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A Message from the Auditor General of Canada

I am pleased to present the Office of the Auditor General of Canada’s Report on Plans and Priorities for 2012–13. This is my first such report on behalf of the Office.

The Office has identified three strategic priorities for the coming fiscal year:

• continuing to successfully implement its Renewal of Audit Methodology (RAM) project,
• beginning to implement its Strategic and Operating Review (SOR) proposal, and
• effectively managing the transition to a new Auditor General.

Our first strategic priority for 2012–13 is to continue to successfully deploy the RAM project. This project was undertaken to respond to significant changes in international and Canadian auditing standards as well as to respond to findings of our internal practice reviews, feedback from practitioners, and recommendations of the 2010 international peer review. It involves renewing the Office’s audit methodology and updating the design and documentation of our Quality Management System. The majority of the project has been completed, meeting its deadlines and financial budgets. This year, we will focus on training, change management support, and monitoring the application of our new audit methodology.

Our second strategic priority is to begin to implement our SOR proposal. This proposal will result in a budget reduction of over $6.5 million for the Office and a staff reduction of approximately 10 percent. It will not only generate cost savings but will provide increased consistency in our audit efforts across federal organizations. We are working with the government to ensure the necessary legislative changes to our mandate will be introduced to Parliament in a timely manner.

In May 2011, Sheila Fraser’s 10-year term as Auditor General came to an end. She was succeeded by John Wiersema, who was Interim Auditor General until November. On 28 November 2011, my 10-year term as Auditor General began. I am working with employees from across the Office to get to know them and the work they do. I am very impressed with the professionalism of all of the people I have met so far. Over the coming months, I will begin to set the strategic direction for the Office under my mandate.

As I begin my term as Auditor General, I look forward to working with the Office’s dedicated employees as well as with parliamentarians and public servants across the federal government, to assist Parliament in its work on the authorization and oversight of government spending and operations.

Section I—Office Overview

Who we are

The Office of the Auditor General of Canada is the legislative audit office of the federal government. We are the legislative auditor of the three territories (Nunavut, Yukon, and the Northwest 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, in the execution of his work and responsibilities, and reports directly to Parliament. His duties are set out in the Auditor General Act, the Financial Administration Act (FAA), 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 annual performance reports.

Financial audits

Our financial audits provide assurance that financial statements are presented fairly, in accordance with the applicable financial reporting framework. 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 conduct financial audits of federal and territorial Crown corporations and of other organizations. We also audit the summary financial statements of the Government of Canada and 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 the 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 on 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 to safeguard their assets; to manage their human, physical, and financial resources economically and efficiently; and to carry out their operations effectively. A special examination provides an opinion to a corporation’s board of directors on whether there is reasonable assurance that there are no significant deficiencies in the corporation’s systems and practices. In addition to reporting on significant deficiencies, our special examinations highlight the systems and practices that contribute to a corporation’s 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 exempt 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 its board of directors. Under the FAA, special examinations are required at least once every 10 years.

Sustainable development monitoring activities and environmental petitions

The Commissioner of the Environment and Sustainable Development assists the Auditor General in performing his 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. The Commissioner has additional responsibilities under the Kyoto Protocol Implementation Act and the Federal Sustainable Development Act. He also monitors responses to environmental petitions and reports annually to Parliament on petition activities.

Assessments of agency performance reports

The legislation governing Parks Canada, the Canadian Food Inspection Agency, and the Canada Revenue Agency currently 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 System of Quality Control; and
• advice on the interpretation and application of professional standards and our Office’s policies, audit methodology, and System of Quality Control.

Through its 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. The Office works with provincial legislative audit offices to develop and implement professional standards and to develop and provide training in methodology. We also collaborate with our provincial colleagues on issues that are cross-jurisdictional. We regularly participate in external reviews of other national legislative audit offices and are subject to 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.

In order to support these goals, the Office is a member of the International Organization of Supreme Audit Institutions (INTOSAI) and participates in various INTOSAI committees. The Office also provides training to auditors from other national audit offices and is the external auditor of the International Labour Organization until 2015.

Strategic outcome and expected results

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 legislative auditing.

We have identified a number of results that we expect to achieve with our audits in the short, medium, and long term.

In the short term, we want to

• engage Parliament, territorial legislatures, and federal and territorial organizations in the audit process;
• ensure that they are well-informed about our work; and
• maintain support for our role and work.

In the medium term, we want to

• assist Parliament and territorial legislatures in holding governments 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 to programs that foster sustainable development.

The following tables provide the Office’s planning summary, including our strategic outcome, expected results, performance objectives, indicators and targets, and details of planned spending for the coming year (Exhibits 1 and 2).

Exhibit 1—Planning Summary

Strategic Outcome: We contribute to a well-managed and accountable government for Canadians

Expected results Parliament and territorial legislatures are well-informed. Parliament, territorial legislatures, and federal and territorial organizations are engaged in the audit process. Parliament and territorial legislatures hold 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.
Objectives	Indicators and targets
Key users of our reports are engaged in the audit process.	Maintain the percentage of audits that are reviewed by parliamentary committees. Maintain the number of parliamentary hearings and briefings we participate in, relative to the number of sitting days.
Our work adds value for the key users of our reports.	Maintain the percentage of users who find our audits add value.
Our work adds value for the organizations we audit.	Maintain the percentage of senior managers who find our audits add value.
Key users of our reports and the organizations we audit respond to our findings.	Our indicators for this objective are under review.1

Legislative auditing activity2	Revised planned spending 2011–12 ($ millions)4	Forecast Spending 2010–11 ($ millions)	Planned Spending 2011–12 ($ millions)
Financial audits of Crown corporations, territorial governments, and other organizations and of the summary financial statements of the Government of Canada	44.9	44.4	45.4
Performance audits and studies	39.5	39.2	38.5
Special examinations of Crown corporations	2.9	2.8	4.5
Sustainable development monitoring activities and environmental petitions	2.1	1.7	2.1
Assessments of agency performance reports	0.8	0.7	0.4
Professional practices	15.2	14.1	11.1
Total cost of operations	105.4	102.9	102.0
Less: costs recovered3	(0.8)	(0.8)	(0.7)
Net cost of operations	104.6	102.1	101.3
1 We are currently reviewing the indicators we use to measure how the organizations we audit respond to our findings. For special examinations, our indicator has been the number of significant deficiencies that are addressed by the audited corporation from one special examination to the next. Since the time between examinations has increased from 5 to 10 years, we are looking to identify a more timely indicator. For performance audits, our indicator has been the percentage of our recommendations that audited departments implement. We are considering options for how we measure this indicator, in order to provide parliamentarians with the most reliable information available. 2 We have allocated the cost of audit services to each legislative auditing activity. 3 The costs recovered include respendable revenue from the National Professional Practices Group and from the audit of the International Labour Organization, which we conduct on a cost recovery basis. 4 The figures for the Revised Planned Spending 2011–12 have been reclassified to conform to the presentation adopted for the Forecast Spending 2011–12 and Planned Spending 2012–13.

 

Exhibit 2—Voted and statutory items ($ millions)

Vote # or statutory item (S)	Vote or statutory	2011–12 Main Estimates	2012–13 Main Estimates
15	Program expenditures	74.5	74.0
(S)	Contributions to employee benefit plans	10.4	10.3
Total1		84.9	84.3
1 The difference between the net cost of operations (Exhibit 1) and Main Estimates includes cost of services received without charge from other government departments, costs recovered, and other adjustments that are routine in nature, including the carry-forward funding, parental leave and severance payments, and other differences due to accrual accounting (salary accruals and capital asset acquisition less depreciation).

The following table provides the Office’s planned financial and human resources for the next three years (Exhibit 3).

Exhibit 3—Planned financial and human resources

Financial resources	Forecast spending 2011–12 ($ millions)	Planned spending 2012–131 ($ millions)	Planned spending 2013–14 ($ millions)	Planned spending 2014–152 ($ millions)
Net cost of operations	102.1	101.3	100.1	96.7
1 We expect to lapse funds in 2011–12 and to be able to carry forward funds to 2012–13. 2 We have included an estimate of funds that may be carried forward in future years as a result of progress toward Strategic Operational Review reductions.

Human resources	2011–12	2012–13	2013–14	2014–15
Full-time equivalents (FTEs)	633	615	601	576

Our priorities for 2012–13

We have established three strategic priorities for 2012–13:

• continuing to successfully implement the Renewal of Audit Methodology (RAM) project,
• beginning to implement our Strategic and Operating Review (SOR) proposal, and
• effectively managing the transition to a new Auditor General.

Continuing to successfully implement the Renewal of Audit Methodology (RAM) project

The Office’s RAM project will continue to be a strategic priority in 2012–13. This multi-year project comprises renewing Office methodology, updating our System of Quality Control, and establishing internal processes to ensure that our methodology remains up to date.

In December 2011, the majority of the RAM project was implemented as planned, with the exception of one area in our financial audit practice. Work in this one area will be completed by 31 December 2012. In 2012–13, the Office will focus on providing effective change management support and training and on monitoring the application of the new methodology across all three product lines.

Beginning to implement our Strategic and Operating Review (SOR) proposal

As a part of Budget 2011, the Government of Canada introduced the SOR, with the goal of achieving $4 billion in fiscal savings, government-wide, by the end of 2014–15. All federal departments and agencies were required to submit proposals that identified areas in which savings could be generated. The Office received a letter from the Minister of Finance that strongly encouraged us to adhere to the spirit and intent of the SOR initiative. We responded positively to this request and carried out a review of our Office.

During the review, the Office considered both risk and value in analyzing our legislative audit responsibilities and internal operations. Overall, we are proposing to make reductions of approximately $6.5 million, which will result in a 10 percent reduction in our Office staff by the end of 2014–15.

The majority of the reductions to our audit work are based in our financial audit practice. This will result in 18 fewer financial audits. For example, consistent with the government’s decision to not proceed with audited departmental financial statements, the Office plans to discontinue our audits of the financial statements of department-like organizations. We believe this will generate cost savings as well as provide increased consistency in our audit efforts across federal organizations.

The completion of our Renewal of Audit Methodology project, at the end of 2012, will return approximately $2.2 million to our audit operations. Rather than re-invest in our performance audit practice to restore our coverage of federal programs to pre-2009 levels, we are including these funds in our budget reduction proposal.

We plan to reduce and reorganize our corporate services, and we have committed to doing so in the most responsible and caring way we can. Other plans for generating cost savings include reducing our participation in several international subcommittees and working groups and discontinuing our periodic assessments of government agency performance reports.

In 2012–13, we will begin to implement our SOR proposal within the Office. As some components will require modifying existing legislation, we will engage and work with government officials to ensure that these changes are fully implemented in a timely manner.

Effectively managing the transition to a new Auditor General

In May 2011, Sheila Fraser’s term as Auditor General came to an end. Since the position has a fixed 10-year term that is non-renewable, John Wiersema was appointed Interim Auditor General. On 3 November 2011, the Government issued an order-in-council appointing Michael Ferguson as Auditor General of Canada, effective 28 November 2011. The Office is committed to providing the information, resources, and support required to ensure a smooth and effective transition.

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