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ARCHIVED - Review of the Governance Framework for Canada's Crown Corporations - Meeting the Expectations of Canadians

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8. An Outsider's View on the Inside – Annual Audit and Special Examination

Crown corporations are the most audited organizations in the public sector. Unlike departments and agencies, all Crown corporations, inside or outside the purview of Part X of the FAA, are subject to an annual audit, and most of them are subject to a special examination by the Auditor General of Canada every five or six years.

The Auditor General currently audits 41 out of 46 corporations; 6 of the 41 are audited jointly with private sector firms.(13) Crown corporations operate financially very much like private sector enterprises and, accordingly, are audited against the General Accepted Accounting Principles (GAAP) established by the Canadian Institute of Chartered Accountants. Their financial statements are reported in their respective annual reports.

8.1 Annual Audit

In the context of the review of Crown corporations' governance, the question was raised on several occasions as to whether Crown corporations should be required to use the Auditor General as their external auditor. Since the financial statements are certified according to GAAP, any reputable accounting firm could perform that function with credibility. Moreover, several Crown corporations are operating in a market environment. The option of using auditors specialized in the sectors in which the corporations are involved would therefore seem viable. However, the government is of the view that the role of the Auditor General as external auditor or joint auditor for Crown corporations should be maintained and even extended to all corporations for the following reasons:

  1. The Office of the Auditor General of Canada is most familiar and best equipped to assess the corporations' conformity with the FAA.
  2. The Auditor General conducts the special examinations for most corporations. Being the external auditor on an annual basis contributes significantly to the work that is required in the context of the special examination and assists in monitoring the implementation of recommendations that may come out of the examination.
  3. When the complexity of the situation or the nature of the audit work requires specialized expertise, the Auditor General can hire or team up with private firms to conduct audits.

Measure #26

The government will amend the relevant legislation in order to allow for the appointment of the Auditor General of Canada as the external auditor or joint auditor for all Crown corporations, inside or outside the purview of Part X, Divisions I through IV, of the FAA. In recognition of the specific needs of commercial Crown corporations, and in line with current practice with regard to several organizations, the government would encourage the Office of the Auditor General of Canada to work in partnership with private sector auditing firms.

8.2 Special Examination

The current legislative framework requires that all Crown corporations subject to Part X of the FAA undergo a special examination by the Office of the Auditor General at least once every five years. The special examination is a type of value-for-money or performance audit, where the examiner expresses an opinion on the systems and practices in place in the corporation and goes beyond issues that are strictly financial. It is a powerful tool for management and the Board of Directors to better understand the risks and deficiencies in the control and monitoring mechanisms of their organization.

Of the nine Crown corporations currently exempt from Divisions I through IV of Part X of the FAA, six are not subject to the requirement for a special examination. Since exempt Crown corporations do not submit an annual corporate plan to the government and Parliament, the special examination is one of the few tools at the disposal of a third party to assess the operations and activities of those corporations against their mandate and government objectives.

Measure #27

The government will implement the necessary legislative changes to provide the Office of the Auditor General of Canada with the authority to conduct special examinations in all Crown corporations.

Crown corporations that fall under Part X of the FAA undergo a special examination once every five years regardless of the level of materiality and risks associated with their operations. The Canada Pension Plan Investment Board and the Public Sector Pension Investment Board, although outside of Divisions I through IV of Part X, are subject to special examination every six years. It is clearly preferable to match the frequency of special examinations with the level of risk inherent in a Crown corporation's operations.

Measure #28

The government will establish a more flexible system for the timing of special examinations, reflective of the level of risk related to each corporation. The risk analysis would be based on the complexity of the organization, the field of operation, and the changes taking place in the business and policy environment that may impact on the corporation. The Office of the Auditor General of Canada would have the responsibility for determining the frequency of special examinations for each Crown corporation. At a minimum, all corporations would undergo a special examination every eight years.

Currently the special examination is positioned in the FAA as an oversight mechanism for use by Boards of Directors, although the decision to make the examination available to the appropriate Minister and Parliament is left to the examiner for Crown corporations that fall under Part X, Schedule III, Part I. While boards do play a fundamental oversight role, other actors including the appropriate Minister, Treasury Board, and Parliament also have oversight responsibilities.

Measure # 29

The government will require that each special examination report prepared by the Auditor General be submitted to the Board of Directors, the responsible Minister, the Treasury Board, and Parliament, to maximize the value of these reports to Canadians. In accordance with the provisions of the FAA to protect commercial interests of a parent Crown corporation or a wholly-owned subsidiary of a parent Crown corporation, the government will work with the Office of the Auditor General of Canada to develop a protocol relating to the release of the special examination.