The Importance of Effective Oversight
Effective oversight is important to the success of every public sector organization. There are numerous oversight bodies within the public sector at the national, provincial, and municipal levels, each of which plays a role in ensuring that public services are delivered effectively, efficiently, and with due regard for economy.
The importance of strong oversight processes has been illustrated in recent times by a number of high-profile cases where weak oversight resulted in serious adverse consequences. The weak oversight of financial institutions in the United States, which contributed (among other factors) to the 2008 global economic crisis, is a well-known example. In Canada, a number of oversight weaknesses in the public sector have also been the subject of substantial media coverage (see Figure 3).
Figure 3 – Canadian Examples of Oversight Weaknesses
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Air ambulance services in Ontario In March 2012, the Auditor General of Ontario released a special report on Ontario’s air ambulance services delivered by Ornge, a not-for-profit provincial corporation created in 2005. The report highlighted a series of irregular financial transactions, performance issues, and a lack of oversight of the corporation’s activities by the Ministry of Health and Long-Term Care. Over time, Ornge had created, with the approval of its board, a network of subsidiary companies that were not subject to the performance agreement signed between Ornge and the Ministry. The Ministry’s ability to obtain the information it needed to fulfill its oversight responsibilities in relation to Ornge and its Board was therefore hindered. Furthermore, the Board did not request the Ministry’s perspective on several significant strategic decisions and failed to take appropriate actions to investigate questionable transactions. In 2014, a Standing Committee on Public Accounts summary report concluded that: “the matters identified in the Auditor General’s report could be attributed primarily to the absence of due diligence and oversight on the part of the Ministry of Health and Long-Term Care in applying a robust accountability framework, the lack of transparency and accountability on the part of Ornge’s management and Board of Directors, compounded by systemic operational issues, as well as shortcomings in Ornge’s first Performance Agreement.” Rail safety in Canada Rail safety issues were brought to the fore by the July 2013 tragedy in Lac-Mégantic, Quebec, in which 47 people died after a runaway train carrying crude oil exploded in the town’s centre. The Transportation Safety Board of Canada investigation that followed the tragedy found many contributing causes, including insufficient monitoring and oversight of railway management safety systems by Transport Canada. In November 2013, the Auditor General of Canada released an audit report on rail safety oversight that also pointed to oversight weaknesses at Transport Canada. Among other findings, the report noted that the Department had conducted only 26 percent of the audits of railway safety management systems its own policy required over the period covered by the audit. The audit concluded that the Department had not exercised enough oversight over safety management systems. |
The examples in Figure 3 are only some of the most prominent recent examples; there are many more and the media regularly bring new ones to the public’s attention. These oversight weaknesses (and other factors) have led to reforms in both the public (for example, the Federal Accountability Act and Quebec’s Act respecting the governance of state-owned enterprises) and private sectors (for example, Securities Act reforms in Ontario) aimed at increasing the accountability of directors and executive managers, as well as strengthening internal audit functions. In the federal government, for example, departmental audit committees with external members have been created in the aftermath of the federal sponsorship scandal.
The importance of effective oversight has also been heightened in many jurisdictions where governments have divested themselves of direct program delivery in a number of sectors by:
- delegating the delivery of programs and services to newly created agencies, boards or authorities; or
- outsourcing the delivery of programs, services or capital projects to private sector partners, through public-private partnerships or other types of contractual agreements.
Public sector spending happens increasingly outside traditional models of departmental/ministerial accountability and governance, a situation that may create new risks that must be managed and mitigated. To manage these emerging risks, public sector organizations have had to adapt in order to maintain or improve their oversight effectiveness. New governance and oversight arrangements have been developed to meet the needs of new situations, recognizing that where there is a need for effective governance, there is also a need for strong oversight.
At the same time, however, a troubled economic situation has created budgetary constraints that have significantly affected the management of many public services and programs. Concerns have been expressed among deputy ministers and other public officials about the resources required to support existing oversight mechanisms and fulfill reporting requirements.
To address the challenge of maintaining strong oversight processes in programs facing budgetary and staff reductions, public sector organizations need to ensure that they put in place a mix of oversight processes that strikes the right balance between risk, control, efficiency, and cost. Not doing so can unduly expose an organization to serious risks or, on the contrary, burden it with unnecessary processes and costly internal red tape that focus on process instead of results.
By conducting audits of oversight bodies and functions, internal and legislative auditors can play an important role in helping public sector organizations to achieve this balance between risk and controls, efficiency and costs. Through their reports, auditors can:
- identify the causes of breakdowns in oversight (audits of oversight are often conducted after a significant failure, crisis, or scandal);
- highlight weaknesses and inefficiencies in oversight regimes (thus helping auditees to prevent breakdowns in oversight);
- point to best practices;
- make recommendations for improvements; and
- help departments, agencies, boards and authorities to improve their oversight performance and avoid repeating past mistakes.
Ultimately, conducting audits of oversight bodies and functions is an important manner in which audit offices can fulfill their mandate to provide their clients (legislative assemblies, audit committees, or others) with independent information, advice, assurance, and recommendations regarding the stewardship of public funds.
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