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Message from the Auditor General of Canada

I am pleased to present the Office’s 2008–09 Performance Report. A summary of our performance for the year follows this message.

In Canada, the government and the public service are the guardians of public funds entrusted to them. The Office of the Auditor General is the federal government’s—and the three territories’—legislative audit office. As such, it conducts independent audits and studies that provide parliamentarians with objective information they can rely on to scrutinize government activities and spending.

We conduct about 150 financial and performance audits and special examinations every year. The reports we give to Parliament describe areas of government that need attention and point out good practices. Our audits also point to the causes of problems, and we make recommendations for improvement.

We survey the key users of our audit reports: parliamentarians, on the value and impact of our performance audits; board chairs of Crown corporations, on the value of our special examinations; and audit committee chairs, on the value of our financial audits. We are pleased to see that, again this year, the key users of our reports and the organizations we audit were very satisfied with our work and the value it added.

Departments are reporting that they have fully implemented 63 percent of the performance audit recommendations we made in 2004–05. This is a significant increase from two years ago. The follow-up audits we conducted found that satisfactory progress was made in five of the seven areas we examined.

In last year’s Performance Report and this year’s Report on Plans and Priorities, we talked about discussions with the Treasury Board of Canada Secretariat to further strengthen the independence of Officers of Parliament. I am pleased to report that good progress has been made. Several sections of 10 Treasury Board policies have been amended to recognize the independence of Officers of Parliament. However, our concerns about the application of the government’s Communications Policy and the Federal Identity Program Policy have not yet been addressed.

One of our three priorities for 2008–09 was to integrate changes to our professional standards, a move we initiated the previous year in light of Canada’s adoption of international standards for auditing in 2010 and accounting in 2011. This year, we formed a strategic alliance with a major accounting firm to support our implementation of the new standards.

During the year, we engaged a major accounting firm to assess our Quality Management System (QMS). This assessment identified a number of areas for improvement. As well, our own practice reviews pointed to a lack of rigour in the application of our QMS. While we believe that our products are of high quality, we are not satisfied with these results. Consequently, the QMS and related methodology and training are a priority for the coming year.

We have developed detailed action plans that have been reviewed by our independent audit committee and approved by the Office’s Executive Committee. These two committees will carefully monitor implementation of the action plans. As a result of the actions we are taking, we expect to see some improvements next year and further improvements the following year.

Last year, we indicated that we were not satisfied with our performance in completing individual audits on budget. This year, we have improved, especially in the case of performance audits. Our results for financial audits of Crown corporations and other federal entities with statutory deadlines continue to be significantly below target, but the results of recent audits show improvement and we expect to meet our target in 2009–10.

Our accomplishments would not be possible without our competent and professional staff. I wish to thank them for their continued dedication to the Office and to the Parliament we serve.

I trust you will find that this performance report presents an open and balanced picture of our activities and impacts in 2008–09.

Sheila Fraser, FCA
Auditor General of Canada

2 September 2009

Performance summary

Highlights

We completed 148 financial and performance audits, special examinations, and other reports during the 2008–09 fiscal year.

We delivered 83 percent of the audits due this year on time.

Parliamentary committees reviewed 57 percent of our 2008–09 performance audit reports. We participated in 35 hearings and briefings with parliamentary committees over the 99 parliamentary sitting days, a number consistent with the average from previous years.

At least three quarters of audit committee chairs indicated they “agree” or “strongly agree” in response to all five statements used to measure value added for our financial audits. Seven of the eight board chairs indicated they “agree” or “strongly agree” in response to all four statements used to measure value added for our special examinations. No survey of parliamentarians was conducted for our performance audits this year.

Responses from senior managers of the organizations we audited were consistent with our targets for measuring if our audits add value for them.

In 2008–09, departments reported that they had fully implemented 63 percent of the performance audit recommendations in reports tabled four years ago and had substantially implemented 27 percent. Our follow-up audits concluded that for the seven topics we examined, there was satisfactory progress in five.

We have fulfilled all of the commitments in our own Sustainable Development Strategy and met all the targets we established.

For the second year in a row, the Office was recognized as one of Canada’s Top 100 Employers and one of Canada’s Top 20 Family-Friendly Employers.

To assemble a workforce that represents the Canadian population, the Office has met its target for levels of representation relative to the community for three of the four designated groups.

Areas for improvement

Although our on-budget results for financial audits of Crown corporations and other federal entities continue to be below target in 2008–09, the results of our recent audits are promising, and we expect to meet our target in 2009–10.

We completed internal practice reviews of 22 audits in 2008–09. The practice reviews identified a number of instances where improvements should be made to our Quality Management System and where that system was not applied consistently and rigorously. The Office is not satisfied with these results, and we are taking steps to address them.

In monitoring government responses to our work, we note the following:

• In 2008–09, we issued 108 financial audit opinions containing eight reservations; only one of the nine reservations contained in our 2007–08 financial audit opinions was addressed.
• Ministers delivered 83 percent of responses to public petitions on environmental matters during the year within the 120-day time limit specified in the Auditor General Act, compared with 84 percent last year.

Section I—Overview

Who we are

The Office of the Auditor General of Canada is the federal government’s legislative audit office. We are also the legislative auditor of the three territories. We conduct 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 hearings, we assist Parliament in its work on the authorization and oversight of government spending and operations.

What we do

The Auditor General is an Officer of Parliament, who is independent from the government and reports directly to Parliament. Her duties are set out in the Auditor General Act, the Financial Administration Act, and other acts and orders-in-council. These duties relate to legislative auditing and, in certain cases, to monitoring of federal departments and agencies, Crown corporations, territorial governments, and other entities.

The Office of the Auditor General’s main legislative auditing duties are

• performance audits,
• financial audits,
• special examinations,
• sustainable development monitoring activities and environmental petitions, and
• assessments of agency annual performance reports.

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 measure and report their effectiveness. Our reports contain recommendations for addressing the most serious deficiencies identified.

The Auditor General Act gives the Office the discretion to determine what areas of government it will examine in its performance audits. We may decide to audit a single government program or activity, an area of responsibility that involves several departments or agencies, or an issue that affects many departments and agencies. We consider requests for audits that we receive from parliamentary committees. However, the final decision about what to audit is made by the Auditor General.

Financial audits

Our financial audits provide assurance that financial statements are presented fairly in accordance with Canadian generally accepted accounting principles or, in a few cases, with other relevant standards. Where required, we provide assurance that the organizations we audit comply, in all significant respects, with legislative authorities that are relevant to a financial audit. We conduct financial audits of federal and territorial Crown corporations and of other organizations. We also audit the summary financial statements of the Government of Canada and each of the three territories (Nunavut, the Yukon, and the Northwest 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. We also provide information and advice to support audit committees in meeting their responsibilities for oversight of financial reporting and internal control.

Special examinations

Our special examinations assess Crown corporations’ financial and management controls, information systems, and management practices. A special examination provides an opinion to the board of directors of the corporation on whether there is reasonable assurance that there are no significant deficiencies in the corporation’s systems and practices. In addition to reporting on significant deficiencies, our special examinations highlight systems and practices that contribute to success and provide information and recommendations to boards of directors about opportunities for improvement.

The Financial Administration Act (FAA) requires that all parent Crown corporations be subject to a special examination by the Office, except for the Bank of Canada, which is exempted from this requirement, and the Canada Pension Plan Investment Board, which, under its Act, is subject to a special examination by an auditor chosen by the board of directors. Until recently, Crown corporations were required to undergo special examinations at least once every five years. Over the past few years, we have been suggesting an increase in the number of years between special examinations. In early 2009, the Budget Implementation Act changed the reporting cycle in the FAA to at least once every 10 years.

Legislation states that we should bring the information in our reports to the attention of the appropriate ministers and Parliament, when we deem it necessary. For example, we do this when we find certain types of significant deficiencies, such as those related to mandate or governance issues that only the federal government can address, or problems that have previously been reported but continue to occur. We also report issues to the appropriate minister involving specific risks that, in our opinion, the minister needs to be aware of. A second recent change in the FAA requires that the board of directors submit special examination reports to the appropriate minister and the President of the Treasury Board within 30 days after it receives them. The board of directors is also now required to make the report available to the public within 60 days of receiving it.

Sustainable development monitoring and environmental petitions

The Commissioner of the Environment and Sustainable Development assists the Auditor General in performing her duties related to the environment and sustainable development. The Commissioner conducts performance audits to monitor the government's management of environmental and sustainable development issues and, on behalf of the Auditor General, reports to Parliament on issues that should be brought to its attention. Under the Kyoto Protocol Implementation Act, the Commissioner is required to provide Parliament with a biennial report. With passage of the Federal Sustainable Development Act in June 2008, the Commissioner was given three responsibilities related to the federal government’s sustainable development strategy (Exhibit 1).

Exhibit 1—New responsibilities of the Commissioner of the Environment and Sustainable Development

Under the Kyoto Protocol Implementation Act [C-288], the Commissioner is required to provide Parliament with a biennial report (every two years) that includes the following: an analysis of Canada's progress in implementing its climate change plans; an analysis of Canada's progress in meeting its obligations under Article 3, paragraph 1, of the Kyoto Protocol; and any observations and recommendations on any matter that the Commissioner considers relevant. The Commissioner's first biennial report on the Kyoto Protocol Implementation Act was tabled in Parliament as Chapter 2 of the 2009 Spring Report of the Commissioner of the Environment and Sustainable Development. With passage of the Federal Sustainable Development Act [C-474] in June 2008, the Commissioner has three specific responsibilities: First, the Commissioner must review a draft of the federal government's sustainable development strategy and comment on whether the targets and implementation strategies can be assessed. The first federal strategy must be tabled in the House of Commons no later than June 2010, and another must be tabled every three years thereafter. Second, beginning in 2011, the Commissioner must report annually to the House of Commons on the extent to which departments subject to the Federal Sustainable Development Act have contributed to meeting the targets set out in the federal strategy and have met the objectives and implemented the plans set out in their own sustainable development strategies. Third, the Commissioner must assess the fairness of the information contained in the government's progress report on implementing its strategy. The government's first progress report is due in June 2011, and a report is required every three years thereafter.

The Commissioner also administers the environmental petitions process. He monitors responses to environmental petitions, and reports annually to Parliament on petitions activities from the previous year, including instances where ministers’ responses to petitions were not provided within the 120-day time limit specified in legislation.

Assessments of agency annual performance reports

The legislation governing Parks Canada, the Canadian Food Inspection Agency, and the Canada Revenue Agency requires the Auditor General to undertake an assessment of the fairness and reliability of the performance information reported in their annual reports against corporate objectives they provided to Parliament.

Professional practices

In addition to our main legislative auditing duties, the Office works with other legislative audit offices and professional associations, such as The Canadian Institute of Chartered Accountants, to advance legislative auditing methodology, accounting and auditing standards, and best practices. Our international activities, details of which are presented later in this section, include participation in organizations and events that have an impact on our work as legislative auditors. We regularly participate in external peer reviews of other national legislative audit offices and are the subject of external reviews.

Strategic outcome and performance summary

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 have identified a number of results that we expect to achieve with our audits in the short, medium, and long terms. In the short term, we want to engage Parliament and federal and territorial organizations in the audit process, ensure that Parliament is well informed about our work, and maintain support for our role and work. In the medium term, we want to assist Parliament in holding the government to account; make our work relevant to federal and territorial organizations, departments, agencies, and Crown corporations; and ensure that the public is well informed about our work. In the long term, we want our work to lead to more effective, efficient, and economical government programs and operations, and programs that foster sustainable development (Exhibit 2).

Exhibit 2—Performance summary

Strategic Outcome: We contribute to a well-managed and accountable government for Canadians.
Expected results Parliament is well-informed Parliament and federal and territorial organizations are engaged in the audit process Parliament holds government to account Our work is relevant to federal and territorial organizations, departments, agencies, and Crown corporations The media and public are well-informed Support for our role and work is maintained		2008–09 Performance We completed 32 performance audits, 108 financial audits, and 8 special examinations.
Objectives	Indicators and targets
Key users of our reports are engaged in the audit process	Maintain percent of audits that are reviewed by parliamentary committees Maintain number of parliamentary hearings and briefings we participate in, relative to the number of sitting days	Maintained percent of audits reviewed and number of hearings we participated in
Our work adds value for the key users of our reports	Maintain or increase percent of users who find our audits add value	Targets exceeded
Our work adds value for the organizations we audit	Maintain or increase percent of senior managers who find our audits add value	Targets exceeded
Key users of our reports and the organizations we audit respond to our findings	Maintain or increase percent of recommendations that are implemented or reservations/deficiencies that are addressed	Targets exceeded for performance audits, but not met for financial audits

Legislative auditing activity1	2007–08 Actual spending ($ millions)	2008–09 Forecast spending2 ($ millions)	2008–09 Actual spending ($ millions)
Performance audits and studies of departments and agencies	39.5	45.2	43.7
Financial audits of Crown corporations, territorial governments, and other organizations, and of the summary financial statements of the Government of Canada	34.8	35.2	38.3
Special examinations of Crown corporations	6.8	8.6	7.8
Sustainable development monitoring activities and environmental petitions	3.2	1.4	2.0
Assessments of agency performance reports	1.0	0.7	0.4
Professional practices	7.8	8.5	8.8
Total cost of operations3	93.1	99.6	101.0
Less: Non-respendable revenue4	(0.4)	(0.8)	(0.9)
Net cost of operations3	92.7	98.8	100.1
1 We have allocated the cost of audit services to each legislative auditing activity. 2 Forecast spending is as reported in the 2009–10 Report on Plans and Priorities. 3 As reported in the financial statements. 4 The Office recovered the cost for the audits of the International Civil Aviation Organization and of the International Labour Organization (starting in 2008–09). These funds are not used by the Office but are returned to the Consolidated Revenue Fund as non-respendable revenue.

 

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