Abstract
This paper investigates the key drivers behind the origins of value-for-money (VFM) audit in Canada and the aims, intents, and logics ascribed by the original proponents. Drawing on insights from governmentality and New Public Management, the paper utilizes analysis methods adapted from case study research to review a wide range of primary documentation (e.g., Hansards from the Public Accounts Committee, House of Commons debates, the so-called Wilson report and the FMCS study) and secondary documentation (newspaper articles, Office of the Auditor General internal publications, journal articles). Major findings indicate a rise of a management consulting culture within the Auditor General’s office following the appointment of James Johnson Macdonell. VFM legislation effectively operationalized practices drawn from management consulting expertise by invitation of the consultant. It was offered as an answer to the growing scope and size of government, which had become problematized by the Auditor General in terms of parliament losing control over the public purse. The Auditor General’s invocation of financial crisis led to a substantial broadening of mandate and increase in resources for that office.
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Notes
There is no universally accepted definition of value for money auditing. The Canadian Comprehensive Auditing Foundation defines VFM auditing as “a comprehensive audit is an examination that provides an objective and constructive assessment of the extent to which:
• Financial, human and physical resources are managed with due regard to economy, efficiency and effectiveness; and
• Accountability relationships are served.”
While there are some subtle differences across the definition of VFM auditing, the core of value for money auditing is the framework of economy, efficiency and effectiveness, and independent appraisal.
Auditors general had raised concerns regarding the propriety of expenditures as far back as the 1800s, and the previous Auditor General, Maxwell Henderson, had actually used the term “value for money” widely (Henderson 1984).
The notion of VFM audit—or its various synonyms—defies precise definition. Perhaps owing to this, one of the intriguing aspects of VFM audit is how it seems to have adopted various names within the Canadian context. The Federal Government currently prefers “performance audit” as do the public sectors of British Columbia and Nova Scotia. Alberta uses the term “systems audit.” It is possible to find evidence of at least three others in other jurisdictions within Canada and abroad: “comprehensive audit”, “value-for-money audit”, and “broad-scoped audit” (previously used by Nova Scotia). Radcliffe uses the term “efficiency audit,” adding another to our list (Radcliffe 1998, 1999). A member of the BVG Quebec, writing in CA Magazine, adds the term “management audit” as a synonym (Boisclair 2008).
An early precursor of increasing private sector involvement in the public sectors of several Western economies was the implementation of private sector styled accrual accounting techniques, heralding “subsequent major changes in public sector governance, structuring, functioning, and accountability” (see Christensen and Parker 2010, p. 246).
The Audit Amendment Act 1979 amended the Audit Act 1901 to introduce performance auditing (effectively VFM auditing) in Australia. It gave the Auditor-General power to conduct VFM audits of government agencies and, in special circumstances, government companies. The Act specifies that once a performance audit has been carried out, the Auditor-General must table a report to Parliament, prepared after considering the auditee’s comments.
At around the same time that the Auditor General’s Act was wending its way through the various Parliamentary readings and committee debates, Edgar Gallant, the newly appointed President of the Public Service Commission, grew concerned about the Auditor General’s status as an independent employer. Gallant, it appears, did not believe the Office of the Auditor General should be given certain freedoms regarding the classification of senior executive positions. A battle seemed to be brewing. At a pivotal point, however, John Carson, the former head of Public Service Commission, appealed to his successor and offered a compromise solution. As the story goes, he also offered Mr. Gallant some sage advice—“I don’t think you’re going to win without a lot of bloodshed, because nobody’s beaten Jim yet since he came to town” (Sinclair 1979a, pp. 123–124). The advice apparently regarded, the crisis was solved. But, it was also likely a nod to Macdonell’s skills and approach: his abilities to communicate, to manage, to build connections, to carry out a plan.
It is interesting to note that while Macdonell did get the AG report for 1973 out on time, (December 14, 1973 per Macdonell’s signature line inside the cover), his predictions on the Wilson Committee fell somewhat short. He told the PAC on October 30, 1973 that the Wilson Committee would finish its work in 7–9 months at a cost of $123,000. The Wilson report was not finished until March 1975 and the cost was approximately $250,000 (Sinclair 1979a).
Mr. Dale Harris would go on to play a prominent role in the Lambert Commission, launched as a response to the AG’s famous report of 1976.
In Canada, the Chartered Accounting bodies have promoted a shorthand reference to their professional bodies and members using the “CA” acronym. We follow this usage in the remainder of the piece.
At one point in the debate the President of the Treasury Board, Mr. Chrétien, rose to defend the government, noting “the increase in expenditure this year compared with the previous year would be <16 %” (Hansard 1975). This does not seem like evidence of restraint by today’s standards. The 1970s were marked by inflation and a rapid expansion of government that appeared to have become entrenched.
Mr. Chrétien, to his credit, acknowledged that such expenses may have been a mistake.
One might have asked how could an auditor give a clean opinion if, at the same time, they asserted that “our audit tests must increase substantially?”
When Macdonell used the term “public purse,” it was one with which Parliamentarians had been familiar, perhaps owing largely to the work of Dr. Norman Ward of the University of Saskatchewan (Hansard 1970). Ward had appeared before the Public Accounts Committee in 1970 and had written a renowned book on Canadian public administration with that very title, The Public Purse (Ward 1961).
In another series of coincidences that seem to emerge in this Ottawa world, Cowperthwaite was called as a witness to the PAC hearings on Polysar as his firm had been joint-auditor of the Crown Corp with Henderson. Interestingly enough, after Macdonell’s sudden death, Cowperthwaite succeeded him as Chairman of the nascent CCAF.
This Independent Committee was one of a number of structures Macdonell created as technical advisors for his practice.
Not only were all the profession’s experts on side. Apparently Macdonell wrapped up those on the inside as well:
2.18 “So far as I am aware there are no important differences of opinion between senior government officials, on the one hand, and my officers, my advisers and myself on the other, as to the nature and extent of the deficiencies and weaknesses in financial controls. These have been acknowledged with few reservations on many occasions in this Report, in my 1975 Report, and in the twice-weekly meetings of the Public Accounts Committee from March through June 1976” (OAG/BVG 1976, p. 16).
The Canadian Comprehensive Auditing Foundation was founded in 1980 as a body that advanced the cause of broadened government auditing mandates. It ran conferences and published papers and reports focused on these issues. By the mid 1990s, audit mandates had been settled for some time, and in 1995 the organization was renamed CCAF-FCVI, these being the English and French acronyms of the original name, but with no descriptors as to what they might stand for. The organization was restyled as a ‘leading Canadian Educational and Research Organization that provided a “neutral forum” where public sector auditors, managers, comptrollers, and elected officials could work together to strengthen public sector governance, accountability, management, and audit. See http://www.ccaf-fcvi.com.
On another occasion, while the Wilson Committee was still carrying out it work, Macdonell encouraged them to take “a giant leap forward” for the Canadian people (Sinclair 1979b).
The following brief overview is representative of this literature: “Comprehensive auditing was developed primarily as a response to client demand for better accountability information. In the 1970s, members of the federal and several provincial legislatures realized they were not getting the performance information they needed. They sensed an accountability vacuum” (CCAF 1988, p. 2).
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Free, C., Radcliffe, V.S. & White, B. Crisis, Committees and Consultants: The Rise of Value-For-Money Auditing in the Federal Public Sector in Canada. J Bus Ethics 113, 441–459 (2013). https://doi.org/10.1007/s10551-012-1315-5
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DOI: https://doi.org/10.1007/s10551-012-1315-5