Biggest Scandal in Canadian History: Hrdc Audit Starts Probity War

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“Biggest Scandal in Canadian History”: HRDC Audit Starts Probity War

Abstract.
This article describes the nearly year-long political and media uproar that followed on the Release in January, 2000 of a qualitative or soft “audit” of management control in the federal government department, Human Resources Development Canada, and analyses the contributing factors. The article argues that the auditors’ examination of project files for programs delivered by grants and contributions was so abstract and poorly executed that nothing whatever can be concluded from the work.

Introduction
The article takes up an audit event that dominated Canadian national politics for the first three quarters of the year 2000. The proximate cause or trigger was an internal auditors’ qualitative research report of its review of files – not a financial audit. On January 19, 2000, the Minister of Human Resources Development Canada released the audit, Final Report: Program Integrity/Grants and Contributions along with a press release. Despite its identity as a qualitative study the audit report unaccountably claims that one minor, non-random, facet of its research can “…provide an estimate of the magnitude of the [financial] loss” in programs using grants and contributions as their instrument. The press release claims that the audit “looked at programs representing approximately $1 billion of annual federal spending.” It then listed “areas requiring improvement.” Everything needed improvement. Management control of operations seemed hardly to exist. The series of events began by the audit’s release unfolded in Human Resources Development Canada and general government like the wreck of a bullion train in a valley of bandits. The media’s instant formulation was that the governing political party had colonized HRDC’s administrative processes, corrupting the bureaucracy’s handling of funds that represented at least one billion dollars, and possibly three billion. Bureaucratic sloppiness documented by the audit report had surely made this possible. Federal and other police investigations followed

The scandal
The body of the 2000 IAB report released on January 19 specifies a dual purpose: one goal, as a management study, is to assess the management and delivery of all HRDC programs whose instrument is grants and contributions against “applicable” current management standards and against “principles of accountability, effectiveness, efficiency and economy.” The study’s second goal is to test whether funds awarded to job sponsors are “adequately protected from errors, misappropriation, misuse and abuse, within and outside HRDC.” The report further claims that the data’s quality is good enough to allow the auditors to “ provide an estimate of the magnitude of the [financial] loss, if any” in programs using grants and contributions as their instrument. This claim was, to be the primary catalyst for the scandal. The executive summary says that the “integrity” study covers all of HRDC’s programs delivered by grants and contributions except for those assisting the fishery. (Grants are a small proportion of these funds.) Its methodology was to study paper files on awards that were forwarded to headquarters for the purpose. Government grants and contributions were awarded to applicants under the terms and conditions of eight programs of the Human Resources Investment Branch of the Department. Yet, the audit reported, according to the files, 15 percent of awards were made without even an application for the funds, and almost three of four project files the auditors looked at did not include evidence of a cash flow forecast. Other elements that were not faithfully recorded were evidence of consultation, evidence that sponsors had no outstanding debts to the public purse, evidence of monitoring for results of the projects, evidence of supervision, and so forth. The internal auditors also pronounced that public money was not secure in this...
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