Report of the Auditor General of Québec to the National Assembly for

Transcription

1 Report of the Auditor General of Québec to the National Assembly for Value-for-Money Audit Highlights Fall 2014

2 Cover photo Parliament Building, Daniel Lessard, National Assembly Collection

3 Report of the Auditor General of Québec to the National Assembly for Value-for-Money Audit Highlights Fall 2014

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5 Table of Contents Chapter 1 Chapter 2 Chapter 3 Observations of the Acting Auditor General, Mr. Michel Samson Solidarity Tax Credit Student Success of Youths Under 20 Years of Age

6 Highlights Observations of the Acting Auditor General, 1 Mr. Michel Samson 1 Introduction 1 The Québec National Assembly has entrusted the Auditor General with the mandate of facilitating, 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 and its agencies and also includes funds paid in the form of subsidies. 2 In the annual report that the Auditor General submits to the National Assembly, he draws attention to any topic arising from his work that deserves to be brought to the attention of parliamentarians. The document is published in several volumes. The current volume is devoted to the value-for-money audits carried out over the last 12 months. It contains, among other things, the related findings, conclusions and recommendations. 3 The first chapter gives the Auditor General the opportunity to establish a more personal contact with the reader. In this chapter, I list some of the work I conducted that is of interest to the Québec Taxation Review Committee. I also summarize work on value-for-money audits that are in progress at some stateowned enterprises. On the other hand, I express my willingness to help improve public finances. I conclude with a brief presentation of the other chapters. 2 Report of the Auditor General of Québec to the National Assembly for

7 Observations of the Acting Auditor General, Mr. Michel Samson Chapter 1 2 Québec Taxation Review Committee 4 On June 12, 2014, in order to improve the competitiveness of the tax system and to review tax expenditures as a whole, the government announced the creation of the Québec Taxation Review Committee (Godbout Committee). The Committee must identify measures to reduce $650 million in tax expenditures, to help the government reach zero deficit by the budget. It should also make recommendations to: stimulate economic growth and the wealth creation, in particular by reviewing the relative weight of the tax collected; foster a redistribution of wealth that is fair for all Quebecers; ensure adequate funding of public services. 5 Over the past years, my predecessors and I have conducted audit engagements that address factors related to taxation measures. The results of these audits can be found in the reports that have been tabled in the National Assembly, including the following engagements: Financial support given to cultural enterprises ( , Volume III); Government interventions in the mining sector ( , Volume II); Tax credit for the construction and major repair of roads and bridges in forest areas ( , Volume II); Non-filing of returns at Revenu Québec: taxes and deductions at source (spring 2013). 6 In addition, Chapter 2 of this volume contains the results of a valuefor-money audit related to the same subject. This engagement covers the management of the solidarity tax credit. 7 To assist the Committee in its work, I thought it useful to inform it about different points I have raised over the years and that may contribute to the reflection of its members. This is why I have identified key findings and recommendations made in these reports which can be related to the Committee s work. While some of the engagements date back to some years, I find that several findings are still relevant today and may apply to other tax measures. They are grouped together under the following themes: Development of measures: the insufficient analyses leading to the determination of parameters and criteria related to a new measure in order to optimize the achievement of objectives; Supervision in the implementation of measures: the lack of precision of the rules, the challenges in applying criteria related to tax measures and the lack of update to these criteria (this supervision would favour a process of objective and fair processing of applications); Value-for-Money Audit Fall

8 Observations of the Acting Auditor General, Mr. Michel Samson Chapter 1 Eligibility of applications: the few analyses of credit claims, the lack of audit for disclosed elements as well as the insufficient supporting documents (in these situations, it is impossible to conclude that the requirements for obtaining credits are met); Production of management information: the insufficient management information available to objectively assess the effectiveness and efficiency of the measures; Follow-up and assessment of measures: the few follow-ups of tax measures as well as the lack of assessment of related results and costs; Application of sanctions: the inconsistent application of penalties and fines provided for in tax legislation. 8 I submitted a working paper to members of the Committee in which I listed, for each of the reports, findings and recommendations related to one of the six themes mentioned above. I invited the Committee members to consult the complete reports, which are available on the Auditor General s Website. 4 Report of the Auditor General of Québec to the National Assembly for

9 Observations of the Acting Auditor General, Mr. Michel Samson Chapter 1 3 Value-for-Money Audit in State-Owned Enterprises 9 Following the legislative amendment to the constitutive act of the Auditor General in June 2013, I can now carry out value-for-money audits among government agencies (formerly called enterprises), without the prior agreement of the board of directors (with one exception, namely the Caisse de dépôt et placement du Québec). 10 The goal of this change to the Auditor General Act is to increase the effectiveness of parliamentary control over large state-owned enterprises, such as Hydro-Québec ($12.9 billion in revenue), Loto-Québec ($3.5 billion in revenue), the Société des alcools du Québec ($2.9 billion in sales) and the Commission de la construction du Québec ($1.4 billion in revenue). 11 As I mentioned in Chapter 1 of the volume that I submitted last June, I have started work on the four state-owned enterprises affected by the legislative amendment: Loto-Québec, the Société des alcools du Québec, the Société des établissements de plein air du Québec and Hydro-Québec. 12 For the first three enterprises, several interviews have been conducted to date, and a large number of documents have been made available and are currently undergoing the necessary analyses. Furthermore, I plan to publish audit reports concerning these entities in the next volumes on value-for-money audit. 13 Hydro-Québec has offered to give my team a series of information sessions on its key activities, which we accepted. The seven sessions were held from July to October While these sessions are of quality and useful for familiarization, they cannot replace the audit work that must be done by my team in accordance with the working methods in effect. For this reason, my collaborators have asked Hydro-Québec for certain documents and have expressed their willingness to meet with staff members in order to be able to carry out, within a reasonable period of time, value-for-money audits that will be of interest to parliamentarians. In response to these requests, meetings have recently begun, which I find promising for the future. 15 My goal has not changed: it remains to obtain from all state-owned enterprises the collaboration that enables me to respect the spirit of my act and, therefore, promote greater transparency and increase the effectiveness of parliamentary control. I will continue to inform parliamentarians of the development of the situation, as required by the Auditor General Act. Value-for-Money Audit Fall

10 Observations of the Acting Auditor General, Mr. Michel Samson Chapter 1 4 Budgetary Context 16 I am very sensitive to the difficult budgetary context in which Québec currently finds itself. In this respect, it is normal for an institution like the one I manage to make a contribution to the collective effort required. That is why I recently undertook different actions in this regard. 17 First, I informed the Office of the National Assembly that I would participate, just as the other departments and agencies, to the effort to rationalize my expenditures for the budget year. I will reduce payroll by 2% and operating expenses by 3%, while ensuring that I maintain the quality of my work. 18 Then, I started a reflection to review my activities as a whole, which will allow me to assess the added value of each activity and to assess the extent to which these activities contribute to achieving my mission. It must be remembered that, over the past years, the Auditor General was entrusted with additional engagements and mandates, without an increase in staffing. This includes requirements related to the Act respecting the governance of state-owned enterprises, value-for-money audits among state-owned enterprises without the prior agreement of the board of directors, in addition to special audits and work related to the November 2013 economic and financial update. 19 If the unwavering commitment of the 250 members of my staff has made it possible to publish the work requested to date, I am aware of the need to make adjustments in order to maintain the organization s ability to meet the expectations of parliamentarians in the future. That is why it is necessary to choose, among the engagements I complete, those with the greatest impact on parliamentary control and the management of public funds. 20 Finally, concurrently with a review of my activities, I have begun to develop the organization s next strategic orientations. As the strategic plan in effect is ending on March 31, 2015, this gives me the opportunity to adapt the next plan to the current government context and include the fruit of reflections concerning my activities. 6 Report of the Auditor General of Québec to the National Assembly for

11 Observations of the Acting Auditor General, Mr. Michel Samson Chapter 1 5 Summary of Volume s Content 21 In this volume, I provide the results of the two engagements I conducted over the past several months. The next paragraphs provide an overview of each of the subjects. 22 In Chapter 2, I present the results of my work associated with the solidarity tax credit. I first address the tax credit s design as well as the follow-up of results by the Ministère des Finances du Québec. I highlight that the Department s forecasts were largely exceeded. This fact may be explained by deficiencies in the analysis of the different possible scenarios and the process for assessing the tax expenditure. Then, I focus on how Revenu Québec implemented and managed this tax measure. Lastly, I mention in my findings that Revenu Québec did not put in place all of the necessary controls to determine the eligibility of households and to ensure that they receive the amounts to which they are entitled. 23 Chapter 3 covers issues related to the student success of youths under 20 years of age. I raise in this chapter that the Ministère de l Éducation, du Loisir et du Sport exercises insufficient leadership among school boards and that it does not have an integrated vision for student retention and student success. Deficiencies were observed, including in management information and the determination of orientations. I also address the implementation of partnership agreements with school boards, which aim to strengthen resultsbased management. I also mention that the management cycle between the Department, school boards and their institutions has not yet been perfected. Each stakeholder has improvements to make in its way of doing things in order to maximize the benefits of this process, which remains promising. 24 It will be a pleasure for my team and me to explain in greater detail to parliamentarians each of the subjects and, thereby, contribute in my own way to parliamentary control and the sound management of public funds. Value-for-Money Audit Fall

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13 Highlights Solidarity Tax Credit 2 Highlights Work Objectives The purpose of the solidarity tax credit is, in particular, to protect the buying power of low- and middle-income households. Introduced on July 1, 2011, the solidarity tax credit replaced the refundable Québec sales tax (QST) credit, the tax credit for individuals living in a northern village and the property tax refund. This new tax credit was designed by the Ministère des Finances du Québec (MFQ), and responsibility for its implementation and administration was given to Revenu Québec. In 2012, $1.7 billion was awarded through this measure to nearly 2.7 million households. The audit work had the following objectives: to obtain the assurance that the MFQ designed the solidarity tax credit in a way that achieves the associated objectives effectively and economically; to obtain the assurance that Revenu Québec manages the tax credit with a concern for effectiveness and equity. This audit did not aim to call into question the objective or merits of the financial assistance awarded to low- and middle-income households. The Report is available at Audit Results The following are the principal findings of our audit concerning the solidarity tax credit. Although the MFQ s forecasts indicated that the solidarity tax credit would result in expenditures in the order of $1.35 billion in 2012, expenditures were actually $1.71 billion. The MFQ did not analyze the different possible scenarios before choosing how the tax credit works and entrusting its management to Revenu Québec. This exercise would have made it possible to, among other things, identify the risks related to the achievement of objectives and the estimate of implementation and management costs. The MFQ did not consider all the potential effects of changes made to the chosen parameters. As such, it did not take into consideration the effects of these changes on the number of households that declare being eligible for the housing component. The number of eligible households has increased from less than 1.2 million to over 2 million. The process put in place by Revenu Québec to administer the tax credit does not include all necessary controls for determining the eligibility of households and for ensuring that the amounts awarded to them correspond to those to which they are entitled. For example, using an information dated March 2013 from a Revenu Québec data directory, we observed that 34% of 807,784 beneficiaries who declared they lived alone actually shared their home during that same month. Using that information to recalculate the amounts awarded, we estimated that approximately $80 million had been overpaid per year. When our audit ended, Revenu Québec was in the process of implementing controls to detect and correct these situations. The computer system, whose costs were $33.8 million when it was delivered (March 2013), does not adequately support the work processes related to the solidarity tax credit. Certain advantages outlined in the initial business case have only partially materialized. In addition, since the delivery of the system, $6.7 million in improvement and upgrading work has been deemed necessary. Revenu Québec does not conduct a follow-up of costs related to management of the tax credit because it does not produce the management information that would enable it to do so. In , management costs exceeded by approximately $3 million those that had been approved. In addition, 192 full-time equivalents were used rather than the 154 initially anticipated. Value-for-Money Audit Fall

14 Highlights Recommendations The Auditor General has made recommendations to the MFQ and Revenu Québec. All of them are shown to the right. These entities had the opportunity to comment on the report; their comments can be found in the Commentaires des entités vérifiées Section. We want to point out that they accepted all of the recommendations. Recommendations to the Department 1 Analyze, in collaboration with the concerned entities, the different scenarios for achieving the objectives related to the solidarity tax credit, and make the changes needed to optimize the efficiency and effectiveness of the measure. 2 Conduct, in collaboration with Revenu Québec, a follow-up of the results associated with the solidarity tax credit in particular to see whether the objectives set are achieved, whether the chosen parameters are applicable and whether the tax expenditure is consistent with forecasts, and, where needed, make the required changes. Recommendations to Revenu Québec 3 Identify and implement controls so that amounts are awarded in accordance with the parameters for the solidarity tax credit. 4 Ensure that the computer system supports the work processes related to the solidarity tax credit and that, for future projects, guidelines are implemented to ensure that: the quality assurance process is applied as it should be; the final project report includes the relevant information and is communicated to governance bodies. 5 Follow up and report on the costs and efforts related to the administration of the solidarity tax credit as well as on the performance of related activities. 10 Report of the Auditor General of Québec to the National Assembly for

15 Student Success of Youths 3 Under 20 Years of Age Highlights Highlights Work Objectives Student retention and student success are important issues, particularly with respect to the graduation and qualifications rate and to the school leavers without diploma or qualification rate (also called dropout rate). In , educational services in school boards and subsidized private schools cost nearly $12 billion. The purpose of our audit was to obtain the assurance that: the Ministère de l Éducation, du Loisir et du Sport (MELS) orients and supports student success and it reports on the situation; the audited school boards promote student success and they report on it. The Report is available at Audit Results The following are the principal findings of our audit concerning the student success of youths under 20 years of age. The Department does not fully exercise its leadership among the school boards with regard to student retention and student success. Many indicators and statistics produced by the MELS have particularities that make their interpretation arduous and reduce their relevance for the reader. In addition, they are dispersed in several publications, which can create confusion. Also, there is little analysis by the MELS of management information. Data needed to establish priorities are missing or are not communicated. This is the case for certain groups of students whose success could be compromised. The same is true concerning data to identify as quickly as possible the students who risk experiencing difficulties throughout their schooling. Numerous departmental priorities and orientations have been developed and have accumulated over time. They are not necessarily based on an integrated vision of priority needs and an analysis of the issues, which does not make it possible to clearly orient actions in a long-term perspective. The management cycle between the MELS, the school boards and the institutions has not yet been perfected. The MELS has not required that the duration and deadline between the partnership agreements, its own strategic plan and those of the school boards be synchronized. In addition, 32 expired partnership agreements from to have still not been renewed. The MELSʼ follow-up of each school board s partnership agreement is not done rigorously nor officially communicated on a regular basis. That does not enable the school boards to make the required adjustments in a timely manner. The school boards have undertaken a more results-based management approach. The partnership agreement has brought back student retention and student success at the heart of priorities for the school boards and their institutions. However, certain principles are not yet mastered by the school boards, especially in terms of identifying intervention priorities, reporting and the assessment of their institutions contribution to the achievement of objectives. Value-for-Money Audit Fall

16 Highlights Recommendations The Auditor General has made recommendations to the MELS and the four audited school boards. They are shown, in part, to the right. The audited entities had the opportunity to comment on the report; their comments can be found in the Commentaires des entités vérifiées Section. We want to point out that the MELS accepted all of the recommendations, excluding the one concerning the development of an evolving and up-to-date portrait. As such, the reader will find our reaction following the comments of the Department. The school boards accepted all of the recommendations. Recommendations to the Department 1 Identify the most relevant indicators and statistics with respect to student performance and the factors related to school life that make students vulnerable in terms of their retention and their success. 2 Structure management information and analyze it to obtain an evolving and up-to-date portrait of student performance and the factors related to school life that make them vulnerable in terms of their retention and their success. This portrait must include, among other things: information concerning the groups of students whose success risks being compromised; data to faster identify those students who risk experiencing difficulties throughout their schooling. 3 Define a coherent overall vision of the actions to be taken to improve student retention and student success. This involves: establishing departmental priorities and orientations associated with objectives based on the evolving portrait that has been developed, which results from the analysis of relevant indicators and statistics; performing a follow-up that makes it possible to assess the results obtained and to measure the impact of the actions taken by the stakeholders. 4 Establish a management cycle that ensures the synchronization of its planning documents with those of the school boards in order to ensure the coherence of actions related to the improvement of student retention and student success. 5 Carry out a rigorous and regular follow-up of the partnership agreements. Recommendation to the Department and the school boards 7 Ensure the timely renewal of the partnership agreements. Recommendations to the school boards 8 Improve the partnership agreement regarding the coherence of the indicators and targets with respect to intervention priorities and objectives. 9 Present, in their annual report, information that is comparable, precise, coherent and sufficient to assess the results obtained concerning the partnership agreement. 12 Report of the Auditor General of Québec to the National Assembly for

17 Significance of the Logo An easy-to-recognize building, the Parliament, where the National Assembly sits. It is this authority which has entrusted the Auditor General with his mission and to which he reports. Three dynamic lines, illustrating: the three types of audits carried out by his staff, namely financial audits, audits of compliance with statutes, regulations, policies and directives, as well as value-formoney audits; the three elements that are examined during value-for-money work: economy, efficiency and effectiveness; the three fields social, economic and environmental related to the stakes concerning sustainable development. A truly distinctive sign, the logo of the Auditor General clearly illustrates that this institution, which is in constant evolution, aims to assist elected members in their desire to ensure the sound management of public funds, for the benefit of the citizens of Québec.

18 Acting Auditor General On November 29, 2011, the President of National Assembly appointed Mr. Michel Samson as Acting Auditor General of Québec. Since January 1, 2008, Mr. Samson held the position of Assistant Auditor General. He was responsible for several teams of experts in charge of carrying out value-for-money audits with government entities, whose scope and vocation were highly varied. The projects that he conducted mainly concerns such areas as education, transportation, culture and finance. Moreover, since 2010, he supervised the general directorate that offers value-for-money audit advisory services for its staff. It was in 1990 that Mr. Samson joined the staff of the Auditor General. He began by working as a professional for six years in Québec City, being mainly assigned to value-for-money audits. He went on to accept a senior management position at the Montréal office; the files on which he worked concerned both financial audits and management audits. His commitment and versatility bore fruit. In 2003, he returned to Québec City where he would serve as senior director, overseeing some thirty employees up until He is credited with numerous reports, which take stock of the practices used in, and the financial information produced by the Administration. He was entrusted with key sectors, which allowed him to demonstrate his ability to successfully complete particularly demanding assignments. The main components of his mandate were related to education, justice, modernization of government management, and computer systems. Over the last few years, Mr. Samson headed four auditing directorates specializing in value-for-money audits. He carried out a significant share of the audit engagements completed on behalf of the National Assembly. Moreover, since being hired, he has often participated in special audits or overseen their completion. As for his other professional activities, this experienced manager has contributed to the efforts made by all Canadian legislative auditors to promote the quality of information on performance published in the public sector. In addition, he has hosted training sessions on value-for-money auditing (Institute of Internal Auditors, Morocco Audit Institution, etc.) on many occasions. Finally, he has been a member of numerous in-house committees, including the one responsible for the organization s strategic planning from 2000 to Before joining the ranks of the Auditor General, Michel Samson worked for two accounting firms. As a partner, he carried out financial auditing work for small and medium-sized businesses in the manufacturing sector. A member of the Ordre des comptables agréés du Québec since 1984, which was brought into the Ordre des comptables professionnels agréés du Québec in May 2012, he holds a bachelor's degree in business administration and a licence in accounting sciences, both of which he received from Université Laval in In other respects, the Ordre des CPA du Québec awarded in May 2014 the CPA Award of Excellence to Mr. Michel Samson. He also was presented on May 29, 2014 the CPA Émérite Award, bestowed by the Chaudière-Appalaches and the Québec City CPA Groups.

19 This publication was produced by Québec 750, boulevard Charest Est, bureau 300 Québec (Québec) G1K 9J6 Tél.: Téléc.: Montréal 770, rue Sherbrooke Ouest, bureau 1910 Montréal (Québec) H3A 1G1 Tél.: Téléc.: Protection of the intellectual property rights of the Auditor General of Québec Any person may, without authorization and at no charge, reproduce on any medium excerpts from this document, provided that the source is mentioned, unless it is for commercial purposes. In such a case, prior authorization must be obtained from the Auditor General.

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