ARCHIVED - Government Response to the Ninth Report of the Standing Committee on Public Accounts

This page has been archived.

Government Response to the Ninth Report of the Standing Committee on Public Accounts

The government welcomes the Committee's recommendations and appreciates the effort and detail in the analysis of policies, procedures and outcomes related to the issues raised by the Auditor General's November 2003 report. 

The Commission of Inquiry into the Sponsorship Program and Advertising Activities, led by Mr. Justice John Gomery, is currently examining many of the same issues covered in the Committee's report.  The government has asked the Commission of Inquiry "to investigate and report on questions raised, directly or indirectly, by Chapters 3 and 4 of the November 2003 Report of the Auditor General of Canada to the House of Commons with regard to the sponsorship program and advertising activities of the Government of Canada" and "to submit, on an urgent basis, one or more reports, interim or final, of his factual findings."

Therefore, responses to the Committee's recommendations may need to be adjusted in light of the factual findings of the Commission or in light of the government's response to recommendations made by Justice Gomery.  In addition, the government's response to the Committee's recommendations should not be read as an acceptance or rejection of the factual findings of the Committee nor of its conclusions as to the cause of the issues that arose with sponsorship, advertising activities and public opinion research.  Even though the government does not agree with the Committee's observations that lead to some recommendations (3, 11, 13, 14, 15, 16, 19, 20, 21 and 29), the government has generally agreed with the objectives of these recommendations and agrees their implementation would strengthen management practices in these areas.  

Recommendation 1

That the Government provide the Committee with an action plan that includes target implementation and completion dates for the components of the Auditor General's recommendation. 

The government will put in place a deliberate and transparent action plan to address the observations raised by the Auditor General and to provide the Committee with a solid basis upon which it can hold the government to account for progress on the action plan, but will do so following the tabling of Justice Gomery's final report in December 2005. This will allow the government to take into account all information from the Auditor General, the Standing Committee on Public Accounts and Justice Gomery in the preparation of a complete and definitive government response to address the issues raised in the areas of sponsorship, advertising and public opinion research. 

In the meantime, the government is implementing an ambitious management agenda to strengthen governance, accountability and stewardship of public funds.  The government's management agenda, articulated in the Budget 2005 booklet Strengthening and Modernizing Public Sector Management and the 2005-06 Report on Plans and Priorities for the Treasury Board Secretariat, has been greatly influenced by the Auditor General's observations and the Committee's proceedings.  Further details on initiatives underway as part of the management agenda are provided in response to recommendation 2.

Recommendation 2

That the Government provide an annual report to the House of Commons on progress being made in implementing the action plan until it is completed.

The government will report to Parliament on progress made in the implementation of the comprehensive action plan described in response to recommendation 1, which will be announced following the tabling of Justice Gomery's final report.

In the meantime, the government is able to report significant progress on a number of initiatives to strengthen governance, accountability and stewardship of public funds.  The government's integrated management agenda and other initiatives have been detailed in documents such as:

• the 2005-06 Report on Plans and Priorities for Treasury Board Secretariat;
• Budget 2005;
• the Review of the Governance Framework for Canada's Crown Corporations, tabled on February 17, 2005;
• Strengthening Public Sector Management:  An Overview of the Government Action Plan and Key Initiatives, announced on March 24, 2004;
• Budget 2004;
• the President of the Treasury Board's announcements of February 10, 2004; and
• the Prime Minister's announcements of December 12, 2003.

The government will continue to implement the measures already announced.  These measures may be adjusted to take into account the recommendations of the Commission of Inquiry and the views of the Standing Committee on Public Accounts. 

The Auditor General's November 2003 report drew the attention of Parliament and the public to the issue of accountability in its investigation of sponsorship, advertising and public opinion research activities.  In its response at that time, the government outlined the comprehensive set of measures that had already been taken, dating back to 2002.  This included the cancellation of the Sponsorship Program in December 2003.  A number of other measures were taken beginning in February 2004 to further address the concerns, including:

• the creation of an independent Commission of Public Inquiry, led by Justice John Gomery, to examine past behaviour in the sponsorship program and advertising activities and formulate recommendations to prevent mismanagement in the future;
• the appointment of a Special Counsel for financial recovery, with a mandate to pursue all possible avenues to recover funds that were improperly received by certain parties involved in the delivery of the sponsorship program;
• a competency-based, professional and transparent process for the appointment of chief executive officers, directors and chairpersons of Crown corporations, which now includes parliamentary review of appointments;
• tabling of the Public Servants Disclosure Protection Act
  on March 22, 2004(and then re-tabling in the new parliamentary session on October 8, 2004 with significant revisions) to establish a mechanism for the disclosure of wrongdoing in the public sector and to protect public servants who make disclosures;
• changes to strengthen the management of government advertising, including the selection of a new Agency of Record, development of new procurement tools and open, fully-competitive and transparent selection processes;
• the launching of a review to strengthen the rules governing compliance under the Financial Administration Act, including the prevention of mismanagement and sanctions for non-compliance with policies;
• the launching of a review of the responsibilities and accountabilities of ministers and senior officials; and
• a review to improve oversight and management of Crown corporations through better governance and accountability regimes, which was tabled by the President of the Treasury Board in Parliament on February 17, 2005.  The government announced measures to strengthen governance and accountability in Crown corporations by:
  • clarifying the relationship between Ministers and Crown corporations;
  • clarifying the accountability regimes of Crowns corporations;
  • making the appointment process more transparent;
  • bringing the governance of Crown corporations in line with relevant best practices in the private sector;
  • strengthening the audit regimes in some Crown corporations; and
  • making the activities and operations of Crown corporations more transparent.

Beyond these measures that were linked to the sponsorship program and advertising activities, strengthening accountability has been a priority of the government since it took office in December 2003.  It has initiated or put it place a range of measures that improve the accountability regime within government on matters of finance and administration.

Management expectations have been clarified and the capacity to meet them is being enhanced:

• in December 2003, the government committed to develop and strengthen the Management Accountability Framework to assess management capacity across government and promote improvements. It will be used to assess the performance of deputy ministers and ultimately to report to Treasury Board on the stewardship of resources by departments, and these reports will be published on departmental Web sites; and
• the suite of Treasury Board management policies are being consolidated and streamlined to provide greater policy clarity, improve reporting requirements and focus on areas of risk.

There have been improvements in transparency and reporting to Parliament:

• a new format for the Estimates has been introduced in November 2004 that improves the consistency of information and includes more horizontal and summary information to aid parliamentarians;
• there is mandatory quarterly "proactive" disclosure on departmental and Treasury Board Secretariat's Web sites of the following information:
  • travel and hospitality expenses of ministers, parliamentary secretaries, political staff and senior public servants as of April 2004;
  • the government's own goods and services contracts over $10,000 in value as of November 2004; and
  • re-classifications of public service positions as of November 2004.
• in March 2004, the government committed to produce an annual and comprehensive report to Parliament on the public service and its management.

Significant measures have been taken to enhance financial management:

• in December 2003 the government re-established the Office of the Comptroller General of Canada to oversee all government spending.  A new Comptroller General was appointed in May 2004 and professionally accredited comptrollers will be appointed in government departments. Professional certification standards for departmental comptrollers are being developed; and
• investments have been made in an expenditure management information system at the Treasury Board Secretariat to provide real-time, government-wide financial and human resource information to track spending in all departments and to provide tools for effective scrutiny and decision-making.

Chapter 1 of the Auditor General's November 2004 report focused on internal audit and the government responded with an action plan to strengthen the internal audit function government-wide.  Improvements to the internal audit function are underway and any further changes will be included as part of the broader action plan described in response to recommendation 1.  Specifically, greater attention is being paid to auditing departments and agencies and the capacity to do so is being increased:

• the special examinations of Crown corporations by the Auditor General will be tabled in Parliament and posted on the Crown corporations' Web sites;
• in March 2004 the government committed to auditing all annual financial statements of departments and agencies by 2009;
• the internal audit function within government is being re-organized and strengthened to ensure comprehensive audits programs, based on sound risk analysis of departmental activities. An assessment of the audit capacity across government is underway; and
• in November 2004, the government announced that the Office of the Comptroller General would provide internal audit services to small departments and agencies that have limited internal audit capacity.

Human resources modernization will also strengthen accountability within the Public Service:

• the Public Service Human Resources Management Agency of Canada was created in December 2003 as a key step towards strengthening and modernizing public management.  Among its priorities is the encouragement and training of highly skilled leaders of the Public Service who are guided by the highest standards of ethics and accountability and who are evaluated against these standards;
• a new results-based approach is being taken to account for human resources management, including the development of the "people" component of the Management Accountability Framework;
• the Public Service Modernization Act requires the government to produce an annual report to Parliament, currently under development, on the state of human resource management within the public service; and
• the Canada School of Public Service was created in April 2004 to provide leadership and training for members of the Public Service and Crown corporation boards of directors.

Initiatives in each of these areas are progressing on individual timelines and have been committed to in the Reports on Plans and Priorities for the Treasury Board portfolio and other government departments over the past few years.  Progress against these initiatives will be reported on annually, to Parliament, in the Departmental Performance Reports for these organizations.

Recommendation 3

That financial services units in departments and agencies review supporting documentation, as per recommendation 19 below, to ensure that it is correct before issuing payments for contracts.

Recommendation 4

That financial services units in departments and agencies challenge requests for contract payment on both a random and a risk basis.

Recommendation 5

That all programs and activities involving contracts, grants and contributions, and transfers to other departments or agencies be subject to a regular schedule of internal audits.

The government agrees in principle with this recommendation.  The deputy head of each department is accountable to the Minister for ensuring, with the support of his or her management team, that the appropriate control environment is created and monitoring mechanisms are applied (including audits of recipients undertaken by operations) to contracts, grants, contributions and transfers to other departments.^[1] Nearly all major programs, however, involve elements of contracting or grants and contributions, and audit resources have to be directed to the areas of most risk. 

The Policy on Transfer Payments, which covers grants, contributions and other transfer payments, requires that recipients of contributions be subject to audit to ensure that all conditions, both financial and non-financial, have been met.  The right of departments and agencies to undertake an audit of recipients must be clearly established in the contribution agreement.  This policy also states that verification of the continuing eligibility, entitlement and qualification of a grant recipient is to be performed, normally before the grant payment is made.  Audit provisions can be included in the funding agreements related to other transfer payments.  These would be designed keeping in mind the risks being managed and the program objectives being sought.

Also, the policy requires that a risk-based framework for audit of recipients of contributions, an audit plan and a program evaluation plan of the transfer payment program, including expected funds to be budgeted for costs related to these requirements, be included in the Treasury Board submissions for program approval of terms and conditions.

In the case of the Contracting Policy, it requires that departments and agencies ensure that they have adequate control frameworks for due diligence and effective stewardship of public funds in place for their contracting activities.  To assist departments in this regard, the Treasury Board Secretariat has published a monitoring and audit guide, entitled Guide for Managers and Internal Auditors - Monitoring Procurement and Contracting.  It provides guidance to assist departments and agencies in addressing questions such as establishing appropriate schedules, timing, scope and risk-based approaches to planning and performing internal audits and ensuring appropriate follow through in addressing internal audit findings.

The government agrees that regular monitoring and audit of contracts is required.  The Committee states on page 63 of the report that "…the rules and regulations that govern contracting are unambiguous and appropriate."  It is the responsibility of the deputy head and his or her management team in each department and agency to ensure that a sufficient control environment exists and that contracting rules are implemented with all due diligence.

The Treasury Board Secretariat will monitor, among other matters, that departmental and agency internal audit groups are assessing management's control environment for contracts, grants, contributions and other transfers, to become aware, as early as possible, of control deficiencies or compliance issues.  The Secretariat currently monitors Risk-Based Audit Frameworks prepared by departments for the audit of contributions. 

Recommendation 6

That internal audit be placed under centralized authority located within TBS.

It is the government's position that the internal audit function is a core responsibility of deputy heads, for which they are accountable to their Minister.  The transfer of responsibility for this function to a centralized authority would undermine the accountability of deputy heads and ultimately ministers for managing their departments in line with legislation, regulations and policy. Therefore, the government does not concur with this recommendation.

The government acknowledges the need to ensure that internal audit is sufficiently independent of line operations.  Steps currently under way to strengthen the Policy on Internal Audit will address the rationale, amongst other things, for objective audit committees.

The Treasury Board Secretariat intends to conduct practice reviews and direct horizontal or sectoral internal audits on fundamental controls as well as on issues of high risk.  In addition, the Secretariat has committed to conduct internal audits for small departments and agencies where there are capacity issues. 

Recommendation 7

That overall authority for the internal audit function in government be assigned to the Comptroller General of Canada.

Recommendation 8

That the government continue to restore the internal audit function and report to Parliament on the status of the internal audit function on an annual basis, addressing such issues as the levels of human, financial, and technological resources being devoted to the function.

Recommendations 7 and 8 are similarly concerned with overall authority for the internal audit function, strengthening of the function within government and responsibility for building internal audit capacity.  An integrated response to these two recommendations is provided below.

The government has committed to increasing the capacity of the internal audit function across government and within the Office of the Comptroller General. The Policy on Internal Audit, once revised, will place a clear responsibility on the Comptroller General for government-wide functional leadership of internal audit, to build capacity, and to ensure professionalism, rigour and common standards in the delivery of internal audit services.  It will also address the issue of reporting on

the overall state of risk management, control and governance processes across government, and the status and performance of internal audit government-wide.   

Recommendation 9

That there be mandatory follow-ups of internal audits within one year of an initial audit with the results posted on the TBS Web site.

Recommendation 10

That all decisions to reject recommendations stemming from internal audits be documented, reported to TBS, and posted on the TBS Web site.

Recommendations 9 and 10 are similarly concerned with follow-up, documentation and posting of internal audit results on government Web sites.  An integrated response to these two recommendations follows.

The government agrees in principle with the recommendations to have mandatory follow-up of internal audits and decisions to reject internal audit recommendations posted on departmental Web sites.  Posting this information on departmental Web sites will reinforce their responsibility for following up on audits.  There will be a link to departmental sites on the Treasury Board Secretariat Web site to provide single-window access to this information and facilitate comparisons by departments.

The government notes that the Auditor General has indicated that a three-year time frame for audit follow-ups is not unreasonable except in cases of health and safety where action should be immediate.  Three years may be the outside limit for follow-up but at the same time one year (given an active audit program and perhaps the complexity of the remedial actions necessary) may be too soon to effectively measure the effects of changes made.  A certain amount of judgment needs to be applied in determining follow-up schedules within the one to three year time span.

In the revised Policy on Internal Audit, the intention is to establish practice inspections to ascertain whether internal audit groups have adhered to the standards of internal auditing, including the adequacy, timeliness and implementation of follow-up procedures, and the proposed audit committees would closely monitor the adequacy and implementation of management action plans.  There is also the intention to require that the rejection of recommendations from internal audits be reported to the Treasury Board Secretariat and posted on departmental and the Secretariat's Web sites.

However, management is accountable for reporting on the performance of their organizations including the results they achieve, as well as the actions they take to address identified deficiencies.

Recommendation 11

That all new branches within departments and agencies be subject to internal review one year following their establishment and a follow-up internal audit be conducted within six months.

The government agrees with undertaking audits of new organizations.  The government cautions however, that new organizational initiatives can vary widely as to their circumstances. Therefore the government sees a necessity to exercise some judgment around the specific time frames set out in the recommendation.

Recommendation 12

That the Comptroller General of Canada be authorized to sign off on all internal re-organizations or creation of new departments or agencies to ensure that the corporate and internal audit systems remain intact, functioning, adequate, and capable.

The government position is that such a change is unnecessary and inappropriate.  Deputy heads are responsible and accountable to their Minister for managing their departments in line with legislation, regulations and policy; this includes responsibility for ensuring that corporate and internal audit systems are in place and functional following major re-organizations or the creation of new entities.

The Treasury Board Policy on Responsibilities and Organization for Comptrollership requires that departments exercise sound comptrollership and that deputy heads designate senior financial officers (SFO) who must have direct reporting relationships to the deputy head.  The government intends to amend the current policy to provide greater clarity for the roles and responsibilities of the deputy head, the SFO and the Chief Audit Executive.  The deputy head would have overall responsibility and accountability to ensure an appropriate system of internal controls is in place and effective, to set the "tone at the top" and to facilitate and support the work of the SFO in this regard.  In turn, the SFO would be responsible to devise and implement financial management organizations and controls within departments and agencies that ensure an effective system of internal controls.  The Chief Audit Executive of the department would be responsible to provide independent assurance to the deputy head and the Audit Committee that the system of internal controls implemented by the SFO is effective.

Currently, departments include SFOs when developing and implementing new programs or major projects, or when making changes to existing programs that will have or are likely to have material financial implications.  This involvement provides some assurance that departments assess financial risks, respect financial authorities, and implement efficient and effective financial controls before programs are put into operation.  The government intends to amend the Policy on Responsibilities and Organization for Comptrollership to strengthen the role and authority of the SFO in this regard.  The policy would define the management assertions and the expectations of due diligence associated with the "sign-off" protocol.

The Comptroller General is charged with providing leadership to ensure that departments comply with Treasury Board policies aimed at financial management.  To achieve these goals the government intends to amend the Policy on Responsibilities and Organization for Comptrollership to strengthen the role and responsibilities of the Comptroller General in the nomination, assessment and removal of SFOs.

Deputy heads and SFOs currently sign-off representations on their systems of financial management and internal control relating to their annual Public Accounts information and financial statements and SFOs always sign off on human resources Treasury Board Submissions.  The Comptroller General will conduct consultations to assess the appropriateness of an improved certification protocol, modeled in part on the protocol recently adopted by the Canadian Security Administrators.

In addition to being unnecessary, the proposed change would be inappropriate, as it would effectively give the Comptroller General authority over the exercise of the Prime Minister's power and responsibility for organizing the machinery of government.

Recommendation 13

That internal audit units monitor adherence to contracting rules and regulations and report non-compliance to TBS.

The government agrees with this recommendation, but for greater clarity notes the distinction between auditing the compliance of contracting practices to rules and regulations versus contract management activities designed to ensure contract performance.  The government's position is that contract management activities should remain the responsibility of the contract management function.  By contrast, internal audit should retain responsibility for compliance auditing of contracting practices, and further, should be responsible for including, as part of a department's audit universe, the control frameworks invoked by the contract management function over contract performance.  

In this regard, the Treasury Board Secretariat will advocate, by way of directed or horizontal audits, risk assessment and ultimately practice review, that internal audit groups include in their annual audit plans compliance audits of contracting practices to ensure that contracting rules and regulations are respected. These audit activities could be on an entity or horizontal basis across government.

The government notes, however, that it is the responsibility of the deputy head, for which the deputy head is accountable to the Minister, to ensure, with the support of his or her management team that the appropriate control environment is created and monitoring mechanisms are applied to contracting activities.  Internal audit activity does not relieve the deputy head and management team of this responsibility.          

Recommendation 14

That administrative penalties up to and including dismissal from the Public Service of Canada be established to discourage non-compliance with contracting rules and regulations.

Both before and after the coming into force of the Public Service Modernization Act, there has been a comprehensive administrative framework in the Public Service of Canada that governs discipline, up to and including termination of employment (dismissal).  This framework allows management to deal with all situations of misconduct, which includes situations of non-compliance with contracting rules and illegal activities.

Prior to the coming into force of the Public Service Modernization Act, paragraph 12(1)(c) of the Financial Administration Act authorized every deputy head to establish standards of discipline and set penalties, including termination of employment, suspension and demotion.  Generally, disciplinary sanctions should be progressively more severe for repeated incidents of misconduct.  However, termination of employment may be considered from the outset in cases of very serious misconduct.  Allegations of misconduct are investigated and employees are provided an opportunity to explain their actions.  Management must be able to demonstrate cause for any disciplinary decision it takes and employees have the right to grieve the action, if they believe it to be unwarranted.  While the Minister does not intervene in the discipline of public servants, the deputy head is accountable to the Minister for the proper discharge of his or her responsibilities.

With the coming into force of the Public Service Modernization Act, responsibility and accountability to apply disciplinary measures is vested directly with deputy heads (this authority previously rested with the Treasury Board but was delegated to deputy heads).  The Treasury Board Secretariat provides advice and support to departments and agencies in dealing with disciplinary situations.  It has also issued Guidelines for Discipline, which provide a detailed description of the disciplinary process and the disciplinary measures that can be used when misconduct occurs.  These guidelines assist deputy heads, who are ultimately accountable, in applying a fair, consistent and coherent approach to discipline across the public service.

The administrative framework reflects the well-accepted labour relations principle that discipline is to be corrective, rather than punitive.  Its purpose is to motivate employees to accept those rules and standards of conduct, including those that are contained in the Values and Ethics Code for the Public Service, that are desirable or necessary to achieve the goals and objectives of the organization.  However, in advance of corrective measures, proactive preventative measures can be invoked to motivate desired behaviours.  For example, Public Works and Government Services Canada's Ethics Program, which began in 1999, provides the focus, framework and processes needed to guide, assess and continuously improve the ethical conduct of departmental managers and employees. 

Recommendation 15

That when public service employees working in procurement are subject to annual evaluations, or are being considered for performance bonuses or promotion, adherence with contracting rules and regulations be taken into account.

Good management of human and financial resources is a fundamental principle of the Performance Management Program for Executives.  Executives' performance is reviewed at least annually against agreed-to commitments and expectations for the delivery of results.  The performance review determines whether performance has met expectations and determines executive compensation.  The Performance Management Program for Executives is part of a range of approaches and tools to assist supervisors in managing performance including training, coaching, career counselling, withholding performance pay, and documenting poor performance on an employee's file.  These are relevant to all areas of work, including the area of procurement, and they already include adherence to rules and regulations as an indication of performance.  Should the performance of an employee be considered unsatisfactory, the Treasury Board Guidelines for Demotion/Termination of Employment for Unsatisfactory Performance describe management obligations and procedures to ensure due process is followed.  If, at the end of the process, management concludes that performance is unsatisfactory, demotion or termination is considered.    

Recommendation 16

That TBS report to Parliament on a regular, timely basis on departmental contracting activity.  Reports should include references to instances of non-compliance and corrective measures/sanctions.

Reporting on departmental contracting activity has been expanded since the publication of the Auditor General's report on the Sponsorship Program, Advertising Activities and Management of Public Opinion Research, through key Budget 2004 measures, most notably, the public quarterly disclosure departmental and TBS Web sites of procurement contracts worth more than $10,000. 

The Treasury Board Secretariat monitors the control environment of departments and agencies to become aware, as early as possible, of control deficiencies or compliance issues; intervenes as appropriate; and continues to monitor whether further action is needed to respond to identified deficiencies. Departments and agencies are accountable for reporting to Parliament on the performance of their organizations, including the identification of significant compliance issues and actions taken to address identified deficiencies. This information is made available to Parliamentarians and the public through public posting of internal audit reports, associated action plans, evaluations and other management reviews. For major departments and agencies, contracting is also addressed in Departmental Performance Reports, which are tabled in Parliament, as identified in the Guidance for Departmental Performance Reports published by the Secretariat.

Recommendation 17

That TBS actively challenge departments on their contracting activities with an emphasis on areas of highest risk.

The government agrees with this recommendation and already actively challenges the management of contracting where appropriate and monitors it more generally through the Management Accountability Framework (MAF). The MAF provides an effective basis of engagement with departments and agencies within an explicit and coherent model for high organizational performance.  Informed by this framework, the Treasury Board Secretariat's oversight approach reflects a balance between ensuring the department is playing its role to provide an adequate management control framework to manage the risks associated with their activities and providing selective oversight and monitoring of departmental activity based on an assessment of risk and capacity.

Treasury Board Secretariat decisions to strengthen oversight activities in contracting or to intervene are based on an informed judgement, taking into consideration the issues associated with a particular situation, the nature of the risks and the actions of the department in taking early and effective remedial action.

Recommendation 18

That TBS amend its contracting policies to require that the awarding and management of contracts are conducted as separate activities by separate units within departments, enforce these policies and monitor their application to ensure that they are rigorously adhered to.

Existing Treasury Board policies already address this issue.  Deputy heads are responsible and accountable to their Minister for managing their departments in accordance with legislation, regulations and policy. Decisions about organizational structure are guided by policies, notably the Treasury Board Policy on Delegation of Authorities, which already highlights the importance of segregation of duties as an internal management control. 

In accordance with this policy, departments and agencies must establish policies and procedures that will ensure an adequate level of control over delegated authorities and that persons with delegated authorities are well informed of their responsibilities in this regard.  In assigning responsibility to individuals involved in the expenditure process, the Policy on Delegation of Authorities addresses the Committee's concern by directing that deputy heads maintain an appropriate segregation of duties in terms of program, contracting and financial responsibilities, thereby ensuring that appropriate controls are applied in spending public money.  Departments and agencies are expected to conduct internal audits of their compliance with this policy and these audits would be examined in the conduct of the Treasury Board Secretariat's oversight and monitoring of departmental performance.

Therefore, amendments to the Contracting Policy are not necessary to meet the objective of this recommendation.

Recommendation 19

That departments provide clear statements of required documentation on files involving contracting, grants and contributions, and communications and advertising activities, to satisfy accountability, internal audit, performance reporting, and payment requirements.

The government is committed to strengthening management performance and measures have already been taken to improve practices in the areas of contracting, grants and contributions, and communications and advertising activities.

The Contracting Policy requires that procurement files be established and structured to facilitate management oversight and demonstrate that the procurement process is carried out in accordance with trade agreement obligations (in some areas of procurement, files must be documented to support international trade tribunal challenges).  This requires a complete audit trail that contains contracting details related to relevant communications and decisions including the identification of involved officials and contracting approval authorities.

The Treasury Board Secretariat will compile best practices to assist departments and agencies in establishing standards to ensure complete contract file documentation in accordance with obligations identified under the Contracting Policy.

The Treasury Board Policy on Account Verification requires that departments establish internal policies to ensure the availability of appropriate documentation required to support the verification and certification of all types of payment, including contracts, grants and contributions, communications and advertising activities.  Such documentation includes for example, contracts, leases, purchase orders, requisitions, and program terms and conditions.  The documentation must be sufficient to ensure a proper audit trail that, among other things, provides evidence of verification including identifying the various individuals who have performed a review.  Departmental policies strengthen accountability, internal audit, performance reporting and payment requirements.  This being said, the government recognizes that ongoing training and oversight need to be enhanced to ensure that legislation, regulations, Treasury Board and departmental policies are applied consistently and effectively.

Measures instituted under the Communications Policy of the Government of Canada, which was amended in November 2004, meet the Committee's objective of ensuring proper documentation of communications and advertising activities.

The Communications Policy requires departments to maintain complete internal records and to document all advertising activities on the government's central advertising information database, AdMIS (Advertising Management Information System) managed by Public Works and Government Services Canada.

Policy requirement 23, "Advertising," sets out the new requirements for the management of government advertising.  It requires departments and agencies to document all information pertaining to their advertising activities on AdMIS, including plans, estimates, budgets, expenditures, contracts, and amendments to contracts.

The policy's Procedures for Planning, Contracting and Evaluating Advertising outline the steps to be followed to ensure complete documentation of all activities related to advertising projects through six different stages: 1) planning and approval; 2) contracting for advertising services; 3) advertising production; 4) pre-testing; 5) media placement; and 6) post-campaign evaluation and reporting.   

Recommendation 20

That TBS amend the appropriate policies by the inclusion of a prohibition against issuing payments of grants or contributions, or for contracts in the absence of required documentation.

Recommendations 3, 4 and 20 are all concerned with processes and procedures in departmental financial services units for reviewing, challenging and issuing payments for contracts and/or grants and contributions.  An integrated response to these three recommendations follows.  

The government concurs with these recommendations, but notes that most of what is stated is already included in existing policies.

The Committee acknowledged that government rules, regulations, and procedures surrounding contracting and financial management are for the most part sound.

Departments and agencies must have in place departmental policies and procedures that respect the government's financial management control framework as set out in:

• the Financial Administration Act (FAA);
• regulations under the FAA; and
• Treasury Board policies.

The Treasury Board's Policy on Account Verification and the Policy on Payment Requisitioning and Payment on Due Date define the government's requirements for compliance with the FAA. These policies specifically prescribe that the account verification process, including requirements that must be met before financial services (departmental payment officers) can approve issuing payments. For instance, the Policy on Account Verification stipulates that an enhanced level of review and challenge is required by departmental payment officers for all high-risk transactions.  The policies also state that the responsibility for the systems of account verification and related financial controls rests ultimately with those departmental payment officers who are delegated payment authority pursuant to section 33 of the FAA. Among other things, these payment officers must ensure that payments have been approved by authorized managers and that these managers have an appropriate verification process that is conscientiously followed, which would include reviewing and verifying appropriate documentation. As well, under section 33 of the FAA, the departmental payment officers must certify that the proposed payment is lawful, and that there are sufficient funds available to make the payment.

The Treasury Board's Policy on Payment Requisitioning and Payment on Due Date requires that departmental payment officers have adequate assurance that the Section 34 certification has been provided.  This policy requirement thus provides the payment officer in the departmental financial services unit with the authority to challenge any requests for payments before providing their section 33 certification.

The requirements of the Treasury Board Policy on Account Verification and the Policy on Payment Requisitioning and Payment on Due Date and sections 33 and 34 of the FAA apply to all payments made by departments including all payments for contracting, grants and contributions, communications and advertising. 

The financial management control framework described above requires the application of a sound system of internal controls that demands appropriate documentation be in place before payments may be made.  When properly implemented, used, and managed, this system of internal controls has the effect of prohibiting the issue of payments when the required documents are absent.

Accordingly, the above illustrates that the recommended enhancements to the financial management control framework are already in place and are consistent with the Committee's recommendations.  This being said, the government recognizes that ongoing training and oversight need to be enhanced to ensure that the financial management control framework is applied consistently and effectively. 

Recommendation 21

That Parliament's ability to hold Crown corporations to account be enhanced.

Overall governance, including the accountabilities of Crown corporations, has recently been strengthened through the February 17, 2005 tabling of 31 specific measures as outlined in the "Review of the Governance Framework for Canada's Crown Corporations." The government's measures include:

• working closely with parliamentary committees to facilitate the prior review of CEO and chairperson appointments;
• ensuring that the Main Estimates clearly identifies the funds allocated to each Crown corporation that receives parliamentary appropriations; and
• assigning responsibility to the Auditor General to determine the frequency under which Crown corporations will be subject to the special examinations of the financial management control, information systems and management practices in the corporations and requiring that each special examination report be submitted to Parliament.

It should be noted that the Financial Administration Act already requires that Crown corporations provide Parliament with a number of reports annually, most of which are referred to an appropriate Standing Committee of the House of Commons. Some Standing Committees have, following the tabling of a report, invited the Minister responsible for the Crown corporation to appear before them, and be held to account for the overall functioning of the Crown corporation. Committees also have the authority to invite Chairpersons and CEOs of Crown corporations to appear before them to explain the activities of their organizations. Such reports include:

• summaries of the corporate plan, capital and operating budgets for most Crown corporations;
• annual report for each Crown corporation;
• Main or Supplementary Estimates which show funding for Crown corporations receiving government appropriations; and,
• President of the Treasury Board's Annual Report on Crown Corporations and Other Corporate Interests.

Through the tabling and review of these reports, Parliament has the opportunity to exercise existing powers to hold ministers to account for the overall functioning of Crown corporations.

Recommendation 22

That Parliament's involvement in the selection and appointment of heads of Crown corporations be enhanced.

The government announced a number of changes to the appointments process in the Review of the Governance Framework for Canada's Crown Corporations tabled in Parliament on February 17, 2005.

While selection and appointment remain executive functions, an increased role for Parliament has been introduced with the prior review of all Governor-in-Council appointments to key positions.  For Crown corporations, this includes the ability of standing committees to review proposed appointments to CEO positions, prior to the appointments being made.

Recommendation 23

That the Auditor General of Canada Act be amended to give the Auditor General the authority to conduct performance audits of all Crown corporations and to report the results directly to Parliament, and that the Office of the Auditor General be given the resources necessary to do so.

Recommendation 24

That the Auditor General of Canada Act be amended through the inclusion of a clause giving the Auditor General the authority to conduct an audit of the records, files, documents and accounts of any individual, establishment, institution or enterprise in relation to the receipt and/or use of any grant, contribution, or transfer under an agreement made to it by the Government of Canada.

Recommendations 23 and 24 are similarly concerned with the scope of Auditor General activities and the necessary amendments to the Auditor General Act.  An integrated response to these two recommendations follows.

The government has proposed amendments to the Financial Administration Act in the Budget Implementation Bill 2005, in order to allow for the appointment of the Auditor General of Canada as the auditor or joint auditor and to perform special examinations (a type of value-for-money or performance audit) of almost all Crown corporations.  The two exceptions are the Bank of Canada and the Canada Pension Plan Investment Board, the inclusion of which would require further review and consultation given their unique roles and governance structures.  With respect to providing the special examination to Parliament, the Auditor General currently has the discretion to do so.  However, the government has committed to implementing a new special examination regime that would require that each special examination report prepared by the Auditor General be submitted to Parliament (this was committed to in the "Review of the Governance Framework for Canada's Crown Corporations", tabled in Parliament on February 17, 2005).

The government has also proposed to expand the mandate of the Auditor General in the Budget Implementation Bill 2005 by amending the Auditor General Act.  This expanded mandate would permit the Auditor General to inquire into the use of federal funds by not-for-profit corporations or any corporations without share capital that have, in any five consecutive fiscal years, received a total of $100 million or more under one or more funding agreements.  Several funding agreements recently signed under the Policy on Transfer Payments relating to funding announcements made in Budget 2005 include provisions for compliance and performance audits to be carried out by the Auditor General or the government. Going forward, the government will work closely with the Auditor General to ensure any new or amended agreements fully address her audit requirements.

The proposed legislative amendments were developed in close consultation with the Auditor General to ensure her objectives were being met. The cost that the Auditor General incurs in carrying out performance audits is provided for in the Auditor General's budget.  As new and additional Crown corporations become subject to performance audits by the Auditor General, the budget of the Auditor General will be reviewed.  

Recommendation 25

That departments and agencies be required to include sections in their performance reports that specifically address contracting activities, grants, and contributions, and transfers to other departments or agencies.  The goals and objectives of these activities, performance indicators, and results must be clearly stated.

The Treasury Board Secretariat provides reporting guidance to departments and agencies on Reports on Plans and Priorities and Departmental Performance Reports, so that Parliament receives a coherent, balanced and effective picture of departmental priorities, expected results and performance.  The Secretariat's guidelines require departments and agencies to explain how their expected results will be achieved, as well as the means used to achieve them.  These organizations are also to provide enough information to demonstrate how resources and activities, as well as programs and services, logically support the achievements of their results.  In particular, specific templates are already provided in the guidelines to ensure that departments and agencies meet policy and statutory reporting requirements applying to them, including for procurement and contracting, transfer payments, grants and contributions.  The templates require clear statement of objectives, expected results, results achieved, as well as of efficiency and effectiveness for procurement practices.

Recommendation 26

That TBS develop a more effective monitoring and compliance regime, to ensure that departments and agencies reflect existing guidelines in their performance reports.

Reports on Plans and Priorities and Departmental Performance Reports are primary instruments of accountability to Parliament.  They are planning and performance documents written by each department reflecting the responsibility of ministers and their organizations to explain to Parliament their plans and expected results and to account for the performance achieved with the resources entrusted to their organization.

The Treasury Board Secretariat supports departments and agencies in fulfilling their reporting responsibilities.  In particular, the Secretariat's guidelines require deputy heads to sign a "Management Representation Statement" to reinforce their organizations' commitment to present consistent, comprehensive, balanced and accurate information to Parliament by adhering to the Treasury Board Secretariat reporting principles and requirements. 

The Secretariat will continue working with departments and agencies to further their understanding of the reporting principles and to improve the quality of performance reports.  The effectiveness of the government monitoring and compliance regime is currently under review.  Further to the recommendations of this review, Treasury Board Secretariat will revisit its guidance on performance reporting.  These initiatives will help to ensure that departments and agencies reflect existing guidelines in their performance reports.

Recommendation 27

That all programs involving payment to individuals or entities outside government that do not result in the direct receipt, by government, of goods or services in return be framed as contributions under the TB's Policy on Transfer Payments.

The government does not agree that all transfer payments should be framed as contributions.  Choosing between a grant, a contribution or other transfer payment is a critical factor in meeting the objectives and expectations of all stakeholders, and depends upon the intended recipients, the cost effectiveness, the risks and the degree of control desired to achieve the objectives and mitigate the risks.  On a continuum, as risk or the desire for control increases, the more likely it is that a contribution will be the appropriate instrument.

Contributions are a type of transfer payment made to reimburse eligible expenditures incurred through an agreement.  They must be accounted for and can be audited.  Grants are generally not accounted for or audited but the recipient may need to meet pre-conditions to be eligible and this entitlement may be verified.  Other transfer payments are based on legislation or arrangements and the amount of the expenditure is normally based on a formula or schedule.  Examples of other transfer payments are transfers to other level of government such as equalization payments, Canada Health and Social Transfer payments, and gas tax transfers to cities.

The terms and conditions of transfer payment programs are approved by the Treasury Board and are designed with appropriate audit and evaluation regimes.  All transfer payments are subject to public scrutiny and must be managed in a manner that is open and transparent to the public, and with due regard to economy, efficiency and effectiveness.  Basic principles of parliamentary control, authority and accountability establish the boundaries within which decisions are made on the use and management of all transfer payments. 

Recommendation 28

That section 41(2) – 41(3) of the Public Service Employment Act be repealed immediately.

Section 41(2) of the Public Service Employment Act (PSEA) indicates that ministerial priorities apply to people employed in the office of a minister, the Leader of the Opposition in the Senate or the leader of the Opposition in the House of Commons under certain conditions.  The person must have been a public servant immediately before joining that office or must have been found qualified for an appointment through an advertised external process while employed in the office of a minister or Leader of the Opposition.

Section 41(3) of the PSEA provides for the appointment of senior Ministerial staff who have been employed as the executive assistant, special assistant or private secretary in the office of a minister, the Leader of the Opposition in the Senate or the Leader of the Opposition in the House of Commons for at least three years. Appointment would be at least to the equivalent of an executive assistant to a deputy head.

In both cases, eligibility lasts for one year from the date the person ceases to be employed in one of the offices mentioned above.

This issue was considered during debate of the Public Service Modernization Act and a decision was made by the government to maintain the priority.  This recommendation would require legislative amendment and will be reconsidered when the legislation is reviewed after 5 years.

Recommendation 29

That TBS examine the procedures that are in place for reviewing and approving candidacies for all EX-level appointments and promotions to ensure that past performance is taken into account.

Issues raised in this recommendation are under the jurisdiction of the Public Service Commission (PSC).  The PSC is an independent agency reporting to Parliament and has provided the following response in order to provide a more comprehensive document.

Under the current Public Service Employment Act, the Public Service Commission (PSC) is responsible for appointing qualified persons to and within the federal Public Service at the EX-1 to EX-5 levels.  Although The Leadership Network of the Public Service Human Resources Management Agency of Canada conducts all EX-4 and EX-5 selection processes, the PSC retains the authority to approve these appointments. 

The PSC has delegated a few executive appointment authorities to deputy heads, such as acting appointments to and within the EX group and appointments of EX-1 to EX-2 and EX-2 to EX-3 following the reclassification of the incumbent's position.  Promotions are a permanent appointment to a higher level that includes an appointment following the reclassification of a position.

• For the appointment following the reclassification of the position, departments and agencies are required to meet the terms and conditions of delegation that require that:
• there is no change to the qualifications;
• the incumbent has occupied the position for at least six months;
• individual merit is applied;
• the incumbent has performed in a fully satisfactory manner;
• past performance has been assessed; and
• the official languages requirements are respected.

The PSC advised the Heads of Personnel and Chiefs of Staffing within departments of these conditions (including assessment of past performance) when it delegated this authority in 2001.

For all non-delegated EX appointments, at least two assessment tools, the interview and structure reference checks, are always used to determine if a candidate is qualified at the EX level in accordance with the selection process used.   This is where past performance of candidates is taken into consideration. In addition, a third assessment tool, a simulation test such as SELEX^[2], is mandatory for an entry to the EX group through a non-competitive process (reclassification or appointment without competition).

Past performance of candidates is taken into consideration during the structured reference check.  Structured reference checks are based on the competencies identified for the position being filled.  Typically three reference checks take place.  The referees are asked to indicate how well a candidate meets each competency and what past performance would support their assessment.    

In addition, past performance is taken into consideration during the interview process. Candidates are presented with behavioural based questions which delve into a candidate's past experience and aim to determine how well the candidate dealt with situations, the results achieved and the lessons learned.

As part of implementation of the PSEA 2003, a new appointment framework has been approved by the commission.  As well, intensive training will take place on the delegated authorities from now to the fall 2005.  The PSC is also building its audit capacity and in the future, with the increased delegation being offered to departments, will monitor these actions through the audit process.

---