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Message from the Auditor General of Canada

I am pleased to present the Office's 2006–07 Performance Report.

In Canada, the government and the public service are the guardians of public funds entrusted to them. One of Parliament's most important roles is to hold the government to account for the results it achieves with taxpayer dollars. To do this effectively, parliamentarians need objective information they can rely on to scrutinize government activities and spending.

The Office of the Auditor General is an independent source of such information, which we gather in the course of carrying out about 150 financial and performance audits every year. The reports we give to Parliament describe areas of government that need attention, offer recommendations for improvement, and point out good practices.

Some say that our role in auditing government amounts to looking at its activities through a rear-view mirror. But this ignores the constructive value of our work. Our audits also point to the causes of problems, and we make recommendations for improvement. In this way, we contribute to maintaining healthy public institutions.

Parliament provides government oversight through its committees, which may review our reports, conduct hearings, and make recommendations to the government for action. It is up to the government to implement changes recommended in our reports. By carrying out our distinct roles and working together effectively, Parliament, the government, and my Office all contribute to well-managed and accountable government for Canadians.

Our priorities for 2006–07 were to improve our audit products and to maintain our strong workforce while implementing our expanded mandate.

Achievements

As a result of Parliament having expanded our mandate in 2005, we increased our numbers of financial audits and special examinations of Crown corporations. In addition, we now consider federally funded foundations when planning all our performance audit work. This year, we issued our first audit report that included a foundation: Sustainable Development Technology Canada.

As we face increasing competition for experienced auditors from other federal organizations and the private sector, it is a constant challenge to recruit and retain a strong base of employees. While still experiencing some turnover in our staff, we are seeing an improvement in our retention rate. At the same time, our workforce better represents the Canadian population and we have improved the bilingual capacity in the management group from 62 percent in 2005–06 to 82 percent in 2006–07. Our 2006 employee survey showed a significant increase in overall employee satisfaction, from 70 percent in 2004 to 82 percent in 2006. Most employees—92 percent—say they feel proud to work for the Office; they consider it a well-run organization, characterized by clear direction and strong support for vision and values.

A key question we ask to assess the impact of our work is whether our audits contribute to improving management within government. One of the ways we monitor this is asking departments to report on their progress in implementing our recommendations. In 2006–07, departments reported that they had fully implemented 46 percent of the performance audit recommendations we made four years ago and had substantially implemented 26 percent.

We monitor Parliament's engagement with our performance audit reports by looking at how frequently parliamentary committees ask us to appear before them to further elaborate on our findings. I am pleased to report that in the past year committees reviewed 63 percent of our performance audit reports, representing a significant increase from 48 percent in 2005–06 and 52 percent in 2004–05. We participated in 64 hearings and briefings, a significant increase from previous years in both the total number of hearings and the percentage of hearings relative to the number of parliamentary sitting days.

In the spring of 2007, we surveyed parliamentarians on the impact of our performance audits tabled in 2006–07. In particular, we sought feedback from members of four key parliamentary committees that review our reports. The responses to the five questions we use to determine whether we added value showed an average satisfaction rate of 94 percent. In particular, parliamentarians responded overwhelmingly that our audit reports were easy to understand, findings were reported in an objective and fair manner, the audits identified opportunities for improvement, and the reports were an important source of information to support the work of their committees.

Areas for improvement

We continue to deliver all of our work within the appropriations approved by Parliament, although we had difficulties completing individual audits within budgets. We also had problems completing some special examinations and financial audits on time. We have begun to implement a more rigorous budget-setting and management process in order to improve in this area.

The Commissioner of the Environment and Sustainable Development and the related part of our mandate have been in place now for 12 years. The time was ripe to look at whether there are things we can do differently to better serve Parliament. In recent years, we have reviewed our financial and performance audit practices and have modified our practices as a result. I invited a group of independent experts—the Green Ribbon Panel—to recommend ways to strengthen our environmental and sustainable development audit practice. I expect the Panel's recommendations and my response to them will be communicated in the fall of 2007.

Behind all our achievements is an exceptionally competent, professional, and dedicated workforce. I wish to take this opportunity to thank my staff for their continued dedication to the Office and the Parliament we serve.

I trust you will find this performance report presents an open and balanced picture of our activities and impacts in 2006–07.

 

Sheila Fraser, FCA
Auditor General of Canada

18 September 2007

Management representation statement

We submit, for tabling in Parliament, the Office of the Auditor General of Canada's 2006–07 Performance Report for the year ended 31 March 2007. Management of the Office of the Auditor General is responsible for preparing this report. The report

• presents fair and reliable information;
• provides a basis of accountability of the results achieved with the resources and authorities entrusted to the Office;
• reports finances based on approved numbers from the Estimates, the Public Accounts of Canada, and our audited financial statements; and
• is based on the Office's program activity architecture and on the reporting principles in the Treasury Board of Canada Secretariat's Guide to the Preparation of Part III of the 2006–07 Estimates—Reports on Plans and Priorities and Departmental Performance Reports.

In meeting its reporting responsibility, management has established and followed procedures and controls designed to provide reasonable assurance of the fairness and reliability of the performance information. While the Office continually strives to improve its performance information, the information in this report is the best currently available and management considers it reasonable for the purpose of preparing this report. Some of the information is based on management's best estimates and judgments, and any limitations to the quality of the data provided are disclosed in the report.

The Office's Executive Committee oversees the preparation of the report, and approves it following advice from the Office's Audit Committee.

 

Sheila Fraser, FCA Auditor General of Canada

Jean Landry, CGA Acting Comptroller

Ottawa, Canada
18 September 2007

Performance highlights

Achievements

We completed about 150 financial and performance audits, special examinations, and other reports during the 2006–07 fiscal year. Most were completed on time—85 percent for federal organizations and 56 percent for territorial organizations.

We survey the key users of our audit reports; in the past year, those surveyed included parliamentarians who were directly involved in the review and use of our reports. The results indicated that 94 percent felt that our findings were reported in a fair and objective manner and that our reports were clear and concise.

Parliamentary committees reviewed 63 percent of our performance audit reports, representing a significant increase from 48 percent in 2005–06 and 52 percent in 2004–05. We participated in 64 hearings and briefings with parliamentary committees over the course of the 130 parliamentary sitting days.

In 2006–07, departments reported that they had fully implemented 46 percent of the performance audit recommendations we tabled four years ago and had substantially implemented 26 percent.

We received 37 environmental petitions of which 96 percent were responded to by ministers within the 120-day time limit specified in the Auditor General Act.

We completed 11 internal practice reviews of our financial audits, performance audits, and assessments of agency performance reports; these reviews all concluded that our audits and assessments were conducted in accordance with professional standards and our quality management framework.

To assemble a workforce that represents the Canadian population, the Office has increased its relative levels of representation for two of the four designated groups, with three now exceeding the levels of representation in the community.

Areas for improvement

The Office has begun to implement a more rigorous process to assign and monitor budgets for individual audits. While on the whole the Office continues to complete its planned audit work with the appropriations approved by Parliament, efforts are under way to further refine the budget and project management process for individual audits.

Section I—Overview

Who we are

The Auditor General is an Officer of Parliament. She is independent from the government and reports directly to Parliament (Exhibit 1). She leads a dedicated team of some 600 professionals and support staff located in five offices across the country.

Exhibit 1—The Auditor General's role as an Officer of Parliament

The Auditor General Act, the Financial Administration Act, and other acts and orders-in-council set out the duties of the Auditor General. These duties relate to legislative auditing and monitoring of federal departments and agencies, Crown corporations, territorial governments, and other entities that include international organizations.

Objectivity and independence. Maintaining our objectivity and independence from the organizations we audit is critical. Our independence is assured by a broad legislative mandate, freedom from certain government controls, a strong internal Code of Values, Ethics and Professional Conduct, and a 10-year mandate for the Auditor General.

What we do: Legislative auditing

The Office of the Auditor General of Canada conducts independent audits and studies that provide objective information, advice, and assurance to Parliament, territorial legislatures, government, and Canadians. With our reports and testimony at parliamentary committee hearings, we assist Parliament in its work related to the authorization and oversight of government spending and operations.

Our major subactivities. Legislative auditing, our main activity, consists of eight subactivities; two of these—professional practices and audit services—are supporting activities (see Exhibit 2 for further details of the six other subactivities).

Exhibit 2—The Auditor General answers many important questions
Legislative audit subactivities1	Questions
Performance audits and studies of departments and agencies	Are federal government programs well managed? Were they run with due regard to economy, efficiency, and their environmental effects? Does the government have the means to measure their effectiveness where it is reasonable and appropriate to do so?
Audit of the annual summary financial statements of the Government of Canada	Is the government presenting fairly its overall financial situation?
Financial audits	Is the annual financial information of the Crown corporations, territorial governments, and other organizations presented fairly and are they complying with their legislative authorities?
Special examinations	Do the systems and practices used by Crown corporations provide reasonable assurance that assets are safeguarded, resources are managed economically and efficiently, and operations are carried out effectively?
Sustainable development monitoring activities and environmental petitions	Are departments and agencies meeting the objectives and implementing the plans set out in their sustainable development strategies? Are ministers responding as required to environmental petitions?
Assessments of three annual performance reports	Are the Canadian Food Inspection Agency, Parks Canada Agency, and the Canada Revenue Agency presenting their performance information (published annually in their statutory reports) fairly and in a reliable way?
1These audits and studies are detailed in the Auditor General Act (sections 5, 6, 7, and 23) and the Financial Administration Act (Part X), and in the enabling legislation of the three agencies noted above.

The focus of our audits. We are responsible for carrying out audits and studies of organizations to answer many important questions on behalf of Parliament and, in turn, Canadians at large.

Performance audits. Performance audits examine, against established criteria, whether government programs are being managed with due regard for economy, efficiency, and environmental impact, and whether measures are in place to determine their effectiveness. Our reports contain recommendations to address the most serious deficiencies identified.

The Auditor General Act gives the Office discretion to determine what areas of government to examine when doing performance audits. We may decide to audit a single government program or activity, such as pesticide regulation; an area of responsibility that involves several departments or agencies, such as the protection of cultural heritage; or an issue that affects many departments, such as the security of information technology. We consider requests for audits received from parliamentary committees; however, the ultimate decision about what to audit rests with the Auditor General.

The Office does not audit government policy, or any areas under the exclusive jurisdiction of provincial or municipal governments.

Financial audits. Our financial audits provide assurance that financial statements are presented fairly in accordance with Canadian generally accepted accounting principles or other relevant standards. Where required, we provide assurance that the organizations we audit comply with the key legislative authorities that govern their activities. We conduct financial audits of federal and territorial Crown corporations, other organizations, and the summary financial statements of the Government of Canada and of each of the three territories.

If issues or opportunities for improvement in areas such as financial reporting and internal controls come to our attention during our financial audit work, we make recommendations to management and the boards of directors.

Special examinations. A special examination assesses the financial and management control and information systems and management practices of a Crown corporation and provides an opinion on whether there is reasonable assurance that there are no significant deficiencies in these systems and practices. The Financial Administration Act requires all Crown corporations to have a special examination of their organization conducted by the Office once every five years, except for the Bank of Canada, which is not required to have a special examination and the Canada Pension Plan Investment Board, which, under its Act, is subject to a special examination by a private sector accounting firm.

Who receives our reports

Our primary responsibility is to Parliament, and our relationship with parliamentarians is key to our effectiveness.

Parliamentary standing committees. The Auditor General's main relationship is with the House of Commons Standing Committee on Public Accounts. In turn, much of the work of the Public Accounts Committee draws on the work of the Office. The Senate Standing Committee on National Finance and other parliamentary committees also rely on our work.

The House of Commons Standing Committee on Environment and Sustainable Development, the Senate Standing Committee on Energy, the Environment and Natural Resources, and other committees draw on the work of the Commissioner of the Environment and Sustainable Development, who leads the environmental audit function within the Office.

Our performance audits are tabled in Parliament and published up to four times a year in the reports of the Auditor General of Canada and the Commissioner of the Environment and Sustainable Development. We report our opinion and observations on the summary financial statements of the Government of Canada in the "Public Accounts of Canada, Volume 1" and publish reports on the use of financial information and other significant issues in the Auditor General's reports to Parliament.

Other recipients. Certain of our reports are also provided to other groups. Our audit reports on the financial statements of Crown corporations are addressed to the appropriate minister and published in the annual reports of these organizations. Our audit reports on the financial statements of other federal organizations are generally addressed to the minister or the head of the corporation or other interested parties.

Our performance audit reports of territorial governments and our audit reports on their financial statements are published and presented to the territorial legislatures. These reports are discussed in hearings of the Yukon Standing Committee on Public Accounts, Nunavut Standing Committee on Government Operations and Accountability, and the Northwest Territories Standing Committee on Accountability and Oversight. Our opinions on the financial statements of the territorial governments are published annually in the public accounts of the territorial governments of Nunavut, the Yukon, and the Northwest Territories.

Our special examination reports are addressed to the boards of directors of the corporations involved. The legislation also states that we should bring the information in the report to the attention of the appropriate minister and of Parliament when we deem it appropriate. We do this when certain types of significant deficiencies are present, for example those related to mandate issues, issues that only the government can address, issues of a governance nature, and when problems, previously reported, continue to occur.

What our governance structure is

The Auditor General. The Auditor General leads the Office and, as an Officer of Parliament, is accountable to Parliament for the Office's performance.

The Executive Committee. The Executive Committee provides overall professional and administrative direction for the Office. It sets policy and oversees all aspects of management and operations in the Office. It comprises the Auditor General, the Deputy Auditor General, the Commissioner of the Environment and Sustainable Development, and 13 assistant auditors general.

External advice. The Auditor General receives advice from a number of committees with external members:

• The Audit Committee. The Committee oversees the quality of audit practices and internal controls. The majority of its members are external to the Office, and it is chaired by a retired partner from a private sector accounting firm.
• The Panel of Senior Advisors. The Panel provides strategic advice on the work of the Office and is composed of leading representatives from the private sector, the accounting profession, the academic community, and other parties.
• The Independent Advisory Committee. The Committee advises the Auditor General on the audits of the financial statements of the Government of Canada, Crown corporations, territorial governments, and other organizations. The Committee helps the Auditor General monitor developments in the accounting and auditing profession and considers their impact on the Office. This committee is made up of senior accountants and financial consultants.
• Panels on Aboriginal issues. The panels advise the Auditor General on matters affecting Canada's Aboriginal peoples, and include Aboriginal and non-Aboriginal leaders.
• Audit advisory committees. These committees advise on the objectives and approach of performance audits or special examinations, and on significant matters and findings to be reported. Members are experts with relevant experience from inside and outside the Office with a variety of backgrounds, such as former senior public servants, and leading representatives from the private sector, academia, and First Nations.

The Commissioner of the Environment and Sustainable Development receives advice from one external committee:

• The Panel of Environmental Advisors. The Panel advises the Commissioner on his work and on environmental and sustainable development matters. It includes leading representatives from environmental groups, the private sector, and the academic community, as well as former senior public servants.

Further information on the Office's organization is available in the organization chart in Section IV—Supplementary Information and on our website under About Us.

How we are held accountable

Who audits the Auditor General? Each year, an external auditor appointed by the Treasury Board audits the Office's financial statements. Our financial statements are prepared on a full accrual basis of accounting, in accordance with Canadian generally accepted accounting principles.

These financial statements are included in Section III of this performance report, which is submitted to the President of the Treasury Board for tabling in the House of Commons.

The Office is also subject to scrutiny by the Official Languages Commissioner on language issues, by the Public Service Commission on staffing and classification practices, by the Privacy Commissioner on adherence to the Privacy Act, and by the Canadian Human Rights Commission on the Office's compliance with the Employment Equity Act.

Who reviews our funding? The Auditor General prepares annual Estimates documents and the President of the Treasury Board submits them to Parliament. The Public Accounts Committee calls on the Auditor General to explain the Estimates for the Office and to discuss our report on plans and priorities, our performance report, and our management practices.

The Office is funded by Parliament, in the same manner as government departments. Historically, like government departments, we negotiated the level of funding with the Treasury Board of Canada Secretariat, one of the organizations we audit. However, this process was not considered to be sufficiently independent to ensure that our budget is appropriate for meeting Parliament's expectations.

In 2005, the government committed to implementing a pilot project for a new funding and oversight mechanism for the 2006–07 and 2007–08 Estimates processes for all officers of Parliament. The new mechanism, involving a parliamentary oversight panel, seeks to respect the role of Parliament and the independence and distinct mandates of its officers, and also to reflect the responsibility of the government for sound stewardship of public resources.

When an Officer of Parliament develops a submission for the Treasury Board, the panel reviews both the submission and the Treasury Board of Canada Secretariat's assessment of the submission. The panel then provides advisory recommendations for consideration by the Treasury Board.

The Auditor General appeared before the panel in November 2006, requesting about a $4 million addition to our ongoing funding and about $2 million in one-time capital funding. The panel unanimously agreed to recommend the requested funding increases to the Treasury Board.

Who assesses our audit methodologies? Our audit work is guided by a rigorous methodology and quality management framework. The framework provides reasonable assurance that our audits are conducted in accordance with established standards of professional practice.

To ensure that our quality management framework is suitably designed and operating effectively, we subject it to periodic external reviews by peers. We also conduct internal practice reviews of our audits. We publish our peer reviews and summaries of our practice reviews on our website under About Us.

The provincial institutes of chartered accountants review our compliance with professional standards for financial audits about every four years, in order to determine whether our training of chartered accountant students meets their requirements.

We conduct internal audits of our management and administration practices to assure the Auditor General that the Office is complying with government and Office policies. The audits also provide managers with assessments and recommendations. We normally conduct one internal audit per year. Executive summaries are published on our website.

Details of the results of these reviews are included in Section II—Reporting on Results.

Our strategic framework and results chain

The long-term strategic outcome of the Office of the Auditor General is to contribute to better-managed government programs and better accountability to Parliament through our legislative auditing. We use a results chain to describe our strategic outcome and to show how we expect to make a difference. The results chain links what we do (conduct audits and other assessments) and what we deliver (audits, studies, opinions, information, and advice) to the results we expect to achieve in the short, medium, and long terms. It also describes the various stakeholders and their contributions to improving government operations. A copy of the results chain is included in Section IV—Supplementary Information.

The strategic framework of the Office of the Auditor General (OAG) presents our vision and our values that guide our work (Exhibit 3).

Exhibit 3—The strategic framework of the Office of the Auditor General of Canada

Our Vision An independent audit office serving Parliament, widely respected for the quality and impact of our work. We promote accountable government, an ethical and effective public service, good governance, sustainable development, and the protection of Canada's legacy and heritage. We do this by conducting independent audits and studies that provide objective information, advice, and assurance to Parliament, government, and Canadians; working collaboratively with legislative auditors, federal and territorial governments, and professional organizations; and providing a respectful workplace in which our diverse workforce can strive for excellence and realize their full career potential. Our values are serving the public interest, independence and objectivity, commitment to excellence, respectful workplace, trust and integrity, and leading by example.

Our key performance results for 2006–07

Below are our key high-level aggregate performance results for 2006–07. Further details and breakdowns of these results are available in Section II—Reporting on Results.

Indicators of impact

Exhibit 4—Audits add value to key users

 

Exhibit 5—Audits add value to the organizations we audit

 

Exhibit 6—Key users are engaged in the audit process

 

Exhibit 7—Organizations we audit respond to our findings

 

Measures of organizational performance

Exhibit 8—Our work is delivered on-time and on-budget

 

Exhibit 9—We provide a respectful workplace

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