VÉRIFICATEUR GÉNÉRAL DU QUÉBEC. Report to the National Assembly for Volume II. Highlights

Transcription

1 VÉRIFICATEUR GÉNÉRAL DU QUÉBEC Report to the National Assembly for Volume II Highlights

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3 Québec, December 2006 This brochure is a brief version of Volume Two of the Report of the Auditor General to the National Assembly for It brings together the main observations arising from the work that our audit teams have carried out in recent months. The purpose of this shorter version is to give readers access to information that is both concise and effective. I hope that the Members of the National Assembly and citizens who are interested in the subjects that we address will appreciate this quick reference designed to meet specific needs. Of course, this brochure in no way replaces the full report, which I invite readers to consult. It makes a detailed presentation of the results of the audit engagements and follow-ups, in addition to offering the point of view of the entities. Renaud Lachance, CA Auditor General

4 TABLE OF CONTENTS 1 Page Chapter 1 Chapter 2 OBSERVATIONS OF THE AUDITOR GENERAL, MR. RENAUD LACHANCE Introduction 5 Audit of government corporations 5 Tabling of the annual management reports in the National Assembly 7 Consolidated financial statements of the Government of Québec 9 Subjects examined in , but which did not give rise to a report 10 Summary of the content of this volume 11 Conclusion 16 MANAGEMENT OF EXTERNAL PARTNERS CONTRIBUTING TO PUBLIC EMPLOYMENT SERVICES 17 Recommendations 19 Chapter 3 MANAGEMENT OF THE CORONER S OFFICE 21 Recommendations 22 Chapter 4 MANPOWER RELATED TO INFORMATION RESOURCES: NEED, AVAILABILITY AND ALLOCATION 23 Recommendations 25 Chapter 5 RESIDUAL MATERIALS 28 Recommendations 31 Chapter 6 Chapter 7 Chapter 8 Schedule A Schedule B Schedule C ASSISTIVE DEVICE (TECHNICAL AID) PROGRAMS FOR PEOPLE WITH DISABILITIES 33 Recommendations 35 WATCH OVER MAJOR CAPITAL ASSET PROJECTS OF THE GOVERNMENT Introduction 37 Projects to modernize the university hospital centres of Montréal 38 Implementation of the Integrated Resource Management Business Solution (SAGIR) project 41 CERTIFICATION OF FINANCIAL INFORMATION Introduction 42 Autorité des marchés financiers 44 Commission de la construction du Québec 45 Commission des services juridiques 46 Corporation d hébergement du Québec 47 La Financière agricole du Québec and the Crop Insurance Fund 48 SPECIAL REPORT TO THE NATIONAL ASSEMBLY CONCERNING THE SPECIAL AUDIT CARRIED OUT AT THE SOCIÉTÉ DES ALCOOLS DU QUÉBEC 49 SPECIAL REPORT TO THE NATIONAL ASSEMBLY CONCERNING THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS OF THE GOVERNMENT OF QUÉBEC FOR THE FISCAL YEAR ENDED ON MARCH 31, EXCERPTS FROM THE REPORT OF THE COMMITTEE ON PUBLIC ADMINISTRATION The numbers of the chapters as well as those of the paragraphs used in this brochure correspond to those of the full report. 4

5 1 OBSERVATIONS OF THE AUDITOR GENERAL, MR. RENAUD LACHANCE INTRODUCTION 1.1 The Québec National Assembly has entrusted the Auditor General with the mandate of fostering, through audit, parliamentary control over public funds and other public property. This mandate comprises, to the extent deemed appropriate by the Auditor General, financial audits, audits to ensure the compliance of operations with statutes, regulations, policy statements and directives, as well as value-for-money audits. The Auditor General s field of jurisdiction mainly encompasses the government, its agencies and its corporations; the Auditor General is also empowered to audit funds paid in the form of subsidies. 1.2 In the annual report that the Auditor General submits to the National Assembly, he draws attention to any topic ensuing from his work that deserves to be brought to the attention of parliamentarians. This report is published in two volumes, one in June, and the other in December. 1.3 Chapter I of each volume gives the Auditor General in office the opportunity to establish a more personal contact with readers and to share his comments as well as his concerns about his mission; moreover, the reader will find a brief presentation of the questions addressed in the publication. AUDIT OF GOVERNMENT CORPORATIONS 1.4 In April 2006, the government published a policy statement on the governance of government corporations. Recently, the National Assembly mandated the Committee on Public Finance to hold special consultations on this subject. Since the policy statement deals with the audit of these corporations, I felt it advisable to convey my comments to the Committee, which heard me on Thursday, November 2, Together, the government corporations covered by the policy statement incur some $30 billion in expenditures annually and manage assets, the value of which approaches $250 billion. These corporations bring in, on behalf of the government, annual revenues equivalent to those derived from corporate income tax, namely about $4.5 billion in It is notably by reason of the financial importance of these corporations that the successive auditors general have, since the late 1970s, recommended that the government consolidate their legal framework. 5

6 1.6 I indicated to parliamentarians that in my opinion several measures appearing in the policy statement should help improve the governance of government corporations, notably because these measures strengthen the means available to the boards of directors to play their supervisory role. 1.7 According to the policy statement, the Auditor General will participate in the audit of the financial statements of all government corporations. This orientation is a real improvement in terms of parliamentary control insofar as it consolidates the traditional role of the Auditor General in the financial auditing field. 1.8 The policy statement also stipulates that as a general rule I alone will carry out the audits. However, in the case of government corporations that are financial or commercial in nature, I will do my work in collaboration with a private firm as part of a so-called joint audit approach. 1.9 Concretely, this approach will allow me to henceforth be associated with the audit of the financial statements of Hydro-Québec, the Société des alcools du Québec and the Société générale de financement du Québec. I will be able to carry out this new work without having to significantly increase the resources that I devote to financial auditing, since the joint audit approach will lead me to reduce the resources that I currently assign to the financial audit of the Caisse de dépôt et placement du Québec, Investissement Québec, the Société de l assurance automobile du Québec and the Société des loteries du Québec (Loto-Québec) Moreover, I reminded the members of the Committee on Public Finance that in the policy statement there is no new role or broadened mandate concerning value-for-money audits carried out by the Auditor General; indeed, under the provisions of the policy statement the current situation is maintained. The policy statement still does not allow me to conduct a value-for-money audit in certain government corporations those having the status of a government enterprise within the meaning of the Auditor General Act without having obtained the prior concurrence of the board of directors. The obligation to obtain such concurrence does not exist in any other jurisdiction in Canada In the past, my predecessors and I have raised this matter out of a concern for fostering, through audit, parliamentary control over government enterprises, which comes within the mission of the Auditor General. Being in the service of the National Assembly, the Auditor General conducts, on its behalf, audits in those areas where the National Assembly authorizes him to do so The exercise of parliamentary control does not deny the autonomy of government corporations; on the contrary, this control is a consequence of their autonomy. My audit work merely supports the principles of transparency and accountability that arise from the latitude given to this type of entity Needless to say, I will apply the decision made by the National Assembly in this respect. 6

7 TABLING OF THE ANNUAL MANAGEMENT REPORTS IN THE NATIONAL ASSEMBLY 1.14 The Public Administration Act affirms the priority that the government administration gives to the quality of the services provided to the public. This legislation establishes a results-based management framework centered on the principle of transparency. This management framework contributes, among other things, to reporting that deals with performance and allows the National Assembly to have access, in a timely manner, to relevant information on the activities of the government administration The Act also mentions that a minister must table in the National Assembly the annual management report of his department and that of the bodies and administrative units under his responsibility in the 4 months following the end of their fiscal year or, if the Assembly is not sitting, within 15 days of resumption I evaluated the extent to which the 79 entities subject to the Act in complied with the legal deadlines for tabling their annual management report in the National Assembly for the years of to The results of my analysis are presented in Table 1. TABLE 1 TABLING OF ANNUAL MANAGEMENT REPORTS Time of tabling* Number of entities % Number of entities % Number of entities % After the deadline More than 125 days From 6 to 45 days From 1 to 5 days At the deadline or before From 0 to 20 days From 135 to 145 days Total * Since the National Assembly does not sit on a continuous basis, we do not present the time intervals during which the reports could not be tabled Of the 79 entities, 40 satisfied the legal requirements. In other words, close to 50 percent of the entities subject to the Act did not comply with its requirements as to time limits. It should be recalled that in practice the Act grants a period of more than 7 months to most of the entities concerned, since the 4 month deadline falls on July 31st and the National Assembly is not sitting at that time. Indeed, the Assembly resumes its work towards mid-october. If I exclude the 12 departments and agencies that are from 1 to 5 days late, 27 entities tabled their annual management report after the stipulated date and 7 of them 7

8 exceeded this deadline by more than 125 days. The average number of days late for these 7 entities was 165; 2 of them tabled their report more than one year after the end of their fiscal year I asked the 27 entities for the reasons explaining such a situation. They cited transfers of personnel, a lack of manpower, the complications arising from the lateness in tabling strategic plans, as well as longer than expected times for obtaining ministerial approval Moreover, 70 percent of these 27 entities were also late to varying degrees for the previous year. More than 30 percent, namely 9 entities, may be described as being habitual late filers; indeed, they also exceeded the tolerated late period (i.e. being late by 5 days or less) for the fiscal year. For the three years, these 9 entities are on average from 14 to 197 days late (Table 2). TABLE 2 LIST OF THE NINE ENTITIES THAT ARE HABITUAL LATE FILERS FOR THE YEARS TO Average number of days late Agence d évaluation des technologies et des modes d intervention en santé* 197 Commission des droits de la personne et des droits de la jeunesse 104 Public Curator of Québec 88 Coroner s office 58 Registraire des entreprises 50 Ministère du Développement économique, de l Innovation et de l Exportation 39 Commissaire à la déontologie policière 28 Commission québécoise des libérations conditionnelles 22 Ministère des Relations internationales 14 * The time of the tabling of the report for could not be determined. However, the transmission letter addressed to the Minister is dated March 4, The average number of days late for the other two years is Submitting the reports so long after the end of the fiscal year reduces their usefulness. For example, the eventual examination of the annual management reports by parliamentarians risks being based on information that is not up-todate and that is less relevant owing to this fact. Moreover, it is hard to adjust one s aim if the anticipated results are not obtained or if the objectives sought by the entity must be modified. It is therefore important that the entities concerned respect the legal deadlines for the reasons that I just cited. 8

9 1.21 In September 2006, I asked the same 27 entities if they planned to adopt measures to comply with the requirements of the Act for their report. Almost all, namely 26, mentioned that they would take the necessary steps to table their management report by the deadlines stipulated in the Act. The Public Curator of Québec is counting among others on the reform of its systems to meet the legal deadlines and it doesn t believe to improve its time limit before that reform As of November 9, 2006, I did a follow-up on the tabling of annual management reports to see if measures had indeed been taken with a view to meeting the deadlines set for the fiscal year. I found a significant improvement in the situation since only the Public Curator of Québec of the 9 habitual late filers had not yet tabled its report. As for the other 18 entities that had tabled their report more than 5 days late for , 5 have met the deadlines this year and 10 are late once again; in the case of the last 3 entities, it was not possible to examine their situation, since the tabling of their annual report was not yet due. CONSOLIDATED FINANCIAL STATEMENTS OF THE GOVERNMENT OF QUÉBEC 1.23 On October 24th of this year, namely the very day on which the consolidated financial statements of the government for the fiscal year ended on March 31, 2006 were tabled, I submitted to the National Assembly a special report dealing with the audit of these financial statements. This special report is reproduced in Appendix B of this volume The audit that I carried out in relation to these financial statements did not allow me to express an opinion whether these financial statements are presented fairly in accordance with Canadian generally accepted accounting principles (GAAP) for the public sector. The importance of the repercussions that are likely to ensue from the two reservations that I expressed in my auditor s report explains this situation. The first reservation results from the non-inclusion of the entities of the education network and those of the health and social services network in the government s reporting entity. The second concerns the fact that the government uses certain accounting policies that differ from GAAP. Moreover, pursuant to the requirements of the Auditor General Act, I expressed the opinion that, except for the non-inclusion of the entities of the networks in the reporting entity, the effects of which I was unable to determine, these financial statements present fairly the government s financial position as at March 31, 2006 in accordance with the accounting policies of the government. 9

10 1.25 Several persistent problems led me to invite the government to demonstrate greater rigour and independence when it comes to the financial information that it conveys to parliamentarians and citizens in order to provide the fairest possible portrait of public finances. Moreover, Québec is the only province which, in , has not integrated, in whole or in part, the entities of the networks in its reporting entity. Furthermore, in addition to the federal government, the majority of the provinces prepare their financial statements in accordance with the GAAP applicable to them. Concerning the Balanced Budget Act, my work revealed that the accumulated balance for the purposes of this Act was established in technical compliance with the Act but not in keeping with its spirit. The scope of the amounts that have not been taken into account over the years in the reporting done for the purposes of this Act explains my conclusion At the time of the tabling of the Public Accounts and my special report, I met with the members of the Committee on Public Administration as well as those of the Committee on Public Finance, gathered for a working session. On that occasion, I presented to them and explained the results of my audit. I also informed them of the openness shown by the government, which says that it is sensitive to my concerns related to reporting on the Balanced Budget Act. The government will make sure that it dispels any ambiguity regarding the scope of this Act, without however reducing the rigour that it imposes in relation to the management of public finances. SUBJECTS EXAMINED IN , BUT WHICH DID NOT GIVE RISE TO A REPORT 1.27 In , I undertook two value-for-money audits, which I decided not to carry through to completion, given that significant actions had been taken by the stakeholders in question A preliminary examination was made of the health and social services network regarding the control of nosocomial infections in institutions. With the preparation of the Plan d action sur la prévention et le contrôle des infections nosocomiales (Action plan to prevent and control nosocomial infections ), the Ministère de la Santé et des Services sociaux has demonstrated its desire to provide a framework for and deal with this problem with a view to improving, in a tangible manner, the quality and safety of the care offered Due to the presence of the action plan, I decided not to continue my work Moreover, an audit concerning the management of detention centres was interrupted during the year. The upcoming entry into force of the Act respecting the Québec correctional system (Loi sur le système correctionnel du Québec), planned for February 2007, led me to make this decision, notably by reason of the major changes that the Act will bring with respect to the correctional system and detention centres. 10

11 1.31 Furthermore, to facilitate the implementation of this Act, the Ministère de la Sécurité publique has prepared a detailed plan, and the first organizational changes have begun. For these reasons, I consider that now is not the right time to carry out this mandate. SUMMARY OF THE CONTENT OF THIS VOLUME 1.32 The following paragraphs provide a summary of the subjects dealt with in the other chapters Chapter 2 focuses on the management of external partners contributing to public employment services. Emploi-Québec, an agency of the Ministère de l Emploi et de la Solidarité sociale, notably does business with them to carry out its mission. These partners offer job search measures mainly to employment insurance participants and employment assistance recipients. The ultimate goal of these measures is to help these individuals find jobs or retain their jobs. Since approximately $480 million are devoted to these measures each year, there was an interest in examining the way in which these public funds are managed The external partners concerned by this mandate are defined as being external resources as well as educational institutions. The majority of the external resources making a contribution are not-for-profit organizations (NPOs), and most are community organizations My audit dealt with three important measures: employment-assistance services, job preparation projects and the manpower training measure. I find that the use of external partners to offer these measures is not made with sufficient concern for economy and efficiency. In fact, the agreements are generally signed from year to year with the same external resources and the amounts are often renewed without giving sufficient consideration to the achievement of the results and without making an adequate evaluation of the needs. It should be noted that since a large number of NPOs concerned by the measures receive much of their funding from the government, a downward revision of their funding could call into question their viability Moreover, I point out in my report that Emploi-Québec does not make sure that a fair price is paid. Regardless of the funding mode in effect, the agency usually pays the external resources the amount stipulated in the agreement even if the anticipated volume of candidates is not attained. Also, it does not compare the price of the services required with that of similar organizations or with that of similar services offered by the private sector. As for the follow-up done on the agreements with external partners, no visit was made, during the years examined, to half of the external partners audited. 11

12 1.37 Furthermore, the external resources generally render accounts. In more than 60 percent of the cases examined, I did not find any evidence that an analysis was made of the required rendering of accounts. Moreover, since Emploi- Québec does not have a provincial portrait of the achievement of the results sought by the agreements, it is unable to measure in a global perspective the extent to which the services obtained from external partners allows the persons taking part in the measures to return to the job market Concerning the interventions of Emploi-Québec or of the external resources, as the case may be with individuals, I find that there are shortcomings in the documentation on file. In several cases, the documentation does not make it possible to ascertain that an adequate evaluation of the needs of each person was made, that the steps envisaged for promoting that person s return to the job market were planned, and that structured coaching was given Turning to Chapter 3, it deals with the management of the Coroner s office. The mandate of this entity consists, among other things, of determining, in an independent and impartial manner, the causes and the circumstances surrounding death in all cases of death occurring in unclear or violent circumstances, in order to contribute to the protection of human life Globally, I observe that the Coroner s office is confronted with several complex and major problems that have persisted for some time and that threaten its smooth operation. While the Coroner s office is aware of the situation, the steps taken thus far have not yet resulted in the application of lasting and economical solutions On the subject of economy, the Coroner s office has not implemented all of the necessary means to recover the costs of services provided to other government agencies and has assumed certain expenditures that could have been supported by others Moreover, although a large share of its activities is carried out by part-time coroners and external partners, the entity has not always taken sufficient steps to ensure the availability of the services that it expects from them Furthermore, I found deficiencies in the supervision of the members of the Coroner s office and in the treatment of ethical violations. I also note internal tensions that adversely affect the work climate. Finally, the available management information and the content of the strategic planning should be improved to promote quality reporting As for Chapter 4, it deals with manpower related to information resources: need, availability and allocation. For , this manpower represented close to 75 percent of the Administration s expenditures associated with computer services, namely $670 million in outlays. Furthermore, the growth rate of these outlays is impressive. Within this context, I was interested in the means that the departments and agencies had chosen to distribute the work related to information resources in the most economical manner possible. 12

13 1.45 Improvements, at times significant, will have to be made. In fact, none of the responsibilities presented in the Framework for managing information resources in support of the modernization of the Public Administration is specific to the manpower assigned to these resources. The recent strategies devised by the government in relation to information resources also leave much to be desired when it comes to manpower and the data collected on this subject. Finally, I note the absence of typical investment portfolios or manpower plans to help distribute the work in the most economical manner possible in departments and agencies Moreover, I evaluated whether the departments and agencies have the necessary management tools to ensure the most economical distribution of work. To achieve this objective, I probed the investment portfolio, the management plan and allocation plans related to information resources, adopted by three government entities. My work shows that overall, these tools are satisfactory. I did, however, find shortcomings, which need to be corrected. Among them, the investment selection criteria are not integrated in the related portfolios; consequently, the parties concerned are not able to affirm their intention well. Furthermore, the manpower strategies formulated by two of the audited entities are unsatisfactory: the objectives are imprecise and there is no information about the competence of the personnel of these entities or the suppliers who provide professional services to them. The deficiencies noted lead me to conclude that the entities management tools do not make it possible to determine their manpower needs in relation to information resources and the availability of this manpower, or to determine the most economical manner of distributing work In light of these results and in the absence of a government strategy on this subject, I took advantage of the opportunity to hold, with the three audited entities, a reflection on the manner in which the work to be carried out should be distributed among the work teams designated either by the entities or by third parties. The ensuing observations support various governmental or ministerial practices in the subcontracting field. However, they indicate that certain information resource activities should be done on a priority basis by the personnel of the departments and agencies Chapter 5 concerns the residual materials. The disposal of these materials gives rise to its share of concerns. To mitigate these concerns, the Québec Residual Materials Management Policy guides government interventions in the field. Of course, this policy aims to ensure the safe management of the materials to be disposed of. However, it also seeks to reclaim residual materials and to reduce the quantity of such materials at the source. The work that I carried out allowed me to draw conclusions about these two components First, I observe that the Ministère du Développement durable, de l Environnement et des Parcs is unable to effectively and efficiently monitoring residual materials recovery and disposal activities. In its current form, the information that the Department possesses does not allow it to make a fair assessment of the risks that disposal sites represent. Moreover, the planning of the interventions does not 13

14 ensure an adequate coverage of the sites. In addition, when inspections are carried out, the documentation pertaining to several files is insufficient, the irregularities observed are not always reported, and the follow-up on irregularities occasionally leaves much to be desired. The Department has begun an initiative to review its inspection process as a whole, which should help improve the situation in the years to come I go on to note that most of the actions planned in the policy have been accomplished in whole or in part since the policy took effect. However, with only two years left to go until the policy expires, I conclude that the progress in achieving the objectives has been slow and that there is a risk that the results anticipated at the end of the period will not have materialized. I have identified certain factors that may explain this situation. First, the initial action plan has not been updated to reflect the changes over the years. Secondly, the implementation of essential actions for carrying out the policy has been slow. Thirdly, the follow-up on the policy and the reporting concerning it have not lived up to expectations Chapter 6 reports on the result of an audit concerning 19 assistive device (technical aid) programs for people with disabilities offered by the Ministère de la Santé et des Services sociaux. In , the sums related to these programs totaled $135.8 million. An assistive device is an apparatus, a piece of equipment or a device seeking to correct an impairment, compensate for a disability or reduce a handicap situation. These devices, the acquisition cost of which is assumed by the government, are available to people with disabilities. In Québec, 1.2 million people live with a permanent impairment I find shortcomings in the Department s management of these programs. Indeed, they are often superimposed over time, and the Department should make an assessment of all of the assistive device programs. In this respect, the modernization plan of the Secrétariat du Conseil du trésor calls on managers to review the programs that they administer according to five criteria: role of the State, effectiveness, efficiency, subsidiarity, and financial capacity. Such an exercise would be of great benefit to the assistive device programs, given notably their compartmentalization and their sedimentation. Moreover, it would allow the Department to make sure that the programs better correspond to the needs of citizens Furthermore, I note that by reason of their multiplicity, the management of programs is complex and that it is hard to understand the programs and the related rules. Among other things, there are many gateways to these programs and each has its own rules, forms and administrative processes. This absence of harmonization makes the programs more complex and does not facilitate their management or their comprehension by the clientele. 14

15 1.54 As for the Régie de l assurance maladie du Québec, which acts as a trustee for several programs, I conclude that there are inefficiencies in the current procedures for processing requests for payment related to assistive devices and that the existing controls do not deal with all of the risks. However, its acquisition process for two of the three types of assistive devices, for which we examined the programs, namely wheelchairs and hearing devices, is adequate. Finally, the current recycling program (making the most of recovered devices) is in need of certain improvements Chapter 7 deals with my watch over major capital asset projects of the government, namely the projects to modernize Montréal s university hospital centres and the implementation of the Integrated Resource Management Business Solution (SAGIR) project As my watch over the projects to modernize the university hospital centres (UHC) began in September, I am issuing in this volume my first comments on the Centre hospitalier universitaire de Montréal and the McGill University Health Centre projects, which have been under way for about ten years, as well as on the Centre hospitalier universitaire Sainte-Justine project, which began in The related investments are currently estimated at $3.6 billion My objective is to obtain the assurance that the conditions that need to be met to ensure the success of the projects will be respected As for the success of the projects, I find that the current governance structure entails risks from the standpoint of adherence to the works, costs and schedules. There are two reasons underlying my opinion. First, the sharing of responsibilities between the executive director and the UHC, two stakeholders having different objectives, adversely affects accountability. Secondly, the executive director hierarchically reports to the health and social services sector. Examples of governance of major projects, both here and around the world, show that a greater independence of the organizations in charge of directing the projects is generally favoured I note that the government has already ruled on the costs that must be adhered to. In my opinion, it is now necessary to harmonize the desired works, the estimate of their costs and their schedules The government is acting correctly when it takes the time to specify each of these three parameters before project managers and professionals proceed to the planning phase, namely the phase during which the concepts are devised and the plans and preliminary specifications are drawn up As for the SAGIR project, I have been interested in it since December 2004 given its scope, the financial stakes involved, and the impact of the new practices that it introduces on the productivity of the government apparatus. The first of seven parts, which received Cabinet approval in May 2005, seeks to simplify and rationalize budgetary and accounting management as well as the acquisition of goods and services. 15

16 1.62 I note significant upward and downward changes in the distribution of the costs of the first part. However, the total cost remains the same, i.e. $317.2 million, and the schedule is being respected. Nevertheless, I point out that the method for determining the real costs can be improved, given that there are more than $4 million in omissions. My last comments on the project, in December 2005, made mention of five risks, most of which have since decreased. However, I note two new risks concerning the capacity of the team at the Direction générale de SAGIR: completing the implementation of the first part, given the additional efforts that still need to be made, and adequately supporting the numerous entities that are using the system or will be doing so shortly. Consequently, I intend to remain vigilant Chapter 8 presents my comments following the financial information certification work done with five entities Finally, the reader will find three appendices at the end of this publication. The report on the special audit carried out at the request of the government is the first appendix. This report was tabled separately in the National Assembly in November Appendix A presents the Special Report to the National Assembly concerning the special audit carried out at the Société des alcools du Québec. Appendix B takes up my Special Report to the National Assembly concerning the audit of the consolidated financial statements of the Government of Québec for the fiscal year ended on March 31, As for Appendix C, it contains excerpts from the report of the Committee on Public Administration, produced in June 2006, following the examination of some of my work. CONCLUSION 1.65 The Auditor General s reports deliberately draw attention to deficiencies and propose avenues to remedy them. This approach allows parliamentarians to focus their discussions with managers on the improvements that should be made to public services However, I would like to underscore the competence and dedication of the managers and employees of the entities that I audit. Québec benefits from a highly professional public service. The improvements, occasionally substantial, which must be made to the operation of the government apparatus, must not allow us to lose sight of the quality of services that we already enjoy Finally, I would like to thank all the persons who collaborated in the carrying out of my work and in the preparation of this report. 16

17 2 MANAGEMENT OF EXTERNAL PARTNERS CONTRIBUTING TO PUBLIC EMPLOYMENT SERVICES 2.1 The mission of Emploi-Québec, an agency of the Ministère de l Emploi et de la Solidarité sociale, is to contribute to developing employment and the labour force, as well as to combat unemployment, exclusion and poverty in an economic and social development perspective. Its network of some 150 local employment centres (CLE), spread out over 17 administrative regions, offers services to Québec s manpower as well as to enterprises. 2.2 The agency notably does business with external partners to help carry out its mission with respect to public employment services. The partners concerned by this audit mandate are those that the agency defines as being external resources, as well as educational institutions. The majority of the external resources making a contribution are not-for-profit organizations (NPOs). For the most part, they are community organizations. Overall, these organizations receive approximately $480 million annually from Emploi-Québec to provide services related to active job measures External partners provide services within the context of several employment measures. Among the most important, we find employment-assistance services (EAS), job preparation projects (JPP) and the manpower training measure (MTM) individual component. Each year, Emploi-Québec and external partners sign agreements concerning the provision of these services. The measures are mainly intended for employment insurance participants and employment assistance recipients. The Government of Canada helps pay for the funding of measures when they apply to employment insurance participants. 2.4 This audit deals with the three aforementioned measures. The aim of the audit was to obtain the assurance that Emploi-Québec uses in an economical and effective manner external partners to offer these measures. The signed agreements dealing with these measures totaled $361.8 million for the and years. 2.5 We carried out our work at the department and, more specifically, with Emploi- Québec. This work took place notably at four regional units and the CLE for which they are responsible. Among other things, we examined agreements signed by these units or their CLE with 66 external partners, as well as certain files of individuals concerned by these agreements, namely two persons per partner. Our audit mainly focused on the activities carried out between and Active job measures represent all of the structured interventions of Emploi-Québec which aim notably to help people in their efforts to find a job or to retain their jobs, as well as to support external partners who offer job search assistance services. 17

18 2.6 Our work leads us to conclude that the use by Emploi-Québec of external partners to offer job search assistance measures (EAS, JPP and MTM individual component) is not made with sufficient concern for economy and efficiency. 2.7 Emploi-Québec did not demonstrate that it had made, prior to the signing of agreements with external resources, an adequate evaluation of needs with respect both to the nature of the service and the number of participants aimed for. However, the external resources did present a service offer in 91 percent of the cases. Yet for close to half, there was no evidence that the agency analyzed the offer. Consequently, it is hard for the agency to justify the relevance of the signed agreements. In fact, these agreements are generally entered into with the same external resources from year to year and often renewed at the same amount. 2.8 There are two types of funding of service agreements with external partners: actual costs and the lump-sum mode. By using the lump-sum mode, Emploi- Québec sought to establish an appropriate cost and ensure greater fairness in the treatment of organizations. The services were classified into eight groups and each one has a cost range per participant. We note that the ranges are very broad, which does not ensure the payment of an appropriate price. For the and years, respectively 44 and 48 percent of the agreements that we examined were signed in the upper portion of the cost range. Moreover, regardless of the funding mode, the agency usually pays the external resources the amount stipulated in the agreement even if the anticipated volume of candidates is not attained. Some of the services provided by NPOs are also offered by the private sector (for example, the preparation of curriculum vitae and guidance services) and could be the subject of a comparison to make sure that a fair price is paid. Yet no such comparison is made. Consequently, Emploi-Québec does not make sure that a fair price is paid. 2.9 Deficiencies were also noted in the follow-up done on agreements with external resources. Indeed, Emploi-Québec frequently does not check if the services are rendered in accordance with the objectives sought or if the agreements have been respected. For the years analyzed, no visit was made to half of the external resources that we audited. We did not find any justification on file in this respect. The same is true for the follow-up on and the evaluation of the services obtained under agreements with educational institutions Generally, the external resources do render accounts. In more than 60 percent of the cases examined, we did not find any evidence that an analysis was made of the required rendering of accounts. The analyses that had been carried out were often incomplete; for example, no analysis was made of the resources invested. Furthermore, since Emploi-Québec does not have a provincial perspective, it is unable to adequately gauge the achievement of the results sought by all of the agreements with external partners. Emploi-Québec is therefore unable to evaluate the extent to which the services obtained allow the persons taking part in the measures to return to the job market. 18

19 2.11 Concerning interventions with individuals, in 47 percent of the cases that we examined, the documentation on file did not allow us to ascertain that Emploi- Québec or the external resources, as the case may be made an adequate evaluation of the needs of each person in order to optimize the interventions made on that person s behalf. We did not find the steps envisaged for promoting the return to the job market for half of the participants. In a proportion of 68 percent, the documentation does not show a sufficient follow-up indicating that coaching was given in a structured process throughout an initiative to find employment It should be noted that Emploi-Québec has prepared several procedures concerning all of the steps related to the management of employment measures. Management is decentralized in the regions and the application of these procedures lacks in rigor. RECOMMENDATIONS 2.13 We recommended to the department that it Justification of the agreements Planning and analysis of needs justify, through an adequate analysis of needs and according to the targets set in the regional planning, the number of participants aimed for and, where applicable, the number of persons for whom a return to the job market is envisaged, appearing in the agreements with external resources; prepare a complete service request; make sure that the external resource submits a service offer and make an adequate analysis thereof; Price paid for the services obtained from external partners make sure that a fair price is paid for the services received from external partners; Compliance with agreements and management information Follow-up on agreements do a follow-up on compliance with the agreements signed with external partners in accordance with its procedures; 19

20 Management information obtain from external partners reporting that complies with the requirements of the guide in this respect and make an adequate analysis thereof; have the necessary information to determine if the services obtained from the external partners make it possible to achieve the expected results concerning the return to the job market for persons taking part in the measures, and to adjust these services, as the case may be; Interventions with individuals adequately document: the evaluation of the needs of each individual and the justification of the chosen measures; the steps envisaged to promote the individual s return to the job market; the coaching activities offered to the individual within the context of a structured process as part of an initiative to find employment. 20

21 3 MANAGEMENT OF THE CORONER S OFFICE 3.1 The Coroner s office is a budgetary agency that reports to the Minister of Public Security. It has 13 permanent full-time coroners, including the chief coroner and two deputy chief coroners, as well as 43 employees. The carrying out of its activities depends in large part on the collaboration of the 75 part-time coroners along with that of external partners such as pathologists who perform autopsies. For the fiscal year, the entity had a budget of seven million dollars. 3.2 The mandate of coroners is to determine, in an independent and impartial manner, the identity of the deceased person, the place, date and likely causes of death as well as the circumstances surrounding the death in all cases of death occurring in unclear or violent circumstances. To this end, coroners have two means provided for by law, namely investigations and inquests. Each year, coroners perform more than 4,000 investigations. As for inquests, which are ordered by the chief coroner, their number varies from one year to the next. Three inquests were held in The purpose of this audit was to determine the extent to which the Coroner s office applies sound management principles, with a concern for economy and in accordance with the relevant legal and regulatory framework. However, the audit did not examine the quality of the work performed by the Coroner s office. It focused on the activities carried out between April 2003 and March The Coroner s office is confronted with several complex and major problems that have persisted for some time and that threaten its smooth operation. While the Coroner s office is aware of the situation, the steps taken thus far have not yet resulted in the application of lasting and economical solutions. 3.5 On the subject of economy, the Coroner s office has not implemented all of the necessary means to recover the costs of services provided to other government agencies and has assumed certain expenditures that could have been supported by others. 3.6 Moreover, the Coroner s office has been having difficulty recruiting part-time coroners. Despite this fact, it has not planned its needs in this area or implemented means to meet these needs in an optimal manner. As for external partners, the Coroner s office has not always made sure of their availability. The actions that the Coroner s office has taken to date to ensure the continuity of services have resulted in additional costs and delays. 3.7 There are deficiencies in the supervision of the organization s staff members, notably with respect to the performance assessment process and the treatment of ethical violations. We also observed internal tensions that adversely affect the work climate. 21

22 3.8 Finally, we found that the available information is insufficient to adequately support the management of the activities of the Coroner s office. Furthermore, the content of its strategic planning should be improved to facilitate the follow-up on planning and to promote quality reporting. However, we do note that the entity generally complies with the relevant legal and regulatory framework. RECOMMENDATIONS 3.9 We recommended to the Coroner s office that it Financial resources target sources of additional revenue and potential savings; take action to collect revenue and to achieve savings; Contribution of part-time coroners and partners plan its needs for part-time coroners to ensure a regional coverage and take adequate measures to meet these needs; take steps to ensure the continuity of services provided by its main partners in an economical and lasting manner; Human resources apply a rigorous performance assessment process based on expectations conveyed to its regular staff; prepare and implement the terms and conditions of application to promote compliance with the rules of professional ethics; continue its efforts to improve the work climate; Management information specify its needs and produce the required management information; Performance assessment and reporting make sure that its strategic planning gives greater consideration to good practices in the field; take steps to ensure that its annual management report makes it possible to better evaluate its performance. 22

23 4 MANPOWER RELATED TO INFORMATION RESOURCES: NEED, AVAILABILITY AND ALLOCATION 4.1 The Administration s expenditures related to information resources (IR) reached $920 million in Among these expenditures, those concerning manpower stood at $670 million. Moreover, the growth rate of manpower-related expenditures is impressive. For the last 20 years, the government s balance sheets have shown that the growth rate for the remuneration of IR-related personnel is 70 percent greater than the Consumer Price Index of Canada. For its part, the rate for the acquisition of professional services from private firms is 270 percent greater. As for the competence of this manpower, it is a major unknown since the government does not compile data on this subject. 4.2 We felt that it was important to examine the means chosen by the departments and agencies (D/A) to ensure that the manner in which work related to IR is distributed is the most economical possible. We were interested in the distribution of the work to be accomplished among the work teams designated either by the entities or by third parties such as the Centre de services partagés du Québec (CSPQ), interdepartmental shared service centres and private suppliers. During our work, which took place from January to June 2006, we first examined the means developed by the Ministère des Services gouvernementaux (MSG), the CSPQ and Services Québec. We wanted to take stock of the measures that they need to adopt to ensure that the manner in which work is distributed is the most economical possible. We went on to evaluate if the D/A possess the necessary management tools to determine their manpower needs related to IR and the availability of such manpower, to identify the most economical means possible of distributing the work, and to assign manpower adequately. 4.3 The audit reveals that improvements, at times significant, will have to be made in order to distribute the work related to IR in the most economical manner possible. None of the responsibilities presented in the Framework for managing information resources in support of the modernization of the Public Administration relates specifically to the manpower assigned to IR. Consequently, it is not possible to know how the Administration intends to plan and coordinate the distribution of the work to be performed by this manpower; yet, the outlays associated with this manpower represent close to 75 percent of expenditures related to IR for Our work also shows that the recent strategies developed by the government in relation to IR leave much to be desired when it comes to manpower. What is more, the data collected on manpower are insufficient. Indeed, they are limited to quantitative information that does not make it possible to appreciate the importance of the human resources provided by private firms, the competence 23

24 of the manpower related to IR and the risks that this manpower may present. In addition, we noted the absence of typical investment portfolios or manpower plans to help distribute the work in the most economical manner possible in D/A. 4.5 Our audit also dealt with the management tools implemented by three government entities that incur the greatest expenditures in the IR field, namely the Commission de la santé et de la sécurité du travail (CSST), the Ministère de l Emploi et de la Solidarité sociale (MESS) and Revenu Québec. We examined the investment portfolios, manpower plans and allocation plans that these entities have prepared to direct their activities relating to IR. 4.6 In , the three audited entities adopted investment portfolios that are useful for the selection of their projects and their recurrent activities. These portfolios include several of the expected elements and reveal that IR-related investments are selected in the manner specified in the government requirements. Consequently, the portfolios developed on this basis lead the entities to specify what can be done with the available appropriations and staff. In our opinion, these entities should instead adopt portfolios in which the needs are described on the basis of formal criteria rather than being described according to the available sums. However, a simulation shows that the portfolios planned for the future will be more satisfactory if the entities preserve their current approaches and follow up on the recommendations that the MSG made in this field in the spring of Moreover, the IR-related manpower plans do not promote the balance that must be maintained between the multiple dimensions that have to be taken into account. Revenu Québec has an IR-related manpower plan, but much work still needs to be done, particularly with respect to the competence of this manpower. For their part, the other two entities have no manpower plan. However, the CSST does have several elements of such a plan, but these elements are scattered among many documents, which does not help obtain an overview. As for the MESS, it has only prepared a few of the components sought. 4.8 Lastly, the allocation plans prepared by the CSST and Revenu Québec have proven to be very satisfactory. The allocation plan of the MESS is acceptable, but certain aspects are in need of improvements. 4.9 In short, the entities have tools which, all in all, are satisfactory. However, the investment portfolios and the manpower plans do not make it possible to determine the manpower needs of the entities in relation to IR or the availability of this manpower. As for the allocation plans, they alone cannot ensure an economical distribution of the work. Consequently, it is not certain that the action of the entities is based on the most economical manner of distributing work related to IR. 24

25 4.10 In light of these results and in the absence of a government strategy on this subject, we took advantage of the opportunity to hold, together with the CSST, the MESS and Revenu Québec, a reflection on the manner in which the work to be carried out should be distributed among the work teams designated either by the entities or by third parties. Our observations support various governmental or ministerial practices in the subcontracting field in effect in the Administration. They also make a good case for certain changes. For example, tasks related to the analysis of systems and data should, in some instances, be entrusted more to the staff of the entities. RECOMMENDATIONS 4.11 We recommended to the Ministère des Services gouvernementaux that it Means assured by the Ministère des Services gouvernementaux Roles and responsibilities submit to the Conseil du trésor the amendments to be made to the Framework for managing information resources in support of the modernization of the Public Administration in order to determine the major stakes that must be taken into account when the time comes to distribute the work related to information resources in the most economical manner possible; specify the roles and responsibilities of all of the departments and agencies as well as the ensuing mechanisms; Information resource management strategy draw up and propose to the Conseil du trésor an information resource management strategy that deals notably with the distribution of work related to these resources; monitor the implementation of this strategy and regularly report on this implementation to the Conseil du trésor; propose standard tools related to the investment portfolios and manpower plans. Obligations of the Centre de services partagés du Québec 4.12 We recommended to the Centre de services partagés du Québec that it establish the services that should be offered by taking into account notably the distribution of work related to information resources. 25

26 Management tools of three government entities Investment portfolio 4.13 We recommended to the entities concerned that they acquire an investment portfolio related to their information resources, which provides the following information: Commission Ministère de l Emploi Revenu Québec de la santé et et de la sécurité du travail de la Solidarité sociale the description of new projects, projects under way and recurrent activities, as well as the definition of manpower needs; X the categorization of investments; the criteria that ensure the choice or maintaining of projects and recurrent activities; the decisions made with respect to each investment and the reasons underlying each decision. X X X X X X X 4.14 We recommended to the Ministère de l Emploi et de la Solidarité sociale and to Revenu Québec that they update their investment portfolio in a timely manner, notably following significant decisions or events. Manpower plan 4.15 We recommended to the entities concerned that they adapt a manpower plan related to their information resources, which contains the following information: the description of the manpower needs for the purposes of projects under study or authorized projects as well as recurrent activities; the variances observed between manpower needs and manpower availability, the analysis of the situation and the description of the option that they wish to choose; the appropriate strategy for implementing the chosen option; the decisions made regarding manpower planning and the reasons underlying each decision. Commission Ministère de l Emploi Revenu Québec de la santé et et de la sécurité du travail de la Solidarité sociale X X X X X X X X X X 26

27 4.16 We recommended to the Ministère de l Emploi et de la Solidarité sociale and to Revenu Québec that they update their manpower plan in a timely manner, notably following significant decisions or events. Allocation plan 4.17 We recommended to the Ministère de l Emploi et de la Solidarité sociale that it prepare allocation plans for the manpower associated with its projects and its recurrent activities in the information technologies and electronic communications field, which include the following information: the description of the variances between the manpower required and that stipulated in the manpower plan related to information resources; the decisions taken regarding the allocation of manpower and the reasons underlying each decision; update its allocation plans in a timely manner, notably following significant decisions or events. 27

28 5 RESIDUAL MATERIALS 5.1 Our ever-growing consumption has an impact on the quantity of residual materials generated. In particular, it is the disposal of residual materials that gives rise to its share of concerns. To attenuate the problems associated with residual materials, it is essential to take actions simultaneously on various fronts. On the one hand, the safe management of residual materials is necessary to reduce the risks related to their disposal. On the other hand, it is just as important to find means of reclaiming these materials or reducing their quantity at the source. 5.2 Our audit work dealt with both these components. First, we examined the supervision and control activities carried out by the Ministère du Développement durable, de l Environnement et des Parcs (MDDEP) in relation to compliance with the rules and standards in effect in the recovery and disposal sector. Next, we took stock of the implementation of the Québec Residual Materials Management Policy, , since this policy, which will expire in two years, serves as a backdrop for the management of residual materials. This second component concerns both the MDDEP and RECYC-QUÉBEC 1. We carried out our work from September 2005 to June Regarding the first component, the Department is unable at the present time to efficiently and effectively monitor residual materials recovery and disposal activities. Its level of knowledge of the sector, the management of the disposal capacity and disposal needs, the planning and the documentation related to inspection work, as well as the treatment of cases of non-compliance are the main elements requiring improvements. 5.4 In their current form, the data in the possession of the Department do not provide a comprehensive portrait of the various disposal sites for which operators hold certificates of authorization or operating permits. As a result, the Department is unable to categorize these sites according to the risks that they represent and establish the most effective possible intervention strategy based on the available resources. It would also be to the Department s advantage to improve its means and tools enabling it to maintain a good knowledge of closed disposal sites and to detect unlawful activities. 1. To designate the Société québécoise de récupération et de recyclage, we use the name RECYC-QUÉBEC in this text. 28

29 5.5 It is also important to ensure the adequacy between the future disposal capacity and the anticipated needs. On average, it takes six years three years in the fastest cases for projects to make it through all of the steps leading to the creation or expansion of a disposal site. A rigorous follow-up must therefore be done on those disposal sites that are approaching their authorized capacity in order to avoid emergency situations. In fact, 21 of the sanitary landfills will reach their authorized capacity in the next five years; at the time of our work, no initiative intended to implement a solution had been taken for 11 of these landfills. 5.6 Moreover, the global planning of inspection activities at the Department does not permit an adequate coverage of the disposal sites. The number of disposal sites visited, the choice of sites and the frequency of inspections vary greatly from one site to the next and from one region to another. Furthermore, a large proportion of in-trench landfills have not been inspected over a period of three years. 5.7 Our analysis of the inspection files allowed us to ascertain that the documentation pertaining to several of these files is insufficient; consequently, the Department is unable to provide a precise portrait of the sites level of compliance with the regulations. Indeed, even though inspectors go on site to conduct routine inspections, only a minority of the inspection reports audited deal with most of the regulatory requirements. The Department is unable to conclude whether the absence of information is explained by a situation deemed compliant at the time of the inspection or by an omission in the inspection procedure. The residual hazardous materials sector is the subject of better supervision, and the inspection reports produced generally address all of the requirements mentioned. 5.8 Lastly, when practices that go against the rules are identified, the irregularities observed are not always reported and the reasons underlying this decision are not sufficiently justified. Moreover, the follow-up on notices of offence needs to be improved. 5.9 The MDDEP is currently holding a reflection on its inspection process. At the time we completed our work, it was not possible to evaluate the extent to which the current efforts will help improve the situation As for the second component of our audit, we found that most of the actions stipulated in the policy have been accomplished, in whole or in part, since the policy took effect. An improvement in the situation has been noted from the standpoint of the recovery of residual materials. However, progress is slow and there are important risks that the results expected at the end of the period will not have materialized. In order to shed additional light on the situation, we analyzed the planning of the actions related to the policy, the extent to which these actions have been carried out, and the follow-up done on the results obtained. 29

30 5.11 The action plan incorporated in the policy has not been updated since it was drawn up in 1998, even though the context has since evolved. Furthermore, important elements are absent from the plan. This is notably the case of longterm objectives which are not accompanied with mid-term objectives. As a result, it is difficult to make an informed judgment on the evolution of the situation and to adjust efforts in a timely manner. The priorities, deadlines and financial resources necessary to implement the actions are other elements that should be better defined in the future The updating of the regulatory framework provides a good illustration of the importance of establishing clear and realistic priorities and deadlines. Since this updating is a major point on which several actions are based, it was important that this subject be among the priorities. Most of the regulations related to the policy were implemented more than six years after the drawing up of the action plan, which reduces the ability to achieve the objectives before the end of the period covered by the policy The residual materials management plans (PGMR) are another key element in the implementation of this policy. Despite everything, only 15 percent of the regional municipalities 2` adopted their plan in the stipulated time periods. It is clear that these delays have had an impact on the rate of progression of the results towards the policy s objectives. Moreover, the decision of RECYC- QUÉBEC to consider the PGMR as being compliant with certain requirements set in the Environment Quality Act is occasionally insufficiently documented. What is more, given the uneven quality of the information provided in the PGMR, it could be difficult to evaluate the progression and the performance of each of the regional municipalities Moreover, the assistance programs dealing with used tires as well as glass reclamation are generally managed well. Overall, the assistance programs that we examined were evaluated by RECYC-QUÉBEC, but these evaluations vary in quality. As a result, it is hard to explain an apparent imbalance between the size of the problems in certain sectors and the efforts devoted to their resolution. In addition, decision-makers are deprived of essential information that would enable them to set priorities according to the most critical sectors Turning to reporting, the usefulness of the assessment produced on a biennial basis is limited for the follow-up on the implementation of the policy. First, the reliability of the data included in the assessments gives rise to doubts. Secondly, the assessments do not report on the level of progress for the actions stipulated in the policy as well as their respective contribution to the achievement of the objectives. Lastly, the time it takes to produce these assessments is growing. 2. The expression regional municipality designates a regional county municipality, a metropolitan community or a local municipality exercising certain jurisdictions of a regional county municipality. 30

31 RECOMMENDATIONS 5.16 We recommended to the Department that it Supervision and control of recovery and disposal activities Knowledge of the sector structure and maintain up-to-date the management information allowing it to have a comprehensive knowledge of the sites where operators manage residual materials, whether these sites are in operation or have been closed; devise and implement a strategy allowing the Department to detect more effectively unlawful activities; Disposal capacity and needs make sure that the solutions pertaining to future disposal needs are chosen and implemented in a timely manner; Inspection activities define and implement a risk-based management approach for its inspection activities in order, notably, to determine an optimal frequency and to allocate the available resources accordingly; better supervise the carrying out of supervision and control activities with respect to the following aspects: the scope and the extent of the work; the documentation of files; the justification of the decisions made in cases of noncompliance; the treatment of the violations observed and their follow-up; Evaluation of the inspection process continue the revision of its processes; acquire the management tools needed to keep up-to-date the information allowing it to periodically evaluate the effectiveness and efficiency of its interventions. 31

32 Québec Residual Materials Management Policy, Planning 5.17 We recommended to the Department and RECYC-QUÉBEC that they update the action plan that is supposed to lead to the achievement of the policy s objectives; clearly specify the short- and medium-term targets, deadlines, the actions that should be given priority, the responsibilities of the stakeholders, as well as the resources that are to be devoted to these elements; Planned actions strengthen the process for analyzing the residual materials management plans that will be produced or updated in the future, notably by improving the documentation in support of the analysis process; make a comprehensive evaluation of all of the programs put in place; Follow-up and reporting compile reliable management information on the real situation and clearly explain the inherent limitations of the available data; improve the assessments in order to report on the actions and their effectiveness as well as the level of achievement of the objectives set; reduce the time period for producing reporting documents. 32

33 6 ASSISTIVE DEVICE (TECHNICAL AID) PROGRAMS FOR PEOPLE WITH DISABILITIES 6.1 In Québec, close to 1.2 million people were living with a permanent impairment in These individuals may have access to one or more of the 19 assistive device programs offered by the Ministère de la Santé et des Services sociaux (MSSS) which generally cover the cost of acquiring these devices and, in certain cases, cover the cost of their maintenance or replacement. The costs associated with these programs reached $135.8 million in The first goal of our audit was to obtain the assurance that the MSSS, in cooperation with the other stakeholders, manages the performance of the assistive device programs in an economical and efficient manner. We also wanted to make sure that the trustees administer the assistive device programs entrusted to them in accordance with the directives given by the MSSS and based on the recognized principles of sound management. 6.3 We carried out our audit work with the MSSS and three trustees, namely the Régie de l assurance maladie du Québec (RAMQ), the Institut de réadaptation en déficience physique de Québec (IRDPQ) and the Institut de réadaptation de Montréal (IRM). Our work also concerned five service providers, three of whom also offer maintenance and repair services. Our audit took place from April to September 2006 and dealt with the activities of the fiscal year, but certain comments relate to situations occurring before or after that period. 6.4 Our work reveals that the MSSS does not have the assurance that it manages the performance of assistive device programs with economy and efficiency. We notably found that the MSSS makes no evaluation of all of the assistive device programs. While it has taken steps to make certain adjustments, notably to merge certain programs or to change approaches, the results of these steps are partial. 6.5 Such an evaluation would, among other things, enable the MSSS to look into the relevance of each program for awarding assistive devices, to rule on the programs that should be merged, to identify areas where overlapping occurs between programs, and to specify the reason why the cost of assistive devices is not covered fully for two programs. 6.6 Generally, the MSSS has done a good job defining the roles and responsibilities of the various stakeholders. However, a mechanism for monitoring on an ongoing basis new developments in the assistive devices field should be put in place. 33

34 6.7 There are many gateways to the programs and each program has its own rules, forms and administrative processes. This absence of harmonization makes the programs more complex and does not facilitate their management or their comprehension by the clientele. In addition to this complexity, the clientele has a hard time gaining access to information, notably because the web site of the MSSS is not user-friendly. 6.8 Moreover, the MSSS makes updates of its assistive device programs. However, the MSSS generally takes a long time to make them, even though it is recognized that these programs require major changes. What is more, the objectives set, the indicators suggested and the reporting obtained from the trustees do not allow the MSSS to evaluate the performance of the programs or to do adequate reporting. 6.9 Lastly, there are deficiencies in the resource allocation method, which compromise accessibility to certain assistive devices. A regular review should be made of the budget breakdown between the two trustees of the programs dealing with three-wheel and four-wheel scooters, walkers, handcycles and handbikes to ensure that the breakdown is established according to the needs of their respective clientele. Moreover, the financial resources that are allocated to the trustees other than the RAMQ and the agencies are generally not known until several months after the start of the fiscal year As for the RAMQ, we are able to conclude that it administers the assistive device programs in compliance with the directives received from the MSSS. However, it does not always apply recognized principles of sound management, notably the process related to the processing of requests for payment which contains inefficiencies. In fact, the computer system of the RAMQ does not allow it to exchange information with service providers, which results in documents being handled several times. The computer data in the possession of providers must be transcribed on forms and all of the information that accompanies requests for payment is sent to the trustees in paper format. Moreover, the existing controls do not cover all of the risks. The RAMQ does not have the assurance that the billed services have indeed been rendered and that they comply with the regulations and the agreements with providers The acquisition process established by the RAMQ for two of the three types of devices, for which we examined the programs, namely wheelchairs and hearing devices, is adequate. Indeed, the RAMQ acquires these devices by means of calls for tenders, as required under the regulations. Furthermore, the existing process respects the principles of sound management. However, for posture assists, the process needs to be improved. As for the recycling process, it could be ameliorated. 34

35 6.12 Turning to the IRDPQ and the IRM, their processes making it possible to recover unused devices could be improved for the programs related to three-wheel and four-wheel scooters, as well as to walkers. RECOMMENDATIONS 6.13 We recommended to the Department that it Management of the performance of programs Evaluation of programs make an evaluation of all of the assistive device programs; Roles and responsibilities set up an appropriate mechanism to ensure technological monitoring in relation to assistive devices; Complexity of programs simplify and harmonize its administrative processes; facilitate access to information for the clientele; Updating of programs regularly update the assistive device programs; Performance evaluation and reporting specify its objectives with respect to assistive device programs, provide indicators related to its objectives and determine the anticipated results; prepare an action plan ensuing from the ministerial orientations on physical impairments, notably with respect to assistive devices; require from trustees reporting that is associated with the indicators and that is done in a timely manner; make sure that the conditions for obtaining or renewing a prosthetic devices and ortheses laboratory permit are met; 35

36 Allocation of resources review its resource allocation method in order that the budget breakdown between the two trustees of the programs dealing with three-wheel and four-wheel scooters, walkers, handcycles and handbikes is established according to the needs of their respective clientele; to make known to the trustees the amount of the budgets and to make the latter available in a timely manner. Administration of programs by the trustees Processing of requests for payment 6.14 We recommended to the Régie de l assurance maladie du Québec that it continue the modernization of its processes, notably set up an information system allowing it to exchange information with providers; adopt an auditing process, based on risks, allowing it to make sure that the services have indeed been rendered and comply with the regulations and the agreements; Acquisition of assistive devices better supervise the process for designing and producing posture assists. Recycling of assistive devices continue its steps to set up the corporate asset management system for assistive devices ; make available its tool permitting the harmonization of its sorting criteria for wheelchairs We recommended to the Department and to the Régie de l assurance maladie du Québec that they distribute recognized and standardized protocols to ensure the quality, safety and cleaning of wheelchairs We recommended to the Institut de réadaptation en déficience physique de Québec and to the Institut de réadaptation de Montréal that they put in place mechanisms allowing them to maximize the recovery of three-wheel and four-wheel scooters and walkers. 36

37 7 WATCH OVER MAJOR CAPITAL ASSET PROJECTS OF THE GOVERNMENT INTRODUCTION In his Strategic Plan for the Auditor General has notably chosen as an objective to inform the National Assembly of the unfolding of major capital asset projects undertaken by the government Accordingly, the annual report makes room for this new chapter, which informs parliamentarians of the results of our watch over two major initiatives. The first relates to the projects to modernize Montréal s university hospital centres; the second deals with the project known as Integrated Resource Management Business Solution (SAGIR). Our work related to the projects undertaken in the health field with a view to equipping the Greater Montréal Area with adequate infrastructures is recent; it is quite another matter for SAGIR, which we have been interested in since December The purpose of this chapter is not to disseminate the conclusions reached at the end of a value-for-money audit engagement. Rather, this chapter reflects the results of another type of work, which consists of examining the projects in question as they unfold. The following sections provide an overview of the two major government projects over which we have kept watch as well as of their progress and include our main observations. These sections give readers an up-to-date assessment of the situation for each project. Although the nature of our work does not make it possible to measure the effects of the shortcomings that we identified, we are nevertheless able to define the risks that ensue from these shortcomings Elected officials have expressed the wish to be well informed about the major projects overseen by the government given the scope of the public funds channeled into these projects. Through the watch that he is keeping in this field, the Auditor General wants to meet this need and ultimately to foster parliamentary control. 37

38 PROJECTS TO MODERNIZE THE UNIVERSITY HOSPITAL CENTRES OF MONTRÉAL In the first volume of our annual report to the National Assembly for , tabled in June of this year, we announced that we would keep a watch over the projects to modernize the university hospital centres (UHC) of Montréal, namely the Centre hospitalier universitaire de Montréal (CHUM), the McGill University Health Centre (MUHC) and the Centre hospitalier universitaire Sainte-Justine (CHUSJ) The scope of the investments in question, currently estimated at $3.6 billion, justifies our decision to inform parliamentarians of the unfolding of these projects. Our objective is to obtain the assurance that the conditions that need to be met to ensure the success of the projects will be respected As for the success of the projects, the current governance structure entails risks in terms of adherence to the works, costs and schedules. There are two reasons underlying our opinion. First, the sharing of responsibilities between the stakeholders adversely affects accountability. Indeed, the government has not entrusted the success of the projects to only one organization. It has shared this responsibility between the executive director and the UHC, which have different concerns. The first stakeholder wants to control costs, while the second stakeholder wants to meet the needs that will have been determined. This situation risks resulting in discussions and delays which will have impacts on the costs or the scope of the work Secondly, the executive director hierarchically reports to the health and social services sector. Examples of governance of major projects, both here and around the world, show that a greater independence of the organizations in charge of directing the projects is generally favoured. For example, a direct link between the team of the executive director and the UHC ministerial committee would ensure greater independence in relation to the health and social services sector. Similarly, the executive director could report to any other autonomous or council that renders accounts to the government All capital asset projects are made up of three closely related elements that interact with one another. They are the nature and the scope of the works, cost estimates and schedules. These three parameters are interdependent and must not be dealt with separately The government has already ruled on the costs that must be adhered to. It is now necessary to harmonize the desired works, the estimate of their costs and their schedules to ensure an optimal management by all stakeholders. 38

39 7.2.7 One of the basic conditions that must be met to ensure the success of a project is the adequate definition of the needs, the objectives sought, and the targets to be achieved In November 2006, the nature and the scope of the works had not been accepted by the Ministère de la Santé et des Services sociaux (MSSS) and the Agence de la santé et des services sociaux de Montréal. Other elements, such as the guarantee of funding from the federal government, the attainment of the funding objectives set for the foundations of the CHUM and the MUHC, and the maintaining of operating budgets at their current level also risk leading to changes in the planned works or necessitating new sources of funding if they are not confirmed While the MSSS has set objectives with respect to the modernization projects, it has not made known all of the tangible and measurable targets that will enable it to evaluate the extent to which these projects are successes In April 2006, the government presented the new estimate of the costs of the modernization projects, namely $3.6 billion We wanted to illustrate the harmonization of the three parameters works, estimate of costs and schedules for the projects of the CHUSJ. Based on our analysis, if the current financial framework is respected ($563 million 1 ), it is likely that the scope of the works will be reduced by 17 percent 2. On the other hand, if the decision is made to maintain the planned works, the budget could be increased by 20 percent These results may be explained by various reasons. Indeed, the nature and the scope of the works were not sufficiently known when the amount of $563 million was established. In addition, there is a risk related to the simultaneous implementation of the projects of the three UHC (scarcity of specialized manpower and materials, limited competition) The executive director is closely monitoring the carrying out of the necessary activities so that the projects can move on to the planning phase. The fact that the elements of the projects are not harmonized explains the caution on the part of the executive director and the government regarding their commitment to adhere to a precise schedule. We are of the opinion that the government is acting correctly in wanting to respect each of the steps associated with the major projects to modernize the UHC of Montréal. 1. This amount includes $60 million for the temporary financing assumed by the Government of Québec. 2. The percentage of reduction of the works is based on the median amount. This term means that there is a 50 percent chance that the reduction will be greater than this percentage and hence there is a 50 percent chance that it will be less. 39

40 RECOMMENDATIONS We recommended to the university hospital centre ministerial committee that it make sure that the governance structure in place for the modernization projects in order to promote their success in terms of adherence to the planned works, costs and schedules We recommended to the Ministère de la Santé et des Services sociaux that it complete the definition of the targets making it possible to evaluate the extent to which the modernization projects are successes and to gauge the performance of the university hospital centres in this respect; rule on the three parameters of the projects in order to harmonize the works to be carried out, their costs and the schedules, before moving on to the project planning phase (namely the elaboration of the concepts and plans and preliminary specifications). 40

41 IMPLEMENTATION OF THE INTEGRATED RESOURCE MANAGEMENT BUSINESS SOLUTION (SAGIR) PROJECT The implementation of the SAGIR project is the biggest government project in the information technology field. It aims to modernize the Administration s resource management systems. The Auditor General has been interested in this project since December 2004, given its scope, the financial stakes involved, and the impact of the new practices that it introduces. Seven parts are planned, but only the first one which seeks to simplify and rationalize budgetary and accounting management as well as the acquisition of goods and services has been approved by the Cabinet, namely in May The cost of the first part, which should be completed in March 2008, is evaluated at $317.2 million The breakdown of the outlays and the work schedule related to this component were revised in September We found that the development and implementation costs have fallen by $15 million, while the operating costs have risen by 25 percent, which represents roughly an equal amount. However, the total cost and the completion date remain unchanged. We also found omissions that lead us to believe that the method used to determine the real costs can be improved; the total value of the excluded elements stands at more than $4 million Finally, our work shows that the five risks identified last year are less worrisome, but it also brought to light two new risks. First, it will be necessary to complete the first part, which still entails a great deal of work; yet the team of the Direction générale des solutions d affaires en gestion intégrée des ressources (DGSAGIR) had already reached the limits of its capacity when the software package was introduced in the first three departments. The second challenge will consist of providing adequate support to the entities; indeed, the team has had trouble meeting the needs of existing users and the latter represent but onequarter of the potential users Overall, the schedules and the costs have been respected. Nevertheless, continued vigilance is in order, notably with respect to the new risks that need to be managed. 41

42 8 CERTIFICATION OF FINANCIAL INFORMATION INTRODUCTION Each year and pursuant to his mandate, the Auditor General does financial information certification work. This work deals with the financial statements of the government, its agencies and its corporations. The results of each intervention are recorded in a document known as the auditor s report, which is published with the financial statements As established in the accounting field, the purpose of the certification of financial information is to provide reasonable assurance that the financial statements are free from material misstatement. Carried out according to Canadian generally accepted auditing standards, the certification includes tests of the various elements in support of the financial data and other information provided in the financial statements. It also includes an evaluation of the accounting policies used and the major financial estimates produced by the directors of the entity, as well as an assessment of the overall presentation of the financial statements Furthermore, the Auditor General exercises the right to review the work done by other auditors when the auditing of the books and accounts of an agency or a corporation of the government or of an administrated corporation is entrusted to them by law When the auditor ascertains a departure from Canadian generally accepted accounting principles (GAAP) or from the appropriate accounting policies or if a limitation was imposed on the scope of his work, he must express a reservation in his report. The reservation may take one of the following forms: a qualified opinion, when the auditor has a favourable opinion of the financial statements as a whole, but then qualifies the opinion by a departure from GAAP or from the appropriate accounting policies or by a limitation on his work; an adverse opinion, when the auditor is of the opinion that the financial statements do not give a fair presentation according to GAAP or the appropriate accounting policies; a denial of opinion, when the auditor is unable to give an opinion on the financial statements following a limitation of his audit examination. 42

43 8.1.5 Within the context of the financial information certification work, the Auditor General also audits the compliance of operations having a financial impact with statutes, regulations, policies and directives. It may happen that non-compliance situations are detected. They are then mentioned in his auditor s report by adding a paragraph after his opinion. It should be noted that the conformity of the activities that do not have a financial impact is dealt with in the chapters that present the results of the value-for-money audits, insofar as the subject is included among the audit objectives or the evaluation criteria specific to each engagement The work that the Auditor General does for financial information certification or the exercise of his right to review may lead him to make observations which he deems useful to bring to the attention of the directors of the audited entity. In such circumstances, he conveys to the interested parties his observations and recommendations in a management report. The chapter covering this work presents the reservations, findings, recommendations and cases of non-compliance that warrant being brought to the attention of the National Assembly Finally, it should be pointed out that Appendix B of this volume reproduces the special report published following the audit of the consolidated financial statements of the Government of Québec for the fiscal year ended on March 31, This report was tabled in the National Assembly on October 24, 2006 at the same time as the government s financial statements. 43

44 AUTORITÉ DES MARCHÉS FINANCIERS [ ] Our work allowed us to express an unqualified opinion on this entity s financial statements. However, the auditor s report makes mention of a problem concerning compliance with certain laws that this entity administers, namely the Act respecting the distribution of financial products and services and the Securities Act. Compliance with certain laws Section 248 of the Act respecting the distribution of financial products and services stipulates that the amounts payable to the AMF [Autorité des marchés financiers] under this Act shall be part of its revenues. We also read that the revenues in question shall be applied to the payment of its expenses incurred for the purposes of the administration of this Act A similar provision is found in the Securities Act. Indeed, section indicates that the amounts payable to AMF under this Act shall form part of its revenue. This section also specifies that the revenue in question shall be applied to the payment of the costs incurred in relation to the administration of this Act Hence, the amounts payable to the entity within the context of each of these laws must be applied to the payment of expenses related to their respective administration. We found that the AMF does not have financial information ensuring compliance with the legal requirements in this respect. 44

45 COMMISSION DE LA CONSTRUCTION DU QUÉBEC Compliance with legislative provisions pertaining to the supplemental pension plan [ ] Our work allowed us to express an unqualified opinion on this entity s financial statements. However, the auditor s report makes mention of a case of non-compliance with the provisions related to the funding and the evaluation of the solvency of the pension plans of the Act respecting supplemental pension plans The auditor s report on the Commission s financial statements for the fiscal years ended on December 31, 2001, 2002 and 2003 contained a reservation dealing with the non-compliance with the legislative provisions of the supplemental pension plan appearing in the Act amending the Act respecting supplemental pension plans, which entered into force on January 1, For the fiscal year ended on December 31, 2004, the reservation only concerned the provisions pertaining to the funding and the evaluation of the solvency of the pension plans of the Act respecting supplemental pension plans Since 2004, the actuarial valuation making it possible to establish the value of the plan s obligations as at December 31st, as presented in the notes to the financial statements, has reflected the amendments required by the Act However, the Commission is still holding talks with the Régie des rentes du Québec regarding the application of the provisions pertaining to the funding and the evaluation of the solvency of the pension plans. The auditor s report on the Commission s financial statements for the fiscal year ended on December 31, 2005 therefore contains a comment concerning their non-compliance, since the provisions have not been applied to the supplemental pension plan Indeed, the Act respecting supplemental pension plans indicates that the period of amortization of the actuarial deficits for solvency purposes, which arise from a change to the plan, cannot exceed five years. The application of this provision concerning the period of amortization would result in an increase in the contributions: $5.66 per hour worked instead of $2.305 for an apprentice and $5.98 instead of $2.625 for a journeyman. Such an increase would be used to amortize the portion of the deficit of $1.6 billion as at December 31, 2005, which would not be covered by the contributions for past services determined for the next five years. 45

46 COMMISSION DES SERVICES JURIDIQUES Reservation regarding the use of the cash basis of accounting method We exercised our right to review the work of the auditor in charge of expressing an opinion on the consolidated financial statements of the Commission des services juridiques for the fiscal year ended on March 31, The auditor s report contained no reservation We also did a follow-up on the recommendation made to the Commission last year and published in Chapter 6 of Volume Two of the Report of the Auditor General to the National Assembly for We asked the Commission to record all of its revenues and expenses using the accrual basis of accounting method in accordance with Canadian generally accepted accounting principles (GAAP). This recommendation had been made following a reservation expressed by the auditor in his opinion on the Commission s consolidated financial statements as at March 31, Our work revealed that, for the fiscal year ended on March 31, 2006, the Commission was able to regularize the situation. The accrual basis of accounting method was thus applied to record the following amounts: revenues from contributions; professional fees, disbursements and interest paid to lawyers working for private firms; accrued vacations, salaries and benefits payable For their part, the receipts associated with legal fees and other expenses reimbursed by beneficiaries from whom legal aid was withdrawn as well as the revenues concerning the payment of bills of costs continue to be recorded using the cash basis of accounting method. However, as there is some uncertainty as to the collection of the amounts in question, it is acceptable and in accordance with GAAP to recognize them as they are received. We therefore consider that the recommendation was applied. 46

47 CORPORATION D HÉBERGEMENT DU QUÉBEC [ ] Our work allowed us to express an unqualified opinion on the Corporation s financial statements Moreover, we did a follow-up on the recommendation that we had made to the Corporation following the audit of the books and accounts of the fiscal year ended on March 31, This recommendation, which had already been published in Chapter 7 of Volume Two of the Report of the Auditor General to the National Assembly for as well as in Chapter 6 of Volume Two of the Report of the Auditor General to the National Assembly for dealt with compliance with laws and regulations. The work done in 2006 allowed us to ascertain that the progress made in this respect was satisfactory. Compliance with laws and regulations The Corporation prepared a business plan making it possible to define, among other things, its clientele, its services as well as its organizational structure and to establish financial projections. Pursuant to section 47 of its incorporating act (Act respecting the Corporation d hébergement du Québec, R.S.Q., c. C-68.1), this plan is subject to the approval of the government Moreover, the investment priorities for the Corporation s properties are determined in a three-year investment plan. This plan must also be subject to the approval of the government in accordance with section 52 of this same Act As at March 31, 2002, 2003, 2004 and 2005, we had found that the business plan and the three-year investment plan of the Corporation had not been approved by the government despite our recommendations on this subject Even if, in September 2006, the government had not yet approved these documents, we consider that the Corporation took the required steps to have its business plan and its three-year investment plan approved However, we encourage the Corporation to continue its efforts to have these two documents approved annually. 47

48 LA FINANCIÈRE AGRICOLE DU QUÉBEC AND THE CROP INSURANCE FUND [ ] The auditor s report that we prepared on the financial statements of this entity and on those of the Crop Insurance Fund contains a reservation dealing with the inadequate recording of a portion of the interest revenues derived from the fund s investments. Reservation pertaining to the ownership of the interest and investment revenues This reservation arises from the fact that La Financière agricole appropriated, without set-off, a portion of the interest derived from the fund s investments, namely $3.4 million, to fund two of its programs. Section 3 of the Crop Insurance Program clearly indicates that the fund is reserved for the payment of amounts owed to members: This fund shall constitute a trust patrimony appropriated mainly to the payment of the indemnities payable under the program To explain the use made of these revenues, La Financière agricole relies on paragraph c of section 5 of the program, which specifies that the fund comprises notably the revenues derived from the investment of the sums making up the fund as determined by La Financière agricole. La Financière agricole alleges that it therefore has the power to determine the amount of these revenues. However, as trustee, La Financière agricole mandated the Caisse de dépôt et placement du Québec to manage the investments of the Crop Insurance Fund in an individual fund. For the fiscal year, the revenues generated by these investments were confirmed by the Caisse and include the amount of $3,411,663 used to fund two programs implemented by La Financière agricole We are of the opinion that La Financière agricole cannot, under a discretionary power that it has given itself under the Crop Insurance Program, decide to use a portion of the investment revenues generated by the fund for purposes other than those expressly stated in this program If the amount related to this interest had been fully recorded in the results of the fund, the surplus as at March 31, 2006 and the surplus of the revenues over expenditures of the fiscal year ended on that date would have been increased by $3,411,663 and those of La Financière agricole would have been reduced by as much. 48

49 A SPECIAL REPORT TO THE NATIONAL ASSEMBLY CONCERNING THE SPECIAL AUDIT CARRIED OUT AT THE SOCIÉTÉ DES ALCOOLS DU QUÉBEC 1. Pursuant to the Auditor General Act and Government Order of February 23, 2006, we conducted a special audit of the business dealings of the Société des alcools du Québec (SAQ). Our main findings and conclusions follow. Marketing Strategic planning 2. In May 2004, the SAQ adopted a strategic plan for seeking to attain $925 million in net profits as at March 31, The net profits had been $565 million in There can be no doubt that this objective, described as ambitious in the documents of the SAQ, exerted pressure on all of the stakeholders to deliver the anticipated results. Incidentally, this target was lowered to $825 million for in a new strategic plan, endorsed by the Société in April The SAQ adopted sound practices with a view to preparing its strategic plan of April However, while we noted the presence of clearly measurable indicators with respect to its objective of increasing its financial performance, such is not the case for the other three objectives present in its strategic plan, namely improving the purchasing experience of its customers, obtaining a reputation for excellence in the management of human resources, and increasing its societal value. Purchasing and merchandising policy 4. In 2005, the SAQ adopted its most recent Purchasing and Merchandising Policy (PAMP), in which the SAQ defines and explains its marketing policies, notably its practices related to the addition of new products to its catalogue and its intention of negotiating purchase prices in order to obtain from its suppliers the best Canadian purchased price. We conclude that with this policy the Société has entered the modern era of retail trade. The proactive role that the Société has given itself is in keeping with section 16 of the Act establishing the SAQ, which stipulates that the purpose of the SAQ is to trade in alcoholic beverages. This policy is also closely related to the financial performance objective set out in its strategic plan. 49

50 5. Moreover, the SAQ must implement with rigour and transparency the PAMP to ensure its credibility and to win the trust of its partners. In the past, poorly defined rules or a lack of constancy in the approaches raised doubts in the minds of certain partners and undermined the quality of the relationship with them. Our work highlighted elements that warrant special attention. For example, the Société must better define the specialty products sector, specify the criteria making it possible to add products to or exclude them from its catalogue, make sure that it uses all of the required management data to support decision-making related to specialty products, and implement adequate controls to check that the marketing activities comply in all respects with the PAMP. Retail price 6. To establish the retail price of its products, the SAQ adds a profit margin to the base price, made up mainly, in the case of wines, of the product s cost price. For several years now, the Société has chosen to apply a bigger profit margin ratio to its best selling products, namely entry-level and mid-level wines. This practice differs from that of the Liquor Control Board of Ontario (LCBO), which applies an identical mark-up, regardless of the base price of its products. This difference between the two approaches explains in large part the price variances observed for identical products between the two corporations. The SAQ s mark-up structure, where the profit margin ratio is greater on products having the lowest prices, is clearly regressive, if one assumes that the purchasers of entry-level and mid-level wines are those with lower incomes. 7. Moreover, the profit margins of the SAQ have to be established in close cooperation with the shareholder, something that the SAQ has been doing for several years. In our opinion, this must also be the case for all of the practices that influence these profit margins, notably that of obtaining a volume discount, the benefits of which the SAQ does not intend to pass on to consumers. For example, in May 2005, the SAQ agreed to purchase a product provided that it obtained a volume discount of 2.5 percent on its purchase price. We noted that, in addition to receiving the amount related to the volume discount, the SAQ applied the mark-up to a base price that had not been reduced by the value of this volume discount. The shareholder should have been informed before action was taken concerning such a practice. If this volume discount had been taken into account in the warehouse price of the product in question, the consumer would have benefited from a reduction in the retail price of about 2 percent, as compared to the price charged by the SAQ. 50

51 Agents 8. An agent is a representative acting, in his capacity of mandatary, in the name and on behalf of a supplier. The role of an agent depends on the nature of his contractual relationship with the supplier that he represents. This occupation of commercial representative is very common in various fields, whether in a monopoly or non-monopoly situation. The LCBO imposes this type of mandatary on its suppliers. 9. In the most recent version of the PAMP, the SAQ mentions that suppliers may retain the services of a third party to carry out activities of a promotional nature. In our opinion, the PAMP should be more precise to better reflect reality, since the agent s mandate is not always limited to promotional activities. We also recommend to the SAQ that it document this business relationship between suppliers and their representatives in order to promote the maintaining of healthy commercial relations with them. Exchange rate and December 2005 operation Exchange rate 10. Prior to the spring of 2005, it was the practice of the SAQ to make sure that exchange rate variations were regularly reflected in the retail price of its products. When the Canadian dollar depreciated in relation to another currency, an upward adjustment was made to the retail price of the products puchased in that currency. When the Canadian dollar rose in value, the SAQ lowered its retail price. In the spring of 2005, a significant and unusual drop in the value of the Euro should have resulted in a reduction in retail prices at that time, in light of the customary practices of the SAQ. Instead, the SAQ deferred the adjustment of its retail prices, estimating that it would make a gain of $8 million. This decision to defer the adjustment of the exchange rate was approved by the board of directors of the SAQ. 11. In our opinion, this decision by the Société constituted a change in its practices in order to take advantage of the depreciation of the Euro rather than pass on this advantage to consumers by means of a reduction in the retail price of the products purchased in that currency. December 2005 operation 12. In December 2005, after having announced that the exchange rate of the European currency used to calculate the retail price of the products purchased in that currency would be revised at the end of January 2006, the SAQ decided to negotiate directly with the suppliers to counter a potential increase in the prices demanded by these suppliers and, in so doing, to ensure Québec consumers a maximum reduction in retail prices. 51

52 13. The SAQ had already identified several risks directly or indirectly related to the negotiation of prices with suppliers. We are of the opinion that these risks testified to the importance of holding these negotiations with the utmost rigour. 14. This direct negotiation operation with the supplier, a first in the history of the SAQ, was coordinated in a rush. Within the context of this operation, there were plans to request, among other things, a volume discount from those suppliers who did not offer the SAQ a best Canadian purchased price guarantee. Such a request was known to the President and Managing Director (PMD) and to two vice presidents (VPs), namely the Vice President responsible for marketing and the Vice President responsible for merchandising and purchases, even though this element was part of a project that had not yet received final approval of the board of directors. 15. The December 2005 operation deviated from its objective. With one thing leading to another, the actions converged on a reoriented objective that was questionable from an ethical standpoint and that entailed having those suppliers who are paid in Euros increase the warehouse price of their products in order to enable the Société to obtain a volume discount and, in so doing, boost its profits. 16. Our work revealed that the PMD was unaware of the reoriented strategy, which sought to encourage suppliers to increase the warehouse price of their products, and that he had not instructed negotiators to influence suppliers. 17. However, during the period devoted to telephone negotiations with suppliers paid in Euros, the PMD did not involve himself much in the unfolding of the events and did not inform the members of the board of directors of the operation. We are of the opinion that the PMD did not fully assume his role in this operation, since he should have supervised more closely the planning of and follow-up on this operation. Both the unusual nature of the activities and the scope of the related risks required greater vigilance on the part of senior management. 18. After this operation, the SAQ faced a major media storm. The necessary steps to carefully monitor this operation, which was historic for the SAQ, and to ensure accurate public communications were not taken by the PMD, the VP responsible for marketing, and the VP responsible for merchandising and purchases or the persons in charge of communications. Incidentally, it is surprising to note that there was no meeting of the board of directors on this subject prior to January 16, When the audit committee was informed of the fact that suppliers had been encouraged to increase the warehouse price of their products, it immediately asked the internal auditor to conduct an investigation. We are of the opinion that the audit committee reacted properly in response to this information. Afterwards, the committee mandated a forensic accounting firm to complete the work carried out on an in-house basis. 20. The tabling of this firm s report led to various measures, such as the cancellation of all of the agreements reached with suppliers as part of the December 2005 operation. In the end, consumers were not adversely affected. Furthermore, 52

53 the SAQ has stated that from now on the retail price of products purchased in foreign currencies will reflect variations in exchange rates sooner. The SAQ also ruled out the possibility of requesting a volume discount when it revised its strategic plan in April We consider that the Société has taken the appropriate actions. Benefits, reimbursements and remuneration Benefits granted to directors and reimbursement of their expenses 21. For several years, SAQ directors received $250 for the purchase of alcoholic beverages for each presence at a session of the board of directors or one of its committees. They also benefited from a 40 percent discount on the price of products purchased at an outlet and received gifts. The awarding of these benefits contravened government by-laws. The SAQ also reimbursed various expenses incurred by the chairmen of the board of directors, a practice not provided for in the by-laws. 22. As part of his duties, a director attends meetings of the board of directors or one of its committees and takes part in certain activities of the Société. The reimbursement of travel and accommodation expenses complies with the by-laws. However, in the case of commercial missions outside Québec carried out by directors, no policy governed this practice, notably by specifying the objectives sought and the rules for choosing participants. Remuneration of the President and Managing Director 23. Our work revealed four practices on the part of the Société which made it possible to pay remuneration or grant benefits to each of the three PMDs in office during the period covered by our audit in excess of the amount stipulated in their contract of employment approved by the government. These practices are a $10,000 allowance for miscellaneous expenses, an allowance for the purchase of alcoholic beverages, a sum of $250 for the purchase of alcoholic beverages in return for their presence at the meetings of the board of directors or one of its committees, and a 40 percent discount on the price of products purchased at an outlet, without exceeding the stipulated limit. Reimbursement of the expenses incurred by senior management 24. In addition to the representation, travel and accommodation expenses, the VPs of the Société were also entitled, for several years, to an annual $5000 allowance for miscellaneous expenses. Based on our analysis, a significant portion of this allowance was used to cover personal expenses. The Société rectified the situation on April 1, We are also of the opinion that the reimbursements made within the context of the annual allowance to cover the purchase of alcoholic beverages and the allocation for miscellaneous expenses granted to the PMD and the VPs should have been considered by the Société for income tax purposes. 53

54 Remuneration of vice presidents 26. Shortcomings were observed in the way in which annual bonuses are granted. Indeed, bonuses were paid to the VPs even though the expected performance was not always attained. We also found a variance between the net profits targeted at the start of the year by the SAQ and that targeted by the shareholder when it comes time to calculate bonuses. Finally, the individual s performance was not considered on two occasions when determining the bonus, a practice that ran counter to the policy of the Société. Severance agreements of vice presidents 27. When the Société terminates the employment of one of its VPs, it negotiates the specific conditions associated with this severance and reaches a severance agreement. The Société adopted a policy on this subject, approved by the board of directors. Since 2001, 13 such agreements have been reached. 28. Our audit revealed that one severance agreement did not respect the amount of indemnity stipulated in the policy, that 6 agreements granted an indemnity superior to the practices observed in the work market and that the salary used to calculate the indemnity in one agreement was $10,000 greater than what the employee actually was earning when he left his position. In addition, 10 agreements contained several special conditions not stipulated in the policy or in the guidelines approved by the board of directors. Moreover, we consider that the decision to maintain, in the case of some 10 individuals, an employment relationship after having reached a severance agreement and after having determined the amount of the indemnity is rather surprising, given that such pecuniary compensation is normally granted to sever this relationship. RECOMMENDATIONS 29. We recommended to the Société that it Part I Marketing Strategic planning make sure that all of the objectives appearing in its strategic plan are accompanied with precise and measurable performance indicators; convey this information to the shareholder and report, in a timely manner, on the achievement of the targets; take the necessary measures to fully integrate risk management in its day-to-day activities, particularly those related to the implementation of its strategic plan; 54

55 Marketing activities Merchandising and purchasing policy clearly define what it means by a specialty product and specify the criteria making it possible to add this product to or exclude it from its catalogue; make sure that it uses all of the necessary management data to support its decision-making related to its procurement of specialty products; carry out in a timely manner the analyses stipulated in the Merchandising and Purchasing Policy in the category management field, prepare and implement action plans for each category of products, and do a rigorous follow-up in this respect in order to make the necessary adjustments, if any; put in place adequate controls to check that marketing activities comply in all respects with this policy; Québec small-scale production products determine, in a policy, the objectives and anticipated results concerning its activities dealing with the marketing of alcoholic beverages produced by Québec small-scale producers; Retail price take steps to provide a framework for its activities related to the negotiation of the warehouse price of the products that it markets, make sure that they comply in full with the Merchandising and Purchasing Policy, and make adequate reporting on this subject to the board of directors; systematically inform its shareholder of any change related to its mark-up structure and any other practice that may influence the setting of retail prices; Agents clarify its Merchandising and Purchasing Policy to take into account the mandate entrusted by its suppliers to their respective agent, where such is the case, as well as document this business relationship in order to promote communication between stakeholders and the maintaining of healthy commercial relations; 55

56 Part II Exchange rate and December 2005 operation December 2005 operation prepare and implement a procedure making it possible to provide a framework for the negotiation of the warehouse prices of products with suppliers; taken into consideration, at the time that it establishes its procedure, all of the known risks as well as the actions appearing in its strategic plan; make sure that the procedure addresses clearly defined objectives, that the activities in question are supervised on an on-going basis, and that they give rise, in a timely manner, to exhaustive reporting; take steps to ensure that its board of directors is informed in a timely manner of any important situation or any situation involving unusual risks; systematically corroborate and document all important information before making it public; Part III Benefits, reimbursements and remuneration Benefits granted to directors and reimbursement of their expenses make sure that its practices concerning the remuneration of the members of the board of directors and the reimbursement of their expenses comply in all respects with the by-laws; obtain all of the necessary information in order to establish a link with its activities and record them before delivering bottles of alcoholic beverages to the board of directors; provide a framework for the participation of the members of the board of directors in commercial missions outside Québec by way of a policy specifying, among other things, the objectives sought; Remuneration of the President and Managing Director respect the contract of employment of the President and Managing Director when it comes to remuneration; Remuneration of vice presidents make an exhaustive analysis of all of the components of the remuneration it order to see where it stands in relation to the market; 56

57 implement measures so that the bonus program is rigorously applied, notably pay bonuses in accordance with the provisions of the bonus program approved by the board of directors; take into consideration the shareholder s expectations regarding the net profits used to establish bonuses; make sure that the variable related to personal results influences the calculation of bonuses, if any; Reimbursement of expenses incurred by senior management Representation, travel and accommodation expenses make sure that its directives concerning the reimbursement of expenses incurred by the members of senior management are applied; Other expenses make sure that it only reimburses to the members of senior management those expenses related to their respective duties, and see to it that the applicant provides the appropriate vouchers; Severance agreements of vice presidents see to it that all of the provisions appearing in the severance agreements, including the terms and conditions related to the payment of indemnities, adhere to the policy adopted in this respect; clearly establish in this policy the leeway available to senior management concerning the negotiation of severance agreements; Reporting on remuneration adequately report on its remuneration policies as well as on any other condition of employment. 57

58 B SPECIAL REPORT TO THE NATIONAL ASSEMBLY CONCERNING THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS OF THE GOVERNMENT OF QUÉBEC FOR THE FISCAL YEAR ENDED ON MARCH 31, 2006 RESERVATIONS INCLUDED IN THE AUDITOR S REPORT 24. The audit of the government s consolidated financial statements for the fiscal year ended on March 31, 2006 did not make it possible to express an opinion whether these financial statements are presented fairly in accordance with GAAP. The importance of the likely repercussions of the two reservations formulated in the auditor s report [ ] explains this situation. [ ] Reporting entity 25. [ ] the entities of the education and the health and social services networks are not included in the government s reporting entity. Québec is the only province, in , which does not incorporate, in whole or in part, the entities of the networks in its reporting entity. 26. The entities of these two networks, which manage sums representing close to 60 percent of public expenditures, are under the government s control. [ ] 27. A reservation dealing with the non-inclusion of the two networks in the government s reporting entity was consequently made, for the fifth year in a row. Given that the government has not yet made an exhaustive analysis of the financial repercussions of the integration of all of the entities of the networks in its reporting entity, we were unable to determine the impact of such an integration on its consolidated financial statements for the fiscal year ended on March 31, [ ] As was the case last year, the government provides, in Appendix 19 of its financial statements, information on the operating funds of the networks. 31. Despite its limitations, this appendix shows that the health and social services network is confronted with major accumulated deficits on the order of $1.3 billion as at March 31, 2006, which are not reflected in the government s financial position. It also reveals that the annual deficit of this network has been cut in half in comparison with last year; it now stands at $104 million. [ ] 58

59 Compliance with Canadian generally accepted accounting principles for the public sector 38. The CICA Public Sector Accounting Handbook defines the Canadian GAAP applicable to this sector [ ]. 40. The aim of the existence of standards drawn up by an independent body is to provide the assurance that the information presented is objective and that it facilitates the comparison from one year to another as well as from one government to another. [ ] 41. For its part, the Government of Québec uses policies, some of which comply with GAAP and others of which do not. To guarantee the objectivity of the financial information and its rigorous nature, it is therefore necessary that the Government of Québec adopt in full the normative framework recommended by the PSAB. [ ] 42. Table 1 presents the effects, when it was possible to evaluate them, of departures from generally accepted accounting principles for the public sector. TABLE 1 FINANCIAL IMPACTS OF THE DEPARTURES FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR THE PUBLIC SECTOR (in millions of dollars) March 31, 2006 Understatement (overstatement) Annual surplus Assets Liabilities Net debt Accrual basis of accounting n.a.* n.a. n.a. n.a. Retirement Plans Sinking Fund (24) Financial instruments denominated in foreign currency n.a. n.a. n.a. Operating grants for universities Grants for the fixed assets of certain school boards (3) Compensation in lieu of taxes paid to municipalities (2) Stocks and prepaid expenses n.a. 200 Provisions for losses on guaranteed initiatives (38) 56 (11) (67) Accounting adjustment transfer revenue related to diagnostic and medical equipment (112) Future social benefits n.a. n.a. n.a. Environmental liabilities (25) Redemption before maturity of monetary elements (22) (62) Total** (190) * N.a.: non available. ** We were unable to quantify the repercussions concerning three elements. 59

60 OTHER REMARKS INTENDED FOR PARLIAMENTARIANS Balanced Budget Act 128. The accumulated budget balance for the purposes of the aforementioned Act is currently used as an indicator by the government to measure the achievement or non-achievement of the budgetary balance. [ ] 129. The Ministère des Finances mentions, in Volume 1 of the Public Accounts, that the accumulated balance for the purposes of the Act shows a surplus of $192 million as at March 31, [ ] 131. More rigorous accounting would reveal that the budget balance is in deficit. Indeed, [ ] the accumulated budget balance for the purposes of the Balanced Budget Act posts a deficit of at least $5.3 billion. This amount results from the taking into account of three problems of different natures in the calculation of the budget balance made by the government The first problem arises from the choice, made by the government, of resorting to certain questionable accounting methods, which give advantageous results at the time of the calculation of the budget balance established for the purposes of the Act. The second problem stems from the fact that the government does not adjust the comparative data following retroactive changes to its accounting practices. [ ] Finally, the last problem concerns the duplicate entry of revenue in the accumulated balance for the purposes of the Act. Revenue considered twice for the purposes of the Act 139. [ ] the government included in its revenue for a sum of $112 million which it had already recorded in its revenue in Consequently, this revenue was included twice in the accumulated balance for the purposes of the Act. [ ] 60

61 C EXCERPTS FROM THE REPORT OF THE COMMITTEE ON PUBLIC ADMINISTRATION INTRODUCTION Under the Public Administration Act and the Standing Orders of the National Assembly, the Committee on Public Administration hears deputy ministers or directors of agencies whom it invites to discuss their administrative management and, where applicable, any matter raised in a report of the Auditor General. To allow the reader to see the contribution of the Auditor General s work to parliamentary control, we present in this Appendix excerpts, 1 mainly conclusions, from the last report of the Committee, tabled in the National Assembly in June The Sixteenth report on the accountability of deputy ministers and directors of public agencies presents notably the results of the public examination by parliamentarians of two of our reports. The first is Chapter 4 of Volume Two of the Report of the Auditor General to the National Assembly for The second corresponds to the third chapter of the same volume. 1. The footnotes and related references are not reproduced. 61

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63 Auditor General of Québec The Auditor General of Québec reports exclusively to the National Assembly. This Assembly appoints the holder of this office upon a motion made by the Prime Minister and passed by at least two-thirds of the Members of the National Assembly. The term of office of the Auditor General is ten years and is not renewable. The Auditor General Act specifies the powers and duties associated with this office. The Auditor General fosters, through audit, the exercise of parliamentary control over the actions of the government, its departments and its agencies. He conducts financial audits, audits to ensure compliance of operations with acts, regulations, policies and directives, as well as value-for-money audits. The Auditor General carries out his responsibilities with respect to public bodies as well as government enterprises and agencies. He also has jurisdiction to audit the use of funds paid in the form of grants. Except for the obligations stipulated in the Act, the Auditor General determines the work that he performs and decides on the content of his report to the National Assembly. Mr. Renaud Lachance has held the position of Auditor General of Québec since August 9, He has a Bachelor s degree in Business Administration, a Master s degree in Taxation and a Master s degree in Economics. He is a member of the Ordre des comptables agréés du Québec. From 1985 to 2004, Mr. Lachance served as a professor at HEC Montréal. He also assumed various leadership responsibilities in this university institution specializing in management.