
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Michael Ferguson
2014-03-31 16:42
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Again, I think one place where it has always been a bit of an issue as well in terms of how much access we have is with Parliament itself, either the House of Commons or the Senate. So I think the fact that we have access now to do the audit of the Senate is the type of audit that we have done only periodically rather than on a regular basis.
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Michael Ferguson
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Michael Ferguson
2014-03-31 16:53
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Again, I think it's important to understand that we have the financial audits and we have the special exams that we have to do according to legislation, so that's all covered. Then what's left over, essentially, if you want to look at it that way, is what we put toward performance audits. The amount of effort we put into performance audits, as I've said, hasn't reduced. If Parliament decided it wanted more performance audits, we're really at...Parliament telling us how many performance audits they want to do, and the way they do that is essentially by setting the budget.
So we can continue to do 30. Remember that performance audits are not just a function of our being able to do them, they're also a function of the departments being able to have the capacity to accept auditors in. That's another aspect of it. So within this budget, we're able to continue on with the 27 to 30 audits. If Parliament wanted us to do more, that would require more money.
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Michael Ferguson
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Michael Ferguson
2013-11-27 15:33
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Thank you.
Mr. Chair, I am pleased to present my Fall 2013 Report, which was tabled in the House of Commons yesterday. I am accompanied by assistant auditors general Wendy Loschiuk and Maurice Laplante, and principals Gordon Stock and John Affleck.
This report touches on a range of long-standing issues the government has been struggling to address, with potentially significant impacts for Canadians.
Rail safety is one such issue. Fourteen years ago, Transport Canada recognized the need to shift from an inspection-based oversight approach to one that integrates the oversight of safety management systems. This shift is ongoing. Much work remains to be done, and the transition is taking too long.
Transport Canada completed only 26% of its planned audits of federal railways over a three-year period. Most of these audits were narrowly focused and provided assurance on only a few aspects of railway safety management systems. The department has yet to establish an audit approach that provides a minimum level of assurance that federal railways have implemented adequate and effective safety management systems for complying on a day-to-day basis with Canada's framework for rail safety.
Our audit of Canada's food recall system showed that the Canadian Food Inspection Agency does a good job of managing most aspects of recalls. However, the weaknesses we saw in both follow-ups with industry and in large emergency recalls leave significant gaps in the system. While illnesses were contained in the recalls we examined, I'm not confident the system will always yield similar results. The weaknesses we found in decision-making and follow-up stand in the way of the continuous improvement of a system intended to deal with food safety incidents in Canada.
In this report, we also looked at how the Canada Revenue Agency followed up on a list of possible Canadian residents with accounts in a European bank. The Canada Revenue Agency's initial work on offshore banking information shows promise. However, with more lists to look at and changes in legislation that will give the agency access to more information, I believe that it needs to formalize its approach to deal with the increase in its workload.
In another audit, we looked at border controls to prevent illegal entry into Canada. It is very important for the safety of Canadians that controls at the border work as they are supposed to. I am very concerned that our audit found too many examples of controls not working.
Though the Canada Border Services Agency has made significant progress in some of its efforts to detect high risk travellers, it often does not get the information it needs to identify these travellers before they arrive in Canada. Furthermore, even when the agency has the information, we found that controls do not always work. We also found that the RCMP does not know the extent to which it is successful in intercepting people who enter the country illegally between ports of entry.
Though it is not the first time we have raised these issues, border controls are still not working as they should. With better analysis of existing information and better monitoring, many of these issues can be fixed.
Our audit of disaster assistance to agricultural producers is an example of a program with a disconnect between the program's objectives and its outcomes.
Providing quick assistance to agricultural producers is a key goal of the AgriRecovery program. While Agriculture and Agri-Food Canada has delivered assistance to producers for large disasters within their targeted timeline, those producers impacted by disasters with a smaller total payout often wait more than a year for financial help.
Agriculture and Agri-Food Canada needs to streamline its processes for smaller initiatives, and it must track whether it is meeting its timelines.
Let's now move on to our audit of online government services. We found that, since 2005, the government has not significantly expanded the services it offers online to its citizens. As Canadians rely more on the Internet in their day-to-day lives, they expect the government to provide them with online information and services that address their needs.
The government has estimated that savings can be realized by providing better online services for Canadians, but there needs to be a concerted client-focussed strategy. Departments need to work together to make this happen.
Our audit of Aboriginal Affairs and Northern Development Canada's role in supporting emergency management on first nations reserves showed that the department is in a cycle of reacting to emergencies. It has not been able to focus on what can be done to prevent and mitigate these events.
Some reserves continue to be adversely affected in significant ways by repeated emergencies, such as floods. These difficulties are compounded by the fact that the respective roles and responsibilities of the federal government and other stakeholders are unclear. Aboriginal Affairs and Northern Development Canada must work with other stakeholders, including first nations, to reduce the human and financial costs of emergencies over the long term.
We also followed up on our audit of internal controls over financial reporting. Eight years after the government made it a priority to have in place effective internal controls over financial reporting, I am concerned that several large departments are still years away from knowing whether these controls are in place and working effectively. With annual spending of nearly $300 billion across government, effective internal controls are a necessary part of safeguarding public assets. It is imperative that departments get this work done without further delay.
This report also looked at the national shipbuilding procurement strategy, specifically whether it has been designed and managed to help sustain Canadian shipbuilding capacity and capability over the coming decades. It's still early, but so far the strategy has resulted in the transparent and efficient selection of two yards to build ships for the navy and the coast guard.
Although only a few contracts have signed to date, and it will be a few years before any ships are delivered, the national shipbuilding procurement strategy shows promise. As with anything new, there are risks involved, and these will need to be closely monitored on an ongoing basis.
A look over the audits that we are reporting on today shows that, in many cases, the results need to be improved. Even when the government recognizes a problem, it takes too long to develop and implement solutions. The resulting delays can have significant impacts on Canadians, both directly and indirectly.
Departments need to focus on critical success factors that are proven to work. These include setting clear priorities, applying lessons learned, and monitoring deliverables against timelines and objectives.
Mr. Chair, that concludes my opening statement.
We are happy to answer any questions the members may have. Thank you.
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Michael Ferguson
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Michael Ferguson
2013-11-27 15:44
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The internal control systems are important for many different reasons. They are there to help protect the government's assets. They are there to make sure that all of the revenue that the government is owed is collected and recorded. They are there to make sure that expenses are authorized.
Financial internal controls are not just about producing statements. They are about many other things, such as protecting government assets.
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Michael Ferguson
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Michael Ferguson
2013-11-27 15:46
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We found that two of the departments involved in this audit, Agriculture and Agri-Food Canada and the Department of Finance, completed all of the work necessary to put in place their system of internal control, assess that system of internal control, determine if there are any gaps in it, address those gaps, and put in place a monitoring system. Two of the departments we looked at had completed the work we expected them to have completed.
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Michael Ferguson
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Michael Ferguson
2013-11-27 15:47
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Again, it's important for the departments to put in place these systems of controls. I think that's been a priority for a while now, to make sure there are good systems of controls in place. Certainly, there is a role there for the Comptroller General's office as well to encourage these departments to get the internal controls in place.
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Michael Ferguson
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Michael Ferguson
2013-11-27 15:48
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One of the things we noted—and I think it's in the table that's in the chapter—was there were at least two departments that told us they were going to have this work done by the end of the fiscal year ending March 31, 2013. There were three departments that told us that, and in this audit we found that two of them didn't have it done. That was a concern for us.
Also, yes, we spent a lot of time discussing with the Comptroller General's office what their role is and, I guess, what activities they undertake to encourage these departments to put their systems of internal controls in, assess them, and make sure they have monitoring processes in place.
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Michael Ferguson
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Michael Ferguson
2013-11-27 15:49
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This audit was a follow-up audit of an audit we had completed in 2011. The reason we came back and looked at it again so quickly in 2013 was that some of the departments told us they were going to be finished in 2013.
I think it's clear in the chapter that other than for the Department of Agriculture and Agri-Food Canada and the Department of Finance—and I want to be clear that for those two departments, we judged their performance to be satisfactory—the other departments we looked at, as well as the role of Treasury Board, we judged the progress that had been made since the last time we did the audit was unsatisfactory.
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Michael Ferguson
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Michael Ferguson
2013-11-27 15:51
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Again, I think the summary of the audit was.... It was a follow-up audit. When we're doing a follow-up audit, what we are looking at is what departments have told us in the past, and whether they have done what they said they were going to do. Then it's very clear in a follow-up audit. We look at what they have done, and we judge it to be either satisfactory or unsatisfactory. I think our determination is very clear throughout the chapter.
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Michael Ferguson
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Michael Ferguson
2013-11-27 16:41
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As I mentioned in my opening statement, a number of these issues have been around for a while. Departments have been working on them for a while, but they haven't been able to get them resolved. We think they need to go back to the things that have been proven to work in terms of setting deadlines, learning lessons, setting objectives, and those types of things in measuring performance to make sure some of these files move forward.
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Michael Ferguson
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Michael Ferguson
2013-11-27 16:53
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To clarify, Mr. Chair, the question referred to chapter 7. I think you're referring to chapter 3 on—
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Michael Ferguson
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Michael Ferguson
2013-11-27 16:53
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Really, the types of choices, I think, are the normal types of choices you would see in any large project, whether it's acquisition of military equipment, acquisition of a building, or an information technology project where there are constraints. There's the amount of money you want to spend, there's what you want to buy, and there's when you want it delivered. I think people in the consulting business will usually tell you that you have those three constraints and you can have any two of them.
That's really what this is about. There are budget caps, there's the number of ships they want, there's capability they want in those ships. When you put all of those things together, I think it's a normal part of this type of large project that at some point in time there will have to be considerations made about whether there needs to be more money in the budget, whether it's fewer ships, whether the capability of the ships can be reduced, and we've already seen that within these projects. They're faced with having to make considerations in some of those areas.
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Michael Ferguson
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Michael Ferguson
2013-11-27 17:08
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Mr. Chair, the work schedule of the committee is up to the committee. We do the audits, and we present the audits to the committee. I think there were a number of important audits in the spring report. There are a number of important audits here as well.
Certainly, we feel it helps to get our message through to the departments as well if there are hearings on the audits. Our preference is that there be hearings on as many chapters as possible, but again, it's up to the committee to decide its work schedule.
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Michael Ferguson
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Michael Ferguson
2013-11-27 17:15
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What we've identified—and we refer to the legislative changes in paragraph 9.36—is that the agency will now have access to more information so that they can identify some of these schemes more quickly. That will give them more information. They also have more lists.
The concern we've raised about that is they'll have all of this information. How are they going to manage the increased workload that will come along with more lists, more information, and now more knowledge about how these schemes are put into place? How are they going to manage that moving forward?
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:01
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Thank you.
Mr. Chair, thank you for inviting me to participate in your examination of the administrative oversight systems, policies, and practices of the House of Commons, including the role of the Board of Internal Economy. With me today is Clyde MacLellan, Assistant Auditor General.
I'm pleased that the House of Commons and this committee wish to explore the practices of provincial and territorial legislatures and other Westminster-style parliaments with respect to administrative oversight; to consider modifications to the roles of institutions, such as the Office of the Auditor General in that oversight; and to propose any other necessary modifications to the administrative policies and practices of the House of Commons.
I would like to start by mentioning a few broad principles that I think the committee could consider during its deliberations. Before this meeting, I provided the clerk of the committee with a short paper that elaborates on these principles. I would also refer the committee to our June 2012 Report on the Administration of the House of Commons of Canada. In this June 2012 audit report, we mentioned that demands have been increasing for political and government representatives to be held accountable for their use of public funds.
In particular, we noted that members of Parliament hold positions of trust and have responsibilities to their specific constituents and to Canadians in general that are considerable. In my opinion there are three fundamental elements that contribute to the fulfilment of these responsibilities. They are transparency, accountability, and good governance.
I believe that providing detailed public disclosure of members' expenses, and having clear policies and processes for those expenses, establishes an environment of transparency, and transparency is the foundation of accountability.
In my opinion, governance can be strengthened by having an independent body that would either advise the Board of Internal Economy or be given the responsibility for all matters related to members' expenses and entitlements. Regardless of the role of such a body, it is important that Canadians are confident that its membership is independent and that the members have been chosen in a non-partisan manner.
I also believe that independent comprehensive audits, including financial statement audits, compliance audits, and performance audits, would not only strengthen members' accountability but would also enhance the public's confidence in the governance mechanisms of the House of Commons.
The committee may therefore wish to consider whether the mandate of the Office of the Auditor General should be amended to include this role. The right to conduct such audits, at the discretion of the Auditor General, should be clearly described in statute. Because we regularly conduct all of these types of audits, the Office of the Auditor General has a unique ability to contribute, and we are ready and willing to take on this role.
Canadians expect members of Parliament to spend the moneys they receive for the functions of their office in an ethical and prudent manner and for approved purposes. Members are accountable to one another in the House of Commons and to the public for their actions. It is their responsibility to carry out their assigned mandate in light of these expectations. I therefore believe that the changes the committee will decide to make, while respecting the many unique aspects of the institutions, need to be significant enough that a reasonable person with a healthy degree of skepticism would be satisfied that the rules are being consistently applied and sufficiently monitored.
In conclusion, members of Parliament must be properly supported in order to carry out their duties effectively. Refining the mechanisms that promote transparency, accountability, and good governance will enable members to fulfill their roles and responsibilities and meet the expectations of Canadians.
Mr. Chair, this concludes my opening statement. We would be pleased to answer any questions that the committee may have.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:08
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Thank you, Mr. Chair.
Before I turn it over to Mr. MacLellan, I think our comments in this vein would mostly be in the context of the two audits that we completed recently on the administration of the House and the administration of the Senate. For example, in the administration of the House of Commons in terms of expenses, while we noted that for the most part they were being processed properly, there were still some situations where documentation was missing and improvements needed to be made.
I'll also turn it over to Mr. MacLellan just to see if he has anything that he would like to add.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:13
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Certainly it indicates that there is still room for improvement.
When you look at the number of claims that go through and you apply a 98% success rate to it, it still indicates that there are a certain number of claims that need to have more scrutiny. I think that's important. So 98% sounds like a good success rate, but when you're dealing with this type of situation there is still room for improvement.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:16
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Certainly, what we have done, Mr. Chair, is to indicate that we believe that some sort of independent oversight is important. We have indicated it could be advisory or it could be authoritative. Certainly, my preference would always be that it have some sort of authority, but that's not my decision to make. That's a decision for the committee to recommend.
Again, I think, in general—and I tried to make the comment in the opening statement—at the end of the day what's important is that whatever change is put in place is going to be a change that a reasonable, independent person harbouring a certain level of skepticism will believe has been sufficient, so they can be confident that the rules and expenses are being appropriately monitored.
I think the other thing that is important to remember is probably that the ground of this type of situation always shifts so that what people believe to be perhaps acceptable right now may not be what people perceive to be acceptable sometime in the future. So I think it's also important there be some mechanism to make sure that's all being monitored. And on that mechanism, again there should be some component that is independent or coming from the outside. My preference would be that it have a certain level of authority, but it could be advisory as well.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:18
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Certainly, an important component to that would be having a clear mandate so that we understand what our responsibilities and authorities are. Obviously, taking on this type of a mandate, if we did it within existing resources, would have an opportunity cost. But every audit we do has an opportunity cost, right? So for every audit we decide to do there are other audits we can't do because of that.
However, we believe this would certainly be an important role, and if we were looking at priority areas of audit, this would be one that would come high on our list. So I think regardless of whether there were additional resources that came along with the mandate or not, we would consider conducting these types of audits important enough that we would be willing to take them on.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:20
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Certainly, having the additional resources would allow us to take the mandate on and add it to everything else we're doing.
If we don't have the additional resources, we will have to either reduce some of the other audits or see if there are any places to free up the time to do it. I don't think we could absorb the mandate entirely, though, without resources and without it affecting the other work we do.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:22
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Thank you, Mr. Chair.
In my opening statement, I identified three types of audits: financial audits, performance audits, and compliance audits. The first message is that not all audits are the same. That's important for everybody to understand.
As to a performance audit of the administration, that's what we did in 2012. We did an audit of the administration of the House and an audit of the administration of the Senate.
The purpose of these audits is to look at whether the administration is performing its function in an economical and efficient manner, looking at whether all of the support functions are operating the way they should.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:24
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In terms of expenses themselves, I think there are a couple of different types of audits that could be undertaken. One would be a compliance audit, which would be the standard: did the claims comply with the rules and were they processed properly?
In terms of the question you're asking, that would be standing back and trying to do a broader audit of disclosure practices, making recommendations around those practices. It's certainly something that we could put an objective around and do an audit of. Usually in our performance audits we have to stay away from commenting directly on policy. We just look at how policy was implemented. In this instance, we would very much have to be given the mandate. If we were going to do that type of audit, it would have to include a mandate to be able to comment on policy. I'd have to make sure that we would be able to do that under our legislation, but that would be the thing we would need to consider.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:26
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I'm not trying to insert myself into any political debate here, but with any type of committee or organization that needs to meet on these things, there probably needs to be some ability to meet publicly, meet privately, and meet in camera. All three of those tools have to be available. When I say “meet privately”, I mean not with the cameras on, but not under the rules of in camera. There would be minutes.
Those three types of avenues would need to be available to any type of committee that had this responsibility: public, private, and in camera meetings.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:29
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It's difficult to say. Certainly we've looked at lots of samples where we have not found any errors, when we're selecting samples in different audits.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:32
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Again, all I can say is we certainly understand that for those types of meetings it's important that the committee have all three avenues open, to have meetings in public, private, or in camera, depending on the nature of the discussion.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:35
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In terms of the role of the Auditor General, that would be the role of an independent committee, which would be advisory or would assess certain situations and make decisions. That would be a very different role from the audit role. The audit role would be to come in after the fact to see if everything had been processed properly.
If you sort of drew a line, the independent committee would be on one side of the line and the auditors would be on the other side of the line, so the roles would be very different.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:36
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In the paper we presented, we identified a number of different jurisdictions that have undergone these types of changes. Some of them have put in place boards. Some of them have given authority to their auditor general. There are a lot of different models, and in the paper, we tried to identify the significant ones that should be considered.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:38
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The direct answer to your question is no, we didn't see anything egregious.
Remember, though, what we did was select a sample, and within that sample, even though it was a low percentage, we did find a certain percentage where the documentation was not sufficient to support a particular expenditure item.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:38
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It would have depended on what the documentation said, what the documentation was. That is why we indicated we had a concern with that. In a situation where we don't have all the documentation, it is difficult for us to say whether the rules were entirely complied with.
Clyde, do you have a comment?
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:40
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The normal audit practice would be to do financial audits, compliance audits, performance audits, those types of audits. If those audits indicate there is a particular problem, then you have to look at whether a forensic audit is required, but a forensic audit wouldn't be the first type of audit you would go to. You would go to performance audits, financial audits, and compliance audits.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:43
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Thank you, Mr. Chair.
The model we are suggesting incorporates two aspects on the governance side. One is the aspect of independent audit. The other is the aspect of having some sort of independent body as well to help oversee the process.
I would say that model is very much the same type you would see in a large crown corporation or in any other large corporation where, for example, you would have an audit committee. That would be a committee that we as auditors could interact with to make sure we're sending messages and they understand the messages, and they could help whatever board is responsible to figure out how to manage these types of expenses.
The role of the independent body would be to help make sure that when we came in, our audit wouldn't find anything. That's where you want to be. You don't want to be in a situation where things are being processed and then you are relying on the audit to find things. You want to be in a position where the audit is really confirming that things are operating properly. That's why we think the system would be better if there were an independent advisory body on the side, processing things before the audit happened. So the two would be integral parts of improving governance.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:45
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We have indicated that we believe they need to be independent and they need to be appointed independently. I think you will find a couple other provinces where they have independent members sitting on a board. I believe in a couple of provinces the Chief Justice of the province appoints those people. So there should be a way to have independent people appointed.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:46
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We haven't gone into either one of them in any detail. What we did as part of preparation for this meeting was look to see what's going on in other areas. We identified those two as areas that we think would be of interest to the committee to look at further, but I can't give you enough detail on it to really go any further.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:47
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Mr. Chair, in that type of situation, we always have to balance off being in a situation where we come in to audit a process that we have recommended be put in place. We certainly would be willing to answer some questions and provide some things that we think need to be considered, but anything that we do would have to be within the way that we do our normal work.
For example, we wouldn't be able to come in as a consultant and say, okay, here's the actual process that needs to be put in place, and then have to come along later to do an audit of whether or not the process is adequate. We'd have to make sure that we can maintain that independence.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:56
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Thank you, Mr. Chair.
We certainly have not done an audit of the functioning of the board, and we haven't said that the board needs to be replaced. We have indicated that we think there would be a role for an independent organization to augment the process as it is right now, and that independent board could either have some authority or it could be advisory.
We don't dispute that there are very diligent people working in the administration of the House of Commons, processing claims. We agree with that. We understand they're dedicated people and they're working very hard at the jobs they do.
But again, for us this issue.... What we're doing is looking at governance structures in other places, and we're asking whether there are some good practices out there that should be considered by the committee. Whether you look at other government jurisdictions or at the private sector, we think that having a role for some sort of an audit committee, and a committee that has some independence, would be a way to help strengthen Canadians' confidence in the way members' expenses are being processed. That's really what we think the committee should be considering, whether there are ways to really enhance that confidence.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:58
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We haven't said one way or another to replace the board or not replace it. Certainly, the functions of the board have to be done by somebody. How the board would interact with this independent committee is something that would have to be considered.
We think some form of independence would be the important thing that needs to be added to the process.
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Michael Ferguson
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Michael Ferguson
2013-11-19 11:59
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Certainly in the paper we provided the committee there are examples of those independent bodies. There are other examples as well, perhaps Nova Scotia and Newfoundland, where a couple of independent members have been added within the existing system. So there are both models out there.
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Michael Ferguson
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Michael Ferguson
2013-11-19 12:00
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Again, I think what we're saying is that there needs to be independence, both from the audit perspective and from the internal audit committee type of perspective. Whether that is advisory or it's authoritative, again, really, we can't make that decision, obviously. But what we feel is important, again for this committee, is that it's really about what people outside of this room think. As I've said, it's not just the reasonable person per se, but whether the reasonable person looking at it with skepticism thinks that any changes you put in place have gone far enough. That's what we're bringing forward.
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Michael Ferguson
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Michael Ferguson
2012-10-25 11:37
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Thank you, Mr. Chair.
Mr. Chair, I am pleased to present my report, which was tabled in the House of Commons last Tuesday.
I am accompanied by Assistant Auditors General Jerome Berthelette and Wendy Loschiuk, as well as by Glenn Wheeler, the principal responsible for the audit of transfer payments to the aerospace sector.
The report contains the results of that audit. In the first chapter, we looked at how Public Works and Government Services Canada, Health Canada, and Human Resources and Skills Development Canada plan their use of professional service contractors. We found that the departments plan their needs for employees and contractors separately. This hampers their ability to assess whether they have the best mix of employees and contractors to meet their objectives.
Departments need to consider the full range of options that will enable them to most effectively deliver programs and services to Canadians.
I'll move now to our report about grant and contribution program reforms. In May 2008 the government announced an action plan to reform the administration of grant and contribution programs and to streamline the administrative and reporting burden on recipients. Our audit looked at whether the government has adequately implemented this action plan. We found that the government has in fact focused its actions where they're most important. Treasury Board Secretariat has provided leadership and guidance to federal organizations to make the necessary changes, and these organizations have acted on most of their obligations. The government has made good progress in implementing the 2008 action plan. Now it needs to determine if the actions taken have made a difference for recipients.
Let's turn now to our audit about what government is doing to help protect Canadian infrastructure against cyber threats. Critical infrastructure includes the power grid, banking and telephone systems, and the government's own information systems. The government has a leadership role to play in ensuring that information about threats is shared, and it has to improve the way it does this. This is important because officials are concerned that cyber threats are evolving faster than the government can keep pace.
In 2001 the government committed to building partnerships with the owners and operators of critical infrastructure systems to share information and provide technical support. We found that 11 years later, those arrangements are not fully operational. Similarly, the Canadian Cyber Incident Response Centre has only been operating eight hours a day, five days a week. It's not the 24/7 information hub it was designed to be in 2005. Furthermore, it's not being kept abreast of cyber security incidents in a timely manner.
Since 2010, the government has made some progress in protecting its own systems and building partnerships to secure Canada's infrastructure. The government must now ensure that the sector networks are in place and working with the Cyber Incident Response Centre.
We are also reporting on how National Defence and Veterans Affairs Canada manage selected programs, benefits, and services to support eligible ill and injured Canadian Forces members and veterans in the transition to civilian life.
There are many support programs, benefits, and services in place to help ill and injured members of the military make the transition to civilian life. However, we found that understanding and accessing these supports is often complex, lengthy, and challenging. The lack of clear information about programs and services, the complexity of eligibility criteria, and the dependence on paper-based systems are some of the difficulties for both clients and departmental staff.
We also found inconsistencies in how individual cases are managed and problem-sharing information between the two departments. As a result, forces members and veterans did not always receive services and benefits in a timely manner or at all.
National Defence and Veterans Affairs recognize they need to work together on solutions. I'm pleased they've accepted our recommendations, including to streamline their processes to make programs more accessible for ill and injured forces members and veterans.
The next report also concerns National Defence—specifically, how the department is managing its real property at 21 main bases across Canada. The Canadian Forces rely on real property such as buildings, airfields and training facilities to carry out missions. These assets are valued at $22 billion. I am concerned that the department is not yet adequately maintaining and renewing its assets.
We found several weaknesses in the department’s management practices. For example, the approval process for construction projects is cumbersome and slow. It takes an average of 6 years to approve projects over $5 million.
We also found that National Defence is behind in its spending targets for maintenance and repair, and recapitalization. As such, weaknesses in National Defence’s management of real property could jeopardize the Canadian Forces’ ability to carry out its missions. National Defence recognizes it needs to improve and change its approach to managing real property.
We also looked at two programs that provide repayable assistance to support industrial research and development in Canada’s aerospace sector. Since 2007, Industry Canada has authorized almost $1.2 billion in assistance to 23 Canadian aerospace companies through the Strategic Aerospace and Defence Initiative and the Bombardier CSeries Program. Industry Canada has done a good job of managing most of the administrative aspects of the two transfer payment programs. However, we found that the department has been slow to measure progress against program objectives and report results publicly. Repayable support to the aerospace sector represents a significant investment on behalf of Canadians. Industry Canada has a responsibility to ensure that funding contributes to meeting the government’s objectives in this area.
Finally, in our audit focusing on long-term fiscal sustainability, we found that Finance Canada analyzes and considers the long-term fiscal impact of the policy measures it recommends. However, at the time of the audit, the government had yet to make public its reports on long-term fiscal sustainability. Analysis that provides a long-term budgetary perspective would help parliamentarians and Canadians better understand the fiscal challenges facing the federal government.
The department has accepted our recommendations. Following the tabling of my report in Parliament, the department issued its first long-term analysis for the federal government. We also recommended that the department publish, from time to time, an analysis for all governments combined—federal, provincial, and territorial—to give a total Canadian perspective.
Mr. Chair, that concludes my opening statement.
We will be happy to answer any questions you may have.
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Michael Ferguson
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Michael Ferguson
2012-05-15 8:48
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Good morning, Mr. Chair.
I am pleased to be here again to discuss chapter 2 of my spring report. I am accompanied by Assistant Auditor General, Jerome Berthelette.
We have followed the committee's deliberations and will be pleased to answer your questions.
I would like to take this opportunity to address a few points that have come up in the course of this committee's work.
To begin with, I would like to address the issue of life-cycle costing for the acquisition of goods and services. Life-cycle costing is required by Treasury Board policies and is also included in the Department of National Defence's own project approval directive. This directive states the following:
The life-cycle cost estimate includes estimates of the total cost of the resources needed to complete project activities and deliver the product system infrastructure, i.e., project acquisition costs, as well as the cost of the resources needed to operate, maintain, and dispose of the product system infrastructure, i.e., ownership costs.
While we believe in and support life-cycle costing, it is not a requirement established by the Office of the Auditor General.
As illustrated in exhibit 2.6 of the chapter, life-cycle costing includes two main categories. The first is capital costs. The second is the cost of personnel, operating, maintenance and contracted sustainment. All figures appearing in exhibit 2.6 are National Defence's estimates and not those of the Office of the Auditor General.
As described in the chapter, we believe that the Department of National Defence did not include some significant cost elements in a testament of life-cycle costs. In addition, many of the costs are not yet known or cannot be reliably estimated. These are itemized in paragraphs 2.71, 2.72, and 2.73 of the chapter.
The estimated life of the F-35 is about 8,000 flying hours per aircraft. The estimated life of the aircraft is calculated in years, based on the number of anticipated flying hours per year per aircraft.
Working from estimates of contracted sustainment costs over 36 years provided by the joint strike fighter program office, National Defence is able to estimate costs over 36 years.
Mr. Chair, I am concerned with suggestions that accurate estimation and the inclusion of personnel, operating and maintenance costs are not important, since they would be incurred regardless of the aircraft selected to replace the CF-18. National Defence states that its $16-billion estimate is already within its base budget. It is important for decision makers and parliamentarians to understand National Defence's estimate for personnel, operating and maintenance costs even though these estimates are already within the existing budget allotment.
National Defence currently assumes that the F-35 fleet costs will be similar to those related to the CF-18 fleet. We reported on a similar situation in chapter 6 of our fall 2010 report on the acquisition of military helicopters. Specifically, we noted that National Defence initially assumed that the personnel, operating, and maintenance costs for the new Cyclone maritime helicopter would be the same as those for the legacy Sea King it was replacing. National Defence later realized that these costs would exceed those associated with the Sea King by $1.1 billion over 20 years.
Finally, Mr. Chair, I would like to state for the record that we stand behind all of the facts presented in the chapter, and note that these facts were accepted by the department.
This concludes my remarks. We would be pleased to answer any questions the committee may have.
Thank you.
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Michael Ferguson
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Michael Ferguson
2012-05-15 8:54
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We decided to do this audit primarily because of some of the other work we had done in National Defence. We felt that we could provide the most value by doing the audit before the purchase was completed in order to identify any weaknesses that could be rectified during the process, rather than at the end of the process.
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Michael Ferguson
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Michael Ferguson
2012-05-15 8:55
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We presented the report in April. We came to our conclusions, our observations, and made our recommendation. As I understand it, the government has put forward its position.
We haven't gone in and audited that response in any way on its adequacy. We certainly acknowledge that the government has responded to the report and has indicated it will take action.
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Michael Ferguson
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Michael Ferguson
2012-05-15 8:56
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In the chapter we made a recommendation that the full costing information should be brought forward. We also felt that there were existing policies and procedures in place that needed to be properly followed to see the procurement through to the end.
Without specifically going through the government's response and assessing it against criteria, I can't give you a yes or no answer as to whether it's adequate. We certainly acknowledge that the government has responded. We are glad to see that the government has responded. But we haven't done any work on trying to assess the adequacy of the response.
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Michael Ferguson
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Michael Ferguson
2012-05-15 8:57
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The recommendation we made in the report was about making sure that financial information was brought forward. The critical thing is to ensure that the financial information is complete and any assumptions in that financial analysis or information are clearly articulated.
The fact that financial information will be brought forward is a good step. That's what we were looking for. The rest will be to make sure that information is fulsome and includes any explanations it needs so people can understand it.
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Michael Ferguson
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Michael Ferguson
2012-05-15 8:58
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As I think I said last time, in terms of moving forward I think the critical thing is that the people who are charged with moving forward on this have a clear statement of purpose so that they clearly know what is expected of them. If they have that, if they understand exactly what it is they are supposed to do, they have that clear statement of purpose, then I think the rest of the process will come out of that. I believe that's the fundamental basis for what needs to happen.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:01
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What we pointed out in the chapter was that we felt that Public Works did not have enough information or the information they should have had in terms of approving the sole-source request. So that's where we fundamentally identified that there was a weakness in the process: it was in that area that Public Works should have been provided more information from National Defence in their request for sole-sourcing.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:03
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The reason we requested them to reconsider the classification of the letter was in order that we could reflect information from the letter in the report. That's why we asked them to reconsider that classification.
They would have been the ones, obviously, that had to then make the assessment of whether it could be reclassified or not, and they did do that.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:04
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Mr. Chair, that's not something I can give a very short answer to. I would have to look at that to determine whether I could agree with that or not.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:06
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Again, it's not something we went into a lot of depth on. Fundamentally, though, what we felt needed to have happened in this was that because it was a developmental type of project, because it was different, National Defence and Public Works should have gotten together very early in the process to determine just what exactly those steps would need to be.
This would strike me as the type of project where, because the government was going to be involved in both the sort of development side and then later the procurement side, or potentially the procurement side, it would be important to make sure there were the necessary controls in place to protect both sides of the project and then identify when those two are starting to merge, so that it moves from a development into a procurement project. We felt those lines were blurred, and that was what ended up causing some of the problem.
So I can't give you specifics, but what I can say is that we felt this was something that Public Works and National Defence should have worked out much earlier in the process, to make sure that both sides, the development side and the procurement side, were going to be able to unfold as they should.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:08
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I think certainly there are a number of lessons that can be learned from this and that need to be learned. I think an important part of what this chapter is about is making sure that those involved in these types of procurements do look at ways to try to improve these types of procurements.
Again, because this was going to be a very different type of procurement, it would have been important right up front to lay out what the ground rules were going to be, what the roles and responsibilities of each of the parties were going to be. By definition, this wasn't going to be a textbook type of procurement. So it was something where it would have been important up front to lay out what those roles and responsibilities were going to be. That was one thing.
Certainly I think the other two lessons, the other two main areas we identified, were good risk mitigation strategies when you're dealing with this type of a project with uncertainties, and then good and fulsome cost information.
So I think there are definitely areas where lessons can be learned for future procurements.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:10
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I think all our reports have two purposes. One is to improve the way government delivers services to the citizens of the country. Certainly whenever we can identify weaknesses or issues within a particular process, our goal is that those be dealt with.
The other prime outcome we expect from our reports is accountability, that the information is used, that the right questions get asked from the reports to make sure there is accountability for the decisions that are made.
I think those are the two prime purposes, and I think this chapter is no different from any other from that perspective.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:11
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I can't respond without having a specific area to address.
We presented the report. The department has agreed with the recommendation we made. The government has indicated they intend to put their action plan in place. Again, we haven't looked at it to—
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:12
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Certainly the joint strike fighter office provided 36 years' worth of sustainment cost information. The life-cycle costing policy requires identification of the costs over the full life cycle.
You'll notice that National Defence's policy, as I read it, even refers to the cost of disposal. By definition, if you have to include the cost of disposal, the expectation would be that you have to go out to the full life of the particular asset.
That was something we identified. We felt that life-cycle cost information should have been for that full life cycle of the aircraft, rather than just for 20 years.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:14
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Certainly we don't have access to.... We will get access, for example, to memorandums to cabinet, but we have an agreement about what we do and do not disclose when we're looking at that type of information.
We felt we had access to enough information in this report that we could still draw our conclusions. In fact our legislation requires us to bring it to the attention of Parliament if we feel in any instance that we do not receive information we need to receive.
We felt we received all of the information we needed. Some of it would have been in memorandums to cabinet. We have to be very careful about how we refer to that type of information
The other point I want to make in terms of your question is that the types of analysis and things we were looking for were analysis we felt should have existed in departmental documents. They're not analysis you would wait until you're preparing a memorandum to cabinet to actually prepare. We would have expected to see those types of analysis in a format that was not cabinet confidential.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:16
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If I understood the way the question was posed, that wasn't what I was saying. I'm sorry for the confusion.
What I was saying was that we did receive all the information we felt we needed to receive in order to draw our conclusions. There were certain types of analysis we felt should have been prepared and should have existed as part of normal departmental process. It shouldn't have been something they would have waited to prepare only to include in the memorandum to cabinet.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:17
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There are two parts to that. The second part, in terms of no planes purchased, is correct. On the first part, in terms of no money spent, we identified a significant amount of money that was spent in terms of the development part and the industrial benefit part of this program.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:18
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Thank you.
The obvious challenge when you're looking at something in mid-process is that not everything has been completed. However, there were enough milestones along the way that we were able to identify that what needed to be done at those points in time had in fact been done.
That was really what this was about. It was a normal audit of process that was a long process. It was done during the process, which meant we had to identify the specific milestones we were assessing against.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:20
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I think there are a number of pieces to your question.
As I tried to indicate in the opening statement, the 36-year life was not our number. It was a number based on information National Defence was receiving from the joint strike fighter office. That information included 36 years' worth of sustainment costs. The life cycle of the aircraft is based on the total number of hours the aircraft is expected to be able to fly, which is 8,000 hours. You simply divide that by the number of hours they expect to fly the aircraft each year. You come up with the number. That was 36 years, and it wasn't our estimate. It was in the information.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:21
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Right.
The other point, about the 20 years versus a longer life cycle, that, to me, is one of the defining things about this type of a program. This purchase was different. This was a development program. This was for a very complex asset. One of the things we identified that was not included in their life-cycle costing, for example, was the cost of attrition of aircraft. If the intention is to maintain 65 aircraft, then with attrition you would expect there would have to be some replacement of aircraft. That attrition and that replacement would have to be carried out over the whole 36 years, not just 20 years.
I think it was important in this one, because these are very long-lived assets, because they are complex, because you have issues like attrition, and because they had the information, that the parties involved recognize that they needed to go beyond just the normal 20 years for this particular acquisition.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:23
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We didn't try to analyze what the life-cycle costs would be. We didn't try to estimate whether they were going to be similar or not. We recognized that National Defence was saying they felt the additional costs beyond the contract for sustainment would be similar to those for the CF-18. We felt that was a pertinent piece of information that should have been disclosed. We didn't do an analysis ourselves on what the maintenance and operating costs would be.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:25
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There have been, I believe, some references in the U.S. to the fact that if you do some comparisons of the F-35 to an F-18, the cost of maintaining a particular aircraft might be higher.
What that does is it simply means that it raises the types of questions that need to be asked. National Defence may have a perfectly good reason for how that can be offset within their current budget envelope. The problem we have, I think, in terms of those costs is that National Defence for the most part has simply said those costs are in their budget, they're going to be the same, and they haven't provided enough information for people to understand whether that really is an appropriate assumption.
And that's what we feel they need to do: make it clear and defend that assumption that the costs are going to be the same.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:27
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We certainly could take a look and see what type of information we have. We wouldn't do sort of an exhaustive search of information.
Hon. Gerry Byrne: Understood.
Mr. Michael Ferguson: It would be whatever we had where there might be some references to sustainment costs. We could table them with this committee.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:29
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Certainly some of the time period we were looking at in this audit was the same time period as the helicopter purchase, so the fact that we've identified that there were some similar issues in both cases was not particularly surprising.
But I think what this does indicate.... The fact that we are still talking about life-cycle costing and we are still talking about what's appropriate in life-cycle costing means that there needs to be some serious consideration about just how life-cycle costing is supposed to be applied. I don't know whether that is a Treasury Board responsibility or a National Defence responsibility, but the fact that there's still confusion about life-cycle costing and how it should be applied I think is indicative of the fact that it needs to be re-examined to determine the best way to apply it.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:30
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For the record, the recommendation is contained in paragraph 2.77. I can read that into the record, if so desired.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:31
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The recommendation we made was presented to the department. The department's response to our recommendation was that they agreed, and they will continue to refine their life-cycle cost estimates and make them available to the public. In terms of our recommendation, that was what the department's response was.
Within the confines of the audit, we made a recommendation, and we got a response. The response was that they agreed and that they would do what we asked. We were satisfied with the department's response to that.
In terms of what the government has done since and what it has announced, again, that's not something I can comment on.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:32
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The only specific recommendation we made was on the costing information, and that was agreed to by the department. The actual mechanism by which they do that really wasn't something that was concerning to us. It was just the fact that they would make the information public.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:34
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Really, in terms of the industrial benefits, what we looked at was the information being brought forward to decision-makers. We identified that there were a number of estimates in terms of the industrial benefits. They didn't always include the range of what industrial benefits could be expected.
Also, we identified that we were concerned that they included in the amount of potential industrial benefits an amount for potential contracts that would be available to industry in all partner countries. We felt that this wasn't well explained to the decision-makers. That was really, I believe, the main focus of what we looked at in terms of industrial benefits. It was the information brought forward about what to expect in industrial benefits.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:36
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We didn't do any of our own estimates or analysis. All the numbers included in the chapter are numbers we got from National Defence.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:39
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As I said in my opening statement, we absolutely stand by the facts in our report, and the facts were cleared and agreed to by the departments involved.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:40
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That's really not something I can respond to. I think that's a question you would have to ask of them.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:43
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I believe that in the chapter we identified that the various departments did handle the participation of Canadian companies well throughout this project, that there were memorandums of understanding that were signed, and that Industry Canada and National Defence did a good job of bringing Canadian companies along into this process. We did, however, as I said earlier, have concerns about some of the estimates that were brought forward about the potential industrial benefits.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:44
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Again, this is a long process. This is a long acquisition process, and we felt, particularly given some of the things that we had found in past National Defence procurements, that it was important for us to do the audit at this point in time. We could identify specific milestones to audit against, and that would provide information to Parliament about whether this process was on track, or whether there were issues within the process, without waiting until it was finished.
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Michael Ferguson
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Michael Ferguson
2012-05-15 9:46
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If you look at the objective of this audit, our objective was to determine whether the departments involved exercised due diligence. You'll see that we define “due diligence” in the chapter fundamentally on the basis of good management practices and the types of information flow and analysis we would expect. We did not design this audit as a strict compliance audit, did the department comply with policy such and such?
The reason we did this is that we were recognizing that this was a unique and complex type of purchase, so it was important that the process to follow would be more one of due diligence, good management practices.
That's why I said a couple of times that we would have expected that Public Works and National Defence would have gotten together very early on in this process to try to identify what steps, procedures, roles, and responsibilities were required to bring this type of complex acquisition to its end.
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Michael Ferguson
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Michael Ferguson
2012-03-28 15:37
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Thank you for your question.
In response to the honourable member's question, I think the critical thing is that the votes themselves need to be clear about what they are for and what they are intended to be for. I think that's the fundamental starting point in all of this: it's that what Parliament is approving needs to be clearly laid out in each of the appropriations. Then, once it's clearly laid out, it's I guess part of the process to make sure that the spending then complies with what's contained in those appropriations.
So I think it's purely a matter of making sure the appropriations are clear and then making sure that the overall management structure ensures that the spending is in agreement with what the votes were approved for.
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Michael Ferguson
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Michael Ferguson
2012-03-28 15:47
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Thank you for the question.
Part of what we do is that we audit the federal government's public accounts, but we audit that at the sort of macro level of the public accounts to make sure that the financial statements the government presents are presented fairly. We don't perform our audit in order to track the spending at the sort of individual vote level. We don't audit at that level of detail. It is really left up to the internal workings of government to make sure that the departments are spending according to the budgets they were given.
So again, it's not really something I can comment on, because it's just not the level of detail we get to. If in the course of our audit we were to find spending that we felt significantly didn't comply with an appropriation, we would probably raise that in our observations.
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Michael Ferguson
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Michael Ferguson
2011-10-31 16:38
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I believe that the Auditor General of Canada has very much established a leadership position over the last number of years under Ms. Fraser's leadership in terms of its reputation across the world for excellence in performance audits and excellence in financial audits. I think Canada also has a reputation for having very excellent accounting standards for governments, as established by the Public Sector Accounting Board.
So I don't think Canada takes a back seat to anybody, whether it be in terms of the quality of financial statements, the quality of accounting standards, or the quality of the audit work that is done. And I think it's very important for Canada to continue to deliver that message.
For me, as Auditor General, one of the most important parts of that is the recognition that we have an independent accounting standard-setter, that being the Public Sector Accounting Board, and it is absolutely imperative that each and every government comply with the accounting standards set by that board so that everyone has confidence that the financial statements are prepared appropriately and that auditors audit to that set of standards.
Again, I think Canada doesn't take a back seat to anybody and that the federal Auditor General's office very much has a leadership role to play.
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Michael Ferguson
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Michael Ferguson
2011-10-31 17:26
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One thing I would focus in on is that when I was auditor general I made the recommendation to the previous government that it needed to implement a long-term budget plan. It had made a commitment to get back to a balanced budget, but I felt it had issued some targets and hadn't issued a plan.
Stepping into the role of Deputy Minister of Finance, of course, now means I myself have to live with that recommendation. So we, in the New Brunswick government, are very much right now going through an exercise—and it's not just the Department of Finance, it's really being led out of the executive council office—to develop a long-term plan that is more than just saying here's what the targeted deficit numbers are. Rather, it's something that has more information behind it in terms of how we're going to get back to a balanced budget.
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