NOTE: Versions of this story also ran in: The Ottawa Citizen, Edmonton Journal and Saskatoon Star Phoenix

PUBLICATION:              National Post

DATE:                         2003.07.16

EDITION:                    National

SECTION:                  News

PAGE:                         A2

BYLINE:                     Tim Naumetz

SOURCE:                   CanWest News Service

DATELINE:                 OTTAWA

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Auditor-General raised alarm over gun registry audit: Justice Department misrepresented financial review, officials said

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OTTAWA - The Auditor-General's office privately warned the Justice Department last February it was misleading Parliament and the public by claiming an independent accounting review of the firearms program proved the registry's financial records were accurate.

The officials in Sheila Fraser's office also challenged the department's claim, repeated by Martin Cauchon, the Justice Minister, in the House of Commons, that KPMG accountants confirmed the department had systems in place to ensure the "integrity and completeness" of the troubled registry's accounting, government documents show.

The documents, obtained by CanWest News Service under the Access to Information Act, reveal the Auditor-General's officials earlier forced the Justice Department to amend an original contract with KPMG because it likely violated the Financial Administration Act and the Auditor General Act.

Because of the amendment, KPMG was unable to conduct an audit to judge the integrity of the Canadian Firearms Centre's financial records from 1995 to 2002 and could only do a sample review of the centre's spending and invoice records for a two-year period.  

The amendment, which was not signed and approved until more than a month after KPMG submitted its final report to the Justice Department, cost the government an additional $30,000, raising the fee to $94,100.08 for two-months work.

Mr. Cauchon and the Justice Department claimed in a January news release that KPMG's final report "allowed the Department of Justice to confirm that the necessary systems are in place to ensure the integrity and completeness of relevant financial data and [that] this work has provided the department with confidence that the information compiled on past expenditures is accurate."

But Hugh McRoberts, the deputy assistant auditor-general, challenged the department's claim that KPMG had confirmed the integrity of the program's financial statements and records.

"We are concerned that the work described in the KPMG report and the accompanying transmission letter does not appear to be sufficient to support these [news release] statements," Mr. McRoberts wrote in a Feb. 14 letter, adding KPMG's work was limited and may have been "inappropriately" used to draw conclusions about the integrity and completeness of the gun registry's financial information. "We have on several occasions discussed the proposed KPMG work with senior [Justice] Departmental officials," he added.

"Throughout these discussions, we have expressed our concern that the work performed by KPMG could be misunderstood by Parliament and others to be an audit of the financial statements of the Canadian Firearms Centre or the Canadian Firearms program."

The internal government turmoil over the KPMG work raged from December to February, as the Justice Department tried to control damage following a scathing report Ms. Fraser released on the gun registry in early December that indicated its costs had ballooned to $1-billion.

The documents show the department put in place two plans -- the KPMG study and a separate management review by Ottawa consultant Raymond Hession.

The department was also attempting to counter Ms. Fraser's claim that it had hidden the true year-by-year costs of the program from Parliament after the Canadian Firearms Centre was founded in December, 1995. Ms. Fraser took the unprecedented step of halting her audit on the grounds her audit team was not receiving complete information about the program's true costs.

A briefing memo prepared for Mr. Cauchon suggests the department obtained the services of KPMG to try to restore the program's public image, rather than get to the root of spending problems.

The memo says other government agencies, such as Treasury Board, had urged the Justice Department "to initiate a financial statement/attest audit of the CFC to ensure that the decision of the AG to stop the audit would not mislead the readers [MPs and the public] to believe that the department could not explain the CFC program expenditures."

By early December, Ms. Fraser's auditors were warning Justice officials they could be in violation of federal statues if they went ahead with the contract allowing KPMG to conduct an outside audit of the firearms centre.

An official with the Auditor-General's office said yesterday the Financial Administration Act and the Auditor General Act give the Auditor-General exclusive jurisdiction over government departments and agencies.

"They can't go out and freelance their own audits," the official said.

After the Justice Department amended its contract with KPMG to scale down the work to a sample review of two years' worth of spending and invoicing, Ms. Fraser's officials continued to object to the arrangement.

"We continue to have concerns about whether the work the department has contracted for with KPMG, which continues to focus on information that we have already reviewed and found to be incomplete, will assist the department in moving forward to the recommendations of our audit report to Parliament," Mr. McRoberts wrote to Monique Collette, the Justice Department's assistant deputy minister, corporate services, on Jan. 15.

The Canadian Firearms Centre, now in the Solicitor-General's Department, referred a reporter to the Justice Department late yesterday for comments about the exchange, but a spokesman for the department was unable to respond immediately.

Canadian Alliance MP John Williams questioned the Justice Department's motives for attempting to go to an outside auditor.

"What exactly were they trying to achieve?" he asked. "When the Auditor-General says in a letter to the deputy minister that Parliament could be misled, it has to be taken as an extremely serious allegation."

Mr. Williams called the Justice Department's attitude part of the "ethical malaise" in the public service that he believes has taken hold under the Liberal government.