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Message from the Auditor General of Canada

I am pleased to present the Office’s 2009–10 Performance Report. As my mandate is ending next spring, this is the last such report I will be presenting on behalf of the Office of the Auditor General of Canada. A summary of our performance for the year follows this message.

The Office of the Auditor General of Canada is the legislative audit office for the federal government. It is also the auditor for the governments of Nunavut, Yukon, and the Northwest Territories. We conduct independent audits and studies in departments and agencies, Crown corporations, and many other federal organizations to provide Parliament, territorial legislatures, governments, and Canadians with objective information and assurance regarding the use of public funds. During the 2009–10 fiscal year, we completed 147 financial and performance audits, special examinations of Crown corporations, and other reports.

Our reports describe areas of government that need attention, underscore good practices, point to the causes of problems, and make recommendations for improvement. Along with our testimony at parliamentary hearings, they assist Parliament in carrying out its important role of holding the government to account for the results it achieves with taxpayer dollars. By carrying out our distinct roles and working together effectively, Parliament, the government, and my Office all contribute to maintaining healthy public institutions and to well-managed, accountable government for Canadians.

Surveys of our clients showed that satisfaction remained high and at or near our targets for measuring whether our audits add value for them. Senior managers in departments assessed the value of our performance audits slightly below the five-year average. We do not believe this result warrants any specific response on our part at this time. Overall, we are pleased to see that our clients continued to be satisfied with our work and the value it added.

Departments report that they have substantially or fully implemented 90 percent of the performance audit recommendations in reports we tabled in 2005–2006. Furthermore, our most recent follow-up audits found satisfactory progress in five of the seven areas we examined.

The Office identified three strategic priorities for the 2009–10 fiscal year:

• Sustaining capacity
• Integrating changes to professional standards
• Improving resource allocation and project management

We have made good progress in completing the activities planned to respond to these priorities.

We have been working to improve our ability to complete audits on budget since 2008. In 2009–10, we focused on improving resource allocation. We are pleased to report that we met all our on-budget targets for our audits this year, and have raised these targets for 2010–11.

Our work to integrate changes to professional standards continues. In addition, the Office identified areas for improvement in all its practices as a result of internal practice reviews and of the international peer review that took place during the year. We have developed action plans to continue to improve our audit and assurance practices. We have also undertaken a project to renew our audit methodology, which includes a major update of our audit methodology and guidance manuals. A strategy has also been approved to update our professional development curriculum for auditors.

The Office’s 2010 employee survey showed that employee engagement remains high. For the third year in a row, the Office has been recognized as one of Canada’s Top 100 Employers and Top 25 Family-Friendly Employers. We see these results as recognition of the efforts we make to ensure our employees are fulfilled in both their professional and personal lives. I wish to thank them for their continued dedication to the Office and the Parliament we serve. Our accomplishments would not be possible without their exceptional competence and professionalism.

I trust you will find that this performance report presents an open and balanced picture of our activities and impacts in 2009–10.

Sheila Fraser, FCA
Auditor General of Canada

13 September 2010

Performance summary

Overall, the Office is satisfied with its performance for 2009–10.

Highlights

We completed virtually all of our planned activities in response to our three priorities for this year. We have met all of our on-budget targets for our audits and have raised these targets for 2010–11. We also reduced or redeployed resources consistent with our plans to not request additional funding while carrying out new audit responsibilities.

We surveyed our main client—members of the four parliamentary committees who regularly review our work. An average of 93 percent of responses indicate they “agree” or “strongly agree” that our audits are of value to them; the result exceeded our target.

We also surveyed our other clients. Responses from audit committee chairs indicated that they find our financial audits valuable to them; the result exceeded our target. Responses from board chairs for our special examinations were positive, though below our target.

In addition, we surveyed senior managers of the organizations we audit. Their responses continue to be at or near our targets for measuring whether our audits add value for them, except for departmental senior managers. They assessed the value of our performance audits at slightly below the five-year average, a result that we believe does not warrant any specific response on our part at this time.

We obtained an overall satisfaction rating of 78 percent in our 2010 employee satisfaction survey, which falls just short of our target of 80 percent and is lower than levels attained in past surveys. Employee engagement remains high with 89 percent of staff proud to work for the Office.

For the third year in a row, the Office was recognized as one of Canada’s Top 100 Employers and one of Canada’s Top 25 Family-friendly Employers.

Areas for improvement

In 2009–10, 18 internal practice reviews were completed, and an international peer review was conducted, which encompassed all three of our main audit practices as well as key services that directly support audit operations. The peer review found that our quality management system (QMS) is suitably designed and is operating effectively in two of the three audit practices. The reviewers made two recommendations for improving our financial audit practice. Our internal practice reviews identified similar areas for improvement. We have developed action plans for each of the three audit practices in response to the internal practice reviews and to the international peer review. In addition, we have undertaken the Renewal of Audit Methodology (RAM) project, which includes a major update of our audit methodology and manuals. A strategy has also been approved to update our professional development curriculum for auditors.

Results of our work

In monitoring government responses to our work, we note the following examples from our audit results:

• When financial statements are prepared in accordance with appropriate accounting policies, a “clean” opinion is rendered by the auditor. The Office has been able to render such an opinion on the federal government’s summary financial statements in each of the past 11 years. This opinion provides Parliament and others with assurance that they can rely on the information presented in these financial statements. This is particularly significant since there are very few countries that receive such an opinion, and it is a tribute to the quality of financial reporting by the federal government.
• Departments report that they have substantially or fully implemented 90 percent of the performance audit recommendations in reports we tabled four years ago. Our most recent follow-up audits found satisfactory progress in five of the seven areas we examined.
• The organizations we audited in 2009–10 addressed nine of the 22 reservations contained in our 2008–09 financial audit opinions. Of the 13 reservations not addressed, only one was in an audit report of a federal organization. Many territorial organizations continue to face a challenge in having the financial management capacity they require.
• For the special examinations we completed this year, one of two significant deficiencies from the previous reports was not addressed by the Crown corporation. This deficiency was reported in our audit of Marine Atlantic Inc.
• We undertook an audit to determine whether the Canada Revenue Agency adequately administered advance deposits from corporate taxpayers under the Income Tax Act and the Income Tax Regulations. The audit examined whether the Agency adequately monitored and managed these accounts where it might be obliged to pay interest. The audit concluded that the Canada Revenue Agency needed to develop a robust administrative policy on managing advance deposits and apply it consistently to reduce unnecessary interest costs. The government recognized broader implications of the issues discussed in our report and, in Budget 2010, announced that the interest rate would be reduced. The government anticipates that this action will result in potential savings of $645 million over the next five years.
• Ministers delivered 91 percent of responses to public petitions on environmental matters during the year within the 120-day time limit specified in the Auditor General Act, compared with 83 percent last year.

Going forward, the Office’s priorities are to effectively manage the transition to a new Auditor General (as the mandate of the current Auditor General ends in May 2011) and to successfully implement our Renewal of Audit Methodology project.

Section I—Overview

Who we are

The Office of the Auditor General of Canada is the legislative audit office of the federal government. We are also the legislative auditor of the three territories. We conduct independent audits and studies that provide objective information, advice, and assurance to Parliament, territorial legislatures, governments, and Canadians. With our reports and testimony at parliamentary hearings, we assist Parliament in its work on the authorization and oversight of government spending and operations.

What we do

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

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

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

Financial audits

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

If issues or opportunities for improvement in areas such as financial reporting and internal controls come to our attention during our financial audit work, we make recommendations to management. We also provide information and advice to support audit committees in meeting their responsibilities for oversight of financial reporting and internal control.

Performance audits

Performance audits examine, against established criteria, whether government programs are being managed with due regard to economy, efficiency, and environmental impact, and whether the government has the means to measure and report their effectiveness. Our reports contain recommendations for addressing the most serious deficiencies identified.

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

Special examinations

Our special examinations assess the systems and practices maintained by Crown corporations. A special examination provides an opinion to the board of directors of the corporation on whether there is reasonable assurance that there are no significant deficiencies in these systems and practices. A significant deficiency is a major weakness that could prevent the corporation from having reasonable assurance that its assets are safeguarded and controlled, its resources are managed economically and efficiently, and its operations are carried out effectively. In addition to reporting on significant deficiencies, our special examinations highlight systems and practices that contribute to success and provide information and recommendations to boards of directors about opportunities for improvement.

All parent Crown corporations are subject to a special examination by the Office, except the Bank of Canada, which is exempted from this requirement, and the Canada Pension Plan Investment Board, which, under its Act, is subject to a special examination by an auditor chosen by the board of directors. In early 2009, the Budget Implementation Act, 2009 changed the frequency of special examinations required under the Financial Administration Act (FAA) to at least once every 10 years, from at least once every five years.

Sustainable development and environmental petitions activities

The Commissioner of the Environment and Sustainable Development assists the Auditor General in performing her duties related to the environment and sustainable development. The Commissioner conducts performance audits to monitor the government’s management of environmental and sustainable development issues and, on behalf of the Auditor General, reports to Parliament on issues that should be brought to its attention.

Under the Kyoto Protocol Implementation Act, the Commissioner is required to provide Parliament with a biennial report; this report includes an analysis of Canada’s progress in implementing its climate change plans; an analysis of Canada’s progress in meeting its obligations under Article 3, paragraph 1, of the Kyoto Protocol; and any observations and recommendations on any matter that the Commissioner considers relevant.

With passage of the Federal Sustainable Development Act in June 2008, the Commissioner was given the responsibility of reviewing a draft of the federal government’s sustainable development strategy and commenting on whether the targets and implementation strategies can be assessed. The first federal strategy must be tabled in the House of Commons no later than June 2010.

Once every three years, beginning in 2011, 28 federal departments must prepare sustainable development strategies that contribute to and comply with the federal strategy. The Commissioner must report annually to the House of Commons on the extent to which departments subject to the Federal Sustainable Development Act have contributed to meeting the targets set out in the federal strategy and have met the objectives and implemented the plans set out in their own sustainable development strategies. In June 2011, the government must report on progress in implementing its strategy. The Commissioner must assess the fairness of the information contained in the government’s progress report.

The Commissioner also administers the environmental petitions process. He monitors responses to environmental petitions, and reports annually to Parliament on petitions activities from the previous year, including instances where ministers’ responses to petitions were not provided within the 120-day time limit specified in legislation. The Office of the Auditor General considers issues raised in petitions when planning future audits.

Assessments of agency performance reports

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

Professional practices

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

the development and maintenance of up-to-date audit methodology, guidance, and audit tools;

• communication and training to promote consistency in the application of audit methodology and our Quality Management System; and
• the provision of advice on the interpretation and application of professional standards, Office policies, audit methodology, and the Office’s Quality Management System.

Through the Professional Practices Group, the Office works with other legislative audit offices and professional associations, such as The Canadian Institute of Chartered Accountants, to advance legislative auditing methodology, accounting and auditing standards, and best practices. We regularly participate in external reviews of other national legislative audit offices and are the subject of external reviews.

International activities

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

• contributing to the development and adoption of appropriate and effective professional standards;
• sharing knowledge among audit offices;
• building capabilities and professional capacities of audit offices; and
• promoting better managed and accountable international institutions.

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

Strategic outcome and performance summary

The long-term strategic outcome of the Office of the Auditor General is to contribute to better-managed government programs and better accountability to Parliament through our legislative auditing work.

We have identified a number of results that we expect to achieve with our audits in the short, medium, and long terms. In the short term, we want to engage Parliament and federal and territorial organizations in the audit process, ensure that Parliament is well informed about our work, and maintain support for our role and work. In the medium term, we want to assist Parliament in holding the government to account; make our work relevant to federal and territorial organizations, departments, agencies, and Crown corporations; and ensure that the public is well informed about our work. In the long term, we want our work to lead to more effective, efficient, and economical government programs and operations, and programs that foster sustainable development (Exhibit 1).

Exhibit 1—Performance summary

Strategic Outcome: We contribute to a well-managed and accountable government for Canadians.
Expected results Parliament is well-informed. Parliament and federal and territorial organizations are engaged in the audit process. Parliament holds government to account. Our work is relevant to federal and territorial organizations, departments, agencies, and Crown corporations. The media and public are well-informed. Support for our role and work is maintained.		Actual results We completed 25 performance audits, one study, 111 financial audits, and 10 special examinations.
Objectives	Indicators and targets	2009–10 Performance
Key users of our reports are engaged in the audit process.	Maintain percent of audits that are reviewed by parliamentary committees. Maintain number of parliamentary hearings and briefings we participate in, relative to the number of sitting days.	Level of engagement is consistent with prior years.
Our work adds value for the key users of our reports.	Maintain or increase percent of users who find our audits add value.	Targets exceeded for financial and performance audits; not met for special examinations.
Our work adds value for the organizations we audit.	Maintain or increase percent of senior managers who find our audits add value.	Targets exceeded for financial audits and special examinations; not met for performance audits.
Key users of our reports and the organizations we audit respond to our findings.	Maintain or increase percent of recommendations that are implemented or reservations/deficiencies that are addressed.	Targets exceeded for performance audits; not met for financial audits and special examinations.

Legislative auditing activity1	2008–09 Actual spending2 ($ millions)	2009–10 Forecast spending3 ($ millions)	2009–10 Actual spending ($ millions)
Financial audits of Crown corporations, territorial governments, and other organizations, and of the summary financial statements of the Government of Canada	36.3	41.3	40.0
Performance audits and studies of departments and agencies	44.6	41.5	42.9
Special examinations of Crown corporations	8.2	4.5	4.1
Sustainable development monitoring activities and environmental petitions	1.8	2.3	1.2
Assessments of agency performance reports	0.4	0.5	0.4
Professional practices	9.6	11.8	11.6
Total cost of operations	100.9	101.9	100.2
Less: Costs recovered4	(0.9)	(1.1)	(0.9)
Net cost of operations	100.0	100.8	99.3
1 We have allocated the cost of audit services to each legislative auditing activity. 2 Actual spending is restated to reflect the reclassification of products in our revised product costing methodology. 3 Forecast spending is as reported in the 2010–11 Report on Plans and Priorities. 4 The Office is funded in our appropriation, for the audits of the International Civil Aviation Organization (2008–09 only) and of the International Labour Organization. Amounts recovered from these organizations are returned to the Consolidated Revenue Fund as non-respendable revenue.

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

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

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

Tables summarizing all of our targets and actual performance, and a rationale for how we define our targets, appear in Section III, Supplementary Information.

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