2016 Fall Reports of the Auditor General of Canada

Opening Statement to the Standing Committee on Public Accounts

2016 Fall Reports of the Auditor General of Canada

1 December 2016

Michael Ferguson, CPA, CA
FCA (New Brunswick)
Auditor General of Canada

Mr. Chair, I am pleased to present my Fall 2016 reports, which were tabled in the House of Commons this past Tuesday. The reports provide the findings of seven audits and three special examinations. I am accompanied by Gordon Stock, Richard Domingue, Carol McCalla, and Jean Goulet.

Many of the issues we are raising today we have also raised in the past. We see government programs that are not designed to help those who have to navigate them, programs where the focus is more on what civil servants are doing than on what citizens are getting, where delivery times are long, where data is incomplete, and where public reporting does not provide a clear picture of what departments have done. These recurrent problems create increased frustration for individual citizens.

Report 1—The Beyond the Border Action Plan

Let us begin with our audit of the Beyond the Border Action Plan, where we found that some initiatives have produced little value, and that obstacles could limit the impact of others.

For example, several departments spent almost 80 million dollars on a system to let importers submit customs information electronically. This system has been in place for more than a year, and it is used to process less than one percent of shipments entering Canada.

Also, the Canada Border Services Agency spent 53 million dollars on a system to track who is entering and leaving the country. However, the Agency cannot make full use of it because it cannot legally share travellers’ information with the United States.

The governments of Canada and the United States launched the Action Plan in 2011 to enhance border security and speed up travel and trade. The Plan was ambitious, comprising 34 initiatives with an initial deadline of three years.

We found that the organizations involved could show some progress for the almost $600 million they have spent. For example, the Canadian Air Transport Security Authority was using new baggage screening technology at seven Canadian airports. However, there is still significant work to be done before the government achieves value for the more than one billion dollars allocated to this Action Plan.

Report 2—Income Tax Objections

Let us turn now to our audit of tax objections. The Income Tax Act is complex, and taxpayers often disagree with the Canada Revenue Agency’s interpretation of the Act.

Our audit found that the Agency took too long to decide if a taxpayer’s objection was right. For example, it took more than five years to resolve 79,000 cases worth almost four billion dollars.

We found that the Agency’s timeframe for a decision on straightforward files was about five months. For medium complexity files, the Agency told taxpayers they could expect to wait up to a year before even hearing from an appeals officer.

Furthermore, the Agency’s performance targets did not consider timeliness from the point of view of the taxpayer. For example, the Agency did not count days that a file spent waiting for an appeals officer to be assigned.

Overall, we found that in 65 percent of objections, the Agency ruled in whole or in part in favour of the taxpayer. However, the Agency rarely used these results to improve future decisions.

Report 3—Preparing Indigenous Offenders for Release

In our audit of the Correctional Service of Canada, we found that as the Indigenous offender population grows, the Correctional Service cannot provide them with the rehabilitation programs they need, when they need them.

More than three quarters of Indigenous offenders were sent to medium or maximum security institutions. From these institutions, most could not access the programs they needed for their rehabilitation before the earliest possible date they became eligible for parole. As a result, the Correctional Service prepares Indigenous offenders for parole hearings less often than non-Indigenous offenders.

We found that two thirds of released Indigenous offenders had never been on parole. Half of them moved directly from medium or maximum security institutions back into the community, which means they had less time to benefit from a gradual and structured release.

Indigenous offenders are caught in a vicious circle. Most do not get timely access to the programs they need, and because they have not completed a rehabilitation program, they do not get released on parole as early as they could.

Report 6—First Nations Specific Claims

Let’s turn now to another First Nations’ issue. In 2007, the federal government committed to a new process called Justice At Last to try to resolve longstanding specific claims, which often relate to the administration of reserve lands.

The government wanted to resolve specific claims fairly and transparently—preferably through negotiations. It also wanted to resolve the claims faster, to provide justice for First Nations and certainty for government, industry, and all Canadians. However, some reforms have in fact created barriers that have prevented First Nations and the federal government from resolving claims.

For instance, Indigenous and Northern Affairs Canada changed its negotiation practices without consulting First Nations. It also significantly reduced its funding to First Nations to research and negotiate their claims. These changes made claim resolution more difficult. The Department was aware of these barriers but did not address them.

The Department publically reported that the 2007 reforms were a success. However, in our view, most of the settlements used to support this assertion were either resolved or close to being resolved before Justice At Last was implemented. In fact, since 2008, almost as many claims were closed without resolution as were resolved.

Report 4—Oversight of Passenger Vehicle Safety

Now, I want to address our audit of motor vehicle safety. Through its oversight of the Motor Vehicle Safety Regulations, its monitoring of public complaints and vehicle recalls, and its investigations into alleged defects, Transport Canada plays an important role in keeping passenger vehicles safe.

However, we found that Transport Canada has not kept the regulations up to date, so the Department is lagging behind the pace of changing technologies. For example, the regulations do not allow vehicles to be equipped with software-operated advanced headlights, but semi-autonomous vehicles controlled by unregulated software are currently on Canadian roads. It can take Transport Canada more than ten years to update the regulations.

This means that Transport Canada’s approach to setting vehicle standards could prevent Canadians from having access to some safety technologies available in other markets.

We also found that Transport Canada generally did not consult stakeholders other than manufacturer about proposed regulations, and it did not actively gather information from manufacturers about their investigations into vehicle safety defects.

Report 5—Canadian Armed Forces Recruitment and Retention

In the first of two audits related to the military, we looked at recruitment and retention in the Canadian Armed Forces. We found the Forces did not have the right number of trained members in the right occupations so that Canada can meet its national and international military commitments.

Four years ago, the Regular Force was about 2,000 trained members below the number it needed, and at the end of our audit, we found it is short-handed by 4,000.

In 2016, there were 21 military occupations that were significantly understaffed, and there were 23 with high attrition rates. National Defence must understand its staffing challenges and tailor its recruiting and retention approaches by occupation.

We found that the Canadian Armed Forces recruiting process fit its own needs and not those of applicants. On average, it took 200 days to enrol a recruit. In some cases, the recruiting group closed the file of an applicant who was still interested in enrolling. This meant that the Canadian Armed Forces lost some qualified candidates.

We found these same problems in 2002 and 2006. We believe that without significant changes to recruiting, it is unlikely the Regular Force will reach its target of 68,000 members by 2018–2019.

Report 7—Operating and Maintenance Support for Military Equipment

Turning to the second of our military-related audits, National Defence depends on having equipment available in good working condition as needed. Costs to operate and maintain military equipment can be more than twice the cost of buying it. If National Defence does not manage support costs properly, the equipment may not be available or its life may be shortened.

We found that when National Defence decided to buy major military equipment, it used poor planning assumptions about support costs, how it would use the equipment, and how many personnel it needed to operate and maintain the equipment. This means that National Defence paid for services that it could not use.

In addition, National Defence assumed that the cost to support new equipment would be no more than the cost to support the replaced equipment. However, we found that the maintenance costs for the new Hercules airplane were actually 7,000 dollars more per flying hour than for the airplane it replaced.

National Defence needs to better align its equipment support, including personnel, operating costs and maintenance resources with its lifecycle planning of how that equipment will actually be used.

Special Examination Reports

This brings me to the reports of our three special examinations.

In the case of the Pacific Pilotage Authority, we are satisfied that the Corporation had good control of its resources and activities. However, we made recommendations in seven areas where we felt improvements were needed.

In the case of the International Development Research Centre, we found that the Centre’s ability to conduct business was at risk because it did not have enough Board members. This problem persisted for at least three years though recent appointments should now help.

As for the Atlantic Pilotage Authority, it experienced a number of significant problems, ranging from the lack of a strategic direction to its inability to confirm that its pilots and boat crews continuously met skill and safety requirements.

To close, I want to go back to my earlier remarks about the frustration of citizens with government programs.

One way or another, everything that government does is intended to serve Canadians. As such, departments should “do service well,” to benefit Canadians both individually and collectively.

As I mentioned, there is nothing new about the issues we found in these most recent audits. We have seen many of these problems before. And in some cases, they are getting worse.

It often takes departments too long to deliver, such as in the case of Canada Revenue Agency making decisions about tax objections.

Public reporting is not very good. Sometimes, it is incomplete or even inaccurate, such as we found in our audits of the Beyond the Border Action Plan or the resolution of First Nations specific claims. Elsewhere, it is clear that departments cannot always show value for the money they have spent, such as National Defence’s support contracts for military equipment or the implementation of initiatives under the Beyond the Border Action Plan.

It is critical for government departments to understand that their services need to be built around citizens, not process. As they work to implement our recommendations, I encourage them to take a step back and focus on how they can deliver services that work for Canadians.

Mr. Chair, that concludes my opening statement. We will be happy to answer any questions you may have.