Message from the Auditor General of Canada

As Interim Auditor General of Canada, I am pleased to present my Office’s 2010–11 Performance Report. Sheila Fraser’s term as Auditor General ended on 30 May 2011. We had hoped that a successor would be appointed before the end of Ms. Fraser’s term. Although this did not happen, we are very much looking forward to the appointment of the next Auditor General as soon as possible.

To coincide with the end of her term, Ms. Fraser issued a document entitled Serving Parliament through a Decade of Change, which may be of particular interest to Parliamentarians. In it, Canada’s former Auditor General reflects on the way the Office and the work it does evolved to better serve Parliament during her term, between 2001 and 2011.

The Office of the Auditor General of Canada conducts independent financial and performance audits and studies of federal departments and agencies, Crown corporations, and other entities. We also conduct audits of the governments of Nunavut, Yukon, and the Northwest Territories. Our reports are presented directly to Parliament, territorial legislatures, or Crown corporation boards of directors. Our role is to provide objective information and assurance regarding the use of public funds.

Our reports focus on good practices, areas needing attention, and (through our recommendations) possible improvements in government. Along with our testimony at Parliamentary hearings, our reports assist parliamentarians and territorial legislators in their important roles of authorizing and overseeing government spending and operations.

We completed 148 financial and performance audits and special examinations of Crown corporations during the 2010–11 fiscal year. I am pleased to report that Parliament remained very interested in our work throughout the year. We participated in 46 hearings and briefings, and parliamentary committees reviewed 62 percent of our performance audits.

Every two years, we issue a Status Report that follows up on the government’s progress in meeting their commitments in response to our recommendations from previous performance audits. We tabled our most recent Status Report in June 2011. We found satisfactory progress in two of six areas examined and in 62 percent of the 42 underlying recommendations made in past reports. While government acts on many of our recommendations, others require further effort by departments. We will be discussing with departmental chief audit executives opportunities to improve the implementation and monitoring of our performance audit recommendations.

As a result of the dissolution of Parliament for the federal election, we did not survey members of parliamentary committees who regularly review our work, as we usually do. We did, however, survey senior managers in the organizations we audited and received positive feedback. Their assessment of the value of our work was the highest we have seen in the past three years.

We have been working to improve our ability to complete our audits on budget since 2008. Our on-budget performance has been improving over the past four years, though we are disappointed with this year’s result for financial audits. In particular, we were unable to sustain the significant gains we made last year when we delivered more than 85 percent of our financial audits on-budget. Improving our management of the cost of individual audits remains one of our priorities for our financial audit practice. We will be taking additional steps to improve accountability for these costs.

As part of our Office’s adoption of new auditing standards, we have continued to implement the plan we developed in the last few years to address our needs, especially in the areas of communications, training, and development of audit tools. This project is on track and going well, except in our financial audit practice; because of the greater than anticipated quantity of material, we will require an additional year to complete the guidance and training for this practice.

Our Office continues to be recognized as a workplace of choice. For the fourth consecutive year, we have been ranked as one of Canada’s Top 100 Employers, one of Canada’s Top Family-Friendly Employers, and one of the National Capital Region’s Top Employers. Also, for the first time, we have been named one of the Top Employers for Canadians over 40. We view these results as recognition of our efforts to enable our employees to balance their professional and personal lives and achieve fulfilment in both.

While there are areas we need to improve, overall, we believe the Office had a successful 2010–11 fiscal year. I want to take this opportunity to thank all staff members for their dedication to the Office. It is thanks to them that this Office continues to produce quality audit products that are of value to Parliament, territorial legislatures, and the organizations we audit.

I also want to take this opportunity to acknowledge Sheila Fraser’s contribution to this Office and to promoting good governance and accountability in our federal and territorial governments.

I trust you will find that this performance report presents an open and balanced picture of our activities and their impact in the 2010–11 fiscal year.

John Wiersema, FCA
Interim Auditor General of Canada
7 September 2011

Performance summary

Overall, the Office is pleased with its performance for the 2010–11 fiscal year.

Highlights

During a period when significant changes are being made to standards for the accounting and auditing professions, we continue to provide quality audit products that are of value to Parliament, territorial legislatures, and the organizations we audit.

We completed all planned audits, except for two cases where the tabling was delayed because Parliament and a territorial legislature were unavailable to receive our reports. In addition, we completed three other audits that were not planned in our 2010–11 Report on Plans and Priorities. All of our work was conducted, as required, in accordance with new auditing standards.

Parliament was very engaged with our work throughout the year. We participated in 46 hearings and briefings, and committees reviewed 62 percent of our performance audits; this is consistent with or exceeds the level of engagement in recent years.

Survey responses from board and audit committee chairs indicate that they continue to find good value in our work, though the results for audit committee chairs have declined somewhat from their peak of last year.

Survey responses from senior managers in the organizations we audit show that they perceive good value from our work with the results being the highest we have seen in the past three years.

We continue to be ranked as a workplace of choice. For the fourth consecutive year, we have been recognized as one of Canada’s Top 100 Employers, one of Canada’s Top Family-Friendly Employers, and one of the National Capital Region’s Top Employers. For the first time, we have been named one of the Top Employers for Canadians over 40.

Areas for improvement

Improving resource allocation and project management was one of our priorities for the 2010–11 fiscal year. Our Resource Planning and Career Management Team is providing support to help staff audits effectively and is conducting analyses to help us better manage our needs for students and audit trainees. In our 2010 employee survey, more than three-quarters of respondents said that their job made good use of their skills and abilities. However, for project management—as is reflected in our on-budget performance—we were unable to sustain the significant gains we made last year when we delivered more than 85 percent of our financial audits on-budget. We will be taking additional steps to improve accountability for the costs of individual audits in our financial audit practice and will be taking further action to encourage the territories to improve the timeliness and quality of their financial reporting.

Results of our work

In our most recent status report, which was tabled in June 2011, we found satisfactory progress in 2 of 6 areas examined, and in 62 percent of the 42 underlying recommendations we examined.

For the four special examinations completed in the 2010–11 fiscal year, one Crown corporation had a significant deficiency that we reported in the previous examination. This significant deficiency has been addressed by the corporation.

Twenty-six percent of the reservations in our financial audit reports from the 2009–10 fiscal year were addressed this year. Only four of the twenty-one reservations that were not addressed were auditing or accounting reservations. The remainder were for non-compliance with authorities, mainly for failing to file annual reports on time.

Federal ministers delivered 96 percent of responses to petitions on environmental matters within the 120-day time limit, compared with 91 percent in the 2009–10 fiscal year.

Section I—Overview

Who we are

The Office of the Auditor General of Canada is the legislative audit office of the federal government. 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, governments, and Canadians. With our reports and testimony at Parliamentary hearings, we assist Parliament and territorial legislatures in their 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. The duties of the Auditor General 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’s main legislative auditing duties are

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

Financial audits

Our financial audits provide assurance that financial statements are presented fairly in accordance with Canadian Generally Accepted Accounting Principles (GAAP) 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 also conduct financial audits of federal and territorial Crown corporations and of other organizations. We audit the summary financial statements of the Government of Canada and each of the three territories (Nunavut, 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 help audit committees meet their responsibilities for the oversight of financial reporting and internal control.

Performance audits

Performance audits examine, against established criteria, whether government programs are being managed with due regard to economy, efficiency, and environmental impact, and whether the government has the means to measure and report on 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.

Special examinations

Our special examinations assess the systems and practices maintained by Crown corporations. A special examination provides the corporation’s board of directors with an opinion on whether there is reasonable assurance that there are no significant deficiencies in their systems and practices. A significant deficiency is a major weakness that could prevent the corporation from having reasonable assurance that its

• assets are safeguarded and controlled,
• resources are managed economically and efficiently, and
• operations are carried out effectively.

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.

All parent Crown corporations, except two, are subject to a special examination by the Office. The two exceptions are the Bank of Canada, which is exempt from this requirement, and the Canada Pension Plan Investment Board, which (under the Canada Pension Plan Investment Board Act) is subject to a special examination by an auditor who is chosen by the board of directors. In early 2009, the Budget Implementation Act, 2009 changed the frequency of special examinations required under the Financial Administration Act to at least once every ten years, from at least once every five years.

Sustainable development activities and environmental petitions

The Commissioner of the Environment and Sustainable Development assists the Auditor General in performing 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 report every two years. This report includes

• 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.

Since June 2008, when the Federal Sustainable Development Act was passed, Environment Canada has been required to prepare a federal sustainable development strategy that includes specific targets and implementation strategies. The Commissioner is responsible for reviewing the federal government’s draft sustainable development strategy and for commenting on whether the targets and implementation strategies can be assessed. The first federal strategy was tabled in the House of Commons in October 2010.

Once every three years, beginning in 2011, each minister who presides over a department named in Schedule I of the Financial Administration Act or an agency named in the Federal Sustainable Development Act is required to prepare a sustainable development strategy that complies with and contributes to the federal strategy.

The Commissioner must report annually to the House of Commons on the extent to which departments subject to the Federal Sustainable Development Act have complied with and contributed to meeting the targets set out in the federal strategy. The Commissioner must also report on whether these departments have met the objectives and implemented the plans set out in their own sustainable development strategies. The government is required, by legislation, to report on its progress in implementing the strategy at least once every three years. The Commissioner is responsible for assessing the fairness of the information contained in the government’s progress report.

The Commissioner also administers the environmental petitions process. This includes monitoring responses to environmental petitions and reporting annually to Parliament on petition activities from the previous year, including instances where ministers did not respond to petitions within the 120-day time limit specified in legislation. The Office of the Auditor General considers issues raised in petitions when planning future audits.

Assessments of agency performance reports

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

Professional practices

In order to ensure the reliability and consistency of our audit work, the Office makes an ongoing investment in professional practices. This investment supports

• the development and maintenance of up-to-date audit methodology, guidance, and audit tools;
• communication and training to promote consistency in the application of audit methodology and the Office Quality Management System (QMS); and
• the provision of advice on the interpretation and application of professional standards, Office policies, audit methodology and the Office’s QMS.

Through the Professional Practices Group, 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. We regularly participate in external reviews of other national legislative audit offices and are the subject of external reviews.

International activities

Our international strategy guides our international activities and positions the Office to meet future opportunities and challenges. The strategy has four goals:

• Contributing to the development and adoption of appropriate and effective professional standards
• Sharing knowledge among audit offices
• Building capabilities and professional capacities of audit offices
• Promoting better managed and accountable international institutions

(See “Our international contribution” in Section II for more details).

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 work.

We have identified a number of results that we expect to achieve with our audits in the short, medium, and long term. 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 to programs that foster sustainable development (Exhibit 1).

Exhibit 1—Performance summary

We gather information on the impact of our work, and we have established indicators and targets to measure the results for our three major activities: financial audits, performance audits, and special examinations. The following section describes the performance objectives, indicators, and targets and actual results for each of these activities.

We have a set of organizational performance measures, which are also presented in the following section, that help us monitor whether

• our work is delivered on time and on budget,
• our audit reports are reliable, and
• we provide a respectful workplace.

Tables summarizing all of our targets and actual performance appear in Section III, Supplementary Information.