Auditing the Auditor General

After almost ten years on the job, Sheila Fraser is preparing to step down. Her tenure was not without its controversy, but no one in Ottawa any longer questions her toughness

Auditing the Auditor General

Ten years on, it all seems a very long time ago. But back then, when it was announced that Sheila Fraser would be the new auditor general of Canada, official Ottawa did not know what to make of it. Nice lady, they agreed. But let’s face it: there had never been a woman auditor general. Yes, she was a good accountant, and she had been a partner in one of the country’s big accounting firms. But, frankly, would that disarming schoolmarm manner survive in the meat grinder that is politics and government?

No longer is anyone pondering the survival of Ms. Fraser. She has survived with style, and as she prepares to take her leave of Ottawa next May, the battlefield behind her is a scattering of doubters and naysayers. The suspicion is that the politicians and bureaucrats in Ottawa are still not quite sure what happened to their comfortable little world.

What happened, of course, was that a handful of those bureaucrats and politicians and their friends got caught with their hands in the cookie jar as they swindled the public treasury of millions of dollars, and Sheila Fraser blew her whistle as loudly as she could. It was, she announced to a startled country, quite appalling: “Senior servants broke just about every rule in the book.” And thus was born the sponsorship scandal that will be remembered as the defining, shattering event of Fraser’s decade as auditor general.

In the months that followed, the transgressions that had been spelled out in Fraser’s report to Parliament were spelled out again in a judicial inquiry. And then spelled out yet again in the courts. Some people went to jail, some paid fines, and many more were simply humiliated and embarrassed. The Liberal Party that had appeared destined for a landslide majority in the coming election began instead a long, slow slide from power. Whatever else the skeptics might have wondered, they stopped asking whether Sheila Fraser was tough enough for the job.

The history of canada’s auditors general is the tale of a continuing struggle for turf. Almost by definition, there will be conflict between the governments that raise and spend the money and, on the other side, the auditors whose job it is to see that in matters of money the government is proper and prudent.

Not surprisingly, the conflict between government and auditors began with one John Lorn McDougall, appointed the first independent auditor general in 1878. He had been a Liberal member of Parliament, and he was a friend of the then prime minister, Alexander Mackenzie, so McDougall seemed at first like a recipe for calm. He made it his job to list meticulously every government transaction, even down to the purchase of bootlaces, and his ponderous annual reports ran to more than 2,000 pages. The surprise was that the previously mild-mannered McDougall turned into an aggressive terrier, asking questions that had never been asked before, scolding, searching out information, demanding tighter controls, eager for anything that might even hint at a transgression, a misspent penny. He was auditor general for twenty-seven years, and he left a legacy of confrontation that in one form or another still prevails.

From McDougall’s day until now, every government has suspected that the auditor general, whoever it might be, wanted to control the government. And the auditors, not surprisingly, thought theirs was a calling much higher than wanting merely to ensure that the books were neat and tidy.

Pierre Trudeau, who did not lose many fights, lost two battles with auditors who wanted more power and influence. The scrappy Maxwell Henderson, who clearly relished political fisticuffs, fought first with John Diefenbaker’s Conservative government, then with the Liberal governments of Lester Pearson and Trudeau. It was finally too much for Trudeau, so his government brought in legislation to restrict the powers of the auditor general and confine him to basic auditing. Henderson would not give up easily. Faced by a government that wanted to clip his wings, he became the hero of a national protest. With considerable embarrassment, the Trudeau government withdrew the legislation. Sonja Sinclair, author of Cordial But Not Cosy, a history of Canada’s auditors general, summed up the Henderson fight: “Right or wrong, any government which tried to take on the man known to millions of taxpayers as a fearless fighter against waste and inefficiency was destined to end up with a bloody nose.”

After one bloody nose, Trudeau was clearly not eager for another. When the smooth and charming James J. Macdonnell was appointed to succeed Henderson in 1974, he seemed a refreshing change. But the new auditor general knew exactly what he wanted, and was prepared to push whatever levers were required to get it, even if that amounted to blackmail. If he did not get what he wanted, he told the Trudeau government, he would quit. What he wanted, it turned out, was a considerably larger staff for the Office of the Auditor General—the OAG, as it has come to be known in Ottawa—and considerably broader powers for himself and his office.

In Macdonnell’s world, there were two kinds of auditors. There were departmental auditors, who did the classic audits of who spent what and for what. Macdonnell would probably have called them bean counters. And then there was the auditor general’s office, where instead of checking arithmetic—departmental auditors could do that—they evaluated whole programs, to ensure that the government was getting value for its money. Program evaluations might seem to be the kind of judgments only elected politicians should make, but Macdonnell insisted that they were the auditor general’s job.

A showdown came when Macdonnell presented his 1976 annual report, which suggested that the government was hovering on the brink of chaos: “I am deeply concerned that Parliament—and indeed the government—has lost, or is close to losing, effective control of the public purse.” The warning was designed to rattle the government and alarm the country, and on both counts it succeeded. In the face of that kind of bluntness, the Trudeau government bought peace by settling the dispute on Macdonnell’s terms and bringing in a new Auditor General Act. Henceforth, the auditor’s office would be run according to Macdonnell’s rules, and those rules defined the modern auditor general’s office.

Sharon Sutherland, a tireless critic of the auditor general system who now views Ottawa from the Centre for Global Studies in Victoria, says that “the impact of J. J. Macdonnell overshadows all his predecessors and successors.” It was under Macdonnell that the concentration of the office shifted from basic financial audits to “management control systems” and “value for money.” As Sutherland has written, “Having had a prominent career as a management consultant himself, and being interested in control as steering activity rather than solely or even primarily as verification of probity, he transformed the Annual Report from comment on financial and economy issues arising from the Office’s examination of public accounts to a compilation of consultancy-type reports on programs and cross-government management functions.”

The sponsorship program was launched to raise the visibility of Canada in Quebec, in the wake of the disastrous 1995 referendum—not a bad thing in itself, perhaps, but shabby once someone figured out that of the $250 million spent on sponsorships $100 million was quietly funnelled into communications firms notable for their friendship with the Liberal Party. Questions about the program had been bubbling for months. It was a departmental audit that first uncovered irregularities, and the government asked the auditor general to have a look. Jean Chrétien stepped down as prime minister so that the impending auditor’s report would fall into the lap of his successor, Paul Martin—a going-away present that was the final blow in their long rivalry.

The new prime minister knew he was about to get bad news, but nobody realized how extreme the public reaction would be. Sheila Fraser was also taken by surprise. She knew enough about the job and about Ottawa to understand that sooner or later she would encounter trouble. But, she says with a soft smile, “Quite frankly, I didn’t think it would happen quite so early in my term.”

She had spent more than a year as deputy auditor general, so she knew that public recognition on the street was one of the burdens of the job. There, too, “I sort of expected it by the end of eight, nine, maybe ten years. I certainly didn’t expect it after a year.” But there was no chance of peace and quiet. Sponsorship was an overnight sensation, and in the long tradition of auditors she was the star of a show that did not otherwise have stars. Bad guys were stealing money from the public treasury, and that nice lady on television was going to make things right. Paul Martin ramped up the rhetoric to the point, as someone said, that he appeared to have flames shooting from his head. He was mad as hell, and the madder he got the more Fraser seemed the picture of calm control. Martin simply could not match her astonishment: “I think this is such a blatant misuse of public funds that it is shocking. I am actually appalled by what we’ve found.” An Internet poll reported that 57 percent of Canadians wanted Sheila Fraser as Canada’s next prime minister. Her office was deluged with red roses from those who would cheer her on.

If Fraser was a hero to people across the country, official Ottawa was not so well pleased. There was, as she says, “a bit of a chill… In Ottawa, I think, anybody who gets a lot of attention, maybe unwarranted or unnecessary, or creates more work and difficulty for the system, is certainly not well regarded. And there was a time, I think, when the office was viewed with… apprehension.” She smiles an enigmatic smile, and recalling the mood of the city at the time I suggest that many people wanted to hang her from a lamppost. She laughs at the thought now, but in those days it was no laughing matter. People lost their jobs, lost their friends, lost their respectability. Paul Martin and the Liberals lost the prospect of a massive majority.

That she was the new kid on the block, and a woman, only added to the resentment she experienced. It was also said that auditors are not supposed to give in to public displays of anger, that her outrage ill became an auditor general. At that Fraser nods, and her usually infectious smile loses its warmth: “Well, I was told that outrage ill becomes an auditor general. But, quite honestly, I have no regrets about anything I said or did.” And yet, among some senior public servants it is whispered that she has moments of doubt, that she feels maybe she went over the line rhetorically. She shakes her head impatiently. No, she is not about to change her mind.

“To me, the sponsorship stuff was really bad. And to have treated it as any other audit—just saying, oh well, you know, we were paying out millions of dollars and nothing was ever done—would have been a much greater damage to the public service, because it would have looked like this was run of the mill, and this was happening everywhere. That’s how I thought at the time. And I wanted to make sure, quite frankly, that something would be done.” It still rankles her that the sponsorship program was identified as a massive problem by internal departmental audits long before it landed on her desk. “And nobody thought to pick up the phone and call the police.” So she inherited someone else’s mess.

Frank Graves of EKOS Research believes Fraser struck a resonant chord with Canadians in part because there was a real “regime fatigue” with the Liberal government of the day. And there was her personal style, which was no-nonsense and candid: “I think people found it refreshing to see someone from the ranks of the bureaucracy, who are typically anodyne and faceless, speaking in such a forthright and blunt way.”

There is a temptation to see the sponsorship scandal as a defining moment in Canadian political life. Graves would say that what made it unique is that Canadians do not customarily vote on the basis of ethics and accountability; their ballots are typically cast with social programs and the economy in mind. That changed after Fraser threw her grenade into the fray. So the fall of the Liberals was a direct result of the sponsorship scandal, but only because it was hard to think about anything else. Next time might be different. Anyway, the decline in trust in government is not unique to Canada. It has also happened with every one of Canada’s major trading partners, and it began around forty years ago. In the 1960s and 1970s, about 80 percent of Canadians and Americans said they trusted their respective governments. By the beginning of the 1990s, the numbers had plummeted to between 20 and 30 percent.

“What drove this decline,” says Graves, “were broader cultural changes that went on through the Western world: rising individualism, higher levels of mass higher education, the advent of critical media, new media, what some call rhythms of post-materialism, the decline of deference. So you ended up with a much more skeptical citizenry… I think what people liked about Sheila Fraser is that she made this big black box that was government into a glass box. People could look inside and say, okay, here are the things that were going wrong. She’s checking on our behalf. And that, I think, made people feel more comfortable, because they no longer believed what was going on within the black box was in their interest.”

In the wake of sponsorship, Fraser has tried hard to establish cordial working relationships with Ottawa’s deputy ministers, the senior bureaucrats in each department of government. She meets with them regularly, and organizes dinners two or three times a year at which they can discuss differences. If there is a problem with an audit, “they can pick up the phone, and we can have a conversation and try to resolve or at least understand the other people’s positions.” In other words, no more surprises.

In her reports, she effects the demeanour of the weary grade school teacher whose pupils simply will not do as they are told: “In the past, I have reported my concern that after years of studying the accrual-based budgeting and appropriations issue for departments and agencies, the government had not yet taken a position on this matter.” But there must be times when only the brightest of her pupils could grasp what she is talking about, much less recognize the withering admonishment: “The capital asset sub-ledger system used to capture the data for land, buildings, and works has not been reconciled to the general ledger in a timely and accurate manner.”

Whatever the fate of the capital asset sub-ledger system, Fraser clearly believes that walking softly is preferable to resorting to a large stick. When the auditor’s office plans to make a recommendation to the government, it works with the affected department “to make it a recommendation they can implement.” It is a delicate process of negotiation that finds compromise in private before things turn ugly in public. To employ a different metaphor, she thinks you get more flies with honey: “And you will see in just about all the recommendations we make, the government response is that they agree and they will do something about it, that they will implement the recommendation.”

Not all problems, however, are susceptible to this approach. The government information technology system is a shambles, facing replacement costs of billions of dollars for computer systems that are aging and even obsolete, introducing the government to the concept of “rust out.” Some government computers fail to meet even minimum levels of security. The problems have been acute for more than a decade, and successive governments seem to have done their best to look the other way when they hear the auditor’s honeyed tone.

Seven months into the job, Fraser got a call from the Canada Revenue Agency informing her that there had been an error in federal government payments to the provinces—a computer error, a mistake in coding that amounted to more than $3 billion. “My heart just stopped,” she says. “To us, in this office, the world was going to end.” First, she and her staff had to figure out what had happened. Then they got on the phone to the provinces to calm everyone down. It was an embarrassment that might have permanently tainted her tenure as auditor general, but as a result of charm—or good luck—the billion-dollar error was in the news for just two or three days and then gone, forgotten everywhere but in the Office of the Auditor General, where mistakes are never supposed to happen.

A sluggish bureaucracy fearful of budget restraints is to blame for the state of its information technology, but politics is responsible for the shabby condition of the prime minister’s official residence. Since the days when Brian Mulroney was prime minister, the auditor’s office has been warning that 24 Sussex Drive is in desperate need of major renovations. As Fraser says, “When you see the state of the place, I think most Canadians would be embarrassed that our prime minister is living and receiving foreign dignitaries in a place that—you know, the wallpaper hasn’t been changed since the days of the Trudeau children. I think Canadians are a fairly proud people, you know.” Nobody disagrees, but no prime minister, going back to Mulroney, has wanted to approve renovations that might cost as much as $10 million. Angry voters might punish such a spendthrift, so 24 Sussex Drive continues to crumble.

But Fraser was lucky. She moved into a system that worked reasonably well; there was no great need for innovation. In the years since Macdonnell, the only substantial change was that auditors general now produced three or four reports a year, as opposed to the customary one. When he was auditor in the 1980s, Kenneth Dye tried to persuade the government to approve more frequent reports, but it was not until Denis Desautels took over the job that the government agreed. Dye, still close to the Ottawa scene although his term ended nearly twenty years ago, believes the change was important. It is not that government has changed; rather, the 650 members of the auditor’s office work at a different pace. And when there are three or four reports a year, there is less media attention. As Dye puts it, there is “diminished novelty” that makes life more steady in the OAG.

Dye still takes some satisfaction in the role he played in cleaning up the relationship between the government and the country’s chartered accountants, who traditionally had not contributed much in the way of political donations. That changed when Brian Mulroney’s Conservatives came to power in 1984. Accountants were now expected to behave like distilleries and breweries, banks and insurance companies. Dye was offended. He called in the senior partners of the major accounting firms, and told them he had discovered that each of the firms was giving an average of $50,000 a year to each of the large parties. Their reward was to be appointed auditor for one of the government’s Crown corporations. “It was all part of getting financial donations into the Conservative Party. The bigger the donation, the better the Crown corp you got.” The firm that gave $75,000 was rewarded by getting to audit Petro-Canada. Dye told them it would all have to stop. And the result is that Crown corporations are now audited, not by private accounting firms, but by the Office of the Auditor General.

But if the OAG was running reasonably well, there were still a couple of nagging problems. One was the assumption among parliamentarians—in both the Commons and the Senate—that they were beyond the reach of auditors. And from the start, Sheila Fraser delivered a virtuoso performance. She did not swagger onto Parliament Hill demanding to see the books. Instead, she asked respectfully and diplomatically whether Parliament would invite her to examine its management practices, controls, and reporting systems. She assured MPs she would not be looking into the management of individual MPs’ offices, but at controls and how they functioned.

There had been stories in the newspapers about parliamentary waste, extravagance, and even theft in Britain, Nova Scotia, and Newfoundland and Labrador. In Britain, one MP was caught billing the government for cleaning the moat around his estate, and another had charged the government for building a house for his ducks. Not surprisingly, parliamentarians in Ottawa did not want to be tarred with the same brush, and Fraser understood their reluctance. Finally, a full two years after she asked for the job, a secretive parliamentary body known as the Board of Internal Economy caved in to increasing public criticism and invited her to have a look at how MPs spent their $533 million a year. Nor did she gloat over her victory. She very correctly noted that the Board of Internal Economy “decided to invite my office” to conduct an audit of the administration of the Commons. Equally correctly, she wrote that “we will of course accept this invitation”—a line that must have made her guffaw as she wrote it.

For the recalcitrant parliamentarians, the confrontation was a sharp reminder that they had no chance of surviving a struggle with the popular—and trusted—auditor general. Typical of the skepticism they faced was an editorial in the Globe and Mail: “There is a cloud of suspicion over the House of Commons, and it does no good for MPs to pretend it isn’t there. It is, and they put it there by obstructing Auditor General Sheila Fraser… Their refusal to be audited invites the question of what they are afraid the country will learn.”

Even more significant, perhaps, was the victory she won against senior bureaucrats in Stephen Harper’s government. The battle had begun during Kenneth Dye’s tenure, when he asked to see cabinet documents relating to the purchase of the Belgian oil company Petrofina by the Canadian government–owned Petro-Canada. The government of the day refused, and the Supreme Court ruled that Parliament should sort the matter out. A subsequent cabinet order went some way toward meeting Dye’s demands, and for two decades that compromise seemed acceptable. Then, in 2006, Fraser was told she could not have certain cabinet documents she asked for, and once more an order-in-council seemed to offer a compromise. But this time the bureaucracy blocked the transfer, and that was enough for Fraser. She wrote a report on the dispute and let it be known that she would table it in Parliament. It was about to be sent to the printers when the bureaucrats caved. Senior officials from the Privy Council and the secretary of the Treasury Board, Michelle d’Auray—among the most powerful figures in Ottawa—arrived on her doorstep. They wanted to talk. They wanted to settle. The report would not be tabled, the government would not be embarrassed, and the auditor general would not be frustrated.

(There is a bizarre footnote to the contretemps. The Treasury Board Secretariat had refused to give the auditor’s office certain documents because they were “cabinet confidences.” But when the documents finally arrived, they turned out to be not cabinet confidences but emails between public servants.)

Typically, Fraser resisted the temptation to brag about boxing the mandarins’ ears. The confrontation ended, she said, because they were “able to resolve the issue.” She warns that the struggle for access to government documents will be a continuing issue, but she does not blame the government. She blames the “bureaucrats and lawyers” who interpret access rights, and sometimes interpret them very, very narrowly.

While she is harsh with bureaucrats, with politicians she is gentle, even maternal: “We are there to help Parliament, to give them information they need to do their job of holding government to account. The reality is that the government is so large, so complex, so many documents face MPs, and sometimes we expect them to know everything about everything. I just don’t think it’s realistic… I hope we’re not putting them all to shame.”

Former queen’s university professor C. E. S. Franks has acted as occasional adviser to the past four auditors general over a period of three decades. Of the four, he rates Fraser as the most down to earth, a characteristic he attributes to her background as a farm girl, because “as a farmer you have to learn to deal with life straight.”

Fraser, now sixty, grew up on a large farm in the Quebec township of Dundee, an area of grain and dairy farms wedged into a corner of land south of the St. Lawrence River, where Ontario, Quebec, and the United States meet. The Frasers have been there since 1842. The community was so preponderantly English speaking that when she was in her twenties she had to go off to Quebec City to learn French. Franks says she has imposed her friendly, folksy style on the auditor’s office: “She speaks straight, and she really encourages her staff to.” Her injunction to her staff on the writing of the office’s annual reports is “They have to be understood by Harry in Saskatchewan,” although there are times when the accounting house prose of Fraser’s reports must be a struggle for Harry in Saskatchewan or anywhere else.

There are two stories Fraser tells—or, more correctly, confirms when asked—that give a delightful glimpse of her farm girl patience and toughness. The first occurred in Montreal, early on in her career. She had been hired recently at the prestigious accounting firm of Clarkson Gordon. The firm, as was its custom, had scheduled a dinner for the partners and new staff at the prestigious St. James Club. It was to be a special occasion, but when she arrived she was greeted by a man who told her ladies could not enter by the front door. He said she would have to use the service entrance. She said thanks but no thanks, and the club relented.

A few years later, when she was transferred to Quebec City and became a partner in the firm, then known as Ernst and Young, she was urged to apply for membership in some of the local clubs. She submitted an application to the impressive Garrison Club. With some embarrassment, the president of the club phoned to say he was sorry, but women were not allowed to be members. But, he added quickly, it would be fine if she wanted to visit the club with her husband (she and Henri Gagnon, a Quebec accountant, had three children and are now divorced). Fraser replied that if her name was on the cheque for the membership, her name would be on the membership card. So, again, no thanks. It took a few years, but eventually the St. James and Garrison clubs did their best to waddle into the modern world. Fraser could walk unopposed through the front door of one, and accept an invitation to join the other.

But not everyone shares Franks’ enthusiasm for Fraser or her office. Since J. J. Macdonnell, the criterion of an audit was not whether the figures added up, but whether there was value for money. And in the eyes of a former senior public servant (who asked not to be identified), the fundamental flaw in this approach is the neglect of democracy: “Whatever the OAG may think, governments may get elected for bad objectives, but they do get elected. The OAG does not. Inevitably, value for money questions objectives, but that is not the role of the auditor general. A particular policy may seem stupid, but it is not up to the auditor general to say legislation is stupid.” Sharon Sutherland has written that “the OAG vision of its own pre-eminence in the House of Commons as Government’s regulator seems even to overtake the role of the opposition parties.” So she describes the Office of the Auditor General as a government in exile. The Canadian auditor’s office, she says, “is unique among legislative audit institutions in the scope of its political power and influence.”

The measure of Fraser’s success as auditor general will become apparent in the months after a successor moves into the corner office on the eleventh floor of the C. D. Howe building that looks north toward the Gatineau Hills. Fraser herself was untouchable, but her standing is no guarantee that the next auditor general will enjoy the same success—at least, not while Stephen Harper is prime minister. As Canadians have discovered, Harper is a man who does not like being told what he can or cannot do. He does not like it when people or institutions get in his way. If his own law on fixed election dates is inconvenient, he rides over it; if it looks as though the House of Commons might defeat his government, he prorogues it. So it is not difficult to imagine that he might want to whack down a new auditor general if she or he gets in his way.

Yet the lesson of more than a century of practice is that auditors general have grown steadily stronger. Kenneth Dye has great faith in the survival of the institution: “It’s quite amazing that a country like ours or any other has an organization like an Office of the Auditor General, which is pretty unrestricted and able to make up its mind what it’s going to look at, when it’s going to look at it, and how to report. It’s a strong democracy that can tolerate that kind of invasion of government activity.” Only a very brave or very foolish prime minister would now choose to wage war against the auditor general. And that is Sheila Fraser’s legacy. You don’t want to mess with the nice lady on television.

This appeared in the December 2010 issue.

John Gray
Tony Fouhse