What began with the passage of the first Audit Act more than a century ago has evolved into something far more complex than just "checking the numbers." This history of the Office is not just a chronology covering more than 125 years of auditing and auditors; it is also the story of how the government of Ontario has changed and how the expectations of elected officials and the public have led to major changes in the traditional auditor's role.
Ontario officially appointed its first independent provincial auditor in 1886, but the push for oversight of public finances dates back to just after Confederation. In 1869, the provincial cabinet created an Audit Branch within the Treasury (the precursor to today's Ministry of Finance) to carry out "the proper auditing of the accounts and disbursements connected with all the branches of the Public Service." Headed by William Cayley, this new Audit Branch was responsible for keeping formal records of all money paid into the Treasury and tracking outflows to make sure they were appropriate. All cheques were to be signed by the Treasurer and countersigned by the Auditor—a considerable burden when you consider the government was issuing 10,000 cheques a year by 1879.
The Auditor, however, was still an employee of the Treasury, which meant he did not operate independently from government as today's Auditor does. Pressure to change this erupted in 1885 with the discovery of a then-sizeable $14,000 discrepancy in the government's books. The following year, the government passed its first Audit Act, providing for a Provincial Auditor appointed by the Lieutenant Governor and independent of the Treasury. The Auditor was to ensure that no money was spent without legislative authority and to provide each government department with a monthly statement. He also continued to countersign every cheque issued by the Treasurer.
Charles Sproule, was appointed the first official Provincial Auditor of Ontario in 1886, although he had already been serving in the post since Mr. Cayley's retirement in 1878. No one could accuse Mr. Sproule of being overstaffed: he employed one bookkeeper and one clerk, and he had an annual office budget of less than $5,000, with nearly half of that going to his salary. By 1905, when James Clancy succeeded Mr. Sproule, the Office of the Provincial Auditor had a staff of seven and expenditures of $8,000 a year. The Provincial Auditor's annual salary was $2,500.
Under the new Act, the Auditor was required to prepare the annual Public Accounts of the province, and he had the power to examine under oath any person connected with any account being audited. But he still did not have a completely free hand—if he disagreed with the Treasury Department, his decision could be overruled by the Treasury Board, which consisted of the Treasurer, the Premier and the Attorney General
In 1909, the Legislature voted to change the government's fiscal year from the calendar year to the 12 months between November 1 and October 31. A clause in the law making this change said that if the Auditor was overruled by the Treasury Board, he was to prepare a statement on the situation and present it to the Legislature at the beginning of the next session. This introduced the practice of an Auditor's Report that was separate from his responsibility to prepare the Public Accounts. From 1909 onward, the Auditor's Annual Report was printed as a separate document./p>
In the fall of 1920, Gordon Brown was appointed Provincial Auditor at a salary of $5,000 to oversee a staff of 23 and an annual budget of more than $52,000.
The following year, amendments to the Audit Act said that the Auditor could choose his own staff. Previously, appointments were made by the Premier and Cabinet. As well, the Auditor could now appoint an Assistant Auditor, and could designate a staffer to countersign cheques on his behalf.
In his Budget speech of 1924, the provincial Treasurer pointed out an astonishing fact: since Confederation, there had been regular auditing of spending—the money going out—but not of the money coming into the province—the revenues. He described how he had gone into the Amusement Tax Branch and found cash "sticking out of the files…five-dollar and ten-dollar bills, and cheques there for months." Intensive audits followed, and the Provincial Auditor said these had been effective, reporting that "an increase of revenue will be shown in nearly every department."
By 1935, the Provincial Auditor's Office had a permanent staff of 48 with annual expenditures of $90,000—but storm clouds were gathering. Faced with the grim impact of the Depression, Premier Mitch Hepburn announced plans to target unnecessary spending and to tighten up administration. He appointed the Deputy Minister of Public Works to investigate all government departments "to learn where economies might be effected."
The Provincial Auditor's Office was among the first up for inspection. All 48 employees were interviewed, sometimes with cross-examinations that bordered on intimidation. For example, the first employee on the witness stand was questioned about his political activity, drinking habits and debts. Even the Assistant Auditor was chastised for failing to keep an attendance record. A number of staff were let go in what the press of the day called political housecleaning. Other changes to the Office during this period were more benign. The introduction of a Scriptograph machine that signed four cheques simultaneously, for example, came as a boon for staff, who by this time were signing 300,000 cheques a year by hand.
In 1938, Harvey Cotnam became the first chartered accountant to be appointed Provincial Auditor. His accounting and auditing expertise led to improvements in Office operations, including the requirement that work be documented in "audit papers."
During Mr. Cotnam's term, the Office had a smooth working relationship with the Treasury and the government of the day. An employee who had worked for the Auditor for more than 25 years put it this way: "We considered ourselves under the Treasury. We were supposed to be a separate office, but we dovetailed with the Treasury pretty closely."
By the late 1940s, however, members of the Legislative Assembly were voicing concern about that "dovetailing." Some suggested the Auditor should be free to do his duty without any direction from the Treasury. A number of discussions took place in the Legislature's Public Accounts Committee, which passed a motion recommending that the Audit Act be amended.
The passage of an amended Audit Act in 1950 pulled the Office further away from Treasury Board control by strengthening the Auditor's right to access all necessary documents and giving him the authority to refer any questionable payment or request for payment to the Lieutenant Governor in Council (that is, the Cabinet) rather than Treasury Board. The amended Act also said the Auditor was to present the Public Accounts to the Lieutenant Governor in Council instead of the Treasurer, and within a definite time frame.
A separate section of the Act provided for the Provincial Auditor to issue an Annual Report and say in the report whether, "in his opinion, they [the Public Accounts] are properly drawn up so as to present fairly the financial position of the province." The Act also gave the Auditor the right to inform the Legislature—again, rather than the Treasurer—of any matter "he desires to bring to the attention of the Assembly."
At the end of Mr. Cotnam's 25-year tenure, in 1963, George Spence was appointed Provincial Auditor, and presided over the Office's move from pre-audit to post-audit work.
Traditionally, the Office conducted post-audits of revenues and pre-audits of expenditures. Pre-audit essentially means auditing a transaction before it is processed, while post-audit means auditing the transaction after it has been processed. The thinking behind the pre-audit of expenditures was that a careful review before cheques were issued would reduce the risk of theft and fraud.
Although Canada's Parliament had relieved the federal Auditor General of pre-audit work in 1931, it wasn't until 1971 that Ontario took the same step. The Committee on Government Productivity recommended, among other things, that pre-audit duties be shifted from the Provincial Auditor to the individual government departments. The new system made government managers responsible for overseeing the processing of revenues and expenditures, allowing the Provincial Auditor to focus on assessing financial-system procedures and controls rather than on verifying individual transactions. As a newspaper of the day observed, this new system represented "a change from government over the pork barrel at the corner store to government as giant corporation."
The change to post-audit also resulted in a stronger relationship between the Provincial Auditor and the Legislature's Public Accounts Committee, which recognized that the Provincial Auditor was its most important resource. As the new post-audit work proceeded, the Auditor took on more of an advisory role, answering the Committee's questions and delivering full reports based on the post-audit of government account payments. The Committee itself began to meet more frequently and assume a more influential role.
The move to post-audit work brought changes in the make-up of the Office's staff. In the pre-audit days, many employees were clerks hired to perform the routine checking of proposed expenditures. They lacked the training and experience needed to assess financial accounting systems. Most of them were eventually transferred elsewhere in the public service and new staff with the appropriate skills were hired. A news article of the day observed that "bright young accountants who have avoided the place for years are rushing to get jobs."
In the 1970s, the Auditor's Annual Report began its transformation from a dry verification of accounts to a serious examination and reporting of questionable government spending practices, which was of greater interest to a much wider audience of legislators and citizens. This was supported by the next major development in the Office's evolution: value-for-money auditing.
Bill Groom was appointed Provincial Auditor in 1973. Though his time in the post was short—tragically, he and his wife were killed in a car accident just months after his appointment—he had a major impact on the Office's work. Groom is credited with transforming the Auditor's Annual Report into an assessment of questionable spending practices. He also established the Conference of Canadian Legislative Auditors. This gathering of Auditors General from across Canada (since renamed the Canadian Council of Legislative Auditors) continues to meet every year to form working relationships and discuss common issues.
In 1974, Norman Scott was appointed Provincial Auditor in 1974. . Under Mr. Scott, pre-auditing was completely phased out, and it became the responsibility of the Treasurer rather than the Auditor to prepare the Public Accounts.
In 1978, further amendments to the Audit Act marked a radical shift in the work of the Provincial Auditor. For the first time, the Office was given a clear mandate to conduct value-for-money audits. Up to this time, the Provincial Auditor's work had focused on verifying that money spent was accounted for correctly and that adequate accounting procedures and controls existed. Value-for-money auditing assesses whether government programs are being well managed and whether they provide good value for the money spent on them. The new mandate gave the Auditor much greater scope to look beyond the numbers—but only within the government and its ministries. It would be decades before the Auditor could cast his watchful eye over other institutions receiving government funding.
The new amendments also meant more independence for the Provincial Auditor. Previously, Office staff had been appointed by the Lieutenant Governor in Council, and the Auditor was required to submit the Office budget to the Management Board of Cabinet. Under the new Act, the Office was to secure both staff and financial resources through the Board of Internal Economy, an all-party legislative committee operating independently of the government's administrative processes. As well, the Provincial Auditor was now to report to the Legislature through the Speaker of the House rather than through the government or its ministers.
The 1980s saw the rise of the Provincial Auditor as a public figure. Doug Archer, appointed Provincial Auditor in 1982, recognized that greater media coverage of the Office's work would help better inform legislators and the public. This, he believed, would lead to greater accountability in government spending and better delivery of services. Encouraged by the Public Accounts Committee, Mr. Archer held the Office's first-ever news conference when he released his 1984 Annual Report. The media welcomed this new openness, and news coverage of the Annual Report increased substantially.
The rise in the Auditor's public profile fell into step with the coming of age of value-for-money auditing. The 1980s saw growing public demand that governments deliver the maximum benefit possible for taxpayer money. It was only natural that the Auditor play a more prominent role in meeting this demand.
Concerns about accounting practices and their effect on the deficit had been raised in the late 1980s and early 1990s. In his 1991 Annual Report, the Auditor said that existing practices could be "viewed as an attempt to 'manage' operating results." At the urging of Erik Peters, who became Provincial Auditor in 1993, the province made significant changes that led to more rigorous accounting practices through the 1990s. These included moving from a cash basis of accounting (where income is recorded when it is received and expenses recorded when they are paid) to accrual accounting (where income is reported when it is earned and expenses accounted for when they are incurred).
Mr. Peters also added a valuable new feature to his value-for-money audit reports: recommendations. In addition to details about its findings, each audit report now recommended specific actions that ministries could take to address problems. The logical next step in encouraging action and accountability was to follow up later to verify what steps had (or had not) been taken in response to the Auditor's recommendations. The 1995 Annual Report included, for the first time, a chapter containing follow-ups on audit reports of two years earlier. Now auditees knew that the Auditor would be checking back with them and reporting on how well they responded to recommendations. Recommendations and follow-ups continue to be part of the Auditor's annual reports today.
The first decade of the new millennium ushered in some spectacular accounting-related scandals and bankruptcies in the private sector that reverberated through the world of auditing. These controversies sparked calls for major reforms to audit practices, including ways to better ensure the independence and objectivity of auditors and audit committees. Although the new accounting and auditing standards arising from these debacles were largely directed toward the private sector, they reinforced how important it was for the Office of the Provincial Auditor to maintain the highest standards of practice.
Beginning in 1990, the Office sought changes to the Audit Act to help it better serve the Legislature. It proposed expanding the value-for-money audit mandate to include institutions in the broader public sector—colleges and universities, hospitals, school boards and so on—that together account for more than half of total annual provincial expenditures. In November 2004, the Legislature unanimously approved this and other amendments to the Act, also changing the job title from "Provincial Auditor" to "Auditor General." Shortly after, the Legislature appointed Jim McCarter as the province's first Auditor General under the new Auditor General Act.
Two more statutes, also enacted in 2004, further expanded the work of the Office. The Government Advertising Act, 2004 requires that before it publishes or broadcasts most kinds of advertisements, the government submits them to the Auditor General for review and approval to ensure they are non-partisan and conform to the standards of the Act. (Please see the Government Advertising Review page here.) The Fiscal Transparency and Accountability Act, 2004 requires that, in an election year, the Ministry of Finance release a pre-election report on Ontario's expected financial performance over the next three years. The Auditor General must then review the government's published figures and report on whether the forecasts are reasonable. The first Auditor's report on the government's pre-election report was issued in 2007 and the second in 2011.
Of all the changes implemented since 2003, the expansion of the value-for-money audit mandate has had the greatest impact on Office operations. On receiving this authority, the Office moved aggressively to conduct value-for-money audits within the broader public sector, auditing school boards, hospitals, universities and colleges, social service agencies and Crown-controlled corporations. In fact, close to half of all the Office's value-for-money audits over the past five years have focused on these organizations.
Not surprisingly, the Office has grown significantly since the 19th-century days of Charles Sproule, his two employees and his budget of less than $5,000. As of 2013, staff numbers about 100 and the annual budget is just over $16 million.
The Office's enabling legislation has long allowed for the performance of special audits when requested by the Legislature, the Standing Committee on Public Accounts or a Cabinet Minister. These types of investigations were infrequent in the past, but they have become much more common in the past few years.
Some of these special audits have been requested by the Premier or a Cabinet Ministers, while others were requested by the Public Accounts Committee. These special reports offer an independent perspective on what are often high-profile issues, such as the creation of an electronic-health-records system, or year-end grants by a ministry. The attention that legislators, the media and the public pay to the Auditor General's annual and special reports clearly demonstrates that Ontarians view the Office as an objective, professional and non-partisan voice in the pursuit of enhanced government accountability.