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

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The Government of Canada is committed to excellence in management. This is essential in serving Canadians and in meeting their priorities through effective program and service delivery. Integral to management excellence is a solid foundation of ethical conduct and values-based decision-making.

Over the past several years, the Government has made significant progress in modernizing and strengthening management. This progress is supported by sustained leadership and commitment. It has also been attained through an effective partnership between the Treasury Board Secretariat (TBS) and departments. This work is reflected in government-wide efforts in the area of Values and Ethics, in advancing human resources reform and in implementing modern comptrollership across government.

This commitment is also reflected in the government's leadership in undertaking the Public Works and Government Services Canada (PWGSC) 2000 internal audit of sponsorships and by acting on its findings. When it became apparent that there were further issues, PWGSC requested that the Auditor General examine three Groupaction contracts awarded in 1996, 1998 and 1999. And again, the government made every effort to get to the heart of issues through the efforts of the Minister of Public Works and Government Services (PWGS) and Minister responsible for Communication Canada in completing detailed reviews of sponsorship files, in withholding and recovering monies, in bringing issues to the attention of the appropriate authorities, and in addressing program design and management issues. The Government has also looked to the future at the request of the Prime Minister by fundamentally redesigning the Sponsorship Program and advertising contracting through the work of the President of the Treasury Board with the full support of the Minister of PWGS and Minister responsible for Communication Canada.

A chronology of the main events related to the actions taken by government, including those to strengthen and modernize management at a government-wide level and those specifically related to sponsorship issues is provided at Appendix 1.

Strengthening and Modernizing Management at a Government-Wide Level

Since the time of the Groupaction contracts in 1996, 1998 and 1999, the government has implemented a broad-based government-wide management agenda to strengthen and modernize its management. The agenda is consistent with a framework of ministerial accountability and responsibility, namely that Ministers and departments are responsible and accountable to Parliament for the actions of their departments. Efforts to strengthen management have focused on providing Ministers and departments with a modernized legislative and policy framework supported by tools and a clear regime of accountability so that the government can effectively serve Canadians.

These modernization efforts will take time to show results, but progress is being made. This work is guided by Results for Canadians with its focus on citizens, the stewardship of public resources, in managing for results and a clear set of public service values.

Modernization efforts were highlighted in the Prime Minister's eight-point action plan, including:

• the publication of a Guide for Ministers and Secretaries of State advising them on a wide range of issues including ethical conduct and management priorities;
• New Appointment Procedures for the Ethics Counsellor as set out in the Bill on the Ethics Commissioner tabled before Parliament October 2002; and
• strengthened Public Service Management and Accountability for Public Funds.

Today, we have a new Management Accountability Framework for the public service and Guidance for Deputy Ministers. Both documents emphasize the responsibility of Deputy Ministers to ensure an appropriate foundation for values and ethics in the delivery of results to Canadians. We also have a new Values and Ethics Code for the Public Service. It recognizes that public servants will be guided in their work and their professional conduct by a balanced framework of public service values, including the need to work within the laws of Canada; to ensure the proper, effective and efficient use of public money; and to make decisions in the public interest and with regard to the merits of each case.

These efforts are also reflected in the human resource management reform through Bill C-25, the Public Service Modernization Act, and key policy reforms including the 2001 Policy on Internal Disclosure of Information Concerning Wrongdoing in the Workplace and the creation of an independent Public Service Integrity Officer. And lastly, modernization is also about government-wide implementation of Modern Comptrollership and is supported by key policy changes such as the 2001 Internal Audit Policy and considerable investment in the internal audit community.

Acting on Sponsorship Issues and Steps Taken to Strengthen Advertising and Public Opinion Research

Over the past three years, crucial and significant steps have been taken by the Government of Canada to address issues flowing from an August 2000 internal audit by PWGSC on sponsorships and in respect of further issues that subsequently became apparent in the Groupaction contracts. A robust set of measures and work have been undertaken to ensure all issues in the past were identified and addressed. The Government of Canada also demonstrated leadership in management improvement in the forward-looking review that the Prime Minister asked the President of Treasury Board to complete. The President, in collaboration with the Minister of PWGS and Minister responsible for Communication Canada immediately acted on the issues identified to improve the management of sponsorships, advertising and public opinion research activities.

Dealing with the Past

The Government of Canada candidly acknowledged the mistakes and deficiencies of the past and set upon a determined course to expose and correct them. Activities to deal with such issues included a number of internal and external examinations and investigations that have been undertaken to pursue program design and administrative errors, to identify options for the recovery of public funds, and to identify legal issues that merit reference to police authorities for their official consideration. All such legal issues have indeed been so referred.

Remedial action on the Sponsorship Program began in the spring of 2000, when PWGSC undertook an internal audit of the Program through a proactive audit system. The findings were posted on the department's Internet site after its completion in August 2000. The department subsequently took concrete and timely actions to address all of the internal audit's findings and ensure that the program met all financial and contracting policy requirements. A follow up review completed in March 2002 found that, with very few exceptions, all mandatory documents existed and were appropriately included in approved sponsorship files.

In 2001, significant organizational changes were made in the management of the Sponsorship Program through the creation of Communication Canada. This led to improvements in management of the Program, such as in separating the contracting function, which was retained by PWGSC, from the program management function transferred to Communication Canada.

In early 2002, when it became apparent that there were other issues that needed to be addressed concerning the Groupaction contracts awarded in 1996, 1998 and 1999, the then-Minister of PWGS requested the Auditor General conduct an audit of the three contracts valued at $1.6 million. He also launched steps to clarify the program's structure and administration. The audit included all associated files to determine if the government payments related to the three contracts were made appropriately with respect to the Financial Administration Act. Upon completion of the Auditor General's audit in May 2002, the government began two important tracks of work.

Under the first track, the new Minister of PWGS imposed an immediate moratorium on future sponsorship initiatives until he was satisfied that the basic management of the program was sound. He also terminated the use of private advertising firms as administrative intermediaries. At the same time, the department undertook a file-by-file review of all 721 sponsorship files in the period between 1997 (when the program began) and 2000 (when the internal audit was commenced) under the authority of the Chief Financial Officer. The results of this work were announced by the Minister of PWGS on October 10, 2002 and posted on the department's web site with a five-point plan detailing all the actions taken to-date on the recommendations.

In the fall 2002, the Deputy Minister of PWGS launched a formal administrative review of 45 sponsorship files of primary interest by an independent, third-party forensic accounting firm. The first report identified issues of non-compliance with the Financial Administration Act and Treasury Board contracting policies and regulations and was sent to the Royal Canadian Mounted Police (RCMP) to ensure that any further action would not impact any criminal investigation. A second report will be completed this summer to examine the remaining files of primary interest.

PWGSC recently undertook a review of advertising files covering the same time frame as the 2000 Internal Audit of Sponsorships (1997-98 to 1999-2000). The review found that the management control framework lacked sufficient controls during that period. PWGSC is undertaking a follow-up review of advertising files for the period 2000-01 to 2002-03 and will consider the extent to which conditions have been improving based on the changes being made to the management of advertising.

Putting in a Strong Framework for the Future

On the second track, at the request of the Prime Minister, a forward-looking review of sponsorship, advertising and public opinion research activities was undertaken by the President of the Treasury Board, in collaboration with the Minister of PWGS and Minister responsible for Communication Canada to strengthen competition, transparency and accountability. The review found that the management control framework lacked sufficient controls to ensure advertising files were effectively managed during that period. The results of the review were announced in December 2002.

At the same time, the Secretary of the Treasury Board wrote to all Deputy Ministers across government asking them to review their responsibilities and accountabilities in these areas of activity.

The review resulted in a number of significant changes including a redesigned contribution Sponsorship Program at Communication Canada to be implemented on a one-year trial basis. The redesigned program features clearly defined objectives, application process and selection criteria; is available to not-for-profit Canadian organizations holding events across Canada; and seeks a regional balance. Third party delivery has been eliminated and specific measures to support greater transparency and visibility in the program's day-to-day management were incorporated. The new program is managed within the framework of the Transfer Payment Policy, which provides a better program-level oversight through a results-based management accountability framework and a risk-based audit framework, than a procurement-based model. PWGSC and Communication Canada continue to monitor the implementation of the changes made to the Sponsorship Program.

The review also resulted in key changes to advertising to achieve better quality and cost-effectiveness and to ensure that advertising contracts are managed in a manner consistent with other Government of Canada contracting activities more generally. Improvements will be achieved through greater competition for government advertising business with the elimination of the practice of assigning a single communications agency to departments for all their needs; a policy requirement for a mandatory single agency of record; the highly restrictive Canadian ownership requirement, which was replaced by a Canadian content provision so that work is performed in Canada by Canadians; and the significant reliance on commission-based payments to implement a range of payment methods including performance-based payments. The Treasury Board approved changes in the Contracting Policy for the procurement of advertising services and public opinion research to enable PWGSC to strengthen its procurement tools in that area.

In April 2003, after consultations with stakeholders across Canada, the Minister of PWGS and Minister responsible for Communication Canada announced measures to implement these changes, namely that a Canadian content requirement of 80 per cent would be established, that a variety of contracting tools would be used including competitive national and regional standing offers, that a labour-based hourly remuneration would be used predominantly with consideration for performance-based methods when warranted, that a competitive process was launched to select an Agency of Record and that an annual report should be issued on government advertising activities for fiscal year 2002-03.

The review also resulted in changes related to the management of public opinion research activities. These address the need for increased coordination across departments to ensure that government departments have access to key public opinion research information through the most cost-effective approach possible so government can better serve Canadians.

In June 2003 the Minister of PWGS and Minister responsible for Communication Canada announced further measures to strengthen the management of public opinion research. To increase the efficiency of public opinion research, three standing offers and three complementary supply arrangements for research will be established, thereby providing more flexibility in contracting tools and the choice of an appropriate supplier. The publication of clear procedures for use by federal institutions will make the contracting process even more transparent.

Recommendation 1

Response

The government agrees. Sound management practices, including good contracting practices, are an element of good public administration and a key consideration in human resources management decisions. Adherence to legislation, regulations and policies indeed has an impact on careers and promotion.

Recommendation 2

Response

The government has a clear framework that provides for a range of measures through the Treasury Board Guidelines for Discipline, Contracting Policy and Policy on Losses of Money, Offences and Other Illegal Acts Against the Crown, including the recovery of funds, the revocation of authorities, to termination of employment, among others. Sanctions are also provided for persons guilty of a list of offences in Part IX of the Financial Administration Act. Of particular note are sections 80 and 81 regarding indictable offences related to the disbursement of public money for both public servants and others. These indictable offences provide for a fine and imprisonment in the event that a review of the conduct of officials leads to a demonstration and conviction of wilful intent to defraud the government.

Deputy Ministers are responsible for disciplinary measures taken in their department and accountable for taking action. The Deputy Minister of PWGS is doing this through the administrative review under way in the department.

Where disciplinary measures are required, it is recognized that deputy ministers must respect individuals' rights to due process.

Contracting is subject to ongoing and extensive review across government. Systemic disregard for contracting regulations and policies is not evident. However, in individual cases where issues have arisen, steps are taken to clearly understand the nature and scope of the issues.

When issues arise, the root causes and circumstances that led to failure are rarely simple, nor are they consistently attributable to a single cause. They can be due to lack of knowledge, gaps in oversight, difficulties in interpretation and application of policies and regulation and, in more rare instances, deliberate actions that must be addressed through disciplinary measures.

Recommendation 3

Response

This review was completed in 2002 on behalf of the Minister and Deputy Minister of PWGS. The Minister of PWGS has tabled the report in Parliament on October 10, 2002. The report has also been in the public domain since last fall as it was published on the Internet October 10, 2002.

The report made 5 recommendations and action was initiated on all:

• Various files have been referred to the RCMP and Justice Canada;
• Time verification audits have been undertaken;
• Recovery of funds has been initiated and holdbacks are in place;
• An administrative review examining potential Financial Administration Act (FAA) and policy breaches is in its second phase; the first report was sent to the RCMP to ensure actions including potential disciplinary measures that may be taken will not compromise ongoing investigations; and
• Past subcontracting practices are being examined; there is no opportunity for subcontracting in the redesigned contribution program.

Recommendation 4

Response

The Minister of PWGS has committed to recover funds wherever possible.

For example, the 2000 internal audit of sponsorships highlighted the delay between the time the Agency of Record (AoR) received payment from the Government of Canada and the time the AoR paid the communication agency. Consistent with the advice of PWGSC internal auditors, this business practice and administrative weakness was corrected in June 2001. The AoR voluntarily remitted some $101,077 to the Government of Canada, which represents the amount of interest attributable to the government that had accrued prior to the 2001 corrections.

Payments to several private sector communications firms are being held back to safeguard taxpayers' monies while PWGSC continues to work with Justice Canada in their work to recover public funds.

Recommendation 5

Response

Given the volume of government contracting (almost 540,000 contracts per year valued at approximately $12.3 billion in addition to the 1.5 million acquisition card transactions), the Treasury Board Secretariat (TBS) has established, in partnership with departments, a more robust and broad-based system of monitoring than had been provided for in section 5.1 of the Contracting Policy. TBS actively monitors departmental contracting through:

• Ongoing dialogue with departments;
• Work related to the Procurement Reform initiative;
• The monitoring of departmental audit plans, completed audits and working with departments in ensuring the development and implementation of effective management action plans - which are available to Canadians and Parliament;
• Work on the professional development and certification program for contracting specialists;
• The review of cases at the Canadian International Trade Tribunal; and
• In the context of specific transactions that require Treasury Board approval.

TBS is also developing an internal audit guide to help departments further strengthen internal audits and their usefulness in improving departmental contracting and the effectiveness of the management of this function.

Departments are also monitoring contracting through several mechanisms such as contract review committees and quality assurance systems, including control mechanisms such as invoice verification and delegation instruments.

In determining where monitoring resources are spent, TBS considers the level of risk and expenditures.

Recommendation 6

Response

The Treasury Board Internal Audit Policy requires that departments:

• have an effective, independent and objective internal audit function;
• incorporate internal audit results into their priority setting, planning and decision-making processes;
• issue completed reports in a timely manner and make them accessible to the public; and
• ensure that management action plans are developed and included as part of the completed internal audit report.

Government contracting is subject to ongoing audit and review across government. The TBS reviews departmental internal audit reports and ensures that appropriate action plans are in place to correct problems, and intervenes as necessary. It works with departments in support of management review work and in promoting practices consistent with modern comptrollership and management. Parliament and Canadians are provided with information on the broader work under way in modern comptrollership as well as on compliance with Treasury Board Contracting Policy and Regulations through departmental internal audits and responses. The information provided not only indicates where improvements need to be made but also highlights measures undertaken to strengthen departmental practices.

Key departments also report on their contract management through their departmental performance reports to Parliament and Canadians.

Recommendation 7

Response

The Internal Audit Policy established April 2001 provides that "Departments [must] have an effective, independent and objective internal audit function that is properly resourced to provide sufficient and timely assurance service."

Deputy heads are responsible and accountable for managing their departments in line with legislation, regulations and policy, including the implementation of the Internal Audit Policy. Departments are actively implementing the policy and the Treasury Board Secretariat provides leadership in the area through its Centre of Excellence for Internal Audit.

The 2001 Internal Audit Policy further requires that Deputy Heads ensure that their head of internal audit has an unimpaired ability to carry out his or her responsibilities, including reporting audit findings to the deputy head and, as appropriate, to the Deputy Comptroller General. Internal auditors are provided with avenues of redress as are all public servants.

Recommendation 8

Response

TBS reviewed and amended the level of funding in the internal audit function and provided additional funding directly to departments and the TBS Centre of Excellence for Internal Audit for the periods 2001-2002 ($10.4 million) and 2002-2003 ($18.2 million). Further, the Treasury Board approved an additional total investment of $15M in departments and the TBS Centre of Excellence for Internal Audit for the periods 2003-2004 and 2004-2005.

The TBS Centre of Excellence for Internal Audit monitors the internal audit function on an ongoing basis and an evaluation of the implementation of the Internal Audit Policy will be completed in 2005-2006.

Recommendation 9

Response

The Financial Administration Act gives the Treasury Board the role and mandate to adopt policies related to the general administrative of the government, including the management of its human resources. Deputy Heads are responsible and accountable to manage their departments in line with all Treasury Board policies.

This Policy was approved by the Treasury Board effective November 30, 2001. As the Policy requires, Deputy Heads have been proactive in appointing senior officers in the departments and agencies under TBS's purview. Senior officers have been tasked with ensuring an expeditious process of disclosure towards wrongdoing while respecting confidence. Public servants are contacting these senior officers to disclose information concerning wrongdoing in their organizations. A network group of senior officers meets on a regular basis to foster a work environment of communication and openness.

Public servants can raise issues directly with the Office of the Public Service Integrity Officer (PSIO) when they believe that their issue could not be raised in confidence within their organization or when they believe their disclosure was not dealt with appropriately. Under this Policy, the PSIO is required to make recommendations on wrongdoings to the Deputy Head who in turn will consider and act expeditiously on matters put forth. In cases where departmental responses are not adequate or timely, the PSIO can make a report of findings to the Clerk of the Privy Council in his role as head of the Public Service.

The Policy is to be reviewed no later than three years after its implementation; that is before November 30, 2004.

Recommendation 10

Response

The Financial Administration Act gives Treasury Board the role and mandate to adopt policies related to the general administrative of the government, including the management of its human resources. As this policy is a Treasury Board policy, the Treasury Board Secretariat has a responsibility to monitor its application.

The TBS supports the spirit of Recommendation 10 as the TBS Office of Values and Ethics is already actively monitoring the application of the Policy in departments. Departmental senior officers responsible for the Policy have been requested to provide statistical information, as identified in the Policy, to the TBS Office of Values and Ethics for the first year of the Policy's application. The Policy is to be reviewed no later than three years after its implementation; that is by November 30, 2004.

Under the requirements of the Policy, the Public Service Integrity Officer is to prepare an annual report to the President of the Privy Council on his activities for tabling in Parliament. The release of this report is planned for the fall of 2003 and will cover the first year of the office's operation.

Recommendation 11

Response

Departments must structure their organization to meet service and program delivery needs of Canadians.

Deputy heads are responsible and accountable for managing their departments in line with legislation, regulations and policy. Decisions about organizational structure are guided by policies, notably the Treasury Board Policy on Delegation of Authorities, which includes the requirements to:

• delegate and communicate financial authorities formally in writing thus ensuring that persons with delegated authorities are well informed of their responsibilities in that regard;
• to establish an appropriate segregation of duties in terms of program, contracting and financial responsibilities, thus ensuring that appropriate controls are applied in spending public money; and
• to establish policies and procedures to ensure an adequate level of control over delegated authorities.

In the case of the Communications and Coordination Services Branch, in September 2001, the program functions of that Branch were merged with those of the Canada Information Office into a new department, Communication Canada. Contracting responsibilities were transferred to PWGSC's contracting operations, segregating program management from contracting responsibilities.

Recommendation 12

Response

The Public Service Commission takes its responsibility to monitor the application of these sections of the Act very seriously and does so through ongoing review. The Commission will ensure it appropriately implements and monitors all future obligations assigned to it in the Public Service Modernization Act.

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APPENDIX 1

Chronology of Events

Strengthening and Modernizing Management at a Government-Wide Level

2000 - Results for Canadians: A Management Framework for the Government of Canada published

2001 - Modern Comptrollership is launched government-wide

April 2001 - New Treasury Board Policy on Internal Audit

November 2001 - Treasury Board Policy on Internal Disclosure of Information Concerning Wrongdoing in the Workplace, established a government-wide review mechanism outside the departmental processes, the Public Service Integrity Officer

June 11, 2002 - Prime Minister speech on an eight-point action plan on government ethics highlighting key measures such as the Guide for Ministers and Secretaries of State and New Appointments Procedures for the Ethics Counsellor

February 2003 - Tabling of the Public Service Modernization Act

June 19, 2003 - Values and Ethics Code for the Public Service announced

June 20, 2003 - Guidance for Deputy Ministers and Management Accountability Framework are made public

Acting on Sponsorship Issues and Steps to Strengthen Advertising and Public Opinion Research

1996, 1998, 1999 - Groupaction Contracts

August 2000 - PWGSC Internal Audit on Sponsorship on files between November 1997 to March 2000

October 2000 - PWGSC Management Action Plan on August 2000 Sponsorship Internal Audit

September 2001 - Creation of Communication Canada

February 2002 - Communication Canada introduced a new management structure, program framework and guidelines for Sponsorship Program

March 2002 - Public Works and Government Services Minister requested Auditor General to examine three Groupaction contracts

March 2002 - Follow-up review to PWGSC's 2000 Internal Audit

May 2002 - PWGSC launches a detailed review of sponsorship files from 1997-1998 to 1999-2000; a Quick Response Team reviewed files and reported on findings in October

May 8, 2002 - Findings of Auditor General's Audit of three Groupaction contracts released

May 23, 2002 - During an address on Ethics in the House of Commons, the Prime Minister asked the President of the Treasury Board to review sponsorship, advertising and public opinion research

May 27, 2002 - PWGS Minister imposed a moratorium on all sponsorship activity, terminated business relationships with certain firms and held back payments to these firms to protect taxpayers' money

July 2002 - PWGS Minister lifted moratorium on sponsorship activity and eliminated the use of private sector advertising firms as administrative intermediaries

Summer 2002 - Forward-looking review of sponsorship, advertising and public opinion research based on four principles: value for money, stewardship, flexibility and transparency according to the Prime Minister's May 23, 2002 speech

October 10, 2002 - Minister of PWGS and Minister responsible for Communication Canada announces results of the Quick Response Team's detailed review of sponsorship files

October 2002 - Deputy Minister of PWGS launches an administrative review to look into issues of non-compliance with the Financial Administration Act and Treasury Board policies in sponsorship files of primary interest

December 2002 - President of the Treasury Board and the Minister of PWGS and Minister responsible for Communication Canada announced the result of the forward-looking review to strengthen competition, transparency and accountability and achieve value for money. Key changes in terms of sponsorship included a 1-year trial for the redesigned contribution Sponsorship Program at Communication Canada. Key elements for advertising included the elimination of the Canadian ownership requirement, the mandatory use of a single Agency of Record and a consideration of payment methods beyond commission-based remuneration and significant changes to policy and approach to contracting for advertising and public opinion research. For more information, please see the December 17, 2002 press release and backgrounder at http://www.tbs-sct.gc.ca/media/nr-cp/2002/1217-eng.asp.

February 2003 - The Deputy Minister PWGS extends the administrative review of the sponsorship files to include the balance of all files of primary interest identified in the detailed file review

April 2003 - Minister of PWGS and Minister responsible for Communication Canada announces implementation measures to strengthen advertising practices as announced in December 2002. For more information, please see the April 28, 2003 press release and backgrounder at http://www.news.gc.ca/cfmx/view/en/index.jsp

June 2003 - Minister of PWGS and Minister responsible for Communication Canada announces implementation measures to strengthen the management of public opinion research. For more information, please see the June 12, 2003 press release and backgrounder at http://news.gc.ca/cfmx/view/en/index.jsp